Testbank

FINANCIAL ACCOUNTING AND REPORTING (VALIX/SIY/VALIX/ESCALA/SANTOS/DELA
CRUZ)
ACCOUNTING PROCESS
1. Which is a logical order in the accounting cycle?
a. Posting, financial statements and unadjusted trial balance
b. Financial statements, closing entries and reversing entries
c. Financial statements, adjusting entries and recording
d. Closing entries, reversing entries and adjusting entries
2. The double entry accounting system means

a. Each transaction is recorded with two journal entries.
b. Each item is recorded in a journal entry and then in a general ledger.
c. The dual effect of each transaction is recorded with a debit and a credit.
d. All of these are choices regarding double entry system.
3. In recording transactions
a. The word "debit" means increase and the word "credit" means decrease
b. Assets, expenses and retained earnings are debited for increases
c. Liabilities, revenue and share capital are credited for increases
d. Assets, revenue and share capital are debited for decreases
4. The normal balance of an account is on the

a. Debit side
b. Credit side
c. Side represented by the increase in the account balance
d. Side represented by the decrease in the account balance
5. Which is not a possible combination of a journal entry?

a. Increase in asset and increase in liability
b. Decrease in equity and increase in liability
c. Decrease liability and decrease in asset
d. Increase in asset and decrease in equity
6. A simple journal entry

a. Consists of one debit and one credit
b. Consists of two debits and one credit
c. Consists of one debit and two credits
d. Contains more than two accounts
7. Posting
a. Accumulates the effects of ledger entries and transfers them to the general
journal.
b. Is done only for income statement activity related to the statement of financial
position does not require posting.
c. Is done every year.
d. Transfers journal entries to the ledger accounts.
8. A trial balance may prove that debits and credits are equal, except
a. An amount could be entered in the wrong account.
b. A transaction could have been entered twice.
c. A transaction could have been omitted.
d. All of these may prove that debits and credits are equal.
9. Which of the following is not correct about an unadjusted trial balance?

a. It proves that debits and credits of equal amounts are in the ledger.
b. It is the basis for any adjustments to the account balances.
c. It supplies a listing of open accounts and their balances.
d. It proves that debits and credits were properly entered in the ledger
accounts.
10. Adjusting entries effect
a. One nominal account and one real account
b. Two nominal accounts
c. Two real nominal accounts
d. No particular combination of nominal and real accounts
11. Adjusting entries

a. Are often prepared after the statement of financial position date, but dated as of
the statement of financial position date.
b. Are necessary to enable the financial statements to conform with IFRS.
c. Include both accruals and deferrals.
d. All of the choices are correct regarding adjusting entries.
12. An adjusting entry should never include

a. A debit to revenue and a credit to liability
b. A debit to expense and a credit to liability
c. A debit to liability and a credit to asset
d. A debit to asset and a credit to revenue
13. The adjusting entry for depreciation has the same effect as the adjusting entry for
a. An unearned revenue
b. A prepaid expense
c. An accrued revenue
d. An accrued expense
14. If an expense has been incurred but not yet recorded, the adjusting entry would involve
a. A liability and an asset
b. A liability and a revenue
c. An expense and an asset
d. An asset and a revenue
15. Which statement is not true about accrual and deferral?

a. An accrued expense is an amount not paid and currently matched with earnings.
b. A prepaid expense is an amount paid and not currently matched with earnings.
c. An accrued income is an amount not collected and currently matched with
expenses.
d. A deferred income is an amount collected and currently matched with
expenses.
16. Closing entries

a. Are optional in the accounting cycle
b. Affect only real accounts
c. Determine the amount of net income or net loss for the period
d. Reduce the balances of temporary accounts to zero
17. Which closing procedure is unique to a corporation?

a. Close each revenue account to the income summary account
b. Close each expense account to the income summary account
c. Close the income summary account to retained earnings
d. Close the drawing account to the capital account
18. The post – closing trial balance

a. Provides a convenient listing of balances that can be used to prepare financial
statements.
b. Does not include nominal accounts
c. Is identical to the statement of financial position
d. Proves that accounts have been closed properly
19. Adjusting entries that should be reversed include
a. All accrued revenue
b. All accrued expenses
c. Those that debit an asset or credit a liability
d. All of these adjusting entries require reversal.
20. Reversing entries apply to

a. All adjusting entries
b. All deferrals
c. All accruals
d. All closing entries
21. An entity is a resort located in Palawan. The entity collects cash when guests make a
reservation. During December 2019, the entity collected P600,000 of cash and recorded the
receipt by recognizing unearned revenue. The entity had earned one – third of this amount
and the other two – thirds will be earned during January 2020. What is the impact of the
adjusting entry on December 31, 2019?
a. 400,000 increase in equity
b. 200,000 decrease in liability
c. 600,000 increase in asset
d. 200,000 decrease in equity
22. An entity is a resort located in Boracay. During December 2019, PICPA held an annual
conference at the resort. The charges related to the conference totaled P4,000,00, of which
25% had been paid. The entity failed to make the appropriate adjusting entry on December
31, 2019 for the uncollected balance. Which of the following statements is true?
a. Equity is overstated by P3,000,000
b. Equity is understated by P1,000,000
c. Assets are understated by P3,000,000
d. Assets are overstated by P1,000,000
23. During the first year of operations, an entity recorded all purchases of supplies as assets.
Store supplies in the amount of P2,000,000 were purchased. Actual year – end store
supplies unused amounted to P500,000. What is the impact of the adjusting entry on store
supplies?
a. Increase in net income P1,500,000
b. Increase in expenses P1,500,000
c. Decrease in assets P500,000
d. Decrease in expenses P500,000
24. An entity reported supplies unused at the beginning of the year with a balance of P400,000
before the reversing entry. Payments for supplies during the year amounted to P2,500,000
and were recorded as expense. A physical count at the end of the year revealed supplies
unused costing P500,000. Reversing entries are made by the entity. What is the adjusting
entry at year – end?
a. Debit supplies unused and credit supplies expense P100,000
b. Debit supplies expense and credit supplies unused P100,000
c. Debit supplies expense and credit supplies unused P2,400,000
d. Debit supplies unused and credit supplies expense P500,000
25. An entity reported wages expense of P3,500,000 for 2019. The wages payable at the
beginning of year amounted to P500,000. Wage payments during the year totaled
P3,200,000. The previous year’s adjusting entry for unpaid wages was reversed on January
1, 2020. What is the adjusting entry for accrued wages on December 31, 2019?
a. Debit wages expense and credit wages payable P500,000
b. Debit wages expense and credit wages payable P300,000
c. Debit wages expense and credit wages payable P800,000
d. Debit wages payable and credit wages expense P500,000
REVISED CONCEPTUAL FRAMEWORK
1. Which statement is true about the Conceptual Framework for Financial Reporting?
a. The Conceptual Framework is not a Standard.
b. The Conceptual Framework describes the objective of financial reporting and he
concepts for general purpose financial statements.
c. In cases of conflict, the requirements of the relevant IFRS prevail over those of
the Conceptual Framework.
d. All of these statements are true about the Conceptual Framework.
2. The Revised Conceptual Framework Comprises how many chapters?

a. Five
b. Six
c. Seven
d. Eight
3. Which is not a purpose of the Revised Conceptual Framework?

a. To assist the IASB to develop IFRS based on consistent concepts.
b. To assist preparers to develop consistent accounting policy when no standard
applies to a particular transaction or when Standard allows a choice of
accounting policy.
c. To assist all parties to understand and interpret the Standards.
d. To assist regulatory agencies in issuing rules and regulations for a
particular industry.
4. What provides “the why” or the goal and purpose of accounting?

a. Measurement and recognition concept
b. Qualitative characteristic of accounting information
c. Element of financial statements
d. Objective of financial reporting
5. The objective of financial reporting in the Conceptual Framework

a. Is the foundation for the Conceptual Framework.
b. Includes the qualitative characteristics that make accounting information useful.
c. Is not found in the Conceptual Framework.
d. All of the choices are correct regarding the objective of financial reporting.
6. The overall objective of financial reporting is to provide information

a. That is useful for decision making
b. About asset, liability and equity
c. About financial performance
d. That allows owners to assess management performance
7. Which statement is not a specific objective of financial reporting?

a. To provide information that is useful in investment and credit decisions.
b. To provide information about entity resources, claims against those resources
and changes in those resources.
c. To provide information on the liquidation value of an entity.
d. To provide information that is useful in assessing cash flow prospects.
8. The assumption that an entity will not be sold or liquidated in the near future is known as
a. Economic entity assumption
b. Monetary unit assumption
c. Time period assumption
d. Going concern assumption
9. Which statement is an implication of the going concern assumption?
a. The historical cost principle is credible
b. Depreciation and amortization policies are justifiable and appropriate.
c. The current – noncurrent classification of assets and liabilities is justifiable and
significant.
d. All of these imply the going concern assumption.
10. The economic entity assumption

a. Is inapplicable to unincorporated businesses
b. Recognizes the legal aspects of business organizations
c. Requires periodic income measurement
d. Is applicable to all forms of business organizations
11. Consolidated financial statements are prepared when a parent – subsidiary relationship
exists.
b. Legal entity assumption
c. Consolidation standard
d. Neutrality
12. During the lifetime of an entity, accountants produce financial statements at arbitrary or
artificial points in time in accordance with which basic accounting concept?
a. Objectivity
b. Time period assumption
c. Materiality
d. Economic Entity
13. Inflation is ignored in accounting due to

b. Going concern assumption
c. Monetary unit assumption
d. Periodicity assumption
14. In the Conceptual Framework, qualitative characteristics

a. Are considered either fundamental or enhancing
b. Contribute to the decision – usefulness of financial reporting information
c. Distinguish better information from inferior information for decision – making
purposes.
d. All of the choices are correct.
15. Fundamental qualitative characteristics of accounting information are

a. Relevance and comparability
b. Comparability and consistency
c. Faithful representation and relevance
d. Neutrality and verifiability
16. Enhancing qualitative characteristics of accounting information include

a. Relevance, faithful representation and materiality
b. Comparability, understandability, timeliness and verifiability
c. Faithful representation and timeliness
d. Materiality and understandability
17. When there is agreement between a measure or description and the phenomenon it
purports to represent the information possesses which characteristic?
a. Faithful representation
b. Completeness
c. Neutrality
d. Free from error
18. The quality of faithful representation includes

a. Predictive value and confirmation value
b. Completeness, free from error and neutrality
c. Comparability and understandability
d. Timeliness and verifiability
19. Which is the best description of faithful representation?

a. Influence on the economic decision of users
b. Inclusion of a degree of caution
c. Freedom from material error and bias
d. Comprehensibility to users
20. The financial information is directed toward the common needs of users and is independent
of presumptions about particular needs and desires of specific users.
a. Comparability
b. Verifiability
c. Neutrality
d. Completeness
21. Neutrality is supported by the exercise of prudence. Prudence is the exercise of care and
caution when dealing with uncertainties in the measurement process such that
a. Assets and income are overstated
b. Liabilities and expenses are understated
c. Assets and income are not overstated and liabilities and expenses are not
understated.
d. Assets, liabilities, income and expenses are not overstated.
22. What is the underlying concept governing GAAP in recording gain contingency?
a. Conservatism
b. Understandability
c. Completeness
d. Free from error
23. The qualitative characteristic of relevance includes

a. Predictive value and confirmatory value
b. Completeness and neutrality
c. Comparability and understandability
d. Verifiability and timeliness
24. Accounting information is considered relevant when it

a. Can be depended on to represent the economic conditions that it is intended to
represent
b. Is capable of making a difference in a decision
c. Is understandable by reasonably informed users of accounting information
d. Is verifiable and neutral
25. Which of the following statements about materiality is not correct?

a. An item must make a difference or it need not be disclosed.
b. Materiality is a matter of absolute size.
c. An item is material if omitting, misstating or obscuring it could reasonably be
expected to influence the economic decision of primary users.
d. Materiality is a subquality of relevance.
26. What is meant by comparability when discussing financial accounting information?

a. Information has predictive and feedback value.
b. Information is reasonably free from error.
c. Information is measured and reported in a similar fashion across entities.
d. Information is timely.
27. What is meant by consistency when discussing financial accounting information?

a. Information is measure and reported in a similar fashion across points in
time.
b. Information is timely.
c. Information is measured similarly across the industry.
d. Information is verifiable.
28. The enhancing quality of understandability means the information should be understood by
a. Experts in the interpretation of financial statements
b. Users with reasonable understanding of business and economic activities
c. Financial analysts
d. CPAs
29. According to the Revised Conceptual Framework, verifiability implies

a. Legal evidence
b. Logic
c. Consensus
d. Legal verdict
30. Which concept holds that financial statements shall be based on arm’s length transactions
to the maximum extent possible?
a. Verifiability
b. Completeness
c. Free from error
d. Neutrality
31. When an entity has started placing its quarterly financial statements on its website, thereby
reducing ample time to get information to users, the qualitative concept involved is
a. Comparability
b. Understandability
c. Verifiability
d. Timeliness
32. The Conceptual Framework includes which constraint?

a. Prudence
b. Conservatism
c. Cost
d. All of the choices are constraints in the conceptual framework
33. Which of the following best describes the cost-benefit constraint?

a. The benefit of the information must be greater than the cost of providing it.
b. Financial information should be free from cost to users of the information. Involves
cost
c. Cost of providing financial information is not always evident or measurable but
must be considered.
d. All of the choices are correct.
34. Which statement is true about a reporting entity?

a. A reporting entity is an entity that is required or chooses to prepare financial
statements.
b. A reporting entity can be a single entity or a portion of that entity or can comprise
more than one entity.
c. A reporting is not necessarily a legal entity.
d. All of these statements are true about a reporting entity.
35. Which statement is true about financial statements of a reporting entity?
a. If the reporting comprises both the parent and its subsidiaries, the financial
statements are referred to as consolidated financial statements.
b. If the reporting entity is the parent alone, the financial statements are referred to
as unconsolidated financial statements.
c. If the reporting entity comprises two or more entities that are not linked by a
parent-subsidiary relationship, the financial statements are referred to as
combined financial statements.
d. All of these statements are true about the financial statements of a reporting
entity.
36. What is the new definition of an asset under the Revised Conceptual Framework?
a. A resource controlled by the entity as a result of past event and from which future
economic benefit is expected to flow to the entity.
b. A resource controlled by the entity and from which future economic benefit is
expected to flow to the entity.
c. A present economic resource controlled by the entity as a result of past
event.
d. A present economic resource controlled by the entity as a result of past event and
from which future economic benefit is expected to flow to entity.
37. Which is not within the definition of an asset under the Revised Conceptual Framework?
a. An asset is a present economic resource.
b. The economic resource is a right that has the potential to produce economic
benefits.
c. The economic resource is controlled by the entity as a result of past event.
d. Future economic benefit is expected to flow to entity.
38. What is the new definition of liability under the Revised Conceptual Framework?
a. A present obligation of the entity arising from past event the settlement of which is
expected to result in an inflow of economic benefit.
b. A present obligation of the entity arising from present event.
c. A present obligation of the entity to transfer an economic resource as a
result of past event.
d. An obligation that the entity has practical ability to avoid.
39. Under the Revised Conceptual Framework, which of the following criteria need not be
satisfied for a liability to exist?
a. The entity has an obligation.
b. The obligation is to transfer an economic resource.
c. The obligation is a present obligation that exists as a result of a past event.
d. The settlement of the obligation is expected to result in an outflow of
economic benefit.
40. Which statement is not true about income and expenses?

a. Income is increase in asset or decrease in liability that results increase in equity
other than that relating to contribution from equity holders.
b. Expense is decrease in asset or increase in liability that results in decrease in
equity other than that relating to distribution to equity holders.
c. Income and expenses are the elements that relate to financial position.
d. Income encompasses revenue and gain.
41. It is the process of capturing for inclusion in the statement of financial position or the
statement of financial performance an item that meets the definition of an element of the
financial statements.
a. Recognition
b. Measurement
c. Derecognition
d. Disclosure
42. Under the Revised Conceptual Framework, what is the recognition principle?
a. It is probable that any future economic benefit associated with the item will flow to
or from the entity.
b. The item has a cost or value that can be measured with reliability.
c. It is probable that any future economic benefit will flow to or from the entity and
the element can be measured reliably.
d. Only items that meet the definition of an asset, liability, equity, income and
expense are recognized.
43. Which statement is not true about derecognition?

a. Derecognition is the removal of a recognized asset or liability from the statement
of financial position.
b. Derecognition is the removal of a recognized income or expense from the
income statement.
c. Derecognition for an asset normally occurs when the entity loses control of the
recognized asset.
d. Derecognition for a liability normally occurs when the entity no longer has a
present obligation for the recognized liability.
44. Under the Revised Conceptual Framework, the measurement bases include
a. Historical cost
b. Current value
c. Assessed value
d. Historical cost and current value
45. Current value includes

a. Fair value
b. Value in use
c. Fulfillment value
d. Fair value, value in use, fulfillment value and current cost
46. Which statement is true about current value measurement?

a. Fair value of an asset is the price that would be received to sell an asset in an
orderly transaction between market participants at the measurement date.
b. Value in use is the present value of the cash flows expected to be derived from
the use and ultimate disposal of an asset.
c. Fulfillment value is the present value of the cash expected to be transferred for
the payment of liability.
d. All of these statements are true about current value measurement.
47. The term “revenue recognition” conventionally refers to

a. The process of identifying transactions to be recorded as revenue in an
accounting period.
b. The process of measuring and relating revenue and expenses of an entity for an
accounting period.
c. The earning process which gives rise to revenue realization.
d. The process of identifying those transactions that result in an inflow of assets from
customers.
48. Which of the following is not an acceptable basis for the recognition of expense?
a. Systematic and rational allocation
b. Cause and effect association
c. Immediate recognition
d. Cash disbursement
49. Which capital maintenance concept is applied to net income and other comprehensive
income?
a. Financial capital
b. Physical capital
c. Financial capital for net income and physical capital for other comprehensive
income
d. Physical capital for net income and financial capital for other comprehensive
income
50. Financial capital is defined as the

a. Net assets or equity of an entity in monetary terms.
b. Net assets or equity of an entity in terms of physical productive capacity
c. Legal capital
d. Share capital issued and outstanding.
CASH AND CASH EQUIVALENTS

1. An entity provided the following data on December 31, 2019:
Checkbook balance P5,000,000
Bank statement balance 4,000,000
Check drawn on entity’s account, payable to supplier,
dated and recorded on December 31, 2019 but not
mailed until January 31, 2020 1,000,000
Cash in sinking fund 1,500,000
Treasury bills, purchased November 1, 2019 and
maturing January 31, 2020 2,500,000
Time deposit, purchased October 1, 2019 and
maturing January 31, 2020 2,000,000
What amount should be reported as cash and cash equivalents on December 31, 2019?
a. P8,000,000
b. P8,500,000
c. P7,500,000
d. P6,000,000
2. An entity had the following cash balances on December 31, 2019:

Cash in bank P5,000,000
Petty cash fund, all funds were reimbursed on December 31, 2019 50,000
Money market placement or commercial papers 1,500,000
Saving deposit 800,000
Cash in bank included P500,000 of compensating balance against short – term borrowing
arrangement on December 31, 2019. The compensating balance is legally restricted as to
withdrawal. A check of P1,000,000 dated January 31, 2020 in payment of accounts payable
was recorded and mailed on December 31, 2019.
What amount should be reported as cash and cash equivalents on December 31, 2019?
a. P6,350,000
b. P7,850,000
c. P6,850,000
d. P5,550,000
3. An entity had the following account balances on December 31, 2019:

Cash on hand, including a customer check P100,000
dated January 31, 2020 P500,000
Cash in bank – current account 4,000,000
Cash in bank – payroll account 1,000,000
Cash in bank – restricted account for plant addition expected
to be disbursed in 2020 500,000
Cash in sinking fund set aside for bond payable
due December 31, 2020 1,500,000
Three – month time deposit 2,000,000
Traveler’s check 200,000
Manager’s check 300,000
Money order 100,000
What total amount should be reported as cash under current assets?

a. P7,500,000
b. P9,500,000
c. P7,600,000
d. P6,000,000
What total amount should be reported as cash equivalents?

a. P2,000,000
b. P2,600,000
c. P3,500,000
d. P4,000,000
4. An entity reported an imprest petty cash fund of P50,000 with the following details:
Currencies P500,000
Coins 2,000
Petty cash vouchers:
Gasoline payments for delivery equipment 3,000
Medical supplies for employees 1,000
Repairs of office equipment 1,500
Loans to employee 3,500
A check drawn by the entity payable to the order of the petty
cash custodian representing salary for the month 15,000
An employee’s check returned by the bank for insufficiency of fund 3,000
A sheet of paper with names of several employees together with
contribution for a birthday gift of a co – employee. Attached to the
sheet of paper is a currency of 5,000
What amount of petty cash fund should be reported in the statement of financial position?
a. P42,000
b. P27,000
c. P37,000
d. P22,000
5. An entity kept all cash in a checking account. An examination of the accounting records and
bank statement for the month of June revealed the following information:
 The cash balance per book on June 30 is P8,500,000.
 A deposit of P1,000,000 that was placed in the bank’s night depository on June 30
does not appear on the bank statement.
 The bank statement shows on June 30 that the bank collected note for the entity and
credited the proceeds of P950,000 to the entity’s account, net of collection charge
P100,000.
 Checks outstanding on June 30 amount to P300,000 including certified check
P100,000.
 The entity discovered that a check written in June for P200,000 in payment an account
payable had been recorded in the entity’s records as P20,000.
 Included with the June bank statement was NSF check for P250,000 that the entity had
received from a customer on June 26.
 The bank statement shows P20,000 service charge for June.
What amount should be reported as cash in bank on June 30?
a. P9,000,000
b. P8,300,000
c. P9,360,000
d. P9,180,000
What is the balance per bank statement on June 30?

a. P8,300,000
b. P9,700,000
c. P8,660,000
d. P8,200,000
What is the net adjustment to cash in bank on June 30?

a. Net debit P950,000
b. Net credit P450,000
c. Net debit P500,000
d. Net debit P860,000
ACCOUNTS RECEIVABLE
1. An entity provided the following data for 2019:
Accounts receivable – January 1 P2,000,000
Credit sales 10,000,000
Collection from customers, excluding recovery of
accounts written off 8,000,000
Accounts written off as worthless 100,000
Sales returns 500,000
Recovery of accounts written off 50,000
Estimated future sales returns on December 31 150,000
Estimated uncollectible accounts on December 31 per aging 300,000
What is the “amortized cost” of accounts receivable on December 31, 2019?

a. P3,400,000
b. P3,100,000
c. P2,950,000
d. P2,900,000
2. During the current year, an entity reported beginning allowance for doubtful accounts
P200,000, sales P9,500,000, sales returns and allowances P1,000,000, sales dicsounts
P500,000, accounts written off P300,000 and recovery of accounts written off P50,000. It is
estimated that 5% of net sales may prove uncollectible.
What amount should be reported as doubtful accounts expense?

a. P400,000
b. P425,000
c. P450,000
d. P475,000
What is the ending allowance for doubtful accounts?

a. P350,000
b. P375,000
c. P400,000
d. P300,000
3. On December 31, 2019, an entity reported accounts receivable of P6,000,000 and

allowance for doubtful accounts of P1,000,000 on January 1, 2019.
Net credit sales Writeoffs Recoveries
2016 P9,000,000 P400,000 P30,000
2017 13,000,000 600,000 70,000
2018 15,000,000 700,000 120,000
2019 20,000,000 650,000 150,000
Doubtful accounts are provided for as percentage of net credit sales. The percentage is
computed annually by using the date of the three years prior to the current year.
What amount should be reported as doubtful accounts expense for 2019?

a. P800,000
b. P650,000
c. P500,000
d. P600,000
What is the allowance for doubtful accounts on December 31, 2019?
e. P1,300,000
f. P1,950,000
g. P1,150,000
h. P1,800,000
4. An entity provided the following accounts abstracted from the unadjusted trial balance at
year – end:
Debit Credit
Accounts receivable P5,000,000
Allowance for doubtful accounts 50,000
Net credit sales P20,000,000
The entity estimated that 3% of the gross accounts receivable will become uncollectible.
What amount should be recognized as doubtful accounts expense for the current year?
a. P100,000
b. P150,000
c. P200,000
d. P600,000
5. From inception of operations, an entity provided for doubtful accounts under the allowance
method and provisions were made monthly at 2% of credit sales.
No year – end adjustments to the allowance accounts were made. The balance in the
allowance for doubtful accounts was P1,000,000 on January 1, 2019.
During 2019, credit sales totaled P20,000,000, interim provisions for doubtful accounts
were made at 2% of credit sales, P200,000 of bad debts were written off, and recoveries of
accounts previously written off amounted to P50,000. An aging was made on December 31,
2019.
Classification Balance Uncollectible
November – December P6,000,000 10%
July – October 2,000,000 20%
January – June 1,500,000 30%
Prior to January 1, 2019 500,000 50%
Based on the review of collectability of the account balances in the “prior to January 1,
2019” aging category, additional accounts totaling P100,000 are to be written off on
December 31, 2019. Effective December 31, 2019, the entity adopted aging method for
estimating the allowance for doubtful accounts.
What is the required allowance for doubtful accounts on December 31, 2019?
a. P1,650,000
b. P1,950,000
c. P1,700,000
d. P1,450,000
What amount should be reported as doubtful accounts expense for current year?
a. P1,200,000
b. P1,650,000
c. P900,000
d. P950,000
What is the adjustment to the allowance for doubtful accounts on December 31, 2019?
a. P900,000 debit
b. P900,000 credit
c. P500,000 debit
d. P500,000 credit
What is the net realizable value of accounts receivable on December 31, 2019?
a. P9,000,000
b. P8,250,000
c. P8,350,000
d. P8,200,000
NOTES RECEIVABLE AND LOAN IMPAIRMENT

1. On January 1, 2019, an entity sold equipment with a carrying amount of P4,800,000 in
exchange for P6,000,000 non – interest bearing note due January 1, 2022. There was no
established exchange price for the equipment. The prevailing interest rate for this note was
10%. The present value of 1 at 10% for three periods is 0.75.
What amount should be reported as gain or loss on sale of equipment in 2019?
a. P1,200,000 gain
b. P2,700,000 gain
c. P300,000 gain
d. P300,000 loss
What amount should be reported as interest income for 2019?

a. P600,000
b. P500,000
c. P450,000
d. P400,000
What amount should be reported as interest income for 2019?
a. P480,000
b. P495,000
c. P528,000
d. P500,000
2. On January 1, 2019, an entity sold equipment with carrying amount of P2,000,000 in

exchange for a non – interest bearing note of P5,000,000 requiring ten annual payments of
P500,000. The first payment was made on December 31, 2019. The market interest for
similar note was 12%. The present value of an ordinary annuity of 1 is 5.65 for ten periods
and 5.33 for nine periods.
What is the carrying amount of the note receivable on January 1, 2019?
a. P5,000,000
b. P2,825,000
c. P2,665,000
d. P4,500,000
What amount should be recognized as gain on sale of equipment in 2019?

a. P3,000,000
b. P2,175,000
c. P825,000
d. P0
What amount should be recognized as gain on sale of equipment in 2019?
a. P600,000
b. P339,000
c. P319,800
d. P216,000
What is the carrying amount of the note receivable on December 31, 2019?
a. P2,664,000
b. P4,500,000
c. P3,164,000
d. P2,664,800
3. Solid Bank loaned P7,500,000 to a borrower on January 1, 2019. The terms of the loan
were payment in full on January 1, 2024 plus annual interest payment at 12%.
The interest payment was made as scheduled on January 1, 2020. However, due to
financial setbacks, the borrower was unable to make the 2021 interest payment.
The bank considered the loan impaired and projected the cash flows from the loan on
December 31, 2021.
The bank had accrued the interest on December 31, 2020 but did not continue to accrue
interest for 2021 due to the impairment of the loan.
Date of cash flow Amount projected December 31, 2021
December 31, 2022 P500,000
December 31, 2023 1,000,000
December 31, 2024 2,000,000
December 31, 2025 4,000,000
Present value of 1 at 12%

For one period .89
For two periods .80
For three periods .71
For four periods .64
What is the present value of the cash from the loan receivable on December 31, 2021?
a. P5,225,000
b. P7,500,000
c. P5,376,000
d. P4,800,000
What amount should be recognized as impairment loss for 2021?

a. P2,275,000
b. P3,175,000
c. P5,225,000
d. P2,175,000
What amount should be reported by the bank as interest income for 2022?
a. P627,000
b. P900,000
c. P567,000
d. P0
What is carrying amount of the loan receivable on December 31, 2022?

a. P5,352,000
b. P4,725,000
c. P5,225,000
d. P7,000,000
RECEIVABLE FINANCING
1. On December 1, 2019, an entity assigned on a non – notification basis accounts receivable
of P5,000,000 to a bank in consideration for a loan of 80% of the accounts less a 5%
service fee on the accounts assigned. The entity signed a note for the bank loan.
On December 31, 2019, the entity collected assigned accounts of P2,000,000 less discount
of P200,000. The entity remitted the collections to the bank in partial payment for the loan.
The bank applied first the collection to the interest and the balance to the principal. The
agreed interest is 1% per month on the loan balance.
The entity accepted sales returns of P100,000 on the assigned accounts and wrote off
assigned accounts of P300,000.
What is the balance of accounts receivable assigned on December 31, 2019?
a. P3,000,000
b. P2,600,000
c. P2,400,000
d. P2,900,000
What is the carrying amount of the note payable on December 31, 2019?
a. P2,240,000
b. P2,000,000
c. P4,000,000
d. P2,200,000
What is the equity of the assignor in assigned accounts on December 31, 2019?
a. P2,600,000
b. P2,240,000
c. P360,000
d. P0
2. An entity factored P5,000,000 of accounts receivable. Control was surrendered by the

entity. The transaction met the criteria to be accounted for as a sale but a subject to
recourse for nonpayment. The fair value of the recourse obligation is P100,000. The finance
company assessed a fee of 5% and retained a holdback equal to 10% of the accounts
receivable. In addition, the finance company charged 12% interest computed o a weighted
average time to maturity of the accounts receivable for 30 days?
What amount was initially received from the factoring of accounts receivable?
a. P4,250,000
b. P4,200,000
c. P4,700,658
d. P4,200,685
What total amount should be recognized initially as loss on factoring?
a. P299,315
b. P799,315
c. P250,000
d. P399,315
3. An entity accepted from a customer in settlement of an account a P4,000,000. 90 – day

12% note dated August 31, 2019. On September 30,2019, the entity discounted the note at
15% with recourse at the bank. The note was paid in full by the maker on maturity. The
discounting is accounted for as a conditional sale with recognition of a contingent liability.
What amount was received from the note receivable discounting?
a. P4,017,000
b. P4,120,000
c. P4,103,000
d. P3,965,500
What is the loss on note receivable discounting?

a. P40,000
b. P23,000
c. P17,000
d. P20,000
4. On April 1, 2019, an entity discounted with recourse a 9 – month, 10% note dated January
1, 2019 with face of P6,000,000. The bank discount rate is 12%. The discounting
transaction is accounted for as a conditional sale with recognition of contingent
liability.
On October 1, 2019, the maker dishonored the note receivable. The entity paid the bank
the maturity value if the note plus protest fee of P50,000.
On December 31, 2019, the entity collected the dishonored note in full plus 12% annual
interest on the total amount due.
What amount was received from the note receivable discounting?
a. P6,063,000
b. P6,450,000
c. P6,150,000
d. P5,963,500
What amount should be recognized as loss on note receivable discounting?

a. P450,000
b. P387,000
c. P87,000
d. P63,000
What is the total amount collected from the customer on December 31, 2019?
a. P6,450,000
b. P6,500,000
c. P6,695,000
d. P6,662,500
If the discounting is secured borrowing, what is included in the journal entry to record the
transaction?
a. Debit interest expense P87,000
b. Credit liability for note discounted P6,000,000
c. Credit interest income P150,000
d. All of these are included in the journal entry
GROSS PROFIT, RETAIL METHOD AND BIOLOGICAL ASSET

1. An entity reported the following information for 2019:
Inventory, January 1 P5,000,000
Purchases 36,000,000
Freight in 2,000,000
Purchase returns and allowances 3,500,000
Purchase discounts 1,500,000
Sales 43,000,000
Sales returns 3,000,000
Sales discounts 1,000,000
A physical inventory taken on December 31, 2019 resulted in an ending inventory of

P3,000,000. On December 31, 2019, unsold goods out on consignment with selling price of
P1,000,000 are in the hands of a consignee. The gross profit was 25% on cost. On
December 31, 2019 what is the estimated cost of inventory shortage?
a. P2,000,000
b. P3,000,000
c. P2,200,000
d. P4,250,000
2. On December 31,2019, a fire destroyed most of the merchandise inventory of an entity. All
goods were completely destroyed except for partially damaged goods that normally sell for
P100,000 and that had an estimated net realizable value of P25,000 and undamaged goods
that normally sell for P300,000.
Inventory, January 1, 2019 P600,000
Net purchases for 2019 4,300,000
Net sales for 2019 5,600,000
Total 2018 2017 2016

Net sales P9,000,000 P5,000,000 P3,000,000 P1,000,000
Cost of goods sold 6,750,000 3,840,000 2,200,000 710,000
Gross income 2,250,000 1,160,000 800,000 290,000
What is the estimated amount of fire loss on December 31, 2019?

a. P700,000
b. P675,000
c. P450,000
d. P400,000
3. An entity used the retail method of inventory valuation.

Cost Retail
Beginning inventory P1,400,000 P2,000,000
Net purchases 5,850,000 8,000,000
Net markup 1,500,000
Net markdown 500,000
Net sales 7,500,000
What is the estimated cost of ending inventory using the FIFO approach?
a. P2,275,000
b. P2,375,000
c. P2,310,000
d. P2,205,000
4. An entity used the retail inventory method to approximate the ending inventory. The
following information is available for the current year:
Cost Retail
Beginning inventory P650,000 P1,200,000
Purchases 9,000,000 14,700,000
Freight in 200,000
Purchase returns 300,000 500,000
Purchase allowances 150,000
Departmental transfer in 200,000 300,000
Net markups 300,000
Net markdowns 1,000,000
Sales 9,500,000
Sales discounts 100,000
Employee discounts 500,000
Estimated normal shoplifting losses 600,000
Estimated normal shrinkage 400,000
What is the estimated cost of ending inventory using the conservative approach?
a. P2,400,000
b. P2,460,000
c. P3,060,000
d. P2,700,000
What is the estimated cost of ending inventory using the average cost approach?
a. P2,560,000
b. P2,624,000
c. P3,264,000
d. P2,880,000
5. An entity provided the following data for the current year:

Cost Retail
Beginning inventory P1,650,000 P2,000,000
Net purchases 4,200,000 ?
Net markup 800,000
Net markdown 200,000
Net sales ?
The entity used the average retail inventory method to estimate ending inventory. It was
determined that the average cost of the ending inventory was P1,950,000. If the entity used
the FIFO retail method, the cost ratio would have been 60%.
What was the amount of net purchases at original retail before markup and markdown?
a. P7,600,000
b. P7,000,000
c. P4,200,000
d. P6,400,000
What amount was reported as net sales?

a. P9,000,000
b. P3,000,000
c. P6,000,000
d. P7,000,000
What amount was reported as cost of goods sold?

a. P3,900,000
b. P3,000,000
c. P3,600,000
d. P1,800,000
INVENTORY
1. An entity reported inventory on December 31, 2019 at P6,000,000 based on a physical
count of goods priced at cost and before any necessary year – end adjustments relating to
the following:
 Excluded from the physical count were goods billed to a customer fob shipping point on
December 30, 2019. These goods had a cost of P125,000 and were picked up by the
carrier on January 15, 2020.
 Goods shipped FOB shipping point on December 31, 2019 which are being held for the
customer to call at the customer’s convenience with a cost of P200,000 were included
in the count.
 Goods with invoice cost of P300,000 shipped FOB shipping point on December 31,
2019 from a vendor were received on January 15, 2020.
What amount should be reported as inventory on December 31, 2019?
a. P6,225,000
b. P6,100,000
c. P6,425,000
d. P6,300,000
2. An entity incurred the following costs during the current year:

Cost of purchases based on invoices P5,000,000
Trade discount already deducted from invoices 500,000
Import duties 400,000
Freight and insurance on purchases 600,000
Other handling costs on imports 100,000
Commission paid to agents for arranging imports 200,000
Sales commission paid to sales agents 300,000
Salaries of accounting department 1,000,000
After sales warranty costs 250,000
What is the total cost of purchase?
a. P6,300,000
b. P5,800,000
c. P6,100,000
d. P6,600,000
3. An entity included the following items in inventory at year – end:

Goods out on consignment at sale price,
including 40% markup on cost P1,400,000
Goods purchased in transit, shipped FOB destination 1,200,000
Goods held on consignment by the entity 900,000
At what amount should the inventory at year – end be reduced?

a. P1,460,000
b. P2,260,000
c. P1,300,000
d. P2,500,000
4. On June 1, 2019, an entity sold merchandise with a list price of P5,000,000 to a customer.
The entity allowed trade discounts of 20% and 10%. Credit terms were 5/10, n/30 and the
sale was made FOB shipping point. The entity prepaid P100,000 of delivery cost for the
customer as an accommodation. On June 11, 2019, what is the full remittance from the
customer?
a. P3,600,000
b. P3,420,000
c. P3,700,000
d. P3,520,000
5. On July 1, 2019, an entity recorded purchases of P3,000,000 and P2,000,000 under the
credit terms of 2/15, net 30. The payment on the P3,000,000 purchase was remitted on July
16. The payment on the P2,000,000 purchase was remitted on July 31. What amount of
purchases should be included in the determination of cost of goods available for sale:
Under gross method?

a. P5,000,000
b. P4,900,000
c. P4,940,000
d. P4,960,000
Under net method?

a. P5,000,000
b. P4,900,000
c. P4,940,000
d. P4,960,000
6. An entity reported accounts payable of P4,000,000 on December 31, 2019 before

considering the following data:
 Goods shipped to the entity on December 31, 2019 FOB shipping point were lost in
transit. The invoice cost of P100,000 was not recorded. On January 15, 2020, the
entity filed a P100,000 claim against the common carrier.
 On December 31, 2019, a vendor authorized the entity to return for full credit goods
shipped and billed at P150,000 on December 15, 2019. The returned goods were
shipped by the entity on December 31, 2019. A P150,000 credit memo was received
and recorded by the entity on January 15, 2020.
 On December 31, 2019, the entity had a P500,000 debit balance in accounts payable
to a supplier resulting from an advance payment for goods to be manufactured to the
entity’s specifications.
What amount should be reported as accounts payable on December 31, 2019?
a. P4,350,000
b. P3,950,000
c. P4,500,000
d. P4,450,000
7. An entity had usual sales items of net 60 days, FOB shipping point. Sales, net of returns
and allowances totaled P5,000,000 for 2019 before year – end adjustment.
 Goods with an invoice amount of P200,000 were billed to a customer on January 15,
2020. The goods were shipped on December 31, 2019.
 On January 5, 2020, a customer notified the entity that goods billed and shipped on
December 31, 2019 were lost in transit. The invoice amount was P50,000.
 On December 31, 2019, the entity authorized a customer to return, for full credit goods
shipped and billed at P300,000 on December 15, 2019. The returned goods were
received by the entity on January 15, 2020 and P300,000 credit memo was issued on
the same date.
What amount should be reported as net sales for 2019?
a. P4,700,000
b. P4,900,000
c. P4,850,000
d. P5,200,000
8. On October 1, 2019, an entity sold P100,000 gallons of heating oil at P50 per gallon. Fifty
thousand gallons were delivered on December 15, 2019 and the remaining 50,000 gallons
were delivered on January 15, 2020. Payment terms were 50% due on October 1, 2019,
25% on the first delivery and the remaining 25% due on the second delivery. What amount
of sales revenue should be recognized in 2019?
a. P5,000,000
b. P2,500,000
c. P3,750,000
d. P1,250,000
INVENTORY COST FLOW AND LCNRV

1. An entity provided the following information:
Units Unit cost Total cost
Jan. 1 Beginning balance 10,000 150 P1,500,000
5 Purchase 10,000 180 1,800,000
15 Sale 15,000
16 Sale return 1,000
25 Purchase 4,000 200 800,000
26 Purchase return 2,000 200 400,000
Under FIFO, what amount should be reported as cost of goods sold?

a. P2,220,000
b. P2,620,000
c. P2,500,000
d. P2,900,000
Under weighted average, what amount should be reported as ending inventory?
a. P1,345,440
b. P1,366,640
c. P1,413,360
d. P1,432,000
Under moving average, what amount should be reported as ending inventory?
a. P1,690,000
b. P1,390,000
c. P1,790,000
d. P1,600,000
Under moving average, the next sale of inventory would be priced at what cost?
a. P173.75
b. P179.00
c. P200.00
d. P190.00
2. On December 31, 2019, an entity reported inventory at P3,000,000 cost and P2,900,000
net realizable value. On December 31, 2020, the inventory was P4,000,000 at cost and
P3,700,000 at net realizable value. The entity made net purchases of P9,000,000 during
2020.
What amount should be reported as cost of goods sold for 2020?
a. P8,000,000
b. P8,200,000
c. P8,450,000
d. P8,300,000
3. On December 31, 2019, an entity experienced a decline in the value of inventory resulting
in a writedown from P4,000,000 cost to P3,500,000 net realizable value. The entity used
the allowance method to record the necessary adjustment. In 2020, market conditions have
improved dramatically. On December 31, 2020, the inventory had a cost of P5,000,000 and
net realizable value of P4,800,000. The entity made purchases of P20,000,000 in 2020.
What amount should be recognized as gain on reversal of inventory writedown in 2020?
a. P200,000
b. P300,000
c. P500,000
d. P0
What amount should be reported as cost of goods sold in 2020?

a. P19,000,000
b. P19,300,000
c. P18,700,000
d. P24,000,000
4. An entity reported the following information about inventory:

Cost NRV LCNRV
Category 1:
A P2,500,000 P2,800,000 P2,500,000
B 1,700,000 1,500,000 1,500,000
Category 2:
C 2,000,000 1,600,000 1,600,000
D 1,900,000 1,800,000 1,800,000
What is the inventory measurement under LCNRV individual approach?

a. P7,600,000
b. P8,100,000
c. P7,700,000
d. P7,400,000
What is the inventory measurement under LCNRV total approach?
a. P8,100,000
b. P7,600,000
c. P7,400,000
d. P7,700,000
What is the inventory measurement under LCNRV category approach?

a. P7,400,000
b. P7,700,000
c. P8,100,000
d. P7,600,000
5. On December 1, 2019, an entity entered into a commitment to purchase 100,000 barrels of

aviation fuel for P55 per barrel on March 31, 2020. The entity entered into this purchase
commitment to protect itself against the volatility in the aviation fuel market. By December
31, 2019, the purchase price of aviation fuel had fallen to P50 per barrel. However, by
March 31, 2020, when the entity took delivery of the 100,000 barrels the price of aviation
fuel had risen to P53 per barrel.
What amount should be recognized as loss on purchase commitment in 2019?
a. P500,000
b. P200,000
c. P300,000
d. P0
What amount should be reported as gain on purchase commitment for 2020?

a. P500,000
b. P300,000
c. P800,000
d. P0
What amount should be debited to purchases on March 31, 2020?

a. P5,500,000
b. P5,300,000
c. P5,000,000
d. P4,700,000
6. During the current year, an entity purchased a tract of land for P12,000,000. The entity
incurred additional cost of P3,000,000 in preparing the land for sale. Of the tract of the land,
70% was subdivided into residential lots and 30% was for road and a park. The tract of land
was subdivided into residential lots as 100 Class A lots with sale price of P240,000 per lot.
100 Class B lots with sale price of P160,000 per lot, and 200 Class C lots with sale price of
P100,000 per lot. What amount of the costs should be allocated to Class A lots?
a. P3,000,000
b. P3,750,000
c. P6,000,000
d. P4,200,000
BIOLOGICAL ASSET
1. An entity produces milk for local ice cream producers. The entity began operations at the
beginning of current year by purchasing milking cows for P5,000,000. The entity provided
the following information at year – end relating to the milking cows:
Carrying amount – beginning of year P5,000,000
Increase in fair value due to growth and price change 2,000,000
Decrease in fair value due to harvest 250,000
Newborn calf at year – end at fair value 400,000
Milk harvested during the year but not yet sold 850,000
What amount of gain on biological asset should be reported in the current year?
a. P2,400,000
b. P2,150,000
c. P3,000,000
d. P3,250,000
What amount of gain on agricultural produce should be recognized in the current year?
a. P1,250,000
b. P1,000,000
c. P850,000
d. P0
What is the carrying amount of the biological asset at year – end?
a. P8,000,000
b. P8,250,000
c. P7,150,000
d. P7,600,000
2. An entity provided the following assets in a forest plantation:

Freestanding trees P5,000,000
Land under trees 600,000
Road in forests 300,000
Animals related to recreational activities 1,000,000
Bearer plants 1,500,000
Bearer animals 2,000,000
Agricultural produce growing on bearer plants 800,000
Agricultural produce harvested 1,200,000
What total amount should be classified as biological assets?

a. P7,800,000
b. P7,000,000
c. P7,500,000
d. P8,500,000
What total amount should be included in property, plant and equipment?
a. P5,400,000
b. P3,400,000
c. P2,900,000
d. P1,900,000
INVESTMENTS
1. An entity provided the following information on December 31, 2019:
Trading Nontrading
Aggregate cost P3,600,000 P5,500,000
Aggregate fair value 3,200,000 4,500,000
Aggregate lower of cost or market applied individually 3,040,000 4,200,000
The costs of disposal are estimated at P100,000 for trading securities and P150,000 for
nontrading securities. The nontrading securities are designated as measured at FVOCI.
What total amount should be reported as unrealized loss in the 2019 income statement?
a. P900,000
b. P560,000
c. P400,000
d. P500,000
2. On January 1, 2019, an entity purchased equity investments held for trading.

Purchase price Transaction cost Market – 12/31/2019
Securities A P1,000,000 P100,000 P1,200,000
Securities B 2,000,000 200,000 1,500,000
Securities C 3,000,000 300,000 3,100,000
On July 1, 2020, the entity sold Security A for P1,900,000.

What amount of unrealized loss should be recognized in the 2019 income statement?
a. P200,000
b. P800,000
c. P400,000
d. P0
What amount should be reported as gain on sale of trading securities in the 2020 income
statement?
a. P900,000
b. P700,000
c. P600,000
d. P800,000
3. On January 1, 2019, an entity purchased nontrading equity investments which are

irrevocably designated at FVOCI:
Purchase price Transaction cost Market – 12/31/2019
Securities A P1,000,000 P100,000 P1,500,000
Securities B 2,000,000 200,000 3,000,000
Securities C 4,000,000 400,000 4,700,000
What amount should be reported as unrealized gain or loss in 2019 as component of

other comprehensive income?
a. P2,200,000 gain
b. P2,200,000 loss
c. P1,500,000 gain
d. P1,500,000 loss
What is the net adjustment to retained earnings as a result of the sale of investment in
2020?
a. P500,000 credit
b. P500,000 debit
c. P800,000 credit
d. P0
4. An entity received dividends from ordinary share investments during the current year:
 A share dividend of 10,000 shares from A Company when the market price of the share
was P10.
 A cash dividend of P1,500,000 from B Company in which the entity owned a 15%
interest.
 5,000 shares of C Company in lieu of cash dividend of P20 per share. The market price
of the share was P150. The entity had 50,000 shares of C Company and owned 5%
interest in C Company.
What amount of dividend revenue should be reported for the current year?
a. P2,500,000
b. P2,250,000
c. P1,500,000
d. P2,350,000
5. An entity provided the following data pertaining to equity investments for the current year:
 On October 1, the entity received P600,000 liquidating dividend from A Company. The
entity owned a 10% interest in A Company.
 The entity owned a 20% interest in B Company which declared and paid a P4,000,000
cash dividend to shareholders on December 31.
 On December 1, the entity received from C Company a dividend in kind of one share of
D Company for every 4 C Company shares held. The entity had 100,000 C Company
shares which have a market price of P50 per share on December 1. The market price
of D Company share was P10.
What amount should be reported as dividend income for the current year?
a. P1,650,000
b. P1,050,000
c. P850,000
d. P250,000
6. An entity owned 50,000 shares of another entity. These 50,000 shares were originally
purchased for P100 per share. The investee distributed 50,000 rights to the entity. The
entity was entitled to buy one new share for P140 and five of these rights. Each share had a
market value of P150 and each right had market value of P10 on the date of issuance.
The entity exercised all rights. The share rights are accounted for separately and measured
initially at fair value.
What total cost should be recorded for the new shares that are acquired by exercising the
rights?
a. P1,400,000
b. P1,900,000
c. P1,650,000
d. P1,000,000
7. An entity issued rights to subscribe to its share capital, the ownership of 4 shares entitling
the shareholders to subscribe for 1 share at P100. An investor owned 50,000 shares with
total cost of P5,000,000. The share is quoted right – on at 125. The share rights are
accounted for separately and measured initially at fair value.
What is the cost of the new investment assuming all of the share rights are exercised by the
investor?
a. P1,500,000
b. P1,250,000
c. P1,562,500
d. P1,450,000
INVESTMENT IN ASSOCIATE
1. On January 1, 2019, an entity purchased 40% of the outstanding ordinary shares of another
entity for P5,000,000 when the net assets of the investee amounted to P10,000,000.
At acquisition date, the carrying amounts of the identifiable assets and liabilities of the
investee were equal to fair value, except for land whose the fair value was P2,000,000
greater than carrying amount and inventory whose fair value was P1,500,000 greater than
cost.
The land was sold in 2019 and one – half of the inventory was sold during 2019.
During 2019, the investee reported net income of P8,000,000, issued 10% share dividend
and paid cash dividend of P2,500,000.
What is the investment income for 2019?
a. P3,200,000
b. P2,100,000
c. P2,500,000
d. P3,300,000
What is the investment income for 2019?
a. P6,500,000
b. P6,100,000
c. P7,200,000
d. P7,300,000
2. On January 1, 2019, an entity acquired 40% of the ordinary shares of an associate. On

such date, assets and liabilities of the investee were recorded at fair value and the
acquisition showed that goodwill of P1,000,000 was acquired. The investee reported net
income of P8,000,000 for 2019.
In December 2019, the investee sold inventory costing P3,000,000 to the investor for
P5,000,000. The inventory remained unsold by the investor on December 31, 2019.
On January 1, 2019, the investee sold an equipment to the investor with carrying amount of
P2,500,000 for P4,000,000. The remaining life of the equipment is 5 years.
What amount of investment income should be reported for 2019?
a. P1,920,000
b. P1,800,000
c. P3,200,000
d. P2,400,000
3. An entity owned 100% of another entity’s preference shares and 20% of ordinary shares.
The investee’s share capital outstanding on December 31, 2019 included P5,000,000 of
10% cumulative preference shares and P10,000,000 of ordinary shares.
The investee reported net income of P8,000,000 for 2019. No dividend was declared for
both preference and ordinary shares in 2019.
What amount should be reported as investment income for 2019?
a. P1,600,000
b. P1,500,000
c. P2,000,000
d. P1,000,000
4. On January 1, 2019, an entity acquired a 10% interest in an investee for P3,000,000. The
investment was accounted for under the cost method. During 2019, the investee reported
net income of P4,000,000 and paid dividend of P1,000,000
On January 1, 2020, the entity acquired a further 15% interest in the investee for
P8,500,000. On such date, the carrying amount of the net assets of the investee was
P36,000,000 and the fair value of the 10% existing interest was P3,500,000. The fair value
of the net assets of the investee is equal to carrying amount except for an equipment whose
fair value was P4,000,000 greater than carrying amount. The equipment had a remaining
life of 5 years.
The investee reported net income of P8,000,000 for 2020 and paid dividend of P6,000,000
on December 31, 2020.
What amount of investment income should be recognized in 2019?
a. P400,000
b. P100,000
c. P500,000
d. P300,000
What total amount of income should be recognized by the investor in 2020?
a. P2,000,000
b. P2,500,000
c. P2,300,000
d. P1,800,000
What is the carrying amount of the investment in associate on December 31, 2020?
a. P12,300,000
b. P12,500,000
c. P13,800,000
d. P12,900,000
5. On January 1, 2019, an entity acquired 30% of the voting share capital of another entity or
P2,000,000 which was equal to the carrying amount of interest acquired. The investee
reported net income of P1,500,000 for 2019 and paid dividend of P500,000 on December
31, 2019.
The investee reported net income of P1,000,000 for the six months ended June 30, 2020
and P2,500,000 for the year ended December 31, 2020 but paid dividend of P1,000,000 on
October 1, 2020.
On July 1, 2020, the investor sold half of the investment for P2,000,000. The fair value of
the retained investment of P2,200,000 on July 1, 2020 and P2,400,000 on December 31,
2020. The retained investment is to be measured at FVPL.
What is the carrying amount of the investment before the disposal on June 30, 2020?
a. P2,600,000
b. P2,300,000
c. P2,450,000
d. P2,750,000
What amount of gain on sale of investment should be reported for 2020?
a. P850,000
b. P700,000
c. P775,000
d. P500,000
What total amount of income should be reported in 2020?
a. P2,250,000
b. P2,500,000
c. P1,950,000
d. P2,050,000
INVESTMENT PROPERTY AND OTHER INVESTMENT

1. A parent and its subsidiaries provided the following properties owned by the group.
Land held for undetermined future use P1,000,000
Vacant building to be leased out under an operating lease 2,000,000
Property held for use in production 4,000,000
Property held by a subsidiary, a real estate firm,
in the ordinary course of business 3,000,000
Building owned by a subsidiary and the subsidiary provides
security and maintenance services to the lessees 2,500,000
Land leased to a subsidiary under an operating lease 1,500,000
Equipment leased to an unrelated party under an operating lease 500,000
Building under construction for use as investment property 3,500,000
In the consolidated statement of financial position of the parent and its subsidiaries,
what total amount should be reported as investment property?
a. P6,500,000
b. P5,500,000
c. P8,000,000
d. P9,000,000
What total amount should be included in property, plant and equipment in the
consolidated statement of financial position of the parent and its subsidiaries?
a. P9,500,000
b. P4,000,000
c. P6,000,000
d. P4,500,000
2. An entity purchased an investment property on January 1, 2019 at a cost of P4,000,000.

The property had a useful life of 20 years and on December 31, 2020 had a fair value of
P4,800,000.
On December 31, 2020, the property was sold for net proceeds of P4,500,000. The entity
used the cost model to account for investment property. What is the gain to be recognized
for 2020 regarding the disposal of the property?
a. P900,000
b. P500,000
c. P800,000
d. P700,000
3. On January 1, 2019, an entity acquired three investment properties.

Fair value Fair value
Initial cost December 31, 2019 December 31, 2020
Property 1 P2,700,000 P3,200,000 P4,000,000
Property 2 3,450,000 3,000,000 2,100,000
Property 3 3,300,000 3,900,000 3,600,00
Each property had estimated useful life of 10 years. The accounting policy is to use the fair
value model for investment property. What is the gain or loss to be recognized for the year
ended December 31, 2020?
a. P900,000 loss
b. P400,000 loss
c. P650,000 gain
d. P300,000 loss
4. On January 1, 2019, an entity adopted a plan to accumulate funds for a new building to be
erected beginning January 1, 2023 at an estimated cost of P20,000,000. The entity intends
to make four equal annual deposits in a fund beginning December 31, 2029 that wll earn
interest at 12% compounded annually. The future value of an ordinary annuity of 1 at 12%
for 4 periods is 4.78, and the future value of an annuity of 1 in advance at 12% for 4 periods
is 5.35.
What is the annual deposit to the fund?
a. P5,000,000
b. P4,184,100
c. P3,738,318
d. P3,149,606
5. An entity purchased P2,000,000 ordinary life policy on its president. The entity is the
beneficiary under the life insurance policy. The entity reported the following data for the
current year:
Cash surrender value, January 1 P50,000
Cash surrender value, December 31 60,000
Annual advance premium paid on January 1 100,000
Dividend received on July 1 5,000
What amount should be reported as life insurance expense for the current year?
a. P100,000
b. P105,000
c. P85,000
d. P90,000
6. An entity purchased a P2,000,000 ordinary life insurance policy for its president and the
entity is the beneficiary. During the current year, dividend of P100,000 was applied to
increase the cash surrender value. The entity provided the following data for the current
year:
Cash surrender value – January 1 P180,000
Cash surrender value – December 31 220,000
a. P90,000
b. P50,000
c. P40,000
d. P60,000
7. An entity insured the life of its president for P2,000,000, the entity being the beneficiary
under the life insurance policy. The entity reported the following data for the current year:
Cash surrender value – January 1 P80,000
Cash surrender value – December 31 100,000
The president died on October 1 and the policy was settled on December 31.
a. P120,000
b. P100,000
c. P100,000
d. P105,000
What amount should be reported as gain on life insurance settlement for the current year?
a. P2,000,000
b. P1,865,000
c. P1,860,000
d. P1,900,000
DERIVATIVES
1. On January 1, 2019, an entity borrowed P5,000,000 from a bank at a variable rate of
interest for 2 years. Interest will be paid annually to the bank on December 31 and the
principal is due on December 31, 2020.
Under the agreement, the market rate of interest every January 1 resets the variable rate
for that period and the amount of interest to be paid on December 31.
In conjunction with the loan, the entity entered into a “receive variable, pay fixed” interest
rate swap agreement with another bank speculator as a cash flow hedge.
The market rates of interest are 10% on January 1, 2019 and 12% on January 1, 2020. The
“underlying” fixed interest rate is 10%. The PV of 1 at 10% for one period is .91 and the PV
of 1 at 12% for one period is .89.
What is the derivative asset or liability on December 31, 2019?
a. P89,000 asset
b. P89,000 liability
c. P91,000 asset
d. P91,000 liability
What amount should be reported as interest expense for 2019?

a. P600,000
b. P500,000
c. P511,000
d. P700,000
2. On January 1, 2019, an entity received a four – year P5,000,000 loan with interest
payments occurring at the end of each year and the principal to be repaid on December 31,
2022. The interest for 2019 is the prevailing market rate of 10% on January 1, 2019, and
the market interest rate every January 1 rests the variable rate of interest for that year.
The “underlying” fixed interest rate is 10%. The PV of 1 at 10% for one period is .91 and the
PV of 1 at 12% for one period is .89. In conjunction with the loan, the entity entered into a
“receive variable, pay fixed” interest rate swap agreement with another bank speculator as
a cash flow hedge. The interest swap payment will be made on December 31 of each
year.
The market rate of interest is 6% on January 1, 2020 and 8% on January 1, 2021. The PV
of an ordinary annuity of 1 at 6% for three periods is 2.67 and the PV of an ordinary annuity
of 1 at 8% for two periods is 1.78.
a. P600,000 asset
c. P534,000 asset
a. P178,000 asset
c. P334,000 asset
What amount of interest expense should be reported for 2020?
a. P500,000
b. P300,000
c. P400,000
d. P156,000
3. An entity operates a chain of seafood restaurants. On July 1, 2019, the entity determined
that it will need to purchase 50,000 kilos of deluxe fish on July 1, 2020. On July 1, 2019, the
entity negotiated a forward contract as a cash flow hedge with a reputable bank to
purchase 50,000 kilos of deluxe fish on July 1, 2020 at a strike price of P50 per kilo or
P2,500,000.
This derivative forward contract provides that if the market price of deluxe fish on July 1,
2019 is more than P50, the difference is paid by the bank to the entity. On the other hand, if
the market price on July 1, 2020 is less that P50, the entity will pay the difference to the
bank.
The market price per kilo of the deluxe fish is P55 on December 31, 2019 and P52 on July
1, 2020.
a. P100,000 asset
c. P250,000 asset
What amount should be recognized as cost of purchases on July 1, 2020?

a. P2,500,000
b. P2,600,000
c. P2,750,000
d. P2,650,000
4. An entity produces colorful 100% cotton shirts and needs 50,000 kilos of raw materials in
the production process. On December 1, 2019, the entity purchased a call option as a cash
flow hedge to buy 50,000 kilos on July 1, 2020. The option strike price is P100 per kilo.
The entity paid P50,000 for the call option.
The derivative option contract means that if the market price is higher than P100, the entity
can exercise the option and but the asset at the strike option price of P100. If the market
price is lower that P100, the entity can throw away the option and buy the asset at the
cheaper price.
The market price per kilo is P110 on December 31, 2019 and P115 on July 1, 2020.
What is the derivative asset on December 31, 2019?
a. P500,000
b. P450,000
c. P750,000
d. P700,000
What is the cost of purchases on July 1, 2020?
a. P5,750,000
b. P5,000,000
c. P5,050,000
d. P5,300,000
Assume the market price is P110 on December 31, 2019 and P90 on July 1, 2020. What
amount should be recognized as loss on call option in 2020?
a. P500,000
b. P450,000
c. P50,000
d. P0
Assume the market price is P110 on December 31, 2019 and P90 on July 1, 2020. What
is the derivative liability on July 1, 2020?
a. P500,000
b. P450,000
c. P50,000
d. P0
PROPERTY, PLANT AND EQUIPMENT

1. An entity had the following property acquisitions during the current year:
 Received land as donation from a major shareholder as an inducement to locate a

plant in the city. No payment was required but the entity paid P50,000 for legal
expenses for land transfer. The land is fairly valued at P1,000,000.
 Acquired land and building in exchange for 30,000 ordinary shares with P100 par value
and quoted price of P150. The land had a fair value of P2,000,000 but the fair value of
the building cannot be reliably measured.
 Purchased warehouse building and the land on which it is located for P6,000,000
including appraiser fee of P200,000. The land had an appraised value P2,000,000 and
the building P3,000,000.
What is the total cost of land?

a. P5,400,000
b. P5,320,000
c. P5,480,000
d. P5,000,000
What is the total cost of land?
a. P5,980,000
b. P6,100,000
c. P5,500,000
d. P4,000,000
2. Athena Company and Anna Company are fuel oil distributors. To facilitate the delivery of oil
to customers, the two entities exchanged ownership of barrels of oil without physically
moving the oil. Athena paid Anna P1,500,000 to compensate for a difference in the grade of
oil. It was reliably determined that the configuration of the cash flows of the asset received
does not differ from the configuration of the cash flows of the asset transferred.
On the date of exchange, the oil inventory of Athena has a carrying amount of P5,000,000
and fair value of P7,000,000. The oil inventory of Anna has a carrying amount of
P6,000,000 and fair value of P8,500,000.
What amount should Athena record as cost of oil inventory received in exchange?
a. P4,500,000
b. P6,500,000
c. P7,000,000
d. P8,500,000
What amount should Anna record as cost of oil inventory received in exchange?
a. P4,500,000
b. P6,500,000
c. P7,000,000
d. P8,500,000
3. An entity owns a tract of land purchased for P2,000,000 and with fair value of P2,800,000
on the date of exchange.
Another entity also owns a tract of land acquired for P3,600,000 and with fair value of
P3,800,000 on the date of exchange.
On the date of exchange, the entity exchanged its land and paid P1,000,000 for the land
owned by the other entity.
The configuration of cash flows from the land acquired is expected to be significantly
different from the configuration of cash flows of the land exchanged.
At what amount should the entity record the land acquired in exchange?
a. P2,800,000
b. P3,000,000
c. P3,200,000
d. P3,800,000
What amount of gain on exchange should be recognized by the entity?
a. P800,000
b. P400,000
c. P200,000
d. P0
4. An entity had the following machinery acquisitions during the current year:
 Acquired a machine with an invoice price of P3,000,000 subject to a cash discount of

10% which was not taken. The entity incurred cost of P50,000 in removing the old
machine prior to the installation of the new one. Machine supplies were acquired at a
cost of P150,000.
 During the early part of current year, the entity purchased a machine for P500,000
down and four monthly installments of P1,250,000. The cash price of the machine was
P4,700,000.
 At the beginning of the current year, the entity purchased a machine for P2,000,000 in
exchange for a non – interest bearing note requiring four payments of P500,000. The
first payment was made at the end of the current year.
The implicit rate of interest for this note at date of issuance was 10%. The present
value of an ordinary annuity of 1 at 10% is 3.17 for four periods. The present value of
an annuity of 1 in advance at 10% is 3.49 for four periods.
 At the beginning of current year, the entity acquired a machine by issuing a four – year,
non – interest bearing note for P2,000,000. The entity has an implicit 10% interest for
this type of note. The present value of 1 at 10% for 4 years is 0.68.
What is the total cost of machinery acquired?
a. P10,505,000
b. P10,345,000
c. P10,045,000
d. P10,645,000
What amount of interest expense should be reported for the current year as a result of
machinery acquisition?
a. P1,094,500
b. P1,110,500
c. P294,500
d. P800,000
5. An entity fabricated equipment for office use during the current year. The following data
were taken from the accounting records:
Materials Direct labor
Finished goods P1,000,000 P1,500,000
Office equipment 600,000 500,000
factory overhead amounted to P1,200,000. Normal production of finished good is 50,000

units. Due to fabrication of office equipment, finished goods produced totaled 40,000 units
only in the current year. The office equipment is to be charged with overhead which would
have been apportioned to the 10,000 units which were not produced.
What is the total cost of the office equipment?

a. P1,100,000
b. P1,400,000
c. P1,340,000
d. P2,340,000
6. An entity purchased a machine for P3,000,000 on January 1, 2019. The entity received a
government grant of P500,000 in respect of this asset. The policy is to depreciated the
asset over 5 years on a straight line basis and to treat the grant as deferred income. On
January 1, 2021, the grant became fully repayable because of noncompliance with
conditions. What is the loss on repayment of grant in 2021?
a. P500,000
b. P300,000
c. P200,000
d. P100,000
7. An entity purchased a machine for P6,000,000 on January 1, 2019 and received a

government grant of P600,00 towards the capital cost. The policy is to treat the grant as a
reduction in the cost of the asset. The machine is to be depreciated on a straight line basis
over 5 years with a residual value of P500,000. On January 1, 2021, the grant became fully
repayable because of noncompliance with conditions.
What is the depreciation for 2021?

a. P1,460,000
b. P1,200,000
c. P1,220,000
d. P1,560,000
a. P1,100,000
b. P1,320,000
c. P1,200,000
d. P1,220,000
8. On January 1, 2019, an entity received from the government a P5,000,00 three – year,
zero interest loan evidenced by a promissory note. The prevailing rate of interest for a
loan of this type is 10%. The present value of 1 at 10% is .75 for three periods. What is
included in the journal entry to record the loan and grant?
a. Debit discount on note payable P1,250,000
b. Credit note payable P5,000,000
c. Credit deferred grant income P1,250,000
d. All of these are included in the journal entry
LAND, BUILDING AND MACHINERY

1. An entity purchased a tract of land as an investment property. The entity razed an old
building on the property.
Purchase price of land and an old building P4,000,000
Fair value of old building 300,000
Demolition of old building 200,000
Proceeds from sale of salvaged materials 20,000
Legal fees for purchase contract and recording ownership 150,000
Title guarantee insurance 50,000
Payment of property taxes in arrears on land 100,000
Option paid for an alternative land not acquired 30,000
Special assessment for city improvements 120,000
What is the cost of the land?

a. P4,600,000
b. P4,120,000
c. P4,330,000
d. P4,300,000
2. An entity purchased a tract of land as a factory site. An old building was demolished and
construction began on the new building.
Purchase price of land and an old building P4,500,000
Fair value of old building 250,000
Cost of demolishing old building 300,000
Title insurance and legal fees to purchase land 200,000
Architect fee 950,000
New building construction cost 8,000,000
Survey before construction 100,000
Building permit or payment to city hall for approval of
building construction 150,000
Excavation before new construction 200,000
Liability insurance during construction 100,000
New fence surrounding the new building 100,000
Driveway parking bay and safety lighting 550,000
Cost of trees, shrubs and other landscaping 300,000
What is the cost of the land?

a. P4,550,000
b. P4,800,000
c. P4,850,000
d. P4,450,000
What is the cost of the new building?
a. P9,700,000
b. P9,750,000
c. P9,800,000
d. P9,950,000
What is the cost of land improvements?
a. P950,000
b. P650,000
c. P850,000
d. P400,000
3. Ana entity acquired a machine and incurred the following costs:

Cash paid for machine, including VAT of P96,000 P896,000
Cost of transporting machine 30,000
Cost of installation 50,000
Cost of testing machine 40,000
Cost of safety rails and platform surrounding machine 60,000
Cost of water device to keep machine cool 80,000
Cost of adjustment to machine to make it operate more efficiently 75,000
Cost of repairing damage during installation 45,000
Cost of spare parts to cover breakdowns 155,000
Estimated dismantling cost to be incurred as required by contract 65,000
Insurance cost for the current year 15,000
Cost of training personnel who will use the machine 25,000
What total amount should be capitalized as cost of the machine?

a. P1,400,000
b. P1,296,000
c. P1,200,000
d. P1,160,000
4. During 2019, an entity constructed a new building at a cost of P30,000,000. The

expenditures for the building, which was finished late in 2019, were incurred evenly
during the year. The entity had the following loans outstanding on December 31, 2019:
 10% note to finance specifically construction of the building, dated January 1, 2019,
P10,000,000 and unpaid on December 31, 2019. Investments were made on the
proceeds from the loan and income of P100,000 was realized in 2019.
 12 % 20 – year bonds payable issued at face amount on April 30, 2018, P30,000,000.
 8% 5 – year note payable, dated march 1, 2018, P10,000,000.
What amount of interest is capitalized as cost on the new building?
a. P1,550,000
b. P1,450,000
c. P1,400,000
d. P1,500,000
5. On July 1, 2019, an entity began construction of a plant which was completed on October
31, 2020. On July 1, 2019, the entity obtained a P7,000,000 6% construction loan. The loan
was paid on December 31, 2020. The only other debt was a P15,000,000 9% long – term
note which was outstanding during 2019 and 2020. Expenditures on the plant were:
July 1, 2019 P5,000,000 February 1, 2020 P3,000,000
October 1, 2019 4,000,000 April 1, 2020 2,000,000
September 1, 2020 2,000,000
October 1, 2020 500,000
What amount of interest should be capitalized in 2019?

a. P210,000
b. P270,000
c. P540,000
d. P420,000
What amount of interest should be capitalized in 2020?
a. P1,000,000
b. P1,350,000
c. P350,000
d. P857,000
DEPRECIATION AND DEPLETION

1. An entity provided the following schedule of machinery:
Total cost Residual value Useful life
Machine A P5,500,00 P500,000 20
Machine B 2,000,000 200,000 15
Machine C 400,000 5
What is the composite life of these assets?

a. 13.3
b. 16.0
c. 18.0
d. 19.8
2. On April 1, 2019, an entity purchased machinery for P3,300,000. The machinery has an
estimated useful life of five years with residual value of P300,000. Depreciation is computed
by the sum of the years’ digits method. What is the depreciation for 2020?
a. P850,000
b. P800,000
c. P600,000
d. P700,000
3. An entity purchased equipment on January 1, 2019 for P5,000,000. The equipment had an
useful life of 5 years and residual value of P600,000. The policy is to depreciate 5 – year
assets using the 200% double declining method for the first 2 years and then switch to
straight line. What amount should be reported as accumulated depreciation on December
31, 2021?
a. P3,000,000
b. P3,800,000
c. P3,920,000
d. P3,600,000
4. An entity takes a full year depreciation in the year of acquisition and no depreciation in the
year for disposition. Data relating to a depreciable asset on December 31, 2018 are cost
P5,500,000 residual value P1,000,000, accumulated depreciation P3,600,000 and useful
life 5 years. The asset was acquired on July 1, 2016. Using the same depreciation method
in 2016, 2017 and 2018, what amount of depreciation should be recorded as in 2019?
a. P1,100,000
b. P1,200,000
c. P900,000
d. P600,000
5. On January 1, 2019, an entity acquired an equipment with an estimated useful life of 10

years and estimated residual value of P50,000. The depreciation applicable to this
equipment was P240,000 for 2021 computed under the sum of the years’ digits method.
What was the acquisition cost of equipment?
a. P1,650,000
b. P1,700,000
c. P2,400,000
d. P2,450,000
6. On January 1, 2019, an entity purchased a mineral mine for P26,400,000 with removable
ore estimated at 1,200,000 tons. After it has extracted all the ore, the entity will be required
by law to restore the land to the original condition at an estimated cost of P2,200,000.
The present value of the estimated restoration cost is P1,800,000. The property can be sold
afterwards for P3,000,00.
During 2019, the entity incurred P2,000,000 exploration cost and P1,600,000 development
cost preparing the mine for production. The entity removed 80,000 tons of ore and sold
60,000 tons of ore in the current year.
What amount of depletion should be included in cost of goods sold for the current year?
a. P1,920,000
b. P1,440,000
c. P1,500,000
d. P1,590,000
7. In 2018, an entity purchased property with mineral resources for P28,000,000. The property
had a residual value of P5,000,000. However, the entity is required to restore the property
to the original condition at a discounted amount of P2,000,000.
In 2018, the entity spent P1,000,000 on development cost and P3,000,000 in building. In
2019, as amount of P4,000,000 was spent for additional development on the mine.
Production began in 2019 and the tons extracted totaled 3,000,00 in 2019 and 2,500,000 in
2020. The remaining tons totaled 7,000,000 on December 31, 2019 and 3,500,000 on
December 31, 2020.
What amount of depletion should be recognized in 2019?
e. P7,800,000
f. P9,900,000
g. P8,400,000
h. P9,000,000
What amount of depletion should be reported for 2020?
a. P10,500,000
b. P12,250,000
c. P9,625,000
d. P8,750,000
8. On July 1, 2019, an entity purchased the rights to a mine for P20,000,000, of which
P2,000,000 was allocable to the land. Estimated reserves were 1,500,000 tons. The entity
expected to extract and sell 25,000 tons per month.
The entity purchased raining equipment on July 1, 2019 for P8,000,000. The mining
equipment had a useful life 8 years. However, after all the resource is removed, the
equipment will be of no use and will be sold for P500,000.
What is the depletion for 2019?
a. P3,600,000
b. P1,800,000
c. P2,500,000
d. P1,250,000
a. P1,500,000
b. P1,000,000
c. P750,000
d. P468,750
INTANGIBLE ASSETS
1. An entity reported the following assets at year – end:
Franchise P1,000,000
Computer Software 1,500,000
Patent 2,500,000
Customer list 500,000
Copyright 700,000
Deposit with advertising agency to promote goodwill 400,000
Excess cost over fair value of identifiable net assets of
acquired associate 1,400,000
Excess of cost over fair value of identifiable net assets
of acquired subsidiary 4,000,000
Trademark 900,000
Research and development cost 2,000,000
What total amount should be reported as intangible assets?

a. P11,100,000
b. P11,500,000
c. P12,500,000
d. P13,100,000
2. An entity is planning to sell the business to new interest. The cumulative net earnings for
the past five years amounted to P16,500,000 including expropriation loss of P1,500,000.
The normal rate of return is 20%. The fair value of net assets of the entity at current year
– end was P10,000,000.
Excess earnings are purchased for 5 years?
a. P8,000,000
b. P4,000,000
c. P5,000,000
d. P4,500,000
Excess earnings are capitalized at 25%?
a. P7,200,000
b. P6,400,000
c. P8,000,000
d. P3,600,000
Annual average earnings are purchased for 3 years?
a. P10,800,000
b. P18,000,000
c. P4,800,000
d. P5,400,000
Annual average earnings are capitalized at 25%?
a. P1,600,000
b. P3,600,000
c. P4,400,000
d. P2,000,000
Excess earnings are discounted at 12% for 5 years? (The PV of an ordinary annuity of 1 for
5 years at 12% is 3.60)
a. P12,960,000
b. P10,800,000
c. P5,760,000
d. P7,200,000
3. A parent entity purchased for P45,000,00 all of the following outstanding shares of a
subsidiary with net assets of P32,000,000. Subsidiary assets and liabilities on the date of
acquisition are:
Carrying amount Fair value
Property, plant and equipment P50,000,000 P57,500,000
Other assets 5,000,000 0
Assembled workforce 2,000,000 2,500,000
Liabilities 30,000,000 28,000,000
What amount should be reported as goodwill?

a. P8,500,000
b. P6,000,000
c. P6,500,000
d. P8,000,000
4. An entity developed a new machine which it had patented. The following costs were
incurred in developing and patenting the machine:
Purchase of special equipment to be used solely for
development of new machine P1,800,000
Research salaries and fringe benefits for engineers
and scientist 200,000
Cost of testing prototype 250,000
Legal cost of filing patent 300,000
Fees paid to government patent office 500,000
Drawings required by patent office to be filed with
patent application 400,000
legal fees incurred in a successful defense of patent 200,000
What amount should be capitalized as cost of patent?

a. P1,200,000
b. P1,400,000
c. P1,450,000
d. P3,450,000
5. On January 1, 2016, an entity purchased a patent for P7,140,000. The patent is being
amortized over the remaining legal life of 15 years. During 2019, the entity determined that
the economic benefits of the patent would not last longer than ten years from the date of
acquisition. What is the carrying amount of the patent on December 31, 2019?
a. P4,284,000
b. P4,896,000
c. P5,050,000
d. P5,326,000
6. On January 1, 2019, an entity reported patent cost of P1,920,000 and related accumulated
amortization of P240,000. The patent was purchased on January 1, 2017 at which date the
remaining legal life was 16 years. On January 1, 2019, the useful life of the patent was
determined to be only 8 years from the date of acquisition.
On January 1, 2019, the entity paid P800,000, of which three – fourth was for a trademark,
and one – fourth was for the other entity’s agreement not to compete for a 5 – year period
in the line of business covered by the trademark. The entity considered the life of the
trademark indefinite. Moreover, the entity agreed to pay P50,000 to the other entity as
consulting fee each year for 5 years payable every January 1.
What is the total carrying amount of intangible assets on January 1, 2019?
a. P2,280,000
b. P2,480,000
c. P1,880,000
d. P1,680,000
What is the amount of total expenses for 2019 in relation to intangible assets?
a. P370,000
b. P320,000
c. P470,000
d. P280,000
7. On January 1, 2019, an entity acquired a trademark for P3,000,000. The trademark has
eight years remaining in the legal life. it is anticipated that the trademark will be renewed in
the future indefinitely without problem. On December 31, 2019, the trademark is assessed
for impairment. Because of a decline in economy, the trademark is expected to generate
cash flows of just P120,000 annually. The useful life of the trademark still extends beyond
the foreseeable horizon. The appropriate discount rate is 6%. What amount should be
recognized as impairment loss on trademark for the current year?
a. P1,000,000
b. P2,000,000
c. P3,000,000
d. P0
8. An entity incurred the following research and development costs in the current year:
Materials used in research and development projects P400,000
Equipment acquired that will have alternate future use in
future research and development projects 2,000,000
Depreciation on above equipment 500,000
Personnel costs of persons involved in research and
development projects 1,000,000
Consulting fees paid to outsiders for research and
development projects 100,000
Indirect costs reasonably allocable to research and
development projects 200,000
What amount of research and development projects should be expensed in the current
year?
a. P1,500,000
b. P1,700,000
c. P2,200,000
d. P3,500,000
9. Earth Company incurred the following costs during the current year:
Laboratory research aimed at discovery of new knowledge P750,000
Design of tools, jigs, molds and dies involving new technology 400,000
Quality control during commercial production including routine testing 350,000
Equipment acquired two years ago, having an estimated useful life
of five years with no residual value used in various R and D projects 1,500,000
Research and development services performed by Star Company
for Earth Company 250,000
Research and development services performed by Earth Company
for Moon Company 200,000
What amount of research and development expense should be reported in the current
year?
a. P2,900,000
b. P1,700,000
c. P1,900,000
d. P2,050,000
10. An entity, a major winery, begins construction of a new facility in Mindanao. The following
costs are incurred in conjunction with the start – up activities of the new facility:
Production equipment P8,150,000
Travel costs of salaried employees 400,000
License fees 140,000
Training of local employees for production and maintenance operations 1,200,000
Advertising costs 850,000
What portion of the organization costs should be expensed?

a. P9,750,000
b. P1,600,000
c. P1,390,000
d. P0
REVALUATION AND IMPAIRMENT

1. An entity acquired a building on January 1, 2016 at a cost of P20,000,000. The building had
a useful life of 6 years and residual value of P2,000,000. The building was revalued on
January 1, 2019 and the revaluation revealed replacement cost of P30,000,000, residual
value of P4,000,000 and revised useful life of 8 years from the date of acquisition.
What is the pretax revaluation surplus on January 1, 2019?
a. P6,000,000
b. P8,000,000
c. P7,000,000
d. P5,000,000
What is the pretax revaluation surplus on December 31, 2019?

a. P6,000,000
b. P4,800,000
c. P2,800,000
d. P5,250,000
What is the annual depreciation for 2019?
a. P2,600,000
b. P3,400,000
c. P3,000,000
d. P1,400,000
2. On January 1, 2019, an entity showed land with carrying amount of P10,000,000 and
building with cost of P60,000,000 and accumulated depreciation of P18,000,000.
The land and building were revalued on same date and revealed the fair value of land at
P15,000,000 and the building at P70,000,000.
The original useful life of building is 20 years and depreciation is computed on the straight
line. The income tax rate is 30%
What is the revaluation surplus on January 1, 2019?
a. P33,000,000
b. P23,100,000
c. P28,000,000
d. P19,600,000
What is the revaluation surplus on December 31, 2019?
a. P33,000,000
b. P21,100,000
c. P21,450,000
d. P21,700,000
a. P5,000,000
b. P3,500,000
c. P4,500,000
d. P3,000,000
3. On December 31, 2019, an entity had an equipment with cost if P9,000,000 and
accumulated depreciation of P3,000,000. Due to obsolescence and physical damage, the
equipment was found to be impaired. On same date, the entity determined that the
equipment had a fair value less of disposal of P4,500,000. What is the impairment loss for
2019?
a. P1,500,000
b. P2,000,000
c. P1,000,000
d. P0
4. An entity determined that the electronics division is a cash generating unit. The entity
calculated the value in use of the division at P8,000,000. The carrying amounts of the
assets are building P5,000,000, equipment P3,000,000 and inventory P2,000,000. The
entity also determined that the fair value less cost of disposal of the building is P4,500,000.
What is the impairment loss on building?
a. P1,000,000
b. P500,000
c. P750,000
d. P0
What is the impairment loss on equipment?

a. P600,000
b. P900,000
c. P450,000
d. P0
What is the impairment loss on inventory?
a. P400,000
b. P600,000
c. P300,000
d. P0
5. On January 1, 2019, an entity purchased equipment with cost of P10,000,000, useful life of
10 years and no residual value. The entity used straight line depreciation. On December 31,
2019 and December 31, 2020, the entity determined that impairment indicators are present.
There is no change in useful life or residual value.
December 31, 2019 December 31, 2020
Fair value less cost of disposal P8,100,000 P8,300,000
Value in use 8,550,000 8,200,000
What is the impairment loss for 2019?

a. P900,000
b. P450,000
c. P600,000
d. P0
What is the gain on reversal impairment for 2020?
a. P400,000
b. P700,000
c. P600,000
d. P0
a. P1,000,000
b. P1,050,000
c. P1,025,000
d. P950,000
CURRENT LIABILITIES
1. An entity includes on coupon in each box of laundry soap it sells. A towel is offered as a
premium to customers who send in 10 coupons and a remittance of P10. Distribution cost
of premium is P5. Experience indicates that only 30% of the coupons will be redeemed.
2019 2020
Boxes of soap sold P2,000,000 P2,500,000
Number of towels purchased at P50 each 50,000 80,000
Coupons redeemed 400,000 700,000
What is the premium expense for 2019?

a. P2,500,000
b. P2,400,000
c. P1,800,000
d. P2,700,000
What is the estimated premium liability on December 31, 2019?

a. P1,000,000
b. P1,100,000
c. P800,000
d. P900,000
What is the premium expense for 2020?
a. P3,000,000
b. P3,750,000
c. P3,375,000
d. P4,000,000
What is the estimated premium liability on December 31, 2020?
a. P1,000,000
b. P1,250,000
c. P1,125,000
d. P1,375,000
2. An entity, a grocery retailer, operates a customer loyalty program. The entity grants program
members loyalty points when they spend a specified amount on groceries. Program
members can redeem the point for further groceries. The points have no expiry date. During
2019, the sales amounted to P7,000,000 based on standard selling price. During the year,
the entity granted 10,000 points. But the management expected that only 80% or 8,000
points will be redeemed. The stand alone selling price of each loyalty point is estimated at
P100.
On December 31, 2019, 4,800 points have been redeemed. In 2020, management revised
its expectations and now expected that 90% or 9,000 points will be redeemed altogether.
During 2020, the entity redeemed 2,400 points.
What amount should be reported as sales revenue including the revenue earned from
points for 2019?
a. P7,000,000
b. P6,125,000
c. P6,650,000
d. P7,525,000
What is the revenue earned from loyalty points for 2020?
a. P700,000
b. P175,000
c. P210,000
d. P200,000
3. During 2019, an entity introduced a new product carrying a two – year warranty against
defects. The estimated warranty costs related to peso sales are 4% within 12 months
following sale and 6% in the second 12 months following sale. The entity reported sales of
P5,000,000 for 2019 and P6,000,000 for 2020. The actual expenditures incurred and paid
amounted to P150,000 for 2019 and P550,000 for 2020.
What is the warranty expense for 2020?
a. P650,000
b. P600,000
c. P500,000
d. P550,000
What is the estimated warrant liability on December 31, 2020?
a. P260,000
b. P400,000
c. P240,000
d. P100,000
4. During 2019, an entity is the defendant in a patent infringement lawsuit. The lawyers
believe there is a 30% chance that the court will dismiss the case and the entity will incur no
outflow of economic benefits.
However, if the court rules in favor of the claimant, the lawyers believe that there is a 20%
chance that an entity will be required to pay damages of P200,000 and an 80% chance that
the entity will be required to pay damages of P100,000.
Other outcomes are unlikely. The count is expected to rule in late December 2020. There is
no indication that the claimant will settle out of court.
A 7% risk adjustment factor to the probability – weighted expected cash flows is considered
appropriate to reflect the uncertainties in the cash flow estimate. An appropriate discount
rate is 5% per year. The present value of 1 at 5% for one period is 0.95.
What is the undiscounted provision before risk adjustment on December 31, 2019?
a. P200,000
b. P100,000
c. P150,000
d. P84,000
What amount should be reported as provision for lawsuit on December 31, 2019?
a. P79,800
b. P95,000
c. P89,880
d. P85,386
5. On January 15, 2019, an explosion occurred at an entity plant causing extensive property
damage to area buildings. By March 1, 2020, no claims had been asserted against the
entity but management and counsel concluded that it is likely that claims will be asserted
and that it is probable that the entity will be responsible for damages. Management believed
that P1,250,000 would be a reasonable estimate of the liability. The entity’s P5,000,000
comprehensive public would be a reasonable estimate of the liability. The comprehensive
public liability policy has a P250,000 deductible clause. The financial statements for 2019
were issued on March 31, 2020.
What amount of provision should be reported on December 31, 2019?
a. P5,000,000
b. P2,500,000
c. P1,250,000
d. P0
6. During 2019, an entity filed suit against another entity seeking damages for patent
infringement. On December 31, 2019, the legal counsel believed that it was probable that
the entity would be successful against the other entity for an estimated amount of
P15,00,000. On March 31, 2020, the entity was awarded P1,000,000 and received full
payment thereof. The 2019 financial statements were issued on March 1, 2020. How
should this award be reported in the 2019 financial statements?
a. As receivable and revenue P1,000,000
b. As receivable and deferred revenue P1,000,000
c. As disclosure of contingent asset P1,000,000
d. As disclosure of contingent asset P1,500,000
7. An entity sells magazine subscriptions for a 1 – year, 2 – year or 3 – year period. Cash
receipts from subscribers are credited to unearned subscription revenue and this account
had a balance of P1,700,000 on January 1, 2019. The entity provided the following
information for the year ended December 31, 2019:
Cash receipts from subscribers P2,300,000
Subscription revenue credited on December 31, 2019 1,500,00
On December 31, 2019, what amount should be reported as unearned subscription
revenue?
a. P1,100,000
b. P2,500,000
c. P1,500,000
d. P2,300,000
8. An entity sells equipment service contracts that cover a two – year period. The sale price of
each contract is P800. The entity sold 1,000 contracts evenly throughout 2019.
The past experience is that, of the total pesos spent for repairs on service contracts, 40% is
incurred evenly during the first contract year and 60% evenly during the second contract
year.
What is the contract revenue for 2019?
a. P320,000
b. P160,000
c. P400,000
d. P640,000
What is the unearned contract revenue on December 31, 2019?
a. P480,000
b. P640,000
c. P240,000
d. P560,000
What is the contract revenue for 2020?
a. P480,000
b. P240,000
c. P400,000
d. P500,000
BONDS PAYABLE
1. On March 1, 2019, an entity issued 5,000 of P1,000 face value bonds at 100 plus accrued
interest. The entity paid bond issue cost of P400,000. The bonds were dated November 1,
2018, mature on November 1, 2028, and bear interest at 12% payable semiannually on
May 1 and November 1. What net amount was received from the bond issuance?
a. P5,500,000
b. P5,700,000
c. P5,300,000
d. P5,100,000
2. During the current year, an entity issued 5,000,000 9% face value bonds at P110 at interest
date. In connection with the issue of the bonds, the entity paid the following costs:
Promotion cost P100,000
Engraving and printing cost 200,000
Underwriter commission 400,000
Legal fees 350,000
Fees paid to accountants for registration 50,000
What amount should be recorded initially as discount or premium on bonds payable?
a. P500,000 premium
b. P500,000 discount
c. P600,000 premium
d. P600,000 discount
3. On January 1, 2019, an entity issued 9% bonds in the face amount of P5,000,000 which
mature on January 1, 2029. The bonds were issued for P4,695,000 to yield 10%. Interest is
payable annually on December 31. The entity used the interest method of amortizing bond
discount.
What is the interest expense for 2019?
a. P469,500
b. P500,000
c. P450,000
d. P422,500
What is the carrying amount of the bonds payable on December 31, 2019?
a. P4,695,000
b. P4,704,750
c. P4,714,500
d. P5,000,000
4. On January 1, 2019, an entity issued 10 – year bonds with face amount of P5,000,000 for
P5,775,000. The entity paid bond issue cost of P100,000 on same date. The stated interest
rate on the bonds is 10% payable annually every December 31. The bonds have an 8%
yield per annum after considering the bond issue cost. The entity used the effective interest
method of amortizing bond premium.
a. P454,000
b. P458,960
c. P500,000
d. P450,320
What is the carrying amount of the bonds payable on December 31, 2020?
a. P5,695,960
b. P5,579,320
c. P5,629,000
d. P5,737,000
5. An entity issued 5,000 of 8% 10 – year P1,000 face amount bonds with detachable
warrants at 110. Each bond carried a detachable warrant for 10 ordinary shares of P100
par value at a specified option price of P120. Immediately after issuance, the market value
if the bonds without warrants was P4,800,000 and the market value of the warrants was
P1,200,000.
What is the initial carrying amount of bonds payable?
a. P5,500,000
b. P4,800,000
c. P4,400,000
d. P5,000,000
What is the increase in equity as a result of the bond issuance?
a. P1,200,000
b. P1,100,000
c. P500,000
d. P700,000
What is the share premium from the subsequent exercise of all share warrants?
a. P1,700,000
b. P1,000,000
c. P2,100,000
d. P0
6. An entity issued P5,000,000 face amount 5 – year bonds at 120. Each P1,000 bond was
issued with 20 nondetachable share warrants. Each warrant entitled the bondholder to
purchase one share of P20 par value for P25. Immediately after issuance, the market value
of each warrant was P5. The interest rate is 11% payable annually every December 31. The
prevailing market rate of interest for similar bonds without warrants is 12%. The PY of 1 at
12% for 5 periods is 0.57 and the PV of an ordinary annuity of 1 at 12% for 5 periods is
3.60. what amount should be recorded as increase in equity as a result of the bond
issuance?
a. P1,170,000
b. P1,000,000
c. P2,000,000
d. P0
7. An entity issued 5,000 convertible bonds with P1,000 face amount per bond. The bonds
mature in three years and are issued at 110. Interest is payable annually every December
31 at a nominal 6% interest rate. Each bond is convertible at anytime up to maturity into
100 shares with par value of P5. It is reliably determined that the bonds would sell only at
P4,600,000 without the conversion privilege. What is the equity component of the
original issuance of the convertible bonds?
a. P500,000
b. P400,000
c. P900,000
d. P0
8. After recording interest and amortization, an entity converted P5,000,000 of 12%

convertible bonds into 50,000 shares of P50 par value. On the conversion date, the carrying
amount of the bonds payable was P6,000,000, the market value of the bonds was
P6,500,000, and the share was publicly trading at P150. The entity incurred P100,000 in
connection with the conversion. When the bonds were originally issued, the entity
component was recorded at P1,500,000. What amount of share premium should be
recorded as a result of the conversion?
a. P5,000,000
b. P3,500,000
c. P4,900,000
d. P3,400,000
NOTES PAYABLE AND DEBT RESTRACTURE

1. On September 2, 2019, an entity borrowed on a P5,400,000 note payable from a bank. The
note bears interest at 12% and is payable in three equal annual principal payments of
P1,800,000. On this date, the bank’s prime rate was 11%. The first annual payments for
interest and principal was made on September 1, 2020.
On December 31, 2019, what amount should be reported as accrued interest payable?
a. P144,000
b. P216,000
c. P132,000
d. P198,000

a. 576,000
b. 432,000
c. 648,000
d. 594,000
2. On March 1, 2019, an entity borrowed P5,000,000 and signed a 2-year note bearing
interest at 12% per annum compounded annually. Interest is payable in full at maturity on
February 28, 2021. What amount should be reported as accrued interest payable on
December 31, 2020?
a. P1,200,000
b. P1,160,000
c. P600,000
d. P600,000
3. An entity transferred real estate pursuant to a debt restructuring in full liquidation of liability
to the creditor:
Carrying amount of liability liquidated P1,500,000

Carrying amount of real estate transferred 1,000,000
Fair value or real estate transferred 900,000
Under IFRS, what amount of gain a n extinguishment of debt should be reported as

component of income from continuing operations?
a. P300,000
b. P500,000
c. P200,000
d. P0
Under US GAAP, what is the gain on restructuring?

a. P600,000
b. P500,000
c. P100,000
d. P0
Under US GAAP, what amount should be reported as gain or loss on transfer of real
estate?
a. P100,000 loss
b. P500,000 gain
c. P400,000 gain
d. P0
4. An entity showed the following information at year-end:
Note payable P5,000,000

Accrued Interest payable 500,000
The entity is threatened with a court suit if it pays the maturing debt. Accordingly, the entity
entered into an agreement with the creditor for the issuance of share capital. In full
settlement of the note payable. The agreement provided for the issue of 50,000 ordinary
shares with par value of P50 and quoted price P70. The fair value of the note payable is
P4,000,000.
What is the gain from extinguishment of debt if the equity swap is measured at the fair
value of the shares?
a. P2,000,000
b. P1,500,000
c. P3,000,000
d. P0
What is the gain from extinguishment of debt if the equity swap is measured at the fair
value of liability?
a. P2,000,000
b. P1,500,000
c. P3,000,000
d. P0
What amount should be recognized as shares premium if the equity swap is measured at
the carrying amount of liability?
a. P3,000,000
b. P2,500,000
c. P1,000,000
d. P1,500,000
5. Due to extreme financial difficulties, an entity negotiated a restructuring of a 10%,

P5,000,000 note payable due on December 31, 2019. The unpaid interest on the note on
such date is P500,000. The creditor agreed to reduce the face amount P4,000,000, forgive
the unpaid interest, reduce the interest rate to 8% and extend the due date three years from
December 31, 2019. The present value of 1 at 10% for three periods is 0.75 and the
present value of an ordinary annuity of 1 at 10% for three periods is 2.49
Under IFRS, what is the gain on extinguishment for 2019?

a. P1,703,200
b. P1,203,200
c. P2,000,000
d. P540,000
What is the discount or premium on the new note payable on December 31, 2019?
a. P1,000,000 premium
b. P1,203,200 discount
c. P203,200 premium
d. P203,200 discount
What amount should be reported as interest expense for 2020?

a. P320,000
b. P379,000
c. P400,000
d. P303,680
What is the carrying amount of note payable on December 31, 2020?

a. P4,000,000
b. P5,000,000
c. P3,856,480
d. P3,737,120
FINANCE LEASE - LESSEE

1. At the beginning pf current year, an entity leased an equipment from a lessor with the
following pertinent information
Annual rental payable at the end of each year P1,000,000

Initial direct cost paid 400,000
Lease bonus paid to lessor before commencement of the lease 300,000
Lease Incentive received 100,000
Discounted amount of restoring building as required by contract 700,000
Leasehold improvement 200,000
Purchase option that is reasonably certain to be exercised 500,000
Lease term 5 years
Useful life of equipment 8 years
Implicit interest rate 10%
PV of an ordinary annuity of 1 for 5 periods at 10% 3.79
PV of 1 for 5 periods at 10% 0.62
What is the initial lease liability?
a. 4,100,000
b. 3,790,000
c. 4,500,000
d. 4,290,000
What is the cost of the right of use asset?

a. P5,500,000
b. P5,400,000
c. P5,100,000
d. P5,600,000
What is the interest expense for the current year?

a. P410,000
b. P379,000
c. P450,000
d. P429,000
What is the lease liability at year-end?

a. P3,510,000
b. P3,169,000
c. P3,950,000
d. P3,719,000
What is the depreciation of the right of use for current year?

a. P1,080,000
b. P1,000,000
c. P675,000
d. P550,000
2. On December 31, 2019, an entity leased two automobiles for executive use. The lease
required the entity to make five annual payments of P1,500,000 beginning December 31,
2019. At the end of the lease term, December 31, 2014, the entity had a residual value
guarantee of the automobiles at P 1,000, 000. The interest rate implicit in the lease is 10%
and present value factors at 10% for 5 periods are 4.17 for an annuity due, 3.79 for an
ordinary annuity for an ordinary annuity and 0.62 for present value of 1.
What is the lease liability on December 31, 2020?

a. P4,412,500
b. P5,375,000
c. P6,062,500
d. P4,805,000
What is the current portion of the lease liability on December 31, 2020?
a. P1,500,000
b. P1,058,750
c. P962,500
d. P750,000

a. P480,500
b. P537,500
c. P441,250
d. P606,250
3. On January 1, 2019, an entity entered into a 6-year lease with a lessor. Annual lease
payments of P1,500,000 including annual executor cost of P300, 000 are payable at the
end of each year: The entity knows that the lessor expects a 10% implicit rate on the
lease. The entity has 12% incremental borrowing rate. The equipment is expected to have a
useful-life of 10 years. In addition, a third party has guaranteed to pay the lessor a residual
value of P500,000 at the end of the lease. The present value of an ordinary annuity of 1 for
6 years is 4.35 at 10% and 4.11 at 12%. The present value of 1 at 10% for 6 periods is 0.56
and at 12% for 6 periods is 0.51. On December 31, 2019, what is the principal amount of
the lease obligation?
a. P5,220,000
b. P4,542,000
c. P4,323,840
d. P4,850,000
4. At the beginning of current year, an entity entered into a 6-year finance lease for an
equipment. The entity accounted for the acquisition of the finance lease at P5,000,000
which included a P500,000 bargain purchase option that is reasonably certain to be
exercised. The expected fair value of the equipment is P400,000 at the end of the 10-year
useful life. What amount of straight line depreciation should be recognize for the current
year?
a. P575,000
b. P450,000
c. P625,000
d. P450,000
5. At the beginning of current year, an entity entered into a 8-year lease for an equipment. The
entity accounted for the acquisition as a finance lease for P6,000,000 which included a
P6,000,000 residual value guarantee. At the end of the lease, the asset will revert back
to the lessor. It is estimated that the fair value of the asset at the end of the 10-year useful
life would be P400,000. What amount should be recognized as straight line depreciation on
the leased asset for the current year?
a. P675,000
b. P700,000
c. P540,000
d. P560,000
FINANCE LEASE - LESSOR

1. An entity is a dealer in equipment. At the beginning of current year, an equipment was
leased another entity with the following previsions:
Annual rental payable at the end of each year P1,500,000

Lease term and useful life of machinery 5 years
Cost of equipment 4,000,000
Fair value of equipment on date of lease 6,000,000
Guaranteed residual value 500,000
PV of an ordinary annuity of 1 for 5 periods at 12% 3.60
PV of 1 for 5 periods at 12% 0.57
The equipment will revert to the lessor at the end of lease term. The fair value of the
asset is P350,000 at the end of lease term. The perpetual inventory system is used. The
lessor incurred initial set cost of P200,000 in finalizing the lease agreement.
What is the gross investment in the lease?
a. P7,500,000
b. P8,000,000
c. P4,000,000
d. P6,000,000
What is the net investment in the lease?

a. P5,400,000
b. P5,685,000
c. P4,000,000
d. P3,500,000
What is the total financial revenue?

a. P2,315,000
b. P2,285,000
c. P2,000,000
d. P2,600,000
What amount of interest income should be recognized for the current year?
a. P682,200
b. P648,000
c. P720,000
d. P480,000
What amount should be reported as profit on sale for the current year?
a. P1,485,000
b. P1,685,000
c. P1,800,000
d. P2,000,000
2. An entity acquired an asset costing P3, 165,000. The asset is leased on January 1, 2019 to
another entity. Five annual lease payments are due each December 31, beginning
December 31, 2023 is P500,000, The asset will revert to the lessor at the end of the
lease term. The lessor’s implicit interest rate is 12%. The PV of 1 at 12% for 5 periods is .57
and the PV of an ordinary annuity of 1 at 12% for 5 periods is 3.60. What is the annual
rental payment?
a. P879,166
b. P740,278
c. P800,000
d. P500,000
3. An entity is in the business of leasing new sophisticated equipment. The lessor expects a
12% return on net investment. All leases are classified as direct financing lease. At the end
of the lease tern, the equipment will revert to the lessor. At the beginning of current year,
an equipment is leased to a lessee with the following information:
Cost of equipment to the lessor P5,000,000

Residual value – unguaranteed 600,000
Annual rental payable is advance at the beginning of each year 900,000
Initial direct cost incurred by the lessor 250,000
Useful life and lease term 8 years
What is the gross investment in the lease?
a. P7,200,000
b. P7,800,000
c. P5,000,000
d. P5,220,000
What is the net investment in the lease?

a. P5,000,000
b. P5,250,000
c. P4,400,000
d. P4,650,000
What is the total unearned interest income?

a. P2,550,000
b. P1,950,000
c. P3,150,000
d. P1,500,000
What amount of interest income should be recognized for the current year?
a. P594,000
b. P522,000
c. P630,000
d. P450.000
4. An entity decided to enter the leasing business. The entity acquired specialized packaging
machine for P2,300,000. At the beginning of current year, the entity leased the machine for
a period of six years, after which title to the machine is transferred to the lessee. The six
annual lease payments are due in advance at the beginning of each year. The residual
value of the machine is P200,000. The lease terms are arranged so that a return of 12% is
earned by the lessor. The present value of 1 at 12% for six periods is 0,51, the present
value of an annuity in advance of 1 at 12% for six periods of 4.60 and the PV of an ordinary
annuity of 1 at 12% for six periods of 4.11.
What is the annual lease payment payable in advance required to yield the desired return?
a. P500,000
b. P477,826
c. P559,610
d. P460,000
What is the total financial revenue?

a. P1,057,660
b. P1,257,660
c. P700,000
d. P900,000
OPERATING LEASE AND LEASEBACK

1. On January 1, 2019, an entity purchased a new machine for P6,000,000 for the purpose of
leasing it. The machine had an estimated 10-year life. On April 1, 2019, the entity leased
the machine to a lessee for three years at a monthly rental of P400,000. The lessee paid
the rental for one year of P4,000,000 on April 1, 2019 and additionally paid P900,000 to the
lessor as a lease bonus to obtain the three-year. On April 1, 2019, the entity paid P300,000
to a broker as a finder fee. What is the net rental income for 2019?
a. P3,150,000
b. P4,350,000
c. P3,200,000
d. P4,400,000
2. On July 1, 2019, an entity leased an equipment to a lessee under a 3-year operating lease.
Total rent for the lease term is P3.600,000, payable P50,000 monthly for the first lease year.
All payments were made when due. On June 30, 2021, what amount should be reported as
accrued rent receivable?
a. P2,100,000
b. P1,200,000
c. P3,856,480
d. P0
3. At the beginning of current year, an entity sold an equipment with remaining life of 10 years
and immediately leased it back for 4 years at the prevailing market rental.
Sales price at fair value P6,000,000

Carrying amount of equipment 4,500,000
Annual rental payable at the end of each year 800,000
Present value of an ordinary annuity of 1 at 10% 3.17
a. P2,536,000
b. P3,200,000
c. P3,000,000
d. P0
What is the cost of right of use asset?

a. P1,902,000
b. P2,598,000
c. P2,536,000
d. P0
What is the gain on right transferred?

a. P866,000
b. P634,000
c. P750,000
d. P0
What is the annual depreciation of the right use asset?

a. P475,500
b. P190,200
c. P634,000
d. P253,600
4. At the beginning of current year, an entity sold a building with remaining life of 20 years and
immediately leased it back for 5 years.
Sale price at above fair value P20,000,000

Fair value of building 18,000,000
Carrying amount of building 10,800,000
Annual rental payable at the end of each year 1,500,000
Present value of an ordinary annuity of 1 at 12% for five period 3.60
a. P5,400,000
b. P3,400,000
c. P7,500,000
d. P7,400,000

a. P2,040,000
b. P4,000,000
c. P2,000,000
d. P3,000,000
What is the gain on right transferred?

a. P7,200,000
b. P1,500,000
c. P5,600,000
d. P5,840,000
5. At the beginning of current year, an entity sold building with remaining useful life of 30 years
and immediately leased it back for 5 years.
Sale price at below fair value P18,000,000

Fair value of building 20,000,000
Carrying amount of building 24,000,000
Annual rental payable at the end of each year 1,000,000
Present value of an ordinary annuity of 1 at 12% for e periods 3.60
a. P3,600,000
b. P4,000,000
c. P4,800,000
d. P0

a. P3,000,000
b. P4,320,000
c. P5,760,000
d. P6,720,000
What is the loss on right transferred?

a. P4,000,000
b. P2,880,000
c. P5,760,000
d. P6,720,000
EMPLOYEE BENEFIT COST

1. At the beginning of current year, an entity provided the following information in connection
with a defined benefit plan:
Fair value of plan assets P10,000,000
Projected benefit obligation (13,000,000)
Prepaid / accrued benefit cost (3,000,000)
The entity revealed the following transactions affecting the plan for the current year:
Current service cost P2,500,000
Past service cost – remaining vesting period of covered
employees in 5 years 1,200,000
Contribution to the plan 3,500,000
Benefits paid to retirees 3,000,000
Actual return on plan assets 1,500,000
Decrease in projected benefit obligation due to change in
actuarial assumptions 400,000
Discount rate 10%
Expected return on plan assets
12%
What is the employee benefit expense for the current year?

a. P4,000,000
b. P3,040,000
c. P5,000,000
d. P5,200,000
What is the net measurement gain for the current year?
a. P500,000
b. P400,000
c. P900,000
d. P0
What is the fair value of plan assets at year – end?
a. P15,000,000
b. P12,000,000
c. P11,700,000
d. P10,500,000
What is the projected benefit obligation at year – end?
a. P14,600,000
b. P15,000,000
c. P15,400,000
d. P13,600,000
What amount should be reported as accrued or prepaid benefit cost at year – end?
a. P3,500,000 accrued
b. P3,500,000 prepaid
c. P2,600,000 accrued
d. P2,600,000 prepaid
2. An entity provided the following information during the current year:

January 1 December 31
Fair value of plan asset P6,000,000 P9,000,000
Projected benefit obligation 4,500,000 5,000,000
Prepaid/accrued benefit cost – surplus 1,500,000 4,000,000
Asset ceiling 1,000,000 2,500,000
Effect of asset ceiling 500,000 1,500,000
During the year, the entity recognized current service cost P2,000,000, actual return on plan
assets P400,000, and contribution to the plan P4,550,000 and benefits paid P1,950,000.
The discount rate is 10%.
What is the employee benefit expense for the current year?
a. P1,900,000
b. P1,850,000
c. P1,800,000
d. P2,000,000
What is the net measurement loss for the current year?
a. P1,150,000
b. P1,200,000
c. P800,000
d. P750,000
What is the defined benefit cost?
a. P3,050,000
b. P3,100,000
c. P4,550,000
d. P3,000,000
What amount of prepaid benefit cost should be reported on December 31?
a. P4,000,000
b. P2,500,000
c. P1,000,000
d. P1,500,000
3. An entity is committed to close a factory in 10 months and shall terminate the employment
of all the remaining employees of the factory. Under the termination plan, an employee
leaving before closure of factory shall receive on termination date a cash payment of
P20,000. However, an employee that renders service until closure of the factory shall
receive P60,000. There are 120 employees at the factory. The entity expects 100
employees to leave before closure and 20 employees to render service until closure.
What amount should be recognized as termination benefit?
a. P2,400,000
b. P6,400,000
c. P2,000,000
d. P4,000,000
What amount should be recognized as short – term benefit?
a. P3,200,000
b. P1,200,000
c. P2,000,000
d. P800,000
DEFERRED INCOME TAX

1. An entity reported pretax financial income of P8,000,000 for the current year. The taxable
income was P7,000,000 for the current year. The difference is due to accelerate
depreciation for income tax purposes. The income tax rate is 30% and the entity made
estimated tax payment of P500,000 during the current year.
What amount should be reported as current tax expense for the current year?
a. P2,100,000
b. P2,400,000
c. P1,600,000
d. P1,900,000
What amount should be reported as income tax payable at year – end?
a. P1,600,000
b. P2,100,000
c. P2,400,000
d. P1,900,000
2. An entity reported pretax accounting income of P5,000,000 for the current year. The taxable
income was P5,500,000. The difference is due to rental received in advance. Rental income
is taxable when received. The income tax rate is 30% and the entity made no estimated tax
payment in the current year. What amount should be reported as total income tax expense
for the current year?
a. P1,650,000
b. P1,500,000
c. P1,800,000
d. P3,150,000
3. At the end of the first year of operations, an entity had taxable temporary differences
totaling P3,000,000. Of this total, P500,000 relates to current items. The entity also had
deductible temporary differences totaling P1,000,000, P250,000 of which relates to current
items. Pretax financial income for the current year was P20,000,000. The tax rate is 30%.
What amount should be reported as current tax expense for current year?
a. P5,925,000
b. P6,000,000
c. P6,600,000
d. P5,400,000
What is the net deferred tac expense of benefit for the current year?
a. P900,000 expense
b. P300,000 benefit
c. P600,000 expense
d. P600,000 benefit
4. An entity was organized on January 1, 2019. The entity had pretax accounting income of
P5,000,000 and taxable income of P7,000,000 for the current year. The only temporary
difference is accrued product warrant cost that is expected to be paid in 2020. The enacted
tax rates are 30% for 2019 and 25% for 2020 and thereafter. What amount should be
reported as total income tax expense in the income statement for 2019?
a. P1,500,000
b. P2,100,000
c. P1,250,000
d. P1,600,000
5. On December 31, 2019, an entity reported a deferred tax liability of P600,000 and a
deferred tax asset of P150,000. On December 31, 2020, the deferred tax liability is
P900,000 and the deferred tax asset is zero. What is the deferred tax expense for 2020?
a. P300,000
b. P450,000
c. P150,000
d. P900,000
6. An entity reported the following information during the first year of operations:
Pretax financial income P9,000,000
Nontaxable interest received 1,000,000
Long – term loss accrual in excess of deductible amount 1,500,000
Tax depreciation in excess of financial depreciation 2,000,000
Income tax rate 30%
What is the current tax expense?

a. P2,250,000
b. P2,700,000
c. P1,800,000
d. P2,550,000
What is the total tax expense?
a. P2,700,000
b. P2,400,000
c. P3,150,000
d. P2,550,000
What is the deferred tax liability at year – end?
a. P600,000
b. P456,000
c. P150,000
d. P900,000
What is the deferred tax asset at year – end?
a. P600,000
b. P450,000
c. P750,000
d. P150,000
7. An entity reported the following assets and liabilities at year – end:

Carrying amount Tax base
Property P10,000,000 7,000,000
Plant and equipment 5,000,000 4,000,000
Inventory 2,500,000 4,000,000
Accounts receivable 2,500,000 3,000,000
Liabilities 6,000,000 5,500,000
The entity had made a provision for inventory obsolescence of P1,500,000. Further, an
impairment loss against accounts receivable of P500,000 has been made. The tax rate is
30%.
What amount should be reported as deferred tax liability?
a. P1,200,000
b. P1,350,000
c. P1,050,000
d. P4,000,000
What amount should be reported a deferred tax asset?
a. P600,000
b. P750,000
c. P300,000
d. P450,000
SHAREHOLDERS’ EQUITY
1. During the current year, an entity issued P10,000 ordinary shares with P100 par value and
20,000 convertible preference shares with P200 par value for P8,000,000. On the date of
issuance, the ordinary share is selling at P360 and the preference share is selling at P270.
The entity also issued 6% bonds with a maturity value of P6,000,000, together with 20,000
ordinary shares with P100 par value for a combined cash amount of P11,000,000. The
market value of the ordinary share cannot be determined. If the bonds were issued
separately, the bonds would have sold for P5,000,000 on an 8% yield to maturity basis.
What amount should be reported as share premium from preference shares?
a. P4,000,000
b. P6,000,000
c. P800,000
d. P0
What amount should be reported a share premium from ordinary shares?
a. P4,000,000
b. P6,600,000
c. P2,200,000
d. P6,200,000
2. An entity reported the following shareholders’ equity at the beginning of the current year:
Share capital, P10 par P5,000,000
Share premium 2,000,000
Retained earnings 1,500,000
During the current year, the entity had the following share transactions:
 Acquired 20,000 treasury shares for P1,000,000
 Sold 15,000 treasury shares at P60 per share.
 Sold the remaining treasury shares at P45 per share.
What amount should be reported as share premium at year – end?
a. P2,125,000
b. P2,150,000
c. P2,000,000
d. P1,975,000
3. An entity had issued 100,000 ordinary shares. Of these, 5,000 shares were held as treasury
at the beginning of current year. During the current year, transactions involving ordinary
shares were:
May 1 2,000 shares of treasury were sold.
Aug 1 10,000 previously unissued shares were sold.
Nov 1 A 3 for 1 share split took effect.
At year – end, how many ordinary shares were issued?

a. P330,000
b. P110,000
c. P105,000
d. P315,000
At year – end, how many shares are outstanding?
a. P321,000
b. P327,000
c. P315,000
d. P339,000
4. At year – end, an entity canceled 5,000 shares of P50 par value held in treasury at an
average cost of P120 per share. Before recording the cancelation of the treasury shares,
the entity had the following shareholders’ equity:
Share capital, 50,000 shares originally issued at P75 P2,500,000
Treasury shares, at cost 600,000
What amount should be reported as share capital outstanding at year – end?

a. P2,500,000
b. P1,900,000
c. P2,250,000
d. P2,125,000
5. An entity was organized on January 1, 2019. On that date, the entity issued 200,000 shares
with P10 par value at P15 per share. During the period January 1, 2019 through December
31, 2020, the entity reported net income of P2,000,000 and paid cash dividends of
P500,000. On January 5, 2020, the entity purchased 10,000 shares at P20 per share to be
held as treasury. On December 31, 2020, 5,000 treasury shares were sold at P30 per share
and the remaining treasury shares were retired. What is the total shareholders’ equity on
December 31, 2020?
a. P4,450,000
b. P4,350,000
c. P4,400,000
d. P4,950,000
6. An entity was organized at the beginning of current year with 100,000 authorized shares of
P100 par value. During the current year, the following transactions occurred:
January 1 Sold 30,000 shares at P150 per share
February 1 Issued 2,000 shares for legal services with fair value of P250,000.
The shares on this date are quoted at P140 per share.
March 1 Purchased 5,000 treasury shares at a cost of P120 per share.
October 31 Issued P5,000,000 convertible bonds at 120. The bonds are
quoted at 98 without the conversion feature.
November 15 Declared a 2 for 1 share split when the market value of the share
was P160.
December 15 Sold 20,000 shares at P75 per share.
December 31 The net income for the year was P2,000,000.
What amount should be reported as share capital at year – end?

a. P5,200,000
b. P3,600,000
c. P4,200,000
d. P5,300,000
What amount should be recognized as share premium at year – end?
a. P2,050,000
b. P3,150,000
c. P3,130,000
d. P2,650,000
What is the total shareholders’ equity at year – end?
a. P8,750,000
b. P7,650,000
c. P9,350,000
d. P9,250,000
How many shares are outstanding at year – end?

a. P64,000
b. P79,000
c. P74,000
d. P84,000
RETAINED EARNINGS
1. On January 1, 2019, an entity reported the following shareholders’ equity:
Share capital, 100,000 shares authorized,
50,000 shares outstanding, P100 par P5,000,000
The board of directors declared a 10% share dividend on July 1, 2019, when the market
value of the share was P150. The share dividend was issued on October 1, 2019 when the
market value of the share was P180. The entity sustained a net loss of P1,500,000 for
2019. What amount should be reported as retained earnings on December 31, 2019?
a. P2,750,000
b. P3,000,000
c. P2,600,000
d. P3,250,000
2. An entity reported the following shareholders’ equity on January 1, 2019:

Share capital, P50 par, 300,000 shares authorized,
110,000 shares outstanding P5,500,000
On January 31, 2019, the entity reacquired 10,000 shares at P100 to be held as treasury.
On June 30, 2019, the entity declared and issued a 20% share dividend when the market
value per share was P150. On December 31, 2019, the entity paid a cash dividend of P20
per share. The net income for 2019 was P6,000,000. What amount should be reported as
unappropriated balance of retained earnings on December 31, 2019?
a. P7,600,000
b. P6,600,000
c. P5,600,000
d. P4,600,000
3. On January 1, 2019, an entity showed the following shareholders’ equity:

Share capital, P5 par, 300,000 shares outstanding P1,500,000
On July 1, 2019, the entity declared a property dividend of inventory payable on March 1,
2020. The inventory had a P1,200,000 carrying amount and a fair value less cost to
distribute of P1,500,000 on July 1, 2019, P1,800,000 on December 31, 2019 and
P2,000,000 on March 1, 2020. The net income for 2019 was P3,000,000.
What amount should be reported as retained earnings on December 31, 2019?
a. P8,000,000
b. P6,200,000
c. P6,000,000
d. P6,500,000
On December 31, 2019, the inventory should be reported at what amount?
a. P1,200,000
b. P1,500,000
c. P1,800,000
d. P2,000,000
What amount should be recognized as gain distribution if property dividend in 2020?
a. P300,000
b. P600,000
c. P800,000
d. P0
4. On January 1, 2019, an entity had ordinary and preference shares outstanding. The
incorporation owns ten ordinary shares but no preference shares. On December 31, 2019,
the entity declared, dividends on the ordinary shares payable on December 31, 2020. The
entity decided to give the ordinary shareholders a choice between receiving a cash dividend
of P500,000 per share or in the form of a noncash asset. The noncash asset is standard
model from the entity’s car fleet. Each car has a fair value of P600,000 and carrying amount
of P450,000 on December 31, 2019. The fair value of the car is P700,000 on December 31,
2020. The entity estimated that 80% of the ordinary shareholders will take the option of the
cash dividend and 20% will elect for the noncash asset.
What amount should be recognized as dividend payable on December 31, 2019?
a. P5,500,000
b. P5,200,000
c. P4,000,000
d. P6,000,000
What amount should be recognized a gain on distribution of property dividend in 2020 if the
ordinary shareholders elected to receive the noncash asset?
a. P2,000,000
b. P2,500,000
c. P1,500,000
d. P1,800,000
5. On December 31, 2019, an entity declared a cash dividend of P4,000,000 payable March
31, 2020. On December 31, 2019, the entity reported accumulated depletion of P1,200,000
share capital of P5,000,000, share premium of P1,500,000 and retained earnings of
P3,000,000. What amount of liquidating dividend is included in the cash dividend declared
on December 31, 2019?
a. P1,000,000
b. P1,500,000
c. P3,000,000
d. P1,200,000
6. An entity provided the following data for the year ended December 31, 2019:
Retained earnings unappropriated, January 1 P2,000,000
Over depreciation of 2018 due to prior period error, net of tax 400,000
Net income 3,000,000
Retained earnings appropriated for treasury shares (original balance
is P500,000 but reduced by P200,000 by reason of reissuance of
treasury shares) 300,000
Retained earnings appropriated for contingencies (beginning balance
P700,000 but increased by current appropriation of P100,000) 800,000
Cash dividends paid to shareholders 1,000,000
Change in accounting policy from FIFO to an average – credit, net of tax 300,000
What is the balance of unappropriated retained earnings on December 31, 2019?

a. P4,500,000
b. P4,800,000
c. P4,700,000
d. P4,200,000
7. An entity provided the following information during the current year:

 Dividends on 10% 50,000 cumulative preference shares with P100 par value have not
been declared or paid for 3 years.
 Treasury ordinary shares were acquired at a cost of P1,000,000 during the year. The
treasury shares had not been reissued at year-end,
 The entity appropriated P2,000,000 of retained earnings for the construction of a new
plant.
 Cash of P3,500,000 was restricted for the retirement of bonds payable.
What amount should be reported as appropriate and retained earnings?
a. P3,000,000
b. P4,500,000
c. P7,500,000
d. P6,500,000
BOOK VALUE AND QUASI – REORGANIZATION

1. An entity provided the following equity balances at year – end:
10% preference share capital, 30,000 shares, par P100 P3,000,000
Ordinary share capital, 50,000 shares, par P100 5,000,000
The preference shares have a call price of 120, a liquidation price of 115 and dividends
have not been paid for 3 years. What is the book value per preference share?
a. 125
b. 130
c. 145
d. 110
2. An entity provided the following shareholders’ equity at year – end:
10% cumulative preference share capital, P100 par, 30,000 shares P3,000,000
Ordinary share capital, P100 par value, 50,000 shares 5,000,000
Dividends in arrears on the preference shares are for 5 years. If the entity were to be
liquidated, the preference share would receive par plus a premium of P300,000. What is the
book value per ordinary share?
a. 144
b. 134
c. 174
d. 150
3. An entity provided the following shareholders’ equity at year – end:

Ordinary share capital, P100 par, 72,000 shares P7,200,000
Subscribed ordinary share capital, 12,000 shares 1,200,000
Subscription receivable 400,000
Treasury shares, 4,000 at cost 600,000
What is the book value per ordinary share?

a. 122.50
b. 117.50
c. 100.00
d. 130.00
4. On December 31, 2019 and 2018, an entity had 30,000 10% cumulative preference shares
of P100 par value outstanding. No dividends were in arrears on December 31, 2017. The
entity did not declare a dividend during 2018. During 2019, the entity paid a cash dividend
of P200,000 in the preference shares. How should the dividend in arrears on preference
shares be reported in the 2019 financial statements?
a. Accrued liability of P300,000
b. Disclosure of P300,000
c. Accrued liability of P400,000
d. Disclosure of P400,000
5. An entity began operations January 1, 2015 and reported the following net income or loss
for five years of operations:
2015 P1,500,000 loss
2016 1,300,000 loss
2017 1,200,000 loss
2018 4,500,000 income
2019 9,000,000 income
On December 31, 2019, the capital accounts were:

Preference share capital, P100 par, 12% participating and
cumulative, 100,000 shares P10,000,000
Preference share capital, P100 par, 10% nonparticipating,
noncumulative, 50,000 shares 5,000,000
Ordinary share capital, P10 par, 1,000,000 shares 10,000,000
The entity has never paid cash or share dividend. The capital accounts have not changed
since the entity began operations.
If the maximum amount available for cash dividend is declared on December 31 2019, what
amount of dividend is payable to:
12% Preference shareholders?
a. P6,000,000
b. P6,900,000
c. P1,100,000
d. P1,200,000
10% Preference shareholders?
a. P2,500,000
b. P2,860,000
c. P500,000
d. P860,000
Ordinary shareholders?
a. P2,100,000
b. P1,200,000
c. P1,920,000
d. P4,500,000
6. Adverse financial and operating circumstances warrant that an entity should undergo a
quasi – reorganization at year – end.
 Inventory with a fair value of P1,000,000 is currently recorded in the accounts at cost of
P1,500,000.
 Plant assets with a fair value of P3,000,000 are currently recorded at P4,000,000 net of
accumulated depreciation.
 Unrecorded accounts payable amount to P300,000.
 Individual shareholders contribute P1,500,000 to create additional paid – in capital to
facilitate the reorganization. No new shares are issued to the shareholders.
 The par value of the share capital is reduced from P100 to P50.
 Immediately before these events, the entity reported the following shareholders’ equity:
Share capital, P100 par value, 50,000 shares P5,000,000
Share premium 500,000
Retained earnings (deficit) 2,000,000
After the quasi – reorganization, what is the total shareholders’ equity?

a. P3,200,000
b. P2,500,000
c. P1,700,000
d. P1,000,000
BASIC EARNINGS PER SHARE

1. An entity had the following share capital during 2019:
Preference share capital, P100 par, 10% cumulative, 30,000 shares P3,000,000
Ordinary share capital, P50 par, 100,000 shares 5,000,000
The entity reported net income of P5,000,000 for the current year. There are no preference
dividends in arrears on December 31, 2017. The entity paid no preference dividends during
2018 and paid P500,000 in preference dividends during 2019. What amount should be
reported as basic earnings per share for 2019?
a. 47
b. 50
c. 45
d. 44
2. An entity had 100,000 ordinary shares issued and outstanding at the beginning of current
year. During the current year, the entity revealed the following ordinary share transactions:
April 1 Issued 30,000 previously unissued shares
May 1 Split the share 2 for 1
June 30 Purchased 10,000 shares for the treasury
July 31 Distributed a 20 percent bonus issue
December 31 Split the stock 3 for 1
What is the weighted average number of shares for EPS purposes?

a. P288,000
b. P864,000
c. P882,000
d. P972,000
3. On January 1, 2019, an entity had 60,000 ordinary shares outstanding, P100 par, or a total
par value of P6,000,000. During 2019, the entity issued rights to acquire one ordinary share
at P100 in the ration of one share for every 5 shares held. The rights are exercised on
March 31, 2019.
The market value of each share immediately prior to March 31, 2019 was P160. The net
income for 2019 was P5,000,000. What amount should be reported as basic earnings per
share for 2019?
a. 71.43
b. 69.44
c. 72.46
d. 83.33
4. An entity began provided the following extract from the statement of comprehensive income
for 2019:
Income before tax P6,000,000
Income tax expense 1,800,000
The entity paid during the year an ordinary dividend of P1,000,000 and a dividend on the
redeemable preference shares of P500,000. The entity had 200,000 of P5 par value
ordinary shares in issue throughout the year and 500,000 authorized ordinary shares. What
amount should be reported as basic earnings per share for the year?
a. 30.00
b. 27.50
c. 21.00
d. 18.50
5. On January 1, 2019, an entity had 200,000 ordinary shares and 100,000 5% P100 par
value cumulative preference shares outstanding. No dividends were declared on either the
preference or ordinary shares in 2019.
On March 1, 2020, prior to the issuance of the financial statements for 2019, the entity
declared a 100% share dividend on ordinary shares. Net income for 2019 was P7,500,000.
What amount should be reported as basic earnings per share?
a. 35.00
b. 37.50
c. 17.50
d. 16.25
6. An entity reported net income of P15,000,000 for the current year. The net income reflected
an income tax rate of 30%. The net income included a casualty loss P5,000,000 before
income tax. The entity showed the following shareholders’ equity at year – end:
Preference share capital 10% cumulative, P50 par value,
100,000 shares P5,000,000
Ordinary share capital, P100 par value, 300,000 shares issued 30,000,000
Treasury ordinary shares, 50,000 at cost 4,000,000

a. 58.00
b. 60.00
c. 73.60
d. 48.33
7. An entity had one class of ordinary share capital outstanding and no other securities that
are potentially convertible into ordinary shares. The net income for 2020 was P6,000,000
and the net income for 2019 was P3,600,000. During 2019, 120,000 shares were
outstanding. In 2020, two distributions of additional ordinary shares occurred:
April 1 – 40,000 treasury shares were sold.
July 1 – A 2 for 1 share split was issued.
What amount should be reported as basic earnings per share for 2020 in the comparative
income statement for 2020?
a. 25.00
b. 20.00
c. 18.75
d. 37.50
What amount should be reported as basic earnings per share for 2019 in the comparative
income statement for 2020?
a. 30.00
b. 15.00
c. 45.00
d. 22.50
DILUTED EARNINGS PER SHARE

1. An entity had 200,000 P50 par value ordinary shares outstanding on January 1, 2019. In
addition, on January 1, 2019, the entity had issued 30,000 convertible cumulative 10%
preference shares with P100 par. These preference shares were converted on September
1, 2019.
Each preference share was converted into 5 ordinary shares. The preference dividends for
the entire year were paid in full before the conversion. The entity had no other potentially
dilutive securities. Net income for the current year was P5,000,000.
a. 18.80
b. 13.43
c. 23.50
d. 25.00
What amount should be reported as diluted earnings per share?
a. 14.29
b. 20.00
c. 18.80
d. 10.00
2. An entity had 200,000 ordinary shares outstanding on January 1, 2019. On January 1,

2019, the entity had issued convertible 10% bonds with face amount of P5,000,000.
The bond as were converted on October 1, 2019 and 40 ordinary shares were issued in
exchange for every P1,000 bond. Net income for current year was P6,000,000. The income
tax rate is 30%.
What is the amount of basic earnings per share?
a. 30.00
b. 17.14
c. 24.00
d. 15.00
What is the amount of diluted earnings per share?

a. 15.66
b. 13.75
c. 13.44
d. 15.94
3. An entity had 200,000 ordinary shares issued and outstanding on January 1, 2019.
Unexercised share options to purchase 50,000 ordinary shares at P20 per share were
outstanding at the beginning and end of 2019.
The average market price of ordinary share was P25 during 2019. Net income for the year
was P5,000,000.
a. 25.00
b. 50.00
c. 12.50
d. 30.00
What amount should be reported as diluted earnings per share?
a. 16.67
b. 23.81
c. 25.00
d. 20.00
4. An entity reported the following information on December 31, 2019:

Ordinary share capital 110,000,000 shares
Convertible noncumulative preference share capital 20,000 shares
10% convertible bonds payable P2,000,000
Share options to purchase 60,000 shares at P15 were outstanding. Market price of ordinary
share was P25 on December 31, 2019 and averaged P20 during the year. No value was
assigned to the share options. The entity paid preference dividends of P5 per share. The
preference shares are convertible into 40,000 ordinary shares. The 10% bonds are
convertible into 30,000 ordinary shares. The net income for 2019 is P650,000. The tax rate
is 30%.
What amount should be reported as basic earnings per share for 2019?
a. 5.00
b. 5.91
c. 4.36
d. 4.40
What is the total number of potential ordinary shares?
a. P130,000
b. P115,000
c. P85,000
d. P70,000
What amount should be reported as diluted earnings per share for 2019?
a. 5.00
b. 4.40
c. 4.05
d. 3.94
5. An entity had outstanding 20,000 written put options on ordinary shares with an exercise
price of P350. The average market price of ordinary shares for the period is P280. In
calculating diluted earnings per share, how many incremental ordinary shares should be
included as a result of the written put options?
a. P20,000
b. P25,000
c. P5,000
d. P0
6. An entity reported a net loss of P3,000,000 for the current year. The entity had share capital
outstanding as follows:
Ordinary share capital, P100 par, 50,000 shares P5,000,000
Preference share capital, P100 par, 10% cumulative, two years
in arrears, 20,000 shares convertible into 20,000 ordinary shares 2,000,000
What is the basic loss per share?

a. 60.00
b. 64.00
c. 56.00
d. 68.00
What is the diluted loss per share?
a. 42.86
b. 45.71
c. 60.00
d. 64.00
STATEMENT OF FINANCIAL POSITION

1. An entity reported the following current assets on December 31, 2019:
Cash in bank, net of bank overdraft P800,000 P4,000,000
Accounts receivable 7,000,000
Notes receivable 2,500,000
Note receivable discounted (400,000)
Inventory 4,500,000
Financial asset – FVPL 1,000,000
Financial asset – FVOCI 1,500,000
Prepaid expenses 200,000
Deferred tax asset 2,500,000
Equipment classified as “held for sale” 2,000,000
Total 24,800,000
Customers’ accounts, net of customers’ accounts with

credit balances P700,000 5,000,000
Allowance for doubtful accounts (500,000)
Sale price of unsold goods out on consignment at 125%
of cost and excluded from ending inventory 2,500,000
Net accounts receivable 7,000,000
What amount should be reported as total current assets on December 31, 2019?
a. P21,000,000
b. P19,000,000
c. P19,800,000
d. P21,800,000
2. An entity provided the following information on December 31, 2019:

Accounts payable, net of suppliers’ accounts with
debit balances P200,000 P2,000,000
Accrued expenses 800,000
Bonds payable due December 31, 2020 2,500,000
Premium on bonds payable 300,000
Deferred tax liability 500,000
Income tax payable 1,100,000
Cash dividend payable 600,000
Share dividend payable 400,000
Note payable – 6%, due March 1, 2020 1,500,000
Note payable – 8%, due October 1, 2020 1,000,000
The financial statements for 2019 were issued on March 31, 2020. On March 1, 2020, the
6% note payable was refinanced on a long – term basis. Under the load agreement for the
8% note payable, the entity has the discretion to refinance the obligation for at least 12
months after December 31, 2019. What amount should be reported as total current
liabilities?
a. P9,000,000
b. P9,600,000
c. P8,800,000
d. P7,500,000
3. An entity was incorporated on January 1, 2019 with proceeds from the issuance of
P5,000,000 in shares and borrowed funds of P1,000,000. During the first year of
operations, revenue from sales amounted to P8,000,000 and operating costs and expenses
totaled P6,000,000. On December 15, the entity declared a P500,000 cash dividend,
payable to shareholders on January 15, 2020. No additional activities affected owners’
equity in 2019. The liabilities increased to P1,800,000 by December 31, 2019. What amount
should be reported as total assets on December 31, 2019?
a. P8,300,000
b. P8,800,000
c. P7,000,000
d. P6,800,000
4. Parent Company acquired 100% of Subsidiary Company. During 2019, the individual
entities included in their financial statements the following:
Parent Subsidiary
Key officers’ salaries P750,000 P500,000
Officers’ expenses 200,000 100,000
Loans to officers 1,250,000 500,000
Intercompany sales 1,500,000
What total amount should be reported as related party disclosures in the notes to the 2019
consolidated financial statements?
a. P4,500,000
b. P1,250,000
c. P1,750,000
d. P3,000,000
5. An entity provided the following information at year – end:

Preference share capital, at par P2,000,000
Ordinary share capital, at par 3,000,000
Sales 10,000,000
Total expenses 7,800,000
Treasury shares at cost – ordinary 500,000
Dividends 700,000
Retained earnings – beginning 1,000,000
What total shareholders’ equity should be reported at year – end?

a. P8,000,000
b. P8,500,000
c. P5,800,000
d. P8,700,000
6. The end of reporting period of an entity is December 31, 2019 and the financial statements
for 2019 are authorized for issue on March 31, 2020.
 The entity had equity investments held for trading. On December 31, 2019, these
investments were recorded at the fair value of P5,000,000. During the period up to
February 15, 2020, there was a steady decline in the fair value of the shares in the
portfolio and on February 15, 2020, the fair value had fallen to P2,000,000,
 The entity had reported contingent liability on December 31, 2019 related to court case
in which the entity was the defendant. The case was not heard until the first week of
February 2020. On March 1, 2020, the judge handed down a decision against the
entity. The judge determined that the entity was liable to pay damages and costs
totaling P3,000,000.
 On December 31, 2019 the entity had receivable from a large customer in the amount
of P4,000,000. On March 15, 2020, the entity was advised in writing by the liquidator of
the said customer that the customer was insolvent and that only 10% of the receivable
will paid on December 31, 2020.
What total amount should be reported as “adjusting events” on December 31, 2019?
a. P6,600,000
b. P7,000,000
c. P9,600,000
d. P0
STATEMENT OF COMPREHENSIVE INCOME
1. An entity reported the following data for the current year:
Legal and audit fees P1,700,000
Rent for office space 2,400,000
Advertising 500,000
Interest on inventory loan 2,100,000
Loss on abandoned data processing equipment 350,000
Freight in 1,750,000
Freight out 1,600,000
Officers’ salaries 1,500,000
Insurance 850,000
Sales representative salaries 2,150,000
Research and development expense 1,000,000
The office space is used equally by the sales and accounting departments.
What amount should be classified as general and administrative expenses?
a. P5,250,000
b. P6,450,000
c. P5,600,000
d. P6,250,000
What amount should be classified as general and administrative expenses?

a. P5,450,000
b. P4,250,000
c. P6,300,000
d. P6,450,000
2. An entity provided the following information for the current year:

Increase in raw materials inventory P150,000
Decrease in goods in process inventory 200,000
Decrease in finished goods inventory 350,000
Raw materials purchased 4,300,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000
Freight out 450,000
Freight in 250,000
What is the cost of goods sold for the current year?

a. P9,950,000
b. P9,550,000
c. P9,250,000
d. P9,150,000
3. An entity reported operating expenses other than interest expense for the year at 40% of
cost of goods sold but only 20% of sales. Interest expense is 5% of sales. The amount of
purchases is 120% of cost of goods sold. Ending inventory is twice as mush as the
beginning inventory. The net income for the year is P2,100,000. The income tax rate is
30%.
What is the amount of sales for the year?
a. P10,000,000
b. P15,000,000
c. P18,000,000
d. P12,000,000
What is the amount of purchases for the year?
a. P6,000,000
b. P7,200,000
c. P3,000,000
d. P3,600,000

Income from continuing operations P4,000,000
Income from discontinued operation 500,000
Unrealized gain in financial asset – FVPL 800,000
Unrealized loss on equity investment – FVOCI 1,000,000
Unrealized gain on debt investment – FVOCI 1,200,000
Unrealized gain on future contract designated as a cash flow hedge 400,000
Translation loss on foreign operation 200,000
Net “remeasurement” gain on defined benefit plan during the year 600,000
Loss on credit risk of a financial liability designated at FVPL 300,000
Revaluation surplus during the year 2,500,000
What net amount should be reported as other comprehensive income for the current year?
a. P4,000,000
b. P3,500,000
c. P3,200,000
d. P7,000,000
What amount should be reported as comprehensive income for the current year?
a. P5,200,000
b. P7,700,000
c. P8,500,000
d. P7,000,000
5. During 2019, an entity decided to change from the FIFO method of inventory valuation to
the weighted average method. Inventory balances under each method were:
FIFO Weighted Average
December 31, 2016 P4,500,000 P5,400,000
December 31, 2017 7,800,000 7,100,000
December 31, 2018 8,300,000 7,800,000
The income tax rate is 30%. What amount should be reported as the effect of this
accounting change in the statement of retained earnings for 2019?
a. P350,000 decrease
b. P350,000 increase
c. P490,000 decrease
d. P490,000 increase
6. On January 1, 2016, an entity purchased a machine for P5,280,000 and depreciated it by

the straight line method using an estimated useful life of eight years with no residual value.
On January 1. 2019, the entity determined that the machine had a useful life of six years
from the date of acquisition with a residual value of P480,000. What is the accumulated
depreciation on December 31, 2019?
a. P2,920,000
b. P3,080,000
c. P3,200,000
d. P3,520,000
7. On January 1, 2017, an entity purchased for P5,000,000 a machine with useful life of ten
years and residual value of P200,000. The machine was depreciated by the double
declining balance method. The entity changed to the straight line method on January 1,
2019 and the residual value did not change. What is the carrying amount of the asset on
December 31, 2019?
a. P2,825,000
b. P2,800,000
c. P2,625,000
d. P3,200,000
NONCURRENT ASSET HELD FOR SALE AND DISCONTINUED OPERATION

1. An entity accounted for noncurrent assets using the cost model. On July 1, 2019, the entity
classified and equipment as held for sale. At that date, the carrying amount was
P5,000,000, the fair value was estimated at P3,500,000 and the cost of disposal at
P100,000. On December 31, 2019, the equipment was sold for net proceeds of P2,500,000.
What amount should be reported as impairment loss for 2019?

a. P1,600,000
b. P2,500,000
c. P1,500,000
d. P900,000
What amount should be reported as loss on disposal for 2019?
a. P1,500,000
b. P2,500,000
c. P1,600,000
d. P900,000
2. An entity purchased an equipment for P5,000,000 on January 1, 2019. The equipment had
a useful life of 5 years with no residual value. On December 31, 2019, the entity classified
the equipment as held for sale. On such date, the fair value less cost of disposal of the
equipment was P3,500,000.
On December 31, 2020, the entity believed that the criteria for classification as held for sale
can no longer be met. Accordingly, the entity decided not to sell the equipment but to
continue to use it. On December 31, 2020, the fair value less cost of disposal of the
equipment was P2,700,000.
What is the carrying amount of the equipment on December 31, 2019 before classification
as held for sale?
a. P5,000,000
b. P4,000,000
c. P3,500,000
d. P4,500,000
What amount of impairment loss should be recognized in 2019?
a. P1,500,000
b. P1,000,000
c. P500,000
d. P0
What amount should be included in profit or loss in 2020 as a result of the reclassification of
the equipment to property, plant and equipment?
a. P800,000 gain
b. P800,000 loss
c. P300,000 gain
d. P300,000 loss
What is the carrying amount of the equipment on December 31, 2021?
a. P2,700,000
b. P2,800,000
c. P2,000,000
d. P3,000,000
3. An entity accounted for land using the revaluation model. On October 1, 2019, the entity
classified a land as held for sale. At that date, the carrying amount of the land was
P5,000,000 and the balance in the revaluation surplus was P1,500,000.
At the same date, the fair value of the land was estimated at P5,500,000. The estimated
cost of disposal is P100,000.
On December 31, 2019, the fair value less cost of disposal of the land did not change. On
October 1, 2020, the land was sold for P7,000,000.
What is the impairment loss in 2019?
a. P100,000
b. P500,000
c. P400,000
d. P0
What amount should be reported as gain on disposal of land in 2020?
a. P1,600,000
b. P1,500,000
c. P3,600,000
d. P3,500,000
What amount of OCI is reclassified to retained earnings in 2020?
a. P1,500,000
b. P2,000,000
c. P500,000
d. P0
4. On January 1, 2019, an entity purchased land at a cost of P6,000,000. The entity used the
revaluation model for this asset.
The fair value of the land was P7,000,000 on December 31, 2019 and P8,500,000 on
December 31, 2020.
On July 1, 2021, the entity decided to sell the land and classified the asset as held for sale.
The fair value of the land on this date is P7,600,000. The estimated cost of disposal is very
minimal.
On December 31, 2021, the land was sold P8,000,000.
What amount in OCI should be recognized in the statement of comprehensive income for
the year end December 31, 2020?
a. P2,500,000
b. P1,500,000
c. P400,000
d. P900,000
What amount of gain on sale of land should be recognized in 2021?
a. P2,000,000
b. P1,000,000
c. P400,000
d. P500,000
What amount of OCI should be recycled to retained earnings in 2021?
a. P1,000,000
b. P1,600,000
c. P2,500,000
d. P2,000,000
5. An entity is diversified with nationwide interest in commercial real estate development,

banking, mining and food distribution. The food distribution division was deemed to be
inconsistent with the long – term direction of the entity. On October 1, 2019, the board of
directors voted to approve the disposal of this division. The sale is expected to occur in
August 2020.
The food distribution had the following revenue and expenses in 2019: January 1 to
September 30, revenue of P35,000,000 and expenses of P25,000,000; October 1 to
December 31, revenue of P10,000,000 and expenses of P12,000,000. The carrying amount
of the division assets on December 31, 2019 was P50,000,000 and the recoverable amount
was estimated to be P48,000,000. The sale contract required the entity to terminate certain
employees incurring an expected termination cost of P1,000,000 to be paid by December
15, 2020. The income tax rate is 30%. What amount should be reported as income from
discontinued operations for 2018?
a. P5,000,000
b. P4,200,000
c. P3,500,000
d. P5,600,000
6. On July 1, 2016, an entity decided to discontinue its Electronics Division, a separately

identifiable component of business. On December 31, 2019, the division has not been
completely sold. However, negotiations for the final and complete sale are progressing in a
positive manner and it is probable that the disposal will be completed within a year. Analysis
of the records for the year disclosed the following data relative to the Electronics Division:
Operating loss for 2019 P8,000,000
Loss on disposal of some Electronics Division assets during 2019 500,000
Expected operating loss in 2020 preceding final disposal 1,000,000
Expected gain in 2020 on disposal of division 2,000,000
Income tax rate 30%
What amount should be reported as loss from discontinued operation in 2019?

a. P5,600,000
b. P5,950,000
c. P6,650,000
d. P5,250,000
7. An entity had two operating divisions, one manufactures machinery and the other breeds
and sells horses. Both divisions are considered separate components.
The horse division has been unprofitable and on November 15, 2019, the entity adopted a
formal plan to sell the division. At December 31, 2019, the component was considered held
for sale.
On December 31, 2019, the carrying amount of the assets of the horse division was
P5,000,000. On that date, the fair value of the assets less cost of disposal was P4,000,000.
The before – tax operating loss of the horse division for the year was P1,500,000.
The after – tax income from continuing operations of the entity for 2019 was P8,000,000.
The income rate is 30%.
What amount should be reported as loss from discontinued operation for 2019?
a. P2,500,000
b. P1,750,000
c. P1,050,000
d. P2,050,000
What amount should be reported as net income for 2019?
a. P4,500,000
b. P5,600,000
c. P3,850,000
d. P6,250,000
OPERATING SEGMENT AND INTERIM REPORTING

1. An entity identified the following segments for the current year:
Segment Revenue Profit Assets
A P10,000,000 P1,750,000 P20,000,000
B 8,000,000 1,400,000 17,500,000
C 6,000,000 1,200,000 12,500,000
D 3,000,000 550,000 7,500,000
E 4,000,000 575,000 5,500,000
F 2,000,000 525,000 3,000,000
What are the reportable segments?

a. Segments A, B and C
b. Segments A, B, C and D
c. Segments A, B, C, D and E
d. Segments A, B, C, D, E and F
2. An entity reported the following segment profit or loss for the current year:
Segment 1 P7,000,000 profit
Segment 2 3,000,000 profit
Segment 3 4,000,000 loss
Segment 4 1,000,000 profit
Segment 5 500,000 loss
What are the reportable segments?

a. Segments 1, 2, 3, 4 and 5
b. Segments 1 and 2
c. Segments 1, 2 and 3
d. Segments 1, 2, 3 and 4
3. An entity reported revenue of P50,000,000, excluding intersegment sales of P10,000,000,

expenses of P47,000,000 and net income of P3,000,000 for the current year. Expenses
included payroll costs of P15,000,000. The combined assets of all segments totaled
P45,000,000.
What is the minimum amount of sales to a major customer?
a. P5,000,000
b. P4,000,000
c. P4,500,000
d. P6,000,000
What is the minimum amount of external revenue to be disclosed by reportable segments?
a. P30,000,000
b. P45,000,000
c. P33,750,000
d. P37,500,000
4. An entity and its divisions reported the following for the current year:
Sales to unaffiliated customers P40,000,000
Intersegment sales of products similar to those sold to
unaffiliated customers 12,000,000
Interest earned on loans to other operating segments 1,000,000
The entity and all of its divisions are engaged solely in manufacturing operations. To quality
as reportable segment, the segment revenue should at least be what amount?
a. P5,300,000
b. P4,100,000
c. P5,200,000
d. P4,000,000
What amount of gain on sale of land should be recognized in 2021?
a. P2,000,000
b. P1,000,000
c. P400,000
d. P500,000
What amount of OCI should be recycled to retained earnings in 2021?
a. P1,000,000
b. P1,600,000
c. P2,500,000
d. P2,000,000
5. An entity operates in the travel industry and incurs costs unevenly throughout the year.
Advertising cost of P2,000,000 was incurred on March 1, 2019, and staff bonuses are paid
at year – end based on sales.
Staff bonuses are expected to be around P20,000,000 for the year. Of that sum,
P3,000,000 would relate to the period ending March, 31, 2019.
What total amount of expenses should be included in the quarterly financial report ending
March 31, 2019?
a. P7,000,000
b. P5,500,000
c. P5,000,000
d. P3,500,000
6. An entity reported P950,000 net income for the quarter ended September 30, 2019 when
included the following after – tax items:
A P600,000 expropriation gain realized in May 2019 was allocated equally to the second,
third and fourth quarters of 2019.
A P150,000 cumulative effect loss resulting from a change in inventory valuation method
was recognized on August 31, 2019.
In addition, the entity paid P480,000 on February 1, 2019, for 2019 calendar – year real
property tax. Of this amount, P120,000 was allocated to the third quarter of 2019.
What is the net income for the quarter ended September 30, 2019?
a. P1,150,000
b. P1,100,000
c. P500,000
d. P900,000
7. An entity prepares quarterly interim financial reports. The entity sells electrical goods and
normally 5% of customers claim on their warranty.
The provision in the first quarter was calculated at 5% of sales to date which amounted to
P10,000,000.
However, in the second quarter, a design fault was found and warranty claims were
expected to be 10% for the whole year. Sales for the second quarter amounted to
P15,000,000.
What amount of warranty expense should be reported for the first quarter?
a. P1,000,000
b. P750,000
c. P500,000
d. P250,000
What amount of warranty expense should be reported for the second quarter?
a. P2,000,000
b. P1,250,000
c. P1,500,000
d. P750,000
8. A calendar – year corporation had the following income before tax provision and estimated
effective annual tax rates for the first three quarters:
Quarter Income before income tax Effective annual tax rate

First P5,000,000 30%
Second 8,000,000 30%
Third 7,000,000 25%
What is the income tax expense for the third quarter?

a. P1,750,000
b. P2,100,000
c. P1,100,000
d. P5,000,000
SINGLE ENTRY AND ERROR CORRECTION
1. An entity provided the following increases in account balances that occurred during the
current year:
Assets P9,000,000
Liabilities 3,000,000
Share capital 5,000,000
Except for a P2,000,000 dividend payment, the year’s earnings and a P200,000 prior period
error from understatement of ending inventory, there were no other changes in retained
earnings for the year. What is the net income for the current year?
a. P2,500,000
b. P2,300,000
c. P2,700,000
d. P6,000,000
2. An entity reported shareholders’ equity of P8,000,000 on December 31. The entity revealed
the following transactions during the current year:
 An adjustment of retained earnings for prior year underdepreciation P300,000
 Gain on sale of treasury shares 500,000
 Dividend declared, of which P500,000 was paid 1,500,000
 Net income for current year 3,000,000
The share capital balance of P5,000,000 remained unchanged during the year. What is the
balance of retained earnings on January 1?
a. P1,300,000
b. P2,500,000
c. P1,700,000
d. P7,000,000
3. An entity revealed the following changes in the accounts for the current year:
Increase (Decrease)
Cash P1,000,000
Accounts receivable, net of allowance 1,900,000
Inventory 2,200,000
Equipment (1,500,000)
Accounts payable (500,000)
Bonds payable (2,000,000)
Loan payable 3,000,000
Accrued interest payable 100,000
During the current year, the entity issued 10,000 ordinary shares of P100 par value for
P150 per share. Dividend of P4,000,000 was paid in cash during the year. Equipment with
fair value of P500,000 was donated by a shareholder during the year.
The entity borrowed P3,000,000 from the bank and made interest payment of P200,000.
The bank loan is unpaid at year – end and the interest payable at year – end was
P100,000. There is no interest payable at the beginning of the year.
What is the net income for the current year?
a. P2,000,000
b. P6,000,000
c. P4,500,000
d. P4,000,000
4. An entity reported the following errors:
December 31, 2018 December 31, 2019
Ending inventory P950,000 overstated P800,000 understated
Depreciation 250,000 understated
An insurance premium of P600,000 was prepaid in 2018 covering the years 2018, 2019 and
2020. The entire amount was charged to expense in 2018. No corrections have been made
for any of the errors. Ignore income tax.
What is the total effect of the errors on retained earnings on December 31, 2019?
a. P800,000 understated
b. P800,000 overstated
c. P750,000 understated
d. P750,000 overstated
5. An entity began operations on January 1, 2018. The financial statements contained the
following errors:
2018 2019
Ending inventory P800,000 under P400,000 over
Depreciation 150,000 under
Insurance expense 50,000 over 50,000 under
Prepaid insurance 50,000 under
In addition, on December 31, 2019, a fully depreciated equipment was sold for P100,000
cash but the sale was not recorded until 2020. Before income tax, what is the total effect of
the errors on
Net income for 2018?
a. P700,000 under
b. P700,000 over
c. P650,000 under
d. P650,000 over
Net income for 2019?
a. P1,350,000 under
b. P1,350,000 over
c. P1,150,000 under
d. P1,150,000 over
Working capital on December 31, 2019?
a. P300,000 under
b. P300,000 over
c. P400,000 under
d. P400,000 over
Retained earnings on December 31, 2019?
a. P1,150,000 over
b. P700,000 under
c. P450,000 over
d. P450,000 under
STATEMENT OF CASH FLOW

Dividend received P500,000
Dividend paid 1,000,000
Cash received from customers 9,000,000
Cash paid to suppliers and employees 6,000,000
Interest received 200,000
Interest paid on long – term debt 400,000
Proceeds from issuing share capital 1,500,000
Proceeds from sale of long – term investments 2,000,000
Cash paid for equity investment at FVOCI 800,000
Income taxes paid 300,000
Proceeds from long – term debt 3,000,000
What is the net cash provided by operating activities?

a. P3,300,000
b. P3,000,000
c. P2,700,000
d. P2,000,000
What is the net cash provided by investing activities?
a. P2,500,000
b. P2,000,000
c. P2,200,000
d. P1,200,000
What is the net cash provided by financing activities?

a. P1,500,000
b. P1,000,000
c. P3,500,000
d. P4,500,000
2. During the year, an entity had the following activities:

Payment for the early payment of long – term bonds
payable of P5,000,000 P4,000,000
Payment of cash dividend declared in prior year 2,000,000
Preference share capital converted into ordinary share capital 1,000,000
Proceeds from sale of treasury shares (cost of treasury
shares P1,000,000) 1,500,000
What amount should be reported as net cash used in financing activities?

a. P4,500,000
b. P3,500,000
c. P2,500,000
d. P5,500,000
3. An entity had the following activities during the current year:

 Acquired share capital of another entity P2,000,000
 Sold an investment with carrying amount of P2,000,000 1,500,000
 Acquired a one – year certificate of deposit from a bank 5,000,000
 Interest on the deposit received from the bank 500,000
 Collected dividends on share investments 300,000
What amount should be reported as net cash used in investing activities?
a. P5,500,000
b. P5,000,000
c. P4,700,000
d. P6,300,000
4. An entity reported the following changes in the statement of financial accounts for the
current year:
Increase (Decrease)
Cash and cash equivalents P1,100,000
Trading securities 2,500,000
Accounts receivable, net of allowance 1,000,000
Inventory (1,800,000)
Property, plant and equipment 4,000,000
Accumulated depreciation 500,000
Patent (700,000)
Investment in associate – 20% interest 400,000
6,000,000
Accounts payable P300,000

Note payable – bank (1,500,000)
Bonds payable 3,000,000
Deferred tax liability 200,000
Treasury shares 500,000
6,000,000
 The net income for the current year was P6,000,000.

 Cash dividend paid at year – end amounted to P5,000,000.
 During the current year, the entity purchased trading securities for P3,000,000 cash
and sold trading securities costing P1,000,000 for P1,400,000 cash. At year – end, the
entity recognized unrealized gain P500,000 from change in fair value.
 During the year, the entity sold equipment costing P1,000,000 with carrying amount of
P600,000 for P500,000 cash.
 The entity purchased equipment for P2,000,000 cash during the year.
 The associate reported net income of P3,000,000 for the current year and paid cash
dividend of P1,000,000.
 The entity issue bonds payable at face amount of P3,000,000 in exchange for land.
 During the year, the entity issued share capital with par value of P3,000,000 for
P3,500,000 cash.
 The entity purchased treasury shares at a cost of P500,000 at year – end.
a. P6,500,000
b. P6,100,000
c. P9,000,000
d. P8,600,000
What is the net cash provided by investing activities?
a. P1,900,000
b. P1,500,000
c. P3,500,000
d. P4,000,000
What is the net cash provided by financing activities?
a. P3,500,000
b. P3,100,000
c. P1,000,000
d. P4,000,000
HYPERINFLATION AND CURRENT COST

1. Indicate whether monetary or nonmonetary:
Cash in bank Accounts payable
Accounts receivable Accrued expenses
Allowances for doubtful accounts Unearned revenue
Advances to employees Advances to customers
Advances to suppliers Estimated warranty liability
Inventory Bonds payable
Financial asset at fair value Finance lease liability
Financial asset at amortized cost Deferred tax liability
Prepaid expense Share capital
Patent Retained earnings
2. An entity operates in a hyperinflationary economy and provides the following statement of

financial position on December 31, 2019:
Property, plant and equipment P900,000
Inventory 2,700,000
Cash 350,000
Noncurrent liabilities 500,000
Current liabilities 700,000
Share capital issued December 31, 2015 400,000
The price index numbers on December 31 of each year are 2015 – 100, 2016 – 130, 2017
– 150, 2018 – 240 and 2019 – 300.
The property, plant and equipment were purchased on December 31, 2017. The noncurrent
liabilities were loans raised on December 31, 2017.
What is the balance of retained earnings on December 31, 2019 after adjusting for
hyperinflation?
a. P2,350,000
b. P2,750,000
c. P3,550,000
d. P2,625,000
3. An entity operating in an hyperinflationary economy provided the following data:

Before restatement After restatement
Liabilities P2,000,000 P2,500,000
Share capital 5,000,000 8,500,000
Revaluation surplus 1,000,000 ?
Retained earnings 1,500,000 ____?____
Total liabilities and equity 9,500,000 16,000,000
What amount should be reported as retained earnings?

a. P3,500,000
b. P5,000,000
c. P1,000,000
d. P0
What amount should be reported as revaluation surplus?
a. P1,000,000
b. P2,500,000
c. P6,000,000
d. P0
4. An entity provided the following information during 2019:

Inventory – January 1 P1,650,000
Purchases 4,000,000
Inventory – December 31 2,500,000
The relevant index numbers are 120 on January 1, 2019, 280 on December 31, 2019, and
the average index number for 2018 is 110.
What is the cost of goods sold in a hyperinflationary income statement for 2019?
a. P6,300,000
b. P7,300,000
c. P3,150,000
d. P4,410,000
5. On January 1, 2019, an entity had monetary assets of P5,000,000 and monetary liabilities
of P3,000,000.
During 2019, the entity monetary inflows and outflows were relatively constant and equal so
that it ended the year with the same net monetary assets of P2,000,000.
The index number on January 1, 2019 was 125 and the index number on December 31,
2019 was 300.
What is the gain or loss on purchasing power during the current year?
a. P2,800,000 gain
b. P2,800,000 loss
c. P2,000,000 gain
d. P2,000,000 loss
6. An entity acquired an equipment on January 1, 2019 for P5,000,000. Depreciation is

computed using the straight line method. The estimated useful life of the equipment is 5
years with no residual value.
The current cost of the equipment is P7,500,000 on December 31, 2019.
What is the depreciation to be reported for current year under current cost accounting?
a. P1,250,000
b. P1,000,000
c. P1,500,000
d. P1,200,000
What is the realized holding gain on the equipment to be reported for current year?
a. P500,000
b. P250,000
c. P300,000
d. P0
What is net current cost on December 31, 2019?
a. P6,000,000
b. P6,250,000
c. P6,500,000
d. P4,000,000
What is the unrealized holding gain on the equipment to be reported for current year?
a. P1,250,000
b. P2,500,000
c. P2,000,000
d. P1,500,000
7. On January 1, 2019, an entity purchased land for P5,000,000. On December 31, 2019, the
land had a current cost of P5,500,000. On December 31, 2020, the entity sold the land for
P6,500,000. On same date, the current cost of the land is P5,900,000.
What is the unrealized gain to be reported in the income statement for 2019?
a. P500,000
b. P250,000
c. P750,000
d. P0
What is the realized holding gain to be reported in the income statement for 2020?
a. P1,500,000
b. P1,000,000
c. P900,000
d. P400,000
What is the gain on sale of land to be reported in the income statement for 2020 under the
current cost accounting?
a. P1,000,000
b. P1,500,000
c. P600,000
d. P900,000
8. An entity reported the following information for the current year:

Units Historical cost
Inventory – January 1 10,000 P530,000
Purchases 45,000 2,790,000
Goods available for sale 55,000 3,320,000
Inventory – December 31 (15,000) (945,000)
Cost of goods sold 40,000 2,375,000
The current cost per unit was P58 on January 1 and P72 on December 31.
What amount should be reported as current cost of inventory on December 31?
a. P1,080,000
b. P975,000
c. P945,000
d. P870,000
Under current cost accounting, what is the unrealized gain on inventory for the year?
a. P135,000
b. P105,000
c. P30,000
d. P0
Under current cost accounting, what is the cost of goods sold for the year?
a. P2,600,000
b. P2,880,000
c. P2,375,000
d. P2,320,000
Under current cost accounting, what is the realized gain from inventory sold?
a. P225,000
b. P505,000
c. P280,000
d. P135,000
SME
1. At the beginning of current year, SME acquired 20% of the equity of A and B for P2,000,000
and P6,000,000 respectively. Transaction costs of 10% of the purchase price of the shares
were incurred by SME.
On January 15, entity A declared and paid dividend of P1,500,000.
Entity A recognized profit of P2,500,000 and entity B recognized a loss of P4,000,000 for
that year.
At year – end, SME determined the fair value of the investments in A and B at P3,000,000
and P4,000,000 respectively. Costs of disposal are estimated at 10% of the fair value of the
investments.
Published price quotations do not exist for the shares of entities A and B.
Under the cost model, what is the total carrying amount of the investment in associates at
year – end?
a. P5,800,000
b. P6,300,000
c. P7,000,000
d. P6,200,000
What is the impairment loss under the cost model?
a. P2,000,000
b. P3,000,000
c. P2,400,000
d. P0
Under the equity method, what is the total carrying amount of the investment in associates
at year – end?
a. P8,200,000
b. P6,000,000
c. P8,800,000
d. P8,500,000
What is the impairment loss under the equity method?
a. P2,200,000
b. P1,800,000
c. P1,900,000
d. P0
Under the fair value model, what is the total carrying amount of the investment in
associates at year – end?
a. P8,000,000
b. P6,300,000
c. P7,000,000
d. P6,000,000
2. At the beginning of current year, SME acquired a 30% interest in the ordinary shares that
carry voting rights of another entity for P15,000,000. The carrying amount of the net assets
acquired is P13,250,000. SME elected to use the equity method.
The carrying amount of the identifiable assets and liabilities of the investee equaled fair
value except for equipment whose fair value exceeded the carrying amount by P2,500,000.
The remaining useful life for the equipment is five years.
The investee reported net income of P20,000,000 for the current year, and declared
dividend of P7,500,000 at year – end. The fair value of the investment in associate is
P20,000,000 at year – end.
What is the implied goodwill from the acquisition?
a. P1,750,000
b. P1,000,000
c. P750,000
d. P0
What is the investment income for the current year?
a. P2,250,000
b. P6,000,000
c. P5,750,000
d. P5,850,000
What is the carrying amount of the investment at year – end?
a. P18,500,000
b. P20,000,000
c. P16,750,000
d. P18,600,000
3. On January 1, 2016, SME acquired trademark for P3,000,000. The SME expected to
continue marketing the line of products using the trademark indefinitely. An analysis
provides evidence that the line of trademarked products may generate net cash inflow for
an indefinite period. Management is unable to estimate the useful life of the trademark.
In 2019, a competitor unexpectedly revealed a technological breakthrough that is expected
to result in a product, that when launched by the competitor, will extinguish demand for
SME’s patented product line. Demand for SME’s patented product line is expected to
remain strong until December 2021, when the competitor is expected to launch the new
product.
On December 31, 2019, SME assessed the recoverable amount of the trademark at
P500,000. SME intended to continue manufacturing the patented products until December
31, 2021.
What is the carrying amount of the trademark on January 1, 2019?
a. P3,000,000
b. P2,100,000
c. P2,400,000
d. P2,700,000
What is the amortization of trademark for 2019?
a. P300,000
b. P600,000
c. P700,000
d. P0
What amount should be recognized as impairment loss for 2019?
a. P3,000,000
b. P2,500,000
c. P900,000
d. P0
4. An SME provided the following information at year - end:

Cash P25,000
Accounts receivable 530,000
Prepayments 60,000
Inventories 60,000
Investment in associate 110,000
Property, plant and equipment 3,250,000
Accumulated depreciation and impairment 700,000
Software – net of amortization and impairment 10,000
Deferred tax asset – to be reversed next year 5,000
Bank overdraft 80,000
Bank loan, fully payable in two years and prepayable without penalty 50,000
Trade payables 430,000
Interest payable 2,000
Current tax liability 270,000
Provision for warranty 14,000
Employee benefit obligation, current portion, P4,000 10,000
Finance lease liability, current portion, P20,000 44,000
Retained earnings ?
What is the total amount of current assets?

a. P675,000
b. P615,000
c. P785,000
d. P725,000
What is the total amount of noncurrent assets?
a. P2,615,000
b. P2,670,000
c. P2,675,000
d. P2,660,000
What is the total amount of current liabilities?
a. P820,000
b. P870,000
c. P796,000
d. P816,000
What is the total amount of current assets?
a. P68,000
b. P54,000
c. P80,000
d. P30,000
What is the balance of retained earnings?
a. P2,000,000
b. P2,450,000
c. P500,000
d. P450,000
5. An SME provided the following information in relation to the preparation of a statement of

cash flows for the current year:
Net income for the year P3,800,000
Noncash finance cost, finance cost paid P250,000 10,000
Noncash income tax expense income taxes paid P1,900,000 790,000
Depreciation of property, plant and equipment 2,700,000
Impairment loss 300,000
Amortization intangible asset 20,000
Gain on sale of equipment 600,000
Increase in trade and other receivables 100,000
Decrease in inventories 90,000
Increase in trade payables including unrealized foreign
exchange of P10,000 charged to other expenses 110,000
Increase in current and long term benefit payable 30,000
Proceeds from sale of equipment 1,000,000
Purchase of equipment for cash 4,850,000
Payment of finance lease liability 200,000
Repayment of borrowings 1,000,000
Dividends paid 1,500,000
Issuance of share capital for cash 2,000,000
Purchase of treasury shares of cash 500,000

a. P7,150,000
b. P6,350,000
c. P7,140,000
d. P5,650,000
What is the net cash used in investing activities?
a. P4,850,000
b. P3,850,000
c. P5,850,000
d. P1,000,000
What is the net cash used financing activities?
a. P3,200,000
b. P1,200,000
c. P1,700,000
d. P2,700,000
MULTIPLE CHOICE – SMEs

1. The IASB defines SMEs as entities that
a. Do not have public accountability.
b. Have public accountability and publish general purpose financial statements for
external users.
c. Do not publish general purpose financial statements for external users.
d. Do not have public accountability and publish general purpose financial
statements for external users.
2. Which description accurately describes the definition of an SME used by the IASB?
a. Entities that have no public accountability
b. Entities that have a specified number of employees
c. Entities that have a certain statement of financial position total
d. Entities that have a certain annual turnover
3. All of the following entities are publicly accountable, except

a. An entity whose shares are traded in a public market.
b. An entity whose debt instruments but not its shares are traded in a public market.
c. An entity whose shares and debt instruments are traded in an “over – the –
counter market”.
d. An entity that is not in the process of issuing its shares and debt
instruments for trading in a public market.
4. Which approach has the IASB taken in developing IFRS for SMEs?
a. The exemptions given to smaller entities are prescribed in the mainstream
accounting standards
b. GAAP for SMEs is to be developed on a national basis
c. The standard is an independently developed set of standards
d. The standard is a simplified self – contained set of accounting principles
that are based on full IFRS
5. In the Philippines, which entity is not an SME?

a. A nonpublicly accountable entity with total assets between P3,000,000 and
P350,000,000 or total liabilities between P3,000,000 and P250,000,000
b. An entity that is not in the process of filing its financial statements for the purpose
of issuing any class of instruments in a public market
c. An entity that is not a holder of a secondary license issued by a regulatory
agency
d. Public utility
6. As defined by SEC, small entities

a. Are entities with total assets between P3,000,000 and P100,000,000 or total
liabilities between P3,000,000 and P100,000,000.
b. Are not in the process of filing financial statements for the purposes of issuing
any class of instruments in a public market.
c. Are not holders of secondary license issued by regulatory agency.
d. Are defined by all of those statements.
7. Entities with total assets or total liabilities below the floor threshold of P3,000,000 are
known as
a. Micro – business entities
b. Macro – business entities
c. Medium – sized entities
d. Small entities
8. Which topic is not addressed in IFRS for SMEs?

a. Earnings per share
b. Interim and segment reporting
c. Asset held for sale and discontinued operation
d. All of these are not addressed in IFRS for SMEs
9. Which accounting treatment is not allowable under IFRS for SMEs?

a. Weighted average method for inventory
b. Equity method for associates
c. Revaluation model for intangible assets
d. Temporary difference approach for deferred taxation
10. If an SME that uses the PFRS for SMEs in the current year breaches the ceiling of the size
criteria at the end of the current year, the entity is
a. Required to transition to full PFRS at the current year – end.
b. Required to transition to full PFRS at the current year – end if the event that
caused the change is significant and continuing.
c. Required to transition to full PFRS at the next year if the event that caused
the change is significant and continuing.
d. Not required to transition to full PFRS.
11. All of the following can be done by a first – time adopter of PFRS for SMEs in the opening
statement of financial position, except
a. Recognize all assets and liabilities whose recognition is required by PFRS for
SMEs.
b. Recognize all assets and liabilities required by full PFRS even if the PFRS
for SMEs does not require such recognition.
c. Reclassify items that it recognized under a previous accounting framework as
one type of asset, liability or equity but a different type of asst, liability or equity
under PFRS for SMEs.
d. Apply PFRS for SMEs in measuring all recognized assets and liabilities.
12. A nonpublicly accountable entity must make an explicit and unreserved statement of
compliance with the PFRS for SMEs
a. If the entity complies with all the requirements of PFRS for SMEs.
b. If the entity complies with the vast majority of the requirements of PFRS for
SMEs.
c. If the entity complies will the US GAAP.
d. If the entity complies will full PFRS.
13. Which statement suitably describes the nature of the compliance with the Standard?
a. The accounting practices used are a mix of full IFRS and IFRS for SMEs
b. The accounting practices used are a mix of local GAAP and IFRS for SMEs
c. The accounting practices used are a mix of full IFRS and local GAAP.
d. The SME has followed IFRS for SMEs in its entirety.
14. Which component of OCI of an SME is reclassified to profit or loss?

a. Translation gain or loss from foreign operation
b. Actuarial gain or loss
c. Revaluation surplus of property, plant and equipment
d. Change in fair value of hedging instrument
15. Under PFRS for SMEs, if the selling price less cost to complete and sell is lower that cost of
inventory, the writedown is recognized
a. As an impairment loss
b. As component of cost of goods sold
c. As other expense
d. Directly in retained earnings
16. All of the following are considered basic financial instruments, except
a. Cash
b. Investment in bonds
c. Accounts and notes receivable
d. Investment in convertible preference shares
17. All of the following are considered basic financial instruments, except
a. Demand and fixed – term deposits
b. Option and forward contracts
c. Loans from subsidiaries that are due on demand
d. A debt instrument that becomes payable on demand if the issuer defaults on
interest or principal payment.
18. Which statement is true about subsequent measurement of basic financial instruments?
a. Basic debt instruments are measured at amortized cost using the effective
interest method.
b. Investments in nonputtable ordinary shares are measured at FVPL if the shares
are publicly traded or if the fair value can be measured reliably.
c. Investments in nonconvertible and nonputtable preference shares which are not
publicly traded or whose fair value cannot be measured reliably are measured at
cost less impairment.
d. All of these statements are true.
19. Which statement reflects the accounting for financial instruments under IFRS for SMEs?
a. All financial instruments must be measured at fair value
b. Reversal of an impairment loss is not allowed
c. All amortized cost instruments must be tested for impairment
d. All financial instruments must be measured at amortized cost
20. An SME shall account for investment in associates after initial recognition using
a. Cost model for all investment in associates.
b. Fair value model for all investment in associates.
c. Cost model, equity method or fair value model and the model using the
same accounting policy for all investment in associates.
d. Cost model, equity method or fair value model and the model can be elected on
an investment by investment basis.
21. An SME must measure an investment property after initial recognition

a. At fair value or using the cost model and same accounting policy for all
investment property.
b. At fair value or using the cost model elected item by item.
c. At fair value.
d. At fair value for property whose fair value can be measured reliably without
undue cost or effort on an ongoing basis.
22. An SME shall measure property, plant and equipment after initial recognition using
a. Cost model
b. Revaluation model
c. Either cost model or revaluation model
d. Either cost model or fair value model
23. Which statement is true about government grant related to an SME?

a. A grant that does not impose conditions is recognized in income when the grant
proceeds are receivable.
b. A grant that imposes conditions is recognized in income only when the conditions
are met.
c. Grant received before the recognition criteria is satisfied is recognized as liability.
d. All of these statements are true about government grant of an SME.
24. Under the PFRS for SMEs, borrowing cost incurred that is directly attributable to the
construction of a qualifying asset must be
a. Expensed in the period incurred
b. Capitalized as part of the cost of the asset
c. Either expensed or capitalized
d. Neither expensed nor capitalized
25. An SME must measure intangible assets after initial recognition using?
a. Cost model
b. Fair value model
c. Revaluation model
d. Either cost model or revaluation model
26. What is the accounting for research and development costs incurred by an SME?
a. All research and development are capitalized.
b. All research and development are expensed when incurred.
c. All research costs are expensed when incurred and all development costs are
capitalized when certain criteria are met.
d. All research costs are capitalized when certain criteria met and all development
costs are expensed when incurred.
27. Under PFRS for SMEs, which statement in relation to defined benefit obligation is true?
a. Past service costs are recognized as expense immediately when incurred.
b. Actuarial gains and losses are recognized immediately either in profit or loss, or
as component of other comprehensive income.
c. The defined benefit liability is the excess of the present value of the defined
benefit obligation over the fair value of plan assets at year – end.
d. All of these statements are true in relation to defined benefit obligation.
28. Specialized activities of an SME include all of the following, except

a. Agriculture
b. Service concession
c. Exploration and evaluation of mineral resources
d. Insurance
29. The reconciliation of equity under the previous reporting framework to the equity under
PFRS for SMEs is made at
a. The date of transition to PFRS for SMEs.
b. The end of current reporting period.
c. The date of transition to PFRS for SMEs and at the end of latest reporting
period.
d. The end of the preceding comparative period.
30. The reconciliation of profit or loss under the previous reporting framework to the profit or
loss under PFRS for SMEs is made at
a. The date of transition to PFRS for SMEs
b. The end of current reporting period
c. The end of the latest reporting period.
d. No reconciliation of profit or loss is made.
BOND INVESTMENT
1. On January 1, 2019, an entity purchased as a long – term investment P5,000,000 face
value 8% bonds for P4,530,000. The bonds were purchased to yield 10% interest. The
bonds pay interest annually on December 31. The effective interest method of amortization
is used.
What is the interest income for 2020?

a. P500,000
b. P400,000
c. P453,000
d. P458,300
What is the carrying amount of the investment in bonds on December 31, 2020?
a. P5,000,000
b. P4,583,000
c. P4,477,000
d. P4,641,300
2. On January 1, 2019, an entity paid P5,990,000 for a 10% bond with face amount of
P5,000,000. Interest is payable semiannually on June 30 and December 31. The bond was
purchased to yield 8%. The effective interest method is used.
a. P479,200
b. P239,600
c. P500,000
d. P478,784
What is the carrying amount of the bond investment on December 31, 2019?
a. P5,968,784
b. P5,990,000
c. P5, 979,600
d. P5,969,200
3. On January 1, 2019, an entity purchased 12% bonds with face amount of P5,000,000 for
P5,500,000 including transaction cost of P100,000. The bonds provide an effective yield of
10%. The bonds are dated January 1, 2019 and pay interest annually on December 31 of
each year. The bonds are quoted at 115 on December 31, 2019. The entity has irrevocably
elected to use the fair value option.
What is the carrying amount of the bond investment on December 31, 2019?
a. P5,750,000
b. P5,400,000
c. P5,500,000
d. P5,450,000
What is the amount of gain from change in fair value should be reported for 2019?
a. P750,000
b. P250,000
c. P350,000
d. P0
What amount of interest income should be reported for 2019?
a. P600,000
b. P550,000
c. P660,000
d. P540,000
4. On January 1, 2019, an entity purchased bonds with face amount of P5,000,000. The entity
paid P4, 500,000 plus transaction cost of P168,600. The bonds mature on December 31,
2022 and pay 6% interest annually on December 31 of each year with 8% effective yield.
The bonds were quoted at 105 on December 31, 2019 and 110 on December 31, 2020.
The business model in managing the financial asset is to collect contractual cash flows that
are solely payments of principal and interest and also to sell the bonds in the open
market.
The entity has not elected the fair value option.
On December 31, 2020, the entity changed the business model to collect only
contractual cash flows.
On December 31, 2021, the bonds are quoted at 115 and the market interest rate is 10%
What amount of unrealized gain should be reported as component of OCI in the statement
of comprehensive income for 2019?
a. P250,000
b. P690,000
c. P507,912
d. P0
What amount of cumulative unrealized gain should be reported as component of OCI in the
statement of changes in equity for 2020?
a. P500,000
b. P678,545
c. P250,000
d. P875,200
What amount of unrealized gain should be reported as component of OCI in the statement
of comprehensive income for 2020?
a. P500,000
b. P250,000
c. P170,633
d. P185,200
a. P300,000
b. P500,000
c. P385,716
d. P369,984
What is the carrying amount of the investment on December 31, 2021?
a. P4,694,784
b. P4,668,600
c. P4,907,171
d. P5,750,000
CASH AND ACCRUALS BASIS

1. An entity reported sales revenue of P4,600,000 in the income statement for current year.
Accounts receivable P1,000,000 P1,300,000
Allowance for doubtful accounts 60,000 110,000
Advances from customers 200,000 300,000
The entity write off uncollectible accounts totaling P50,000 during the current year. Under
cash basis, what amount should be reported as sales revenue for the current year?
a. P4,900,000
b. P4,250,000
c. P4,350,000
d. P4,400,000
2. During the current year, an entity reported gross cash sales of P3,000,000 with related
returns and allowances of P100,000 and gross credit sales of P5,000,000 with related
discounts of P400,000. On January 1, customers owed the entity P1,000,000 and on
December 31, customers owed the entity P1,500,000. The entity used the direct writeoff
method for bad debts. No bad debts were recorded in the current year. Under cash basis,
what amount of sales revenue should be reported for the current year?
a. P7,000,000
b. P8,000,000
c. P7,500,000
d. P8,500,000
3. An entity provided the following data for the current year:

Accounts payable 1,500,000 1,850,000
During the current year, accounts written off amounted to P100,000. Sales returns totaled
P250,000, of which P50,000 was paid to customers. Purchase returns amounted to
P400,000, of which P100,000 was received from suppliers. Cash receipts from customers
after P500,000 discounts totaled P8,000,000 while cash payments to trade creditors after
discounts of P200,000, amounted to P5,000,000.
What is the amount of gross sales under accrual basis?
a. P9,600,000
b. P8,950,000
c. P8,200,000
d. P8,850,000
What is the amount of gross purchases under accrual basis?
e. P5,250,000
f. P5,950,000
g. P5,400,000
h. P5,850,000
4. During the current year, the entity paid suppliers P4,900,000 and reported the following
balances:
December 31 January 1
Inventory P2,600,000 P2,900,000
Accounts payable 750,000 500,000
What amount should be reported as cost of goods sold in the income statement for current
year?
a. P4,350,000
b. P4,850,000
c. P4,950,000
d. P5,450,000
5. An entity borrowed money under various loan agreement involving notes requiring interest
payments at maturity. During the current year, the entity paid interest totaling P6,000,000.
The statement of financial position included the following:
Prepaid interest P500,000 P1,500,000
Interest payable 2,000,000 2,500,000
What amount of interest expense should be reported for the current year?
a. P5,500,000
b. P4,500,000
c. P7,500,000
d. P6,500,000
6. An entity assigned some of its patents to other entities under a variety of licensing
agreements. The following data are gathered for the current year:
Unearned royalties P600,000 P400,000
Royalties payable 900,000 850,000
During the current year, the entity received royalty remittance of P2,000,000. What amount
should be reported as royalty income for the current year?
a. P1,950,000
b. P2,150,000
c. P2,200,000
d. P2,250,000
7. An entity maintains the accounting records on the cash basis but restates the financial
statements to the accrual basis. The entity had P6,000,000 in cash basis net income for the
current year. The entity provided the following information:
Under accrual basis, what amount should be reported as net income for current year?
a. P2,500,000
b. P5,500,000
c. P6,500,000
d. P9,500,000
8. An entity maintains its books on a cash basis. During the current year, the entity collected
P50,000,000 from customers and paid P42,000,000 in expenses.
Prepaid expenses 200,000 300,000
Advances from customers 500,000 900,000
Accrued expenses 1,000,000 800,000
Depreciation for current year 500,000
What is the accrual basis net income?

a. P6,500,000
b. P6,000,000
c. P8,000,000
d. P7,500,000
PAS 38 – INTANGIBLES
1. Which of the following is a criterion that must be met for an item to be recognized as an
intangible asset other than goodwill?
a. The fair value can be measured reliably
b. The item is part of an activity aimed at gaining new scientific or technical
knowledge
c. The item is expected to be used in the production or supply of goods or services
d. The item is nonmonetary, identifiable, and lacks physical substance
2. Which of the following does not qualify as an intangible asset?

a. Computer software
b. Registered patent
c. Copyright that is protected
d. Notebook computer
3. Which of the following items would qualify as an intangible asset?

a. Advertising and promotion on the launch of huge product
b. College tuition fees paid to employees who decide to enroll in an executive MBA
program at Harvard University while working with the entity.
c. Operating losses during the initial stages of the project
d. Legal costs paid to intellectual property lawyers to register a patent
4. Which disclosure is not required with respect to intangible assets?

a. Useful life of the intangible asset
b. Reconciliation of carrying amount at the beginning and the end of the year
c. Contractual commitment for the acquisition of intangible asset
d. Fair value of similar intangible asset used by competitors
5. What valuation methods are used for intangible assets?

a. Cost model and fair value model
b. Revaluation model and fair value model
c. Cost model and fair value through profit or loss model
d. Cost model and revaluation model
6. An entity that acquired an intangible asset may use the revaluation model for subsequent
measurement only when
a. The useful life of the intangible asset can be reliably measured
b. An active market exists for intangible assets
c. The cost of the intangible asset can be measured reliably
d. The intangible asset is a monetary asset
7. Which statement is true concerning internally generated intangible asset?

a. The cost of an internally generated asset comprises all directly attributable costs
necessary to create, produce, and prepare the asset for intended use
b. Internally generated brands, mastheads, publishing titles, customer lists and
items similar in substance shall not be recognized as intangible assets
c. Internally generated goodwill shall not be recognized as an intangible asset
d. All of these statements are true.
8. The cost of an internally generated asset includes all of the following, except
a. Cost of materials and services used in generating the intangible asset
b. Compensation costs of personnel directly engaged in generating the asset
c. Fees to register a legal right
d. Expenditure on training staff to operate the asset
9. Under current accounting practice, intangible assets are classified as

a. Amortizable or unamortizable
b. Limited life or indefinite life
c. Specifically identifiable or goodwill type
d. Legally restricted or goodwill type
10. An intangible asset is regarded as having an indefinite useful life when

a. There is no foreseeable limit to the period over which the asset is expected
to generate net cash inflows to the entity
b. There is a foreseeable limit to the period over which the asset is expected to
generate cash inflows to the entity
c. The useful life of the intangible asset arises from contractual right
d. The useful life of the intangible asset arises from legal right
11. Entities should evaluate indefinite life intangible assets at least annually for
a. Recoverability
b. Amortization
c. Impairment
d. Estimated useful life
12. Which intangible asset should not be amortized?

a. Copyright
b. Customer list
c. Perpetual franchise
d. All of these intangible assets should be amortized
13. What is the appropriate method of amortizing intangible asset?

a. The straight line method, unless pattern in which the asset’s economic
benefits are consumed by the entity can be determined reliably
b. The double declining balance in all circumstances
c. A subjective amount of periodic amortization without regard to any particular
method
d. The straight line method in all circumstances
14. Amortization of an intangible asset with a finite useful life shall commence when
a. It is first recognized as an asset
b. It is probable that it will generate future economic benefits
c. It is available for intended use
d. The cost can be measured with reasonable certainty
15. Which statement describes the appropriate accounting for intangible asset with finite useful
life?
a. The cost of the asset is not amortized but is periodically tested for impairment
b. The cost of the asset is amortized over the useful life and the asset is never
tested for impairment
c. The cost of the asset is amortized over 40 years a reasonable period
d. The cost of the asset is amortized over the useful life and the asset is
periodically tested for impairment when there is an indication of
impairment
16. Intangible assets with indefinite life are tested for impairment
a. Quarterly at the quarterly reporting date
b. Annually at the annual reporting date
c. Biannually at the reporting date
d. There are no guidelines defining when intangible assets are tested for
impairment
17. The major problem of accounting for intangible asset is determining

a. Fair value
b. Separability
c. Residual value
d. Useful life
18. One factor that is not considered in determining the useful life of an intangible asset is
a. Residual value
b. Provision for renewal or extension
c. Legal life
d. Expected action of competitors
19. Factors in determining the useful life of an intangible asset include all, except
a. The expected use of the asset
b. Any legal or contractual provision that may limit the useful life
c. Any provision for renewal or extension of the legal life
d. The amortization method used
20. The residual value of intangible asset with a finite life is assumed zero, except when
a. There is a commitment by a third party to purchase the asset at the end of the
useful life.
b. There is an active market for the asset at the end of useful life
c. There is a commitment by a third party to purchase the asset at the end of
useful life or there is an active market for the asset at the end of useful life.
d. There are no exceptions
21. Goodwill may be recorded when

a. It is identified within an entity
b. One entity acquires another in a business combination
c. The fair value of assets exceeds cost
d. An entity has exceptional customer relations
22. Which intangible asset should be reported as a separate line item?

a. Goodwill
b. Franchise
c. Patent
d. Trademark
23. Which statement accurately describes the appropriate accounting for goodwill?
a. It should be recorded at cost and amortized over 40-year period
b. It should be recorded at cost and amortized over a 10-year period
c. It should be recorded at cost and tested for impairment every three years
d. It should be recorded at cost and not amortized but tested for impairment
on an annual basis and more often if certain events occur
24. Goodwill should be tested for impairment at which of the following levels?
a. Each reporting unit
b. Each acquisition unit
c. Each identifiable long-term asset
d. Entire business as a whole
25. An entity has determined that fair value of cash generating unit exceeds the carrying
amount. Which statement is true concerning the impairment of the CGU?
a. Impairment is not indicated and no additional analysis is necessary
b. Goodwill should be written down as impaired
c. The assets and liabilities should be valued to determine if there has been
impairment of goodwill
d. Goodwill should be tested at the entity level
26. When a patent is amortized, the credit is usually made to

a. The patent account
b. An accumulated amortization account
c. An accumulated depreciation account
d. An expense account
27. A patent should be amortized over

a. Twenty years
b. The useful life
c. The useful life or twenty years, whichever is longer
d. The useful life or twenty years, whichever is shorter
28. When an entity successfully defended a patent from infringement by a competitor, the cost
of litigation should be charged to
a. Patent and amortized over the legal life of the patent
b. Legal fees and amortized over five years or less
c. Expense of the period
d. Patent and amortized over the remaining useful life of the patent.
29. The cost of purchasing rights for a product that might otherwise have seriously competed
with one of the purchaser’s patented products should be
a. charged off in the current period
b. Amortized over the legal life of the purchased patent
c. Added to factory overhead and allocated to production of the purchaser’s
products
d. Amortized over the remaining useful life of the patent for the product
whose market would have been impaired by competition from the newly
patented product.
30. Copyright should be amortized over

a. The legal life
b. The life of the creator plus fifty years
c. Twenty years
d. The useful life or legal life, whichever is shorter
31. Which of the following should be expense as incurred by the franchisee?

a. Amount to be paid to the franchisor for the franchise
b. Payment to an entity other than the franchisor for that entity’s franchise
c. Legal fees paid to the franchisee’s lawyer to obtain franchise
d. Periodic payments to the franchisor based on the franchisee’s revenue
32. Which statement is true about development cost?

a. Development cost must be expensed
b. Development cost is always deferred and expensed against future revenue
c. Development cost may be capitalized as an intangible asset in very
restrictive situations
d. Development cost is recorded as component of other comprehensive income.
33. Which statement is true when an entity has recently completed research and development
project?
a. Costs incurred during the research phase can be capitalized
b. Costs incurred during the development phase can be capitalized if criteria
such as technical feasibility of the projects are met
c. Training costs of technicians used in research can be capitalized
d. Designing of jigs and tools qualify as research activities.
34. Which best describes the current method of accounting for R and D?
a. Associating cause and effect
b. Systematic and rational allocation
c. Income Tax minimization
d. Immediate recognition as an expense
35. Which is not one of the criteria for development costs to be capitalized?
a. The entity has sufficient financial resources to complete the project
b. The entity intends to complete the project and either use or sell the intangible
asset
c. The entity can reliably identify the research costs incurred to bring the
project to economic feasibility
d. The project has achieved technical feasibility.
36. How should research and development costs be accounted for?

a. Capitalized when incurred and then amortized over the estimated useful life
b. Expensed in the period incurred
c. Either capitalized or expensed depending upon materiality
d. Expensed in the period incurred unless it can be clearly demonstrated that
the expenditure will have alternative future use or unless contractually
reimbursable.
37. Which of the following research and development related costs should be capitalized and
depreciated over current and future periods?
a. Laboratory building for various alternative future uses
b. Inventory used for specific research project
c. Administrative salaries allocated to research and development
d. Research findings purchased to aid a research project currently in process.
38. Which research and development costs should be capitalized and amortized?
a. Labor and material costs incurred in building prototype model
b. Costs of testing equipment that will also be used in another separate
research and development project scheduled to begin next year
c. Administrative salaries allocated to research and development
d. Research findings purchased from another entity
39. If an entity constructs a laboratory building to be used as a research and development

facility, the cost of the building is matched against earnings as
a. Research and development expense in the period of construction
b. Depreciation deducted as part of research and development expense
c. Depreciation or immediate writeoff depending on accounting policy
d. An expense at such time as productive development has been obtained from the
facility
40. A research and development activity for which the cost should be expensed is
a. Engineering follow-through in early phase of commercial production
b. Design, construction, and testing of preproduction prototype and model
c. Trouble shooting in connection with breakdown during commercial production
d. Periodic design changes to existing product
41. Which of the following costs should be excluded from research and development expense?
a. Modification of the design of a product
b. Acquisition of R and D equipment for use in current project only
c. Cost of marketing research for a new product
d. Engineering activity to advance the design of product to the manufacturing stage.
42. Which of the following would be considered research and development?

a. Routine effort to refine an existing project
b. Periodic alteration to existing production line
c. Marketing research to promote a new product
d. Construction of prototype
43. Which of the follow costs should not be capitalized?

a. Cost of equipment to be used on current and future research project
b. Engineering cost incurred to advance the product to full production stage
c. Cost incurred to life a patent
d. Cost of testing prototype before economic feasibility has been
demonstrated
44. The accounting for costs incurred in creating computer software is to

a. Capitalize all costs until the software is sold
b. Charge research and development expense when incurred until
technological feasibility has been established for the product
c. Charge research and development expense if the computer software has
alternative future use
d. Capitalize all costs as incurred until a detailed program design or model is
created.
45. Which statement is incorrect regarding internal use software?

a. The application and development costs of internal use software should be
amortized on the straight line basis unless another systematic and rational basis
is more appropriate
b. Internal use software is considered to be software that is marketed as a
separate product.
c. The costs of testing and installing computer hardware should be capitalized
d. The costs of training and application maintenance should be expensed when
incurred
46. Which statement is true regarding the proper accounting treatment of software costs?
a. Preliminary costs should be expensed as incurred
b. Application and development costs should be capitalized
c. Postimplementation costs should be expensed as incurred
d. All of these statements are true about software cost.
47. Which statement is true about computer software?

a. Computer software is classified as a technology-based intangible asset
b. Computer software purchased for resale is treated as inventory
c. Computer software purchased as an integral part of a computer controlled
machine should be treated as property, plant and equipment
d. All of these statements are true about computer software
48. Start-up costs including legal and state fees incurred to organize a new entity should be
a. Capitalized and never amortized
b. Capitalized and amortized over 40 years
c. Capitalized and amortized over 5 years
d. Expenses as incurred
49. Operating losses incurred during the start-up years of a new business should be
a. Accounted for and reported like operating losses of any other business
b. Written off directly against retained earnings
c. Capitalized as a deferred charge and amortized over five years
d. Capitalized as an intangible asset and amortized over twenty years
50. Intangible assets are reported in the statement of financial position

a. With an accumulated amortization amount
b. Under property, plant and equipment
c. As a separate line item
d. All of these are allowed in presenting intangible assets.
TOA: AR – BIO ASSETS

1. The percentage of accounts receivable method
a. Gives a reasonably correct measurement of accounts receivable in the
statement of financial position
b. Best relates bad debt expense to the period of sale
c. Is the only generally accepted method for valuing accounts receivable
d. Makes estimates of uncollectible accounts unnecessary
2. Which method does not properly match expense and revenue?

a. Charging bad debts with a percentage of sales under the allowance method
b. Charging bad debts using a percentage of accounts receivable under the
allowance method
c. Charging bad debts using aging accounts receivable under the allowance method
d. Charging bad debts as accounts are written off as uncollectible
3. An entity uses the allowance method for recognizing doubtful accounts. The entry to record
the writeoff of a specific uncollectible account
a. Affects neither net income nor working capital
b. Affects neither net income nor accounts receivable
c. Decreases both net income and working capital
d. Decreases both net income and accounts receivable
4. When the allowance method of recognizing bad debt expense is used, the entries at the
time of collection of an account previously written off would
a. Decrease the allowance for doubtful accounts
b. Increase net income
c. Have no effect on the allowance for doubtful accounts
d. Have no effect on net income
5. Why would an entity sell accounts receivable to another entity?

a. To improve the quality of its credit granting process
b. To limit its legal liability
c. To accelerate access to amounts collected
d. To comply with customer agreement
6. Accounts receivable hypothecated against borrowings should be

a. Disclosed in the notes
b. Excluded from the total receivables, with disclosure
c. Excluded from the total receivables, with no disclosure
d. Excluded from the total receivables and a gain or loss is recognized
7. Which of the following is treated as a sale of accounts receivable?

a. Factoring without recourse in exchange for cash
b. Pledging accounts receivable in exchange for a loan
c. Assignment of accounts receivable
d. Discounting without recourse
8. Which statement is true when accounts receivable are factored without recourse?
a. The transaction may be accounted for either as a secured borrowing or as a sale
b. The accounts are used as collateral for a promissory note issued to the factor
c. The factor assumes the risk of collectability and absorbs any credit losses
in collecting the accounts receivable
d. The financing cost should be recognized over the collection period
9. Accounting for the imputed interest on a noninterest bearing note receivable is an example
of what aspect of accounting theory?
a. Matching
b. Verifiability
c. Substance over form
d. Accounting entity
10. What is imputed interest?

a. Interest based on stated interest rate
b. Interest based on implicit interest rate
c. Interest based on average interest rate
d. Interest rate based on bank prime rate
11. Notes receivable discounted with recourse should be

a. Included in total receivables with disclosure of contingent liability
b. included in total receivables without disclosure of contingent liability
c. Excluded from total receivables with disclosure of contingent liability
d. Excluded from total receivables without disclosure of contingent liability
12. Entities must allocate the cost of all goods available for sale between
a. The cost of goods on hand at the beginning and the cost of goods acquired
during the period
b. The cost of goods on hand at the end and the cost of goods acquired during the
period
c. The income statement and the statement of financial position
d. All of the choices are correct
13. Why are inventories included in the computation of net income?

a. To determine the cost of goods sold
b. To determine sales revenue
c. To determine merchandise returns
d. Inventories are not included in the computation of net income
14. When allocating the costs of inventory produced, fixed overhead should be based upon
a. The actual use of production facilities
b. The normal capacity of production facilities
c. The highest production levels in the last three periods
d. The lowest production levels in the last three periods
15. How should unallocated fixed overhead be treated?

a. Allocated to finished goods and cost of goods sold
b. Allocated to raw materials, goods in process and finished goods
c. Recognized as expense in the period when incurred
d. Allocated to goods in process, finished goods and cost of goods sold
16. Variable production overheads are allocated to each unit of production on the basis of
a. Normal capacity of production facilities
b. Actual use of production facilities
c. Either the normal capacity or the actual use of production facilities, whichever is
appropriate
d. Neither the normal capacity nor the actual use of production facilities
17. Theoretically, cash discounts permitted on purchased raw materials should be

a. Added to other income, whether taken or not
b. Added to other income, only if taken
c. Deducted from inventory, whether taken or not
d. Deducted from inventory, only if taken
18. Which would not be separately accounted for in the computation of cost of goods sold?
a. Trade discounts applicable to purchases
b. Cash discounts taken
c. Purchase returns and allowances
d. Cost of transportation for merchandise purchased
19. The use of purchase discount account implies that the recorded cost of a purchase is
a. Invoice price
b. Invoice price less purchase discount lost
c. Invoice price less purchase discount taken
d. Invoice price less purchase discount allowable whether taken or not
20. The use of a discount lost account implies that the recorded cost of an inventory is
a. Invoice Price
b. Invoice price plus the purchase discount lost
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whether taken or not
21. When a portion of inventory has been pledged as security on a loan

a. The value of the portion pledged should be subtracted from the debt
b. An equal amount of retained earnings should be appropriated
c. The fact should be disclosed but the amount of current assets should not
be affected
d. The cost of pledged inventory should be transferred from current to noncurrent
asset
22. If a material amount of inventory has been ordered through a formal purchase contract at
the statement of financial position date for future delivery at firm prices
a. This fact must be disclosed
b. Disclosure is required only if prices have declined since the date of the order
c. Disclosure is required only if prices have risen substantially
d. An appropriation of retained earnings is necessary
23. The credit balance that arises when a loss on purchase commitment is recognized should
be
a. Presented as a current liability
b. Subtracted from ending inventory
c. Presented as an appropriation of retained earnings
d. Presented in the income statement
24. Which is the reason why the specific identification may be considered ideal?
a. The potential for manipulation of income is reduced
b. There is no arbitrary allocation of cost
c. The cost flow matches the physical flow
d. It is applicable to all types of inventory.
25. Which is likely to be a circumstance where the specific identification criteria can be met?
a. Unit price is low
b. Inventory turnover is low
c. Inventory quantities are large
d. All of the choices are circumstance where the criteria are likely to be met
26. The pricing of issues from inventory must be deferred until the end of accounting period
under which of the following method of inventory valuation?
a. Moving average
b. Weighted average
c. Specific identification
d. FIFO
27. Why are inventories measured at lower of cost and net realizable value?
a. To report a loss when there is a decrease in future utility
b. To be conservative
c. To report a loss when there is a decrease in future utility below the original
cost
d. To permit future profit to be recognized
28. Which statement is true about the LCNRV method of measuring inventory?
a. The LCNRV is always either the net realizable value or cost
b. The LCNRV gives the lowest valuation if applied to individual items of inventory
c. When the cost of goods sold method is used to record inventory at net realizable
value, the NRV is substituted for cost and the loss is buried in the cost of goods
sold
d. All of these statements are true about the LCNRV method.
29. Which statement is true regarding inventory writedown and recovery of writedown?
a. Recovery of inventory writedown is prohibited under IFRS
b. IFRS requires separate reporting of reversal of inventory writedown
c. IFRS requires entities to record writedown in a separate loss account
d. All of the choices are true
30. Commodity broker-traders

a. Produce or raise commodities such as rice, corn, or precious metals
b. Hold inventory primarily to sell the commodities in the near term and
generate profit from price fluctuation
c. Value inventories at LCNRV
d. All of the choices are correct regarding broker-traders
31. Which of the following is a characteristic of a perpetual inventory system?

a. Inventory purchases are debited to a purchases account
b. Inventory records are not kept for every item
c. Cost of goods sold is recorded each time a sale is made
d. Cost of goods sold is determined as the amount of purchases less the change in
inventory
32. When the FIFO inventory cost flow method is used, a perpetual inventory system would
a. Not be permitted
b. Result in a higher ending inventory than a periodic inventory system
c. Result in the same ending inventory as periodic inventory system
d. Result in a lower ending inventory than a periodic inventory system
33. When the conventional retail inventory method is used, markdowns are commonly ignored
in the computation of the cost to retail ratio because
a. There may be no markdowns in a given year
b. This tends to give a better approximation of the lower of cost and net
realizable value
c. Markups are also ignored
d. This tends to result in the showing of a normal profit margin in a period when no
markdown goods have been sold.
34. Which of the following is not a reason the retail inventory method is used widely?
a. As a control measure in determining inventory shortages
b. For insurance information
c. To permit the computation of net income without a physical count of inventory
d. To defer income tax liability
35. The use of the gross profit method assumes

a. The amount of gross profit is the same in prior years
b. Sales and cost of goods sold have not changed from previous years
c. Inventory value has not increase from previous years
d. The relationship between selling price and cost of goods sold is similar in
prior years
36. How is the gross profit method used as it relates to inventory valuation?
a. Verify the accuracy of the perpetual inventory records
b. Verify the accuracy of the physical inventory
c. To estimate cost of goods sold
d. To provide an inventory value under LIFO
PAS 41 – AGRICULTURE
1. Biological Assets
a. Are found only in Biotech entities
b. Are living animals or living plants and must be disclosed as a separate line
item in the statement of financial position
c. Must be valued at cost
d. Do not generally have future economic benefits
2. Agricultural activity includes all of the following, except

a. Raising livestock
b. Annual perennial cropping
c. Floriculture and aquaculture, including fishing
d. Ocean fishing
3. All of the following must be satisfied before a biological asset can be recognized, except
a. The entity controls the asset as a result of past event
b. It is probable that future economic benefits relating to the asset will flow to the
entity
c. An active market for the asset exists
d. The fair value or cost of the asset can be measured reliably
4. A bearer plant is a living plant that

a. Is used in the production or supply of agricultural produce
b. Is used to bear produce for more than one period
c. Has a remote likelihood of being sold as agricultural produce, except for scrap
sales
d. Must possess all of these characteristics
5. All of the following can be considered bearer plant, except

a. Coconut tree
b. Grape Vine
c. Rubber tree
d. Tree in a forest plantation to be harvested and sold as a log or lumber
6. Agricultural produce harvested from bearer plant is accounted for as inventory and
measured at
a. Fair value less cost of disposal at point of harvest
b. Historical cost of the harvest
c. Historical cost less impairment
d. Fair value less cost of disposal
7. Under IFRS, bearer plants are accounted for as

a. Biological assets with disclosure
b. Biological assets without disclosure
c. Property, Plant and Equipment
d. Noncurrent investment
8. Under IFRS, bearer animals are accounted for as

a. Biological assets
b. Property, plant and equipment
c. Investment property
d. Agricultural produce
9. Animals related to recreational activities are accounted for under what standard?
a. IAS 41 – Agriculture
b. IAS 16 – Property, Plant and equipment
c. IAS 40 – Investment property
d. Either IAS 41 or IAS 16
10. Land that is related to agricultural activity is measured

a. At fair value
b. At fair value in combination with the biological asset that is being grown on the
land
c. At the resale value separate from the biological asset that is being grown on the
land
d. In accordance with IAS 16 Property, plant and equipment or IAS 40
Investment property
CASH AND ACCRUAL BASIS

1. Under the cash basis of accounting, revenue is recorded?
a. When earned and realized.
b. When earned and realizable.
c. When earned.
d. When realized.
2. Accrual accounting adheres to which principle of accounting?

a. Matching principle
b. Historical cost principle
c. Matching principle and historical cost principle
d. Neither matching principle nor historical cost principle
3. According to accrual accounting, which statement does not describe a deferral?

a. Deferral of revenue occurs when cash is received and recognized in
financial income.
b. Deferral typically results in the recognition of a liability or prepaid expense.
c. Cash collected in advance of services being rendered.
d. Cash paid up front for a one – year insurance policy.
4. Accrual accounting is used because

a. Cash flows are considered less important.
b. It provides a better indication of ability to generate cash flows than the cash
basis.
c. It recognized revenue when cash is received and expenses when cash is paid.
d. It is simple to apply.
5. If ending balance accounts receivable exceeds the beginning balance

a. Cash collections during the period exceed the amount of revenue earned.
b. Net income for the period is less than the amount of cash basis income.
c. No cash was collected during the period.
d. Cash collections during the year are less than the amount of revenue
earned.
6. When converting from cash basis to accrual basis, which of the following adjustments
should be made to cash receipts from customers to determine accrual basis revenue?
a. Subtract ending accounts receivable
b. Subtract beginning unearned service revenue
c. Add ending accounts receivable
d. Add cash sales
7. When converting from cash basis to accrual basis, which of the following adjustments
should be made to cash paid for operating expenses to determine accrual basis operating
expenses?
a. Add beginning accrued liabilities
b. Subtract beginning prepaid expense
c. Subtract ending prepaid expense
d. Subtract interest expense
8. When adjusting service revenue from cash basis to accrual basis, which of the following
items would be added to service fees collected?
a. Beginning unearned fees
b. Ending unearned fees
c. Beginning accounts receivable
d. Ending accounts payable
9. The liquidation basis of accounting is used when the liquidation is

a. Remote
b. Forthcoming
c. Imminent
d. Probable
ERROR CORRECTION
10. Failure to record the expired amount of prepared rent expense would not
a. Understate expense
b. Overstate assets
c. Overstate owners’ equity
d. Understate liabilities
11. Failure to record accrued salaries at the end of reporting period results in
a. Overstated retained earnings
b. Overstated assets
c. Overstated liabilities
d. Understated net income
12. Which of the following errors will not self – correct in the next year?
a. Accrued expenses not recognized at year – end
b. Accrued revenues that have note been collected not recognized at year – end
c. Depreciation expense overstated for the year
d. Prepaid expenses not recognized at year – end
13. If the beginning inventory in the current year is overstated, and that is the only error in the
current year, the net income for the current year would be
a. Understated and assets correctly stated.
b. Understated and assets overstated.
c. Overstated and assets overstated.
d. Understated and assets understated.
14. If at year – end, an entity erroneously excluded some goods from the ending inventory
and also erroneously did not record the purchase, these errors would cause
a. No effect on net income, working capital and retained earnings.
b. The cost of goods available for sale and net income to be understated.
c. The ending inventory and retained earnings to be understated.
d. The ending inventory and cost of goods sold to be understated.
15. An entity received merchandise on consignment at year – end and had recorded the
transaction as a purchase and included the goods in inventory. The effect of this on the
financial statements would be
a. No effect.
b. Net income was correct and current assets and current liabilities were
overstated.
c. Net income, current assets and current liabilities were overstated.
d. net income and current liabilities were overstated.
16. The failure to record a purchase of merchandise on account even though the goods are
properly included in the physical inventory results in
a. An overstatement of asset
b. An understatement of asset and net income
c. An understatement of cost of goods sold and liability and an overstatement of
asset
d. An understatement of liability and an overstatement of equity
PAS 29 – HYPERINFLATIONARY ECONOMY

17. All of the following would indicate that hyperinflation exists, except
a. The general population regards monetary amounts in terms of stable foreign
currency
b. The cumulative inflation rate over three years in approaching or exceeds 100%
c. Inflation rates have exceeded interest rates in three successive years
d. The general population prefers to keep wealth in nonmonetary assets
18. In a hyperinflation economy, monetary items

a. Are not restated because they are already expressed in terms of the
measuring unit current at the end of reporting period.
b. Are not restated because they do not represent items to be received or paid in
money.
c. Are restated applying the general price index.
d. Are restated applying the specific price index.
19. During a period on inflation in which a liability account balance remains constant, which of
the following occurs?
a. A purchasing power loss if the item is a nonmonetary liability.
b. A purchasing power gain if the item is a nonmonetary liability.
c. A purchasing power loss if the item is a monetary liability.
d. A purchasing power gain if the item is a monetary liability.
20. Which of the following would result in a purchasing power loss?

a. Holding monetary assets in a period of deflation.
b. Holding monetary assets in a period of inflation.
c. holding monetary liabilities in a period of inflation.
d. Holding monetary and nonmonetary assets in a period of deflation.
21. Which method of measuring prices and price changes ignores asset appreciation but
adjusts for changes in the purchasing power of the peso?
a. Historical cost/constant peso
b. Historical cost/nominal peso
c. Current cost/nominal peso
d. Current cost/constant peso
22. Which method of measuring prices and price changes involves adjustment for both
purchasing power and appreciation of asset?
a. Historical cost/constant peso
b. Historical cost/nominal peso
c. Current cost/nominal peso
d. Current cost/constant peso
23. In current cost financial statements

a. General price level gains or losses are recognized on net monetary items.
b. Amounts are always stated in common purchasing power unit of measurement.
c. All items in the statement of financial position are different from historical cost.
d. Holding gains and losses are recognized.
PAS 7 – STATEMENT OF CASH FLOWS

24. The primary purpose of the statement of cash flows is to provide information
a. About the operating, investing and financing activities of an entity during a period.
b. That is useful in assessing cash flow prospects.
c. About the cash receipts and cash payments of an entity during a period.
d. About the entity’s ability to meet obligations and pay dividends.
25. Cash equivalents are

a. Treasury bills, commercial paper and money market fund purchased with excess
cash.
b. Investments with original maturities of three months or less.
c. Readily convertible to known amount of cash.
d. All of these are features of cash equivalents.
26. In preparing the statement of cash flows, the purchase of a three – month Treasury bill
would
a. Be treated as outflow from operating activities
b. Be treated as outflow from investing activities
c. Be treated as outflow from financing activities
d. Not be reported as operating, investing, or financing activity
27. The statement of cash flows reports all of the following, except
a. The net change in cash for the period
b. The cash effects of operations during the period
c. The free cash flow generated during the period
d. Investing transactions
28. Free cash flow is calculated as net cash provided by operating activities less
a. Capital expenditures
b. Dividends
c. Capital expenditures and dividends
d. Capital expenditures and depreciation
29. Which of the following should not be included under financing activities in of the statement
of cash flows?
a. Cash effects of making loan and collecting loans granted
b. Cash effects of transactions obtaining resources from owners and providing then
with a return on their investment
c. Cash effects of borrowing money and repaying amounts borrowed
d. Cash effects of acquiring and disposing of treasure shares
30. Payments to acquire debt instruments of other entities are cash outflow for
a. Operating activities
b. Investing activities
c. Financing activities
d. Lending activities
31. Which statement is correct about the statement of cash flows?

a. The indirect method starts with income before income tax
b. The direct method is known as the reconciliation method.
c. The direct method is more consistent with the primary purpose of the
statement of cash flows.
d. All of these statements are correct.
32. Under indirect method, cash flows from operating activities

a. Are always equal to accrual accounting income.
b. Are calculated as the difference between revenue and expenses.
c. Can be calculated by appropriately adding to or deducting from net income
those items in the income statement that do not affect cash.
d. Can be calculated by appropriately adding to or deducting from net income those
items in the income statement that do affect cash.
33. Cash advances and loans made by financing institutions are usually classified as
a. Operating activities
b. Investing activities
c. Financing activities
d. Component of cash and cash equivalents
34. Under IFRS, interest received and dividend received may be classified as
a. Operating
b. Investing
c. Operating or investing
d. Financing or investing
35. Under IFRS interest paid may be classified as

a. Operating of financing
b. Operating or investing
c. Investing or financing
d. Operating
36. Under IFRS, dividends paid may be reported in which section of the statement of cash
flows?
a. Financing
b. Operating
c. Financing or operating
d. Investing, financing or operating
37. Dividends received from an equity investee shall be presented as

a. Deduction from cash from operating activities
b. Addition to cash flows from operating activities
c. Deduction from cash flows from investing activities
d. Addition to cash flows from investing activities
38. An entity reports an income from investments under the equity method and recognized
income from the investment during the current year even though no dividends were paid by
the associate during the year. In the statement of cash flows under indirect method, the
reported income should
a. Not be shown
b. Be shown as cash inflow from investing activities
c. Be shown as cash outflow financing activities
d. Be shown as deduction from net income under operating activities
39. Which should not be disclosed in the statement of cash flows using the indirect method?
a. Interest paid; net of amounts capitalized
b. Income taxes paid
c. Cash flow per share
d. Dividends paid on preference shares
40. Supplemental disclosures required only when the statement of cash flows is prepared
using the indirect method include
a. A schedule reconciling net income with net cash flows from operating activities
b. Amounts paid for interest and income taxes
c. Amounts deducted for depreciation and amortization
d. Significant noncash investing and financing activities
41. In a statement of cash flow, if used equipment is sold at a gain, the amount shown as a
cash flow from investing activities equals the carrying amount of the equipment
a. Plus the gain
b. Plus the gain less the amount of tax attributable to the gain
c. Plus both the gain and the amount of tax attributable to the gain
d. With no addition or subtraction
42. An increase in inventory balance would be reported in a statement of cash flows using the
indirect method as
a. Addition to net income in arriving at net cash flow from operating activities
b. Deduction from net income in arriving at net cash flow from operating
activities
c. Cash outflow from investing activities
d. Cash outflow from financing activities
43. The amortization of bond premium related to long – term debt shall be presented in a
statement of cash flows prepared using the indirect method as
a. Addition to net income in arriving at net cash flow from operating activities
b. Deduction from net income in arriving at net cash flow from operating
activities
c. Cash outflow from investing activities
d. Cash outflow from financing activities
44. Which of the following is not disclosed in the statement of cash flows when prepared
under the direct method, either on the face of the statement or in a separate schedule?
a. The major classes of gross cash receipts and gross cash payments
b. The amount of income taxes paid
c. A reconciliation of net income to net cash flow from operations
d. A reconciliation of ending retained earnings to net cash flow from
operations
45. Significant noncash transactions should be reported
a. In the statement of cash flows
b. In the notes to the financial statements
c. In the statement of financial position
d. In a separate schedule which is part of the statement of cash flows

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FINANCIAL ACCOUNTING AND REPORTING (VALIX/SIY/VALIX/ESCALA/SANTOS/DELA

2. The double entry accounting system means

4. The normal balance of an account is on the

5. Which is not a possible combination of a journal entry?

6. A simple journal entry

9. Which of the following is not correct about an unadjusted trial balance?

11. Adjusting entries

12. An adjusting entry should never include

15. Which statement is not true about accrual and deferral?

16. Closing entries

17. Which closing procedure is unique to a corporation?

18. The post – closing trial balance

20. Reversing entries apply to

2. The Revised Conceptual Framework Comprises how many chapters?

3. Which is not a purpose of the Revised Conceptual Framework?

4. What provides “the why” or the goal and purpose of accounting?

5. The objective of financial reporting in the Conceptual Framework

6. The overall objective of financial reporting is to provide information

7. Which statement is not a specific objective of financial reporting?

10. The economic entity assumption

13. Inflation is ignored in accounting due to

14. In the Conceptual Framework, qualitative characteristics

15. Fundamental qualitative characteristics of accounting information are

16. Enhancing qualitative characteristics of accounting information include

18. The quality of faithful representation includes

19. Which is the best description of faithful representation?

23. The qualitative characteristic of relevance includes

24. Accounting information is considered relevant when it

25. Which of the following statements about materiality is not correct?

26. What is meant by comparability when discussing financial accounting information?

27. What is meant by consistency when discussing financial accounting information?

29. According to the Revised Conceptual Framework, verifiability implies

32. The Conceptual Framework includes which constraint?

33. Which of the following best describes the cost-benefit constraint?

34. Which statement is true about a reporting entity?

40. Which statement is not true about income and expenses?

43. Which statement is not true about derecognition?

45. Current value includes

46. Which statement is true about current value measurement?

47. The term “revenue recognition” conventionally refers to

50. Financial capital is defined as the

CASH AND CASH EQUIVALENTS

2. An entity had the following cash balances on December 31, 2019:

3. An entity had the following account balances on December 31, 2019:

What total amount should be reported as cash under current assets?

What total amount should be reported as cash equivalents?

What is the balance per bank statement on June 30?

What is the net adjustment to cash in bank on June 30?

What is the “amortized cost” of accounts receivable on December 31, 2019?

What amount should be reported as doubtful accounts expense?

What is the ending allowance for doubtful accounts?

3. On December 31, 2019, an entity reported accounts receivable of P6,000,000 and

What amount should be reported as doubtful accounts expense for 2019?

NOTES RECEIVABLE AND LOAN IMPAIRMENT

What amount should be reported as interest income for 2019?

2. On January 1, 2019, an entity sold equipment with carrying amount of P2,000,000 in

What amount should be recognized as gain on sale of equipment in 2019?

Present value of 1 at 12%