Republic of the Philippines

BATANGAS STATE UNIVERSITY

COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS AND
INTERNATIONAL HOSPITALITY MANAGEMENT

COMPREHENSIVE EXAMINATION in FINANCIAL ACCOUNTING AND REPORTING

Direction: Mark the best answer for each item by shading the circle corresponding to the letter of your choice on the answer sheet
provided. ERASURES ARE NOT ALLOWED.

1. Which is(are) correct concerning the FRSC?

I. The FRSC replaces the ASC as the standard setting body in the Philippines
II. The FRSC is composed of 15 members with a Chairman and 14 representatives from various sectors
III. The Chairman and members of the FRSC shall have a term of 2 years renewable for another term
IV. Any member of the ASC shall be disqualified from being appointed to the FRSC
a. I and II only c. III and IV only
b. I, II and II only d. I, II, III and IV

2. A corporation’s accounting records provided the following information:

12/31/16 12/31/17
Current assets P 240,000 P ?
Noncurrent assets 1,600,000 1,500,000
Current liabilities ? 130,000
Noncurrent liabilities 580,000 ?
All assets and liabilities of the company are reported in the schedule above. Working capital of P92,000 remained unchanged from
2016 to 2017. Net income in 2017 was P88,000. No dividends were declared during 2017 and there were no other changes in equity.
Total noncurrent liabilities at December 31, 2017 would be
a. P616,000 c. P568,000
b. P392,000 d. P480,000

3. Using the data for Llanah Corporation, compute the liabilities at year-end
Total assets, end P80,000
Share capital, end 15,000
Retained earnings, beg. 22,000
Net income 15,000
Dividends declared 7,000

a. P65,000 c. P43,000
b. P35,000 d. P50,000

4. The Conceptual Framework deals with

a. Tax laws and regulations.
b. SEC rules and regulations.
c. Code of Ethics for professional accountants.
d. Concepts of capital and capital maintenance.

5. The objective of financial reporting in the Conceptual Framework for Financial Reporting:
a. Is the foundation for the framework
b. Includes the qualitative characteristics that make accounting information useful
c. Is found on the third level of the Framework
d. All of the choices are correct regarding the objective of financial reporting

6. An essential qualitative characteristic of the information provided in the financial statements is faithful representation. This
means that
a. Information must be relevant to the decision making needs of the users.
b. Users must be informed of the accounting policies employed in the preparation of the financial statements, any changes
in those policies and the effects of such changes.
c. Users are assumed to have a reasonable knowledge of business and economic activities and a willingness to study the
information with reasonable diligence.
d. Information must be free from material error and bias and can be depended upon by users to represent faithfully which it
purports to represent or could reasonably be expected to represent.

7. The following information relates to Maxine Corp. for the year ended 30 June 2017.

Sales revenue P450,000

Opening balance of trade receivables (net of allowance)
100,000
Closing balance of trade receivables (net of allowance)
132,500
Doubtful debts expense 5,000
Increase in allowance for doubtful debts 2,000
 Bad debts are written off against the allowance for doubtful debts. What is the amount of cash collected from customers during
the year ended 30 June 2017?
a. P412,500 c. P481,500
b. P418,500 d. P487,500

8. At December 31, 2017, Mursi Co. had the following balances in the accounts it maintains at First State Bank:
Checking account #101 P175,000
Checking account #201 (10,000)
Money market account 25,000
90-day certificate of deposit, due 2/28/18 50,000
180-day certificate of deposit, due 3/15/18 80,000

In its December 31, 2017 statement of financial position, what amount should Mursi report as cash and cash equivalents?
a. P190,000 c. P240,000
b. P200,000 d. P320,000

9. Charm Carpet Cleaning prepares a bank reconciliation at the end of every month. At the end of July, the balance in the general
ledger checking account was P2,750 and the bank balance on the bank statement was P2,980. Outstanding checks totaled P680
and deposits in transited were P400. The bank statement revealed that a check written for P120 was incorrectly recorded by
Charm as a P220 disbursement. The bank statement listed service charges and NSF check charges totaling P150. The corrected
cash balance is:
a. P2,270 c. P2,470
b. P2,550 d. P2,700

10. The following data pertaining to the cash transactions and bank account of Mandirigma Company for the month of May are
available to you:
Cash balance, per bank statement, 5/31 31,948
Bank service charge for May 109
Debit memo for the cost of printed checks delivered by the bank
125
Outstanding checks, May 31 6,728
Deposit of May 30 not recorded by bank
until June 1 4,880
Proceeds of a bank loan of May 30, net of interest of P300
5,700
Proceeds from a customer's promissory note, including interest of P100
8,100
Check No. 2772 issued to a supplier entered in the accounting records at P2,100 but
deducted in the bank statement at an erroneous amount of
1,200
Stolen check lacking an authorized signature, deducted from Mandirigma's account by the
bank in error
800
Customer's check returned by the bank marked NSF; no entry has been made in the
accounting records to record the returned check
760

What is the cash balance per books at May 31?

a. P17,194 c. P30,000
b. P18,994 d. P42,806
11. Helter Skelter Corp. estimates bad debt expense at ½% of credit sales. The company reported accounts receivable and
allowance for uncollectible accounts of P471,000 and P1,650 respectively, at December 31, 2016. During 2017, Helter's credit
sales and collections were P315,000 and P319,000, respectively, and P1,720 in accounts receivable were written off. Helter's
accounts receivable at December 31, 2017, are:
a. P467,000 c. P465,280
b. P473,280 d. P469,280

12. Kevin Company had the following information relating to its accounts receivable:
Accounts receivable, 12/31/2014 P1,300,000
Credit sales for 2017 5,400,000
Collections from customers for 2017, excluding recovery
4,750,000
Accounts written off 9/30/2017 125,000
Collection of accounts written off in prior year (customer credit was not
reestablished)
25,000
Estimated uncollectible receivables per aging of receivables at 12/31/2017
165,000

On December 31, 2017, the amortized cost of accounts receivable is

a. P1,825,000 c. P1,635,000
b. P1,800,000 d. P1,660,000

Use the following information for the next two questions.

On January 1, 2017, Gibuhat Company sold equipment with a carrying amount of P800,000 in exchange for a P1,200,000 note. The
note bears an interest rate of 5% and is to be repaid in three annual installments of P400,000 (plus interest on the outstanding balance).
The first payment was received on December 31, 2017. The market price of the equipment is not reliably determinable. The
prevailing rate of interest for notes of this type is 10%.

13. The total income to be recognized in Gibuhat’s 2017 profit or loss is

a. P460,000 c. P352,215
b. P407,082 d. P297,348

14. The carrying amount of the note receivable as of December 31, 2017 is
a. P994,760 c. P747,100
b. P800,000 d. P694,200

15. On January 1, 2017, the lending company made a P200,000, 8% loan. The interest is receivable at the end of each year, with
the principal amount to be received at the end of 5 years. As of December 31, 2017, the interest for the current year has not yet
been received nor recorded because the borrower is experiencing financial difficulties. The lending company negotiated a
restructuring of the loan. The payment of all of the interest based on the original principal will be delayed until the end the 5-
year loan term. In addition, the amount of principal repayment will be dropped from P200,000 to P100,000. The prevailing
interest rate for similar type of loan as of December 31, 2017 is 10%.
The interest income to be recognized in 2018 is
a. P12,294 c. P10,584
b. P11,431 d. P 9,800

16. Wonderful Inc assigns P1,500,000 of its accounts receivables as collateral for a P1 million loan with a bank. The bank assesses
a 3% finance fee and charges interest on the note at 6%. The journal entry to record this transaction would not include a
a. Debit to Cash for P970,000
b. Debit to Finance Charge for P30,000
c. Credit to Notes Payable for P1,000,000.
d. Credit to Accounts Receivable for P1,000,000.

17. Score Inc. factors P2,000,000 of its accounts receivables without guarantee (recourse) for a finance charge of 5%. The finance
company retains an amount equal to 10% of the accounts receivable for possible adjustments. What would be recorded as a gain
(loss) on the transfer of receivables?
a. Loss of P100,000 c. Loss of P300,000
b. Gain of P100,000 d. Loss of P200,000

18. XYZ Ltd (XYZ) sells a financial asset to ABC Ltd (ABC) for P350,000. The carrying amount of the financial asset is
P300,000, and its fair value is not expected to change materially in the next three months. At the same time, XYZ enters a
repurchase agreement with ABC, whereby XYZ agrees to repurchase the financial asset in three months for P365,000. In
applying PAS 39 principles for the derecognition of financial assets, which of the following is correct?
 a. XYZ is no longer exposed to substantially all the risks and rewards of ownership of the transferred asset.
b. XYZ will record a P50,000 gain on sale of the financial asset.
c. XYZ will record a P15,000 interest expense when it repays the loan in three months.
d. XYZ will continue to recognize its continuing involvement in the transferred asset.

19. On January 1, 2013, JAN Inc. invested P926,405 in the bonds of FEB Limited. The face value of the bonds is P1,000,000. The
bonds pay interest of 5% per annum and mature on December 31, 2022. The bonds are held to maturity. The market value of
the bonds was P940,340 on December 31, 2017. The carrying amount of the investment in bonds at Dec. 31, 2017 is
a. P940,340 c. P957,920
b. P950,834 d. P965,357
20. Miami Dealers has an investment in Heat Corporation that Miami accounts for as a trading security. Heat Corporation shares
are publicly traded on the Stock Exchange, and the prevailing price on that exchange indicates that Miami's investment is worth
P20,000. However, Miami management believes that the stock market is generally overvalued, and their analysis of the Heat
investment suggests to them that it is worth P18,000. Miami should carry the Heat investment on its statement of financial
position at:
a. P20,000.
b. P18,000.
c. either P18,000 or P20,000, as either are defensible valuations.
d. P19,000, the midpoint of Miami's range of reasonably likely valuations of Heat.

21. On December 1, 2017, KC Ltd. acquired 10,000 shares of Sunshine Ltd. (2% of the outstanding shares of Sunshine) for
P100,000. KC plans to actively trade the Sunshine shares to maximize its investment income. On December 15, 2017,
Sunshine declared and paid a dividend of P1.00 per share. For the month of December 2017, Sunshine earned P1.50 per share.
On December 31, 2017, Sunshine’s shares were trading at P12.00 per share on the Philippine Stock Exchange. How much
should KC report in profit or loss for 2017 relating to its Sunshine shares?
a. P10,000 c. P30,000
b. P20,000 d. P35,000

22. The Shop Company sells TVs. The perpetual inventory was stated as P305,000 on the books at December 31, 2017. At the
close of the year, a new approach for compiling inventory was used and apparently a satisfactory cut-off for preparation of
financial statements was not made. Some events that occurred are as follows.
* TVs shipped to a customer January 2, 2018, costing P50,000 were included in inventory at December 31, 2017. The sale was
recorded in 2018.
* TVs costing P100,000 received December 30, 2017, were recorded as received on January 2, 2018.
* TVs received during 2017 costing P46,000 were recorded twice in the inventory account.
* TVs shipped to a customer December 28, 2017, f.o.b. shipping point, which cost P150,000, were not received by the customer
until January, 2018. The TVs were included in the ending inventory.
* TVs on hand that cost P61,000 were never recorded on the books.
Compute the correct inventory at December 31, 2017.
a. P320,000 c. P220,000
b. P259,000 d. P270,000

23. Dragon reported P70,000 of inventory on December 31, 2017, based on physical count. Additional information was given as
follows:
 a. Included in the physical count were goods billed to a customer, FOB shipping point, on December 31, 2017. The goods had a
cost of P3,000 and have been billed at P5,000. The shipment is ready for pick-up by the delivery contractor.
b. Goods were in transit from a vendor. The invoice cost was P8,000 and goods were shipped FOB shipping point on December
31, 2017.
c. Work in process costing P500 was sent to an outside processor for finishing on December 30, 2017.
d. Goods out on consignment amounted to P4,600 (sales price); shipping costs, P120 (markup is 15% on cost).

The correct amount of inventory on December 31, 2017 is

a. P85,620 c. P82,620
b. P85,500 d. P82,500

24. Gillard Enterprises Inc. is a retailer of Italian furniture and has five major product lines: sofas, dining tables, beds, closets, and
lounge chairs. At December 31, 2017, quantity on hand, cost per unit, and net realizable value (NRV) per unit of the product
lines are as follows:

Product line Quantity Cost per unit NRV per unit

Sofas 100 P1,000 P1,020
Dining tables 200 500 450
Beds 300 1,500 1,600
Closets 400 750 770
Lounge chairs 500 250 200

In Gillard’s December 31, 2017 statement of financial position, Inventory should be carried at
a. P1,075,000 c. P1,080,000
b. P1,040,000 d. P1,115,000

25. Inventory records for Epstein's Chemicals revealed the following:

March 1, 2017, inventory: 1,000 gallons @ P7.20 = P7,200
Purchases Sales
Mar. 10 600 gals @ P7.25 Mar. 5 400 gals
16 800 gals @ 7.30 14 700 gals
23 600 gals @ 7.35 20 500 gals
26 700 gals

Ending inventory assuming FIFO in a perpetual inventory system would be:

a. P4,960 c. P5,080
b. P5,060 d. P5,140

26. Chomper Co. incurred P1,200,000 in manufacturing 10,000 widgets. The inventories were manufactured for the purpose of
filling-up a binding contract to sell of 9,000 units of widgets.
The contract with the buyer stipulates unit price of 100. The Company actively sells widgets in the market at 200 per unit. The
delivery date will be on January 10, 2018.
As of December 31, 2017, how much should the company recognize as net provision?
a. P180,000 c. P900,000
b. P200,000 d. Nil

27. The following data have been accumulated for Grace Mfg. Inc.
Raw materials – beginning inventory (Jan. 1,
2017) 10,000 units @P6.00
Purchases 8,500 units @P7.00
11,000 units @P7.50

Transferred 21,500 units of raw materials to work in process:

Work in process – beginning inventory (Jan. 1, 2017) 5,600 units @P13.50
Direct labor P250,000
Manufacturing overhead P325,000
Work in process – ending inventory (Mar. 31, 2017) 4,200 units @P13.75

If Grace uses the FIFO method for valuing raw materials inventories, compute for the cost of goods manufactured for the
quarter ended March 31, 2017.
a. P699,150 c. P734,850
b. P717,000 d. P746,850

28. A physical inventory taken on December 31, 2017 resulted in an ending inventory of P1,440,000. Circus Company suspects
some inventory may have been taken by employees. To estimate the cost of missing inventory, the following were gathered:

Inventory, Dec. 31, 2016 P1,280,000

Purchases during 2017 5,640,000
Cash sales during 2017 1,400,000
Shipment received on December 26, 2017, included in physical inventory,
but not recorded as purchases
40,000
Deposits made with suppliers, entered as purchases. Goods were not
received in 2017
 80,000
Collections on accounts receivable, 2017 7,200,000
Accounts receivable, January 1, 2017 1,000,000
Accounts receivable, Dec. 31, 2017 1,200,000
Gross profit percentage on sales 40%

At December 31, 2017 what is the estimated cost of missing inventory?

a. P200,000 c. P240,000
b. P160,000 d. P320,000

29. Agricultural produce

a. Is the harvested product of the entity’s biological asset.
b. Is the detachment of agricultural produce from a biological asset or the cessation of a biological asset’s life processes.
c. Is the management by an entity of the biological transformation of biological assets for sale, into agricultural produce, or
into another biological asset.
d. Relates to the processes of growth, degeneration, production and procreation that can cause changes of quantitative or
qualitative nature in a biological asset.

30. Which of the following statements is (are) correct according to PAS 41 (Agriculture)?

Statement I: A biological asset shall be measured on initial recognition and at the end of each reporting period at its fair
value less costs to sell.

Statement II: Agricultural produce harvested from an entity’s biological assets shall be measured at the point of harvest
and at the end of each reporting period at its fair value less costs to sell.
a. I only. c. Both I and II.
b. II only. d. Neither I nor II.

Gatas Dairy produces milk to sell to local and national ice cream producers. Gatas Dairy began operations on January 1, 2017 by
purchasing 840 milk cows for P1,176,000. The company controller had the following information available at year end relating to the
cows:

Carrying value, January 1, 2017 P1,176,000

Increase in fair value due to growth
and price changes 365,000
Decrease in fair value due to harvest 42,000
Milk harvested during 2017 but not yet sold 54,000

31. At December 31, 2017, what is the value of the milking cows on Gatas Dairy’s statement of financial position?
a. P1,583,000 c. P1,499,000
b. P1,553,000 d. P1,445,000

32. Kasingkasing’s Llamas purchased 1,000 llamas on January 1, 2017. These llamas will be sheared semiannually and their wool
sold to specialty clothing manufacturers. The llamas were purchased for P148,000. During 2017 the change in fair value due to
growth and price changes is P9,400, the wool harvested but not yet sold is valued at net realizable value of P18,000, and the
change in fair value due to harvest is (P1,150). What is the value of the llamas on Kasingkasing’s Llamas statement of financial
position on June 30, 2017?
a. P156,250 c. P146,850
b. P148,000 d. P128,850

33. According to PAS16 Property, plant and equipment, which of the following items should be capitalized into the cost of
property, plant and equipment?
I. Cost of excess materials resulting from a purchasing error
II. Cost of testing whether the asset works correctly
III. Initial operating losses while demand builds up
IV. Cost of preparing the site for installation
a. II and IV only c. II, III and IV only
b. I and II only d. I, II, III and IV

34. A piece of machinery has a marked price of P550,000. It was purchased under the term, 15%, 10%, and 5% discounts. The
cost of freight and installation after deducting the P8,000 sales proceeds of the old machinery which was replaced is P12,000.

The new machinery shall be recorded at a cost of

a. P411,712 c. P419,712
b. P405,000 d. P397,000

35. During the current year, Benguet Company purchased a secondhand machine at a price of P300,000. A cash down payment of
P50,000 was made and a two-year, noninterest bearing note was issued for the balance. Recent transactions involving similar
machinery indicate that the used machine has a secondhand market value of P240,000. A new machine would cost P400,000.

The following costs were incurred on the machine during the year:

Cost of removing the old machine P2,000

 Cash proceeds from the sale of the old machine 1,200
General overhaul and repair to recondition the machine prior to use
10,000
Cost of spare parts purchased and set aside for breakdowns during the first two years of
normal use of the machine
20,000
Cost of labor to install the machine 4,000
Cost of the testing the machine prior to use 1,800
Cost of hauling the machine from the vendor's place of business to the company's
premises 5,000
Cost of repairing the damage to the machine when it was dropped during installation
3,000
Repairs incurred during the first year of operations 6,000

Safety devices added to the machine to comply with the terms of the collective bargaining
agreement entered into with the employees' union

12,000
Cost of training workers to operate the machine 1,500

Determine the amount to be capitalized as cost of the machine.

a. P292,800 c. P272,800
b. P280,800 d. P262,800

36. A machine has a cost of P60,000, has an annual depreciation of P12,000, and has accumulated depreciation of P30,000 on
December 31, 2016. On April 1, 2017, when the machine has a fair value of P24,000, it is exchanged for a similar machine
with a fair value of P72,000 and the proper amount of cash is paid. The loss to be recognized on exchange is
a. P6,000 c. P21,000
b. P3,000 d. P 0

37. Lukashenko Company acquired land and an old building. Lukashenko acquired the land and building by providing 40,000 of
its shares that were trading on the Stock Exchange at price of P13 per share, and by paying off the existing mortgage of P30,000
and back taxes on the old building of P5,000. Lukashenko also paid P20,000 to demolish the old building on the land, P30,000
to an architect to design a new building, and P220,000 to a contractor to build the building. How much is the cost of the new
building in accordance with PIC Q&A 2012-2?
a. P250,000 c. P300,000
b. P270,000 d. P305,000

38. Which of the following statements regarding depreciation is true, according to PAS 16, Property, Plant and Equipment?
a. The total cost of an asset must eventually be depreciated.
b. The annual depreciation charge should be constant over the life of the asset.
c. An asset must be depreciated from the date of its purchase to the date of sale.
d. If the carrying amount of an asset is less than the residual value, depreciation is not charged.

39. Jeric Company purchased a machine on December 2, 2015 at an invoice price of P4,500,000 with terms 2/10, n/30. On
December 10, 2015, Jeric paid the required amount for the machine. On December 2, 2015, Jeric paid P80,000 for delivery of
the machine and on December 31, 2015, it paid P310,000 for installation and testing of the machine. The machine was ready
for use on January 1, 2016. It was estimated that the machine would have a useful life of 5 years, and a residual value of
P800,000. Engineering estimates indicated that the useful life in productive units was 200,000. Units actually produced during
the first two years were 30,000 in 2016 and 48,000 in 2017. Jeric Company decided to use the productive output method of
depreciation. What is the depreciation of the machine for 2017?
a. P1,560,000 c. P960,000
b. P 720,000 d. P600,000

40. Which of the following statements best describe ‘owner-occupied property’ under PAS 40, Investment Property?
I. Property held to earn rentals.
II. Property held for administrative purposes.
III. Property held for sale in the ordinary course of business.
IV. Property held for use in the production and supply of goods and services.
a. I and II. c. II and IV.
b. I and IV. d. III and IV.

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

42. Which of the following generally provides the best evidence of fair value of an investment property?
a. Discounted cash flow projections based on reliable estimates of future cash flows.
b. Current prices for properties of a different nature or subject to different conditions.
c. Current prices in an active market for similar property in the same location and condition.
d. Recent prices on less active markets with adjustments to reflect the changes in economic conditions.
43. Hall Co. incurred research and development costs in 2017 as follows:
Materials used in research and development projects
P 450,000
Equipment acquired that will have alternate future uses in future research and
development projects
3,000,000
Depreciation for 2017 on above equipment 300,000
Personnel costs of persons involved in research and development projects
750,000
Consulting fees paid to outsiders for research and development projects
300,000
Indirect costs reasonably allocable to research and development projects
225,000
P5,025,000

Assume economic viability has not been achieved.

The amount of research and development costs charged to Hall's 2017 income statement should be
a. P1,500,000 c. P2,025,000
b. P1,900,000 d. P4,500,000

44. The cost of an intangible asset is composed of

a. Purchase price excluding import duties and nonrefundable taxes
b. Purchase price including import duties and nonrefundable taxes
c. Purchase including both refundable and nonrefundable taxes
d. Purchase price including trade discounts and rebates

45. Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares of Mini Corp.’s P5 par value ordinary shares and
P75,000 cash. When the patent was initially issued to Maxi Co., Mini Corp.’s shares were selling at P7.50 per share. When
Mini Corp. acquired the patent, its shares were selling for P9 a share. Mini Corp. should record the patent at what amount?
a. P87,500 c. P97,500
b. P93,750 d. P75,000

46. Buck Enterprises acquired a patent from Wolly Research Corporation on 1/1/17 for P4 million. The patent will be used for five
years, even though its legal life is 20 years. Bully Corporation has made a commitment to purchase the patent from Buck for
P200,000 at the end of five years. Compute Buck's patent amortization for 2017, assuming the straight-line method is used.
a. P380,000 c. P760,000
b. P400,000 d. P800,000

47. During 2017, Vic Co, had the following transactions:

 On January 2, Vic purchased the net assets of Amp Co. for P360,000. The fair value of Amp's identifiable net assets was
P172,000, Vic believes that, due to the popularity of Amp’s consumer products, the life of the resulting goodwill is
unlimited.
 On February 1, Vic purchased a franchise to operate a ferry service from the state government for P60,000 and an
annual fee of 1% of ferry revenues. The franchise expires after five years. Vic received P20,000 of ferry revenues in
2017.
 On April 5, Vic was granted a patent that had been applied for by Amp. During 2017, Vic incurred legal costs of
P51,000 to register the patent and an additional P85,000 to successfully prosecute a patent infringement suit against a
competitor. Vic estimates the patent's economic life to be ten years.

Vic has determined that it is appropriate to amortize these intangibles on the straight-line basis over the maximum period
permitted by generally accepted accounting principles, taking a full year's amortization in the year of acquisition.

Calculate the total expense to be recognized in 2017 income statement resulting from the foregoing intangible assets.
a. P102,300 c. P25,600
b. P111,700 d. P35,200

48. Judy, Incorporated embarked on a new venture in Northern Luzon in 2017. It expects to glean 2,000,000 ounces of a precious
ore from its holdings there, over several years. Relevant data follow:
Cost of the Mineral Rights P 500,000
Exploration Cost, 2017 (1/3 successful) 1,500,000
Extraction Cost, 2017 2,000,000
Ore extracted, 2017 500,000 oz.
Ore sold, 2017 300,000 oz.

What is the depletion for 2017, using the successful efforts method of accounting for exploration costs?
a. P350,000 c. P250,000
b. P300,000 d. P150,000

On May 31, 2017, the Portland Co. acquired the rights to a coal mine containing an estimated reserves of 1,000,000 tons of coal. The
company estimated that 12,500 tons of coal would be extracted and sold each month. Cost allocable to coal was P3,500,000.

Also on May 31, 2017, the company purchased an equipment to be used in the production, costing P95,000 which has an estimated
useful life of 10 years. The equipment was expected to become obsolete after all the coal deposits had been extracted from the mine
and only P5,000 selling price of the equipment could be expected. Production was in full blast since June 1, 2017.

49. What would be the depletion expense for the year ended December 31, 2017?
a. P525,000 c. P153,125
b. P262,500 d. P306,250

a.
50. Dakong Company purchased a machine on January 2, 2014, for P500,000. The machine has an estimated useful life of eight
years and a salvage value of P50,000. Depreciation was computed by the 200% declining-balance method. During December
2017, Dakong determined that there had been a significant decrease in market value of its machine. At December 31, 2017,
Dakong compiled the following information regarding the machine

Expected undiscounted net future cash inflows from the continued use and
eventual disposal
P160,000
Expected discounted net future cash inflows from the continued use and
eventual disposal
120,000
Fair value less costs of disposal 130,000

What is the impairment loss that should be recognized in 2017 profit or loss?
a. P80,938 c. P28,203
b. P38,203 d. Nil

51. A chain of bicycle shops holds bicycles for short-term hire and for sale. The bicycles available for hire are used for two or three
years and then sold by the shops as second-hand models. All shops sell both new and second-hand bicycles.
The entity sold a new bicycle for P5,000 (cost P4,000) and a second-hand bicycle for P1,000 (carrying amount P500).
Which statement is correct?
a. The entity shall reclassify the bicycles for hire as non-current assets held for sale when they cease to be rented and
become held for sale.
b. The difference between the net disposal proceeds and the carrying amount of the second-hand bicycles is recognized as
other income in profit or loss.
c. The bicycles for hire are reported in the statement of financial position as property, plant and equipment.
d. All of the above.

52. On January 1, 2017, Minnesota Corp. began construction of homes for those families that were hit by the tsunami disaster and
were homeless. The construction is expected to take 3.5 years. It is being financed by issuance of bonds for P7 million at 12%
per annum. The bonds were issued at the beginning of the construction. The bonds carry a 1.5% issuance cost. The project is
also financed by issuance of P3 million share capital with a 14% cost of capital. The borrowing costs to be capitalized in 2017
is (Use straight line amortization method)
a. P870,000 c. P1,290,000
b. P840,000 d. P1,260,000

53. On January 1, 2016, New Orleans Company received a grant of P50 million from a foreign government for the construction of a
laboratory and research facility with an estimated cost of P60 million and useful life of 25 years. The facility was completed in
early 2017. Company policy is to treat the grant as a deduction from the cost of the asset. What should be the depreciation
expense in respect of this facility for the year ended 31 December 2017, assuming that depreciation is calculated on a straight line
basis?
a. Nil c. P2,000,000
b. P2,400,000 d. P 400,000

54. Balungao Company changed its accounting policy with respect to the valuation of inventories. Up to 2016, inventories were
valued using weighted-average cost (WAC) method. In 2017 the method was changed to first-in, first-out (FIFO), as it was
considered to more accurately reflect the usage and flow of inventories in the economic cycle. The impact on inventory
valuation was determined to be
At December 31, 2015: An increase of P100,000
At December 31, 2016: An increase of P150,000
At December 31, 2017: An increase of P200,000

The change in accounting policy increased net profit for 2017 by

a. P200,000 c. P450,000
b. P150,000 d. P 50,000

55. Accrued salaries payable of P51,000 were not recorded at December 31, 2016. Office supplies on hand of P24,000 at December
31, 2017 were erroneously treated as expense instead of supplies inventory. Neither of these errors was discovered nor
corrected. The effect of these two errors would cause
a. 2017 net income to be understated P75,000 and December 31, 2017 retained earnings to be understated P24,000.
b. 2016 net income and December 31, 2016 retained earnings to be understated P51,000 each.
c. 2016 net income to be overstated P27,000 and 2017 net income to be understated P24,000.
d. 2017 net income and December 31, 2017 retained earnings to be understated P24,000 each.

56. The following were created to assist the Board of Accountancy in carrying out its powers and functions, except
a. Financial Reporting Standards Council
b. Auditing and Assurance Standards Council
c. Education Technical Council
d. Accredited Professional Organization Council

57. How IFRS standards strengthen accountability?

a. By enhancing the international comparability and quality of financial information, enabling investors and other market
 participants to make informed economic decisions.
b. By reducing the information gap between the providers of capital and the people to whom they have entrusted
their money.
c. By helping investors to identify opportunities and risks across the world, thus improving capital allocation.
d. All of the above.

58. Bumbly Co extracted the trial balance for the year ended 31 December 2017. The total of the debits exceeded the credits by
P300.
Which of the following could explain the imbalance?
a. Sales of P300 were omitted from the sales day book.
b. Returns inward of P150 were extracted to the debit column of the trial balance.
c. Discounts received of P150 were extracted to the debit column of the trial balance.
d. The bank ledger account did not agree with the bank statement by a debit of P300.

59. Which statement is incorrect regarding the Conceptual Framework?

a. The objective of general purpose financial reporting is the foundation of the Conceptual Framework.
b. The Conceptual Framework is useful to auditors by assisting them in forming an opinion as to whether financial
statements conform to PFRSs.
c. The Conceptual Framework may override a specific PFRS.
d. The conceptual framework includes a cost-benefit constraint, which means that the benefits of the information must be
greater than the costs of providing it.

60. Which statement relates to verifiability?

a. Enables users to identify and understand similarities in, and differences among, items.
b. Information is available to decision-makers in time to be capable of influencing their decisions.

c. Different knowledgeable and independent observers could reach consensus, although not necessarily complete
agreement, that a particular depiction is a faithful representation.
d. Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who
review and analyze the information with diligence.

61. In accordance with PAS 1 Presentation of Financial Statements, which one of the following items must be separately presented
in the statement of financial position?

a. Net assets
b. Non-financial assets
c. Asset revaluation surplus
d. Issued capital and reserves

62. Which of the following material events after the reporting date and before the financial statements are approved are adjusting
events?
I. A valuation of property providing evidence of impairment in value at the reporting date.
II. Sale of inventory held at the reporting date for less than cost.
III. Discovery of fraud or error affecting the financial statements.
IV. The insolvency of a customer with a debt owing at the reporting date which is still outstanding.
a. I, II, III and IV c. I, II and IV only
b. I, II and III only d. I, III and IV only

63. Which of the following statements about PAS 24 is(are) true?

I. The main issue of PAS 24 is recognition and measurement of related party transactions.
II. Transactions between related parties are not conducted in an “arms-length” and therefore financial information becomes
unreliable unless disclosure is made of such related party transaction.
III. Control relationship should always be disclosed whether or not there are related party transactions.
a. I and II only c. I and III only
b. II and III only d. I, II and III

64. In accordance with PAS 1 Presentation of Financial Statements, which one of the following items does not have to be
separately presented in the statement of profit or loss and other comprehensive income?
a. Finance costs
b. Share of losses from associates
c. Expenses from ordinary activities
d. Profit attributable to non-controlling interests
65. In accordance with the requirements of IAS 1 Presentation of Financial Statements, which one of the following statements is
correct?
a. The share of profit or loss of associates determined using the equity method must be included in other comprehensive
income.
b. Every item that appears in other comprehensive income will require a reclassification adjustment in future reporting
periods when the item involved is derecognized.
c. Reclassification adjustments relating to components of other comprehensive income must be disclosed.
d. Retrospective adjustments arising from a change in accounting policy in accordance with PAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors must be included in other comprehensive income.

66. Which of the following derivatives should be classified as held for trading?
a. A derivative that is a financial guarantee contract.
 b. A derivative that is designated and effective hedging instrument.
c. A derivative that is for speculation.
d. None of the above.

67. Balances of the deferred tax accounts of Taxflow Ltd were as follows.
12/31/16 12/31/17
Deferred tax liability P3,200 P2,000
Deferred tax asset 2,650 1,900

Income tax expense for the year ended December 31, 2017 was P1,750. The current tax payable at December 31, 2017 is P200
less than the current tax payable at the preceding year end. What was the amount of income tax paid during the year ended
December 31, 2017?
a. P1,100 c. P2,000
b. P1,500 d. P2,200

68. An entity has spent P1,000,000 in developing a new product. These costs meet the definition of an intangible asset under PAS
38 and have been recognized in the statement of financial position. These costs have been recognized as an expense for tax
purposes. At the year-end the intangible asset is deemed to be impaired by P100,000. Assuming tax rate is 30%, which
statement is correct?
a. The tax base of the intangible asset at year-end is P900,000.
b. The entity has a taxable temporary difference at year-end of P900,000.
c. The entity should recognize deferred tax asset of P270,000 at year-end.
d. The entity should recognize deferred tax liability of P300,000 at year-end.

69. Ottawa Electronics Inc. reported the following items on its December 31, 2017, trial balance:

Accounts Payable P108,900

Advances to Employees 4,500
Unearned Rent Revenue 28,800
Estimated Liability Under Warranties 25,800
Cash Surrender Value of Officers' Life Insurance 7,500
Bonds Payable 555,000
Discount on Bonds Payable 22,500
Trademarks 3,900

The amount that should be recorded on Ottawa's statement of financial position as total liabilities is
a. P696,000 c. P703,500
b. P700,500 d. P741,000

70. The following information is shown in the accounting records of Washington Company:

Balances as of January 1
Cash 620,000
Accounts receivable 670,000
Merchandise inventory 860,000
Account payable 530,000

Balances as of December 31
Accounts receivable 910,000
Merchandise inventory 780,000
Account payable 480,000

The total sales and cost of goods sold for the current year were P7,980,000 and P5,830,000, respectively. All sales and all
merchandise purchases were made on credit. Various expenses of P1,070,000 were paid in cash. Deferred income tax liability
increased by P75,000 during the year. There were no other pertinent transactions. The cash balance on December 31 should
be?
a. P1,080,000 c. P1,490,000
b. P2,560,000 d. P3,050,000

-End of Examination-
 Republic of the Philippines
BATANGAS STATE UNIVERSITY
COLLEGE OF ACCOUNTANCY, BUSINESS, ECONOMICS AND
INTERNATIONAL HOSPITALITY MANAGEMENT
Gov. Pablo Borbon Main Campus I
Rizal Avenue, Batangas City

Name: ________________________ Score: ____________

Course/Section:_______________ Date:______________

Financial Accounting & Reporting

A B C D A B C D
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