MIDTERM EXAMINATIONS

1. Maxpein Company has reclassified certain assets as biological assets. The total value of the
forest assets is P6, 000,000 which comprises:

Freestanding trees 5,100,000

Land under trees 600,000

Roads in forests 300,000

6,000,000

In the statement of financial portion, what total amount of the forest assets should be classified as
biological assets?

Answer: 5,100,000. (Only the freestanding trees shall be classified as biological assets.)

2. Naih Company is a producer of coffee. The entity is considering the valuation of harvested
coffee beans. Industry practice is to value the coffee beans at market value and uses as reference
a local publication “Accounting for Successful Farms”

On December 31, 2014, the entity has harvested coffee beans costing P3, 000,000 and with fair
value less cost of disposal of P3, 500,000 at the point harvest.

Because of long aging and maturation process after harvest, the harvested coffee beans were still
on hand on December 31, 2015. On such date, the fair value less cost of disposal is P3, 900,000
and the net realizable value is P3, 200,000.

What is the measurement of the coffee beans inventory on December 31, 2014?

Answer: 3,200,000. (The net realizable value of P3,200,000 is the measurement on

December 31, 2020 because this is lower than the deemed cost of P3,500,000)

3. On August 1, 2006, Bamco Company purchased a new machine on a deferred payment basis.
A down payment of P100,000 was made and 4 monthly instalments of P250,000 each are to be
made beginning on September 1, 2006. The cash equivalent price of the machine was P950,000.
Bamco incurred and paid installation costs amounting to P30,000.

The amount to be capitalized as the cost of the machine is

a. 950,000 c. 1,100,000

b. 980,000 d. 1,130,000

Solution:
 Cash Price 950,000

Installation Cost 30,000

Total Cost 980,000

4. On April 30, 2019, Shark Corporation purchased for P 30 per share all 200,000 of Fins
Corporation’s outstanding ordinary share. On this date, Fin’s balance sheet showed net assets of
P 5,000,000.

Additionally, the fair value of Fin’s identifiable assets on the same date was P600,000 in excess
of their carrying amount.

What amount should Shark report as goodwill in its April 30, 2019 consolidated balance sheet?

a. P 0 c. P600,000

b. P 400,000 d. P 1,000,000

Solution:

Acquisition cost (200,000 x

P30) P6,000,000
Less: Market value of the net
assets acquired
Book value
P5,000,000
Fair value of identifiable assets
600,000 5,600,000
 P 400,000
Acquisition cost (200,000 x P30) P6,000,000

Less: Market value of the net assets acquired

Book value P5,000,000

Fair value of identifiable assets 600,000 5,600,000

P 400,000

5. A natural resources property was purchased by Nge Wang Company for 6,000,000.

The output was estimated to be 1,500,000 tons. Nge Wang Company purchased mining
equipment at a cost of 8,000,000 and has a useful life of 10 years but is capable of exhausting the
resource in 8 years.

Production is as follows:

1st Year 150,000 tons

2nd Year 225,000 tons

3rd Year None

4th Year 225,000 tons

What is the carrying amount of the mining equipment at the end of four years?

a. 4,800,000 c. 4,200,000

b. 4,000,000 d. 4,500,000

Solution:

1st year (8,000,000 x 150,000)/1,500,000 = 800,000

2nd year (8,000,000 x 225,000)/1,500,000 = 1,200,000

3rd year (8,000,000-800,000-1,200,000)/8 = 750,000

4th year (8,000,000-800,000-1,200,000-750,000 x 225,000)/1,125,000 = 1,050,000

3,800,000
 8,000,000-3,800,000 = 4,200,000

Lee Company provided the following information for the year ended December 31, 2014:

Cash 500,000

Trade and other receivables 1,500,000

Inventories 100,000

Dairy livestock - immature 50,000

Dairy livestock - mature 400,000

Property, plant and equipment, net 1,400,000

Trade and other payable 520,000

Note payable - long term 1,500,000

Share capital 1,000,000

Retained earnings - January 1 800,000

Fair value of milk produced 600,000

Gain from change in fair value 50,000

Inventories used 140,000

Staff costs 120,000

Depreciation expense 15,000

Other operating expenses 190,000

Income tax expense 55,000

6. What is the net income for 2014?

Answer: 130,000

Revenue from the Operation Amount

Fair Value of Milk Produced P600,000
Gain from Change in fair Value 50,000
Total 650,000
Less: Cost of Operation
Inventory Used 140,000
Staff Cost 120,000
Depreciation Expense 15,000
Other Operating Expenses 190,000
Income Tax Expense 55,000
Total 520,000
Total Net Income P130,000

7. What is the fair value of biological assets on December 31, 2014?

Answer: 450,000

Solution:

Dairy livestock - immature P50,000

Dairy livestock - mature 400,000

P450,000

8. Which of the following is not a characteristic of an intangible asset?

a. Physically exists c. Relatively long lived

b. Confers certain rights d. Value highly uncertain

On January 1, 2019, Boracay Company bought a trademark from Lamitan Company for
P3,000,000.

Boracay retained an independent consultant who estimated the trademark’s life to be indefinite.
Its carrying amount in Lamitan’s accounting records was P1,500,000.

9. In Boracay’s December 31, 2019 balance sheet, what amount should be reported as
trademark?

Answer: 3,000,000 (Since, the trademark has an indefinite life it shall not be amortized. These
will continue generating cash flows indefinitely. However, the trade shall be tested for
impairment every year. Accordingly, should be recorded at its historical cost.)

Rava Company developed a trademark to distinguish its products from those of its competitors.
Through advertising and other means, the company is seeking to establish significant product
identification to increase future sales. The similarity between the trademark costs and other
intangible and operating costs has caused some confusion over proper accounting. The following
items are being treated as part of the cost of the trademark:

Marketing research to study consumer tastes 400,000

Design costs of trademark 1,500,000

Legal fees of registering trademark 150,000

Advertising to establish recognition of trademark 200,000

Registration fee with Patent Office 50,000

Through renewals, the trademark is expected to have an unlimited life.

10. The cost to be capitalized as trademark should be?

Answer: 1,700,000

Solution:

Design costs of trademark 1,500,000

Legal fees of registering trademark 150,000

Registration fee with Patent Office 50,000

Total cost of Trademark 1,700,000

Malonie Company provided the following data:

Value of biological assets at acquisition cost on December 31, 2014

600,000

Fair valuation surplus on initial recognition at fair value on December 31,2014

700,000

Change in fair value to December 31, 2015 due to growth and price fluctuation

100,000

Decrease in fair value to harvest 90,000

11. What is the carrying amount of the biological asset on December 31, 2015?

Answer: 1,310,000

Solution:

December 31, 2014 600,000

Fair value on December 31, 2014 700,000

Fair value to December 31, 2015 100,000

Decrease in fair value to harvest (90,000)

Total 1,310,000

12. What is the gain from change in fair value of biological assets that should be reported in the
2015 income statement?

Answer: 10,000

Solution:

Fair value to December 31, 2015 100,000

Decrease in fair value to harvest (90,000)

Total 10,000

M&M Company is engaged in raising dairy livestock. Information regarding activities to the
dairy livestock during the current year is a s follows:

Carrying amount on January 1 5,000,000

Increase due to purchases 2,000,000

Gain arising from change in fair value less cost of disposal attributed to price change
400,000

Gain arising from change in fair value less cost of disposal attributable to physical change
600,000

Decrease due to sales 850,000

Decrease due to harvest 200,000

13. What is the carrying amount of the biological asset on December 31?

Answer: 6,950,000

Solution:

Carrying amount on January 1 5,000,000

Increase due to purchases 2,000,000

Gain arising from change in fair value due to price change 400,000

Gain arising from change in fair value due to physical change 600,000
Decrease due to sales (850,000)

Decrease due to harvest (200,000)

Total 6,950,000

Precious Company had the following property acquisitions during 2006:

• Acquired a tract of land with an existing building in exchange for 50,000 shares of Precious
Company’s

P100 par value common stock that had a market price of P120 per share on the date of
acquisition. The last property tax bill indicated assessed value of P2,400,000 for the land and
P600,000 for the building.

Shortly after acquisition the building was razed at cost of P100,000 in anticipation of a new
building construction in 2006.

• Received land from a major stockholder as an inducement to locate a plant in the city. No
payment was required but Precious paid P50,000 for legal expenses for land transfer. The land is
fairly valued at P1,000,000.

14. What is the total increase in land as result of the acquisition?

a. 7,000,000 c. 7,150,000

b. 6,100,000 d. 7,100,000

Solution:

First Land:

Fair Value of share issued (50,000x120) = 6,000,000

Cost of razing the old building 100,000 6,100,000

Second Land 1,000,000

Total cost 7,100,000

Yola Company and Zaro Company are fuel oil distributors. To facilitate the delivery of oil to
their customers, Yola and Zaro exchanged ownership of 1,200 barrels of oil without physically
moving the oil. paid Zaro P300,000 to compensate for a difference in the grade of oil. It is
reliably determined that the exchange lacks commercial substance. On the date of the exchange,
cost and market value of the oil were as follows:

Yola Company Zaro Company

Cost 1,000,000 1,400,000

Market value 1,200,000 1,500,000

15. Yola Company shall record the oil inventory received in exchanged at

a. 1,000,000 c. 1,300,000

b. 1,200,000 d. 1,500,000

Solution:

Cost of oil P1,000,000

Add: Cash payment by Yola Company 300,000

Total Cost of the oil Inventory P1,300,000

Solution:

16. Zaro Company shall record the oil inventory received in exchange at

a. 1,400,000 c. 1,100,000

b. 1,500,000 d. 1,200,000

Solution:

Cost of oil inventory given P1,400,000

Less: Cash received 300,000

Cost of oil Inventory Received P1,100,000