REAL EXCELLENCE ONLINE CPA REVIEW

PREWEEK MATERIALS
MAY 2022 BATCH
TOPIC 1: INTRODUCTION TO ACCOUNTANCY PROFESSION AND PREFACE TO PFRS
1. S1: PFRSs apply to all profit-oriented entities whether owned by private individuals or the
government.
S2: Standards approved by FRSC include paragraphs in bold type and plain type, the former having
greater authority than the latter since it indicate the main principles.
Which of the above statements is incorrect?
A. S1 only C. Both statements
B. S2 only D. None from the statements

2. Standards approved by the FRSC include paragraphs in bold type and plain type, which have equal
authority. Paragraphs in plain type indicate the main principles.
Any limitation of the scope of a PFRS is made clear in the standard.
A. True, True C. False, True
B. True, False D. False, False

3. In relation to the standard setting body both internationally and locally, determine whether the

w
following statements are true or false:
I. Accounting Standards Council (ASC) which was created by PICPA on 1981 has 8 members.
II. BIR and SEC are government agencies having representatives in FRSC but not on ASC.

ie
III. Philippine Interpretations Committee (PIC) issues guidance which is equally authoritative as
PFRS.
A. False, false, true C. False, true, true
B. True, false, true D.

TOPIC 2: CONCEPTUAL FRAMEWORK FOR FINANCIAL REPORTING

4.
ev
True, true, false

Which of the following statements regarding the conceptual framework of accounting is (are) true?
I. The conceptual framework is intended to establish the objectives and concepts for use in
R
developing standards of financial accounting and reporting.
II. If there is a conflict between the provisions of the conceptual framework and that of a financial
accounting standard, the conceptual framework should prevail.
III. Special purpose financial reports, for example, prospectuses, and computations prepared for
PA

taxation purposes, are within the scope of the conceptual framework.

A. Only I is true D. All statements are true

5. Financial information provided in general purpose financial reports does not include information about
A. The resources of the entity.
B. The claims against the entity.
C

C. How effectively and efficiently the entitys governing board has discharged its responsibility to
use the entitys resources.
D. How effectively and efficiently the entitys shareholders have discharged their responsibility to
use the entitys resources.
EO

6. Which of the following properly shows the users of the general purpose reports and their concern(s)?
USER CONCERN
A. Customers Ability to pay dividends
B. Employees Long-term dependence on the entity
C. Investors Liquidity
R

D. Government Compliance with laws and regulations

7. Which of the following is not a characteristic of faithful representation?

A. The financial information must have predictive value and confirmatory value.
B. The financial information must be complete within the bounds of materiality and cost.
C. The financial information contained in the financial statements must be free from bias.
D. The phenomena described in the financial statements and the process used to produce the
reported information must be free from error.

8. S1: Since equity is the residual amount of assets over liabilities, equity cannot be recognized
individually from the other elements of the financial position
S2: Physical form is a necessity for an item to be classified as asset.
A. True, false C. False, false
B. False, true D. True, true

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 1

9. The following are the changes in the account balances of an entity during the current year; except for
retained earnings:
Increase (Decrease)
Cash 948,000
Accounts receivable, net 540,000
Inventory 1,524,000
Investments (564,000)
Accounts payable (612,000)
Bonds payable 980,000
Ordinary shares 1,500,000
Share premium 160,000
The entity declared and paid dividends of P230,000 in the current year. Compute for the profit (loss)
using the capital maintenance approach.
A. P 800,000 C. P (650,000)
B. P (800,000) D. P 650,000

TOPIC 3: CASH & CASH EQUIVALENTS

10. Which of the following is not included as cash?
I. Time deposits
II. Compensating balance legally restricted
III. Money orders

w
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III

ie
11. In relation to the cash and cash equivalents line item of the balance sheet of KARDEL CORP. as of the
year ended December 31, 2019, the following information was presented:
VAT fund P30,000
Bond sinking fund
BPI checking account
BPI savings account
BDO checking account
ev 150,000
(5,000)
500,000
(20,000)
R
BDO time deposit 100,000
Security bank savings account (10,000)
Coins and currencies 30,000
IOUs from employees 25,000
PA

Treasury bond acquired December 30, 2019 maturing February 15, 2020 50,000
Money order 15,000
Bonds payable maturing June 30, 2020 150,000
What amount is to be reported as cash for the year ended December 31, 2019?
A. P770,000 C. P720,000
B. P800,000 D. P700,000
C

12. NECROLYTE INC. provided the following data for the month of January of the current year:
Balance per book, January 31 3,130,000
Balance per bank statement, January 31 3,500,000
EO

Collections on January 31 but undeposited 550,000

NSF check received from a customer returned by the
bank on February 5 with the January bank statement 50,000
Checks outstanding on January 31 650,000
Bank debit memo for safety deposit box rental not recorded by depositor 5,000
A creditor check for P30,000 was incorrectly recorded in the depositors b ook as 300,000
R

A customer check for P200,000 was recorded by the depositor as 20,000

The depositor neglected to make an entry in its books for a check
drawn in payment of an account payable 125,000
What is the adjusted cash in bank on January 31?
A. 2,950,000 C. 3,400,000
B. 3,130,000 D. 3,500,000
13. How much is the adjusted receipts in April?
A. P167,000 C. P148,900
B. P175,000 D. P195,000
14. How much is the adjusted disbursements in April?
A. P55,000 C. P37,000
B. P61,000 D. P30,000
15. How much is the adjusted cash in bank April?
A. P546,000 C. P513,900
B. P556,000 D. P591,000

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 2

TOPIC 4: RECEIVABLES
16. Trade receivables are presented as current assets
A. when they are collectible within one year
B. when they are collectible within an entitys normal operating cycle
C. when they are backed by sufficient collateral security
D. when they are collectible within an entitys normal operating cycle even if the normal operating
cycle extends beyond one year.

17. What is the effect of write-off of uncollectible accounts receivable on the following items?
NRV of AR Allowance for Doubtful Accounts Bad-debt expense
A. No effect No effect Increase
B. Increase Decrease No effect
C. No effect Decrease No effect
D. Decrease Decrease No effect

18. S1: When using the estimate based on analysis of receivables, the amount computed in the analysis
is always the required amount that would be recorded in the adjusting entry.
S2: When using the estimate-based-on-sales method, the entry to record uncollectible accounts
expense includes a credit to the Accounts Receivable account.
A. True, false C. False, false

w
B. False, true D. True, true

19. Which of the following notes receivables are initially measured at present value?

ie
I. Short-term, non-interest bearing note receivable where the effect of discounting is material.
II. Long-term interest bearing notes receivable where the stated interest is equal to the effective
rate of interest.
A. I only C. Both I and II

20.
B. II only D.

ev
Neither I nor II

If the initial measurement of a loan receivable is higher than its face value:
I. The direct origination cost is higher than origination fee.
R
II. The nominal interest rate is lower than the effective interest rate.
Which of the above statements is correct?
A. I only C. Both I and II
B. II only D. Neither I nor II
PA

Use the following information in answering the next item(s):

The accounts receivable and allowance for doubtful accounts of CLINT INC. are as follows:
Accounts receivable P300,000
Allowance for doubtful accounts 50,000
C

During the current year, the following information transpired:

• CLINT earned a P400,000 gross profit on sales during the current year.
• Total cash collections during the current year including collections of previously written-off
account is P550,000.
Accounts written-off during the year is P30,000 and collections of previously written-off account
EO

•
amounted to P10,000.
• Sales returns during the year is P50,000 (50% coming from cash sales)
• Sales discounts taken by customers amounted to P30,000.
• Cash sales during the year amounted to P150,000
• Merchandise inventories decreased by P100,000 and purchases of inventories amounted to
P300,000.
R

CLINT is using the aging method in accounting for its doubtful accounts. In relation to this, the age of
the receivables, with their respective uncollectibility rate is as follows:
Age Percent based on the ending balance Uncollectiblity rate
0-30 days 40 percent 2%
31-60 days 20 percent 5%
61-90 days 30 percent 10%
Over 90 days 10 percent 20%
21. What is the net realizable value of the accounts receivable?
A. P537,260 C. P442,700
B. P517,260 D. P456,800
22. What is the amount to be reported as doubtful accounts expense during the year?
A. P5,600 C. P7,740
B. P8,440 D. P2,300

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 3

Use the following information in answering the next item(s):
On January 1, 2014, MOSKOV CORP. sold equipment with a carrying amount of P4,800,000 in
exchange for a P6,000,000 noninterest bearing note due January 1, 2017. There was no established
exchange price for the equipment. The prevailing rate of interest for a note of this type on January 1,
2014 was 10%. The present value of 1 at 10% for three periods is 0.75.

23. In the 2014 income statement, what amount should be reported as interest income?
A. 90,000 C. 500,000
B. 450,000 D. 600,000
24. In the 2014 income statement, what amount should be reported as gain or loss on sale of equipment?
A. 300,000 loss C. 1,200,000 gain
B. 300,000 gain D. 2,700,000 gain

Use the following information in answering the next item(s):

DIGGIE CORP. granted a loan to a borrower on January 1, 2019. The interest on the loan is 12%
payable annually starting December 31, 2019. The loan matures in three years on December 31,
2021. The data related to the loan are:
Principal amount P2,000,000
Origination fee charged against the borrower 400,000
Direct origination cost incurred 500,000
Indirect origination cost incurred 30,000

w
The effective rate of the loan is 10%
The interest payment was made as scheduled for the year 2020. Due to financial difficulty the
borrower is experiencing, DIGGIE considers the loan impaired. The parties agreed that the principal

ie
amount is to be reduced by half and paid in 2 equal instalments on December 31, 2021 and
December 31, 2023. The interest payment is to be continually paid after until the whole principal is
fully paid. The market rate of interest on December 31, 2020 is 14%.

25. What is the initial measurement of the loan receivable?

A.
B.
P1,900,000
P2,100,000
C.
D.
ev
P2,130,000
P1,930,000
R
26. What is the loan impairment loss on 2020?
A. P1,243,141 C. P1,206,895
B. P 761,141 D. P1,003,141
PA

27. What is the carrying amount of the loan on December 31, 2022?
A. P517,245 C. P565,245
B. P508,970 D. P590,980

TOPIC 5: INVENTORIES
C

28. Which of the following should be included in inventory at the end of reporting period?
A. Goods received from another entity on consignment
B. Goods in transit which were purchased FOB destination
C. Goods in transit which were purchased FOB shipping point
D. Goods in transit to a customer which were sold to the customer FOB shipping point
EO

29. Which of the following is excluded from an entitys inventories?

A. consigned goods delivered to another entity
B. raw materials borrowed from another entity to be replaced with similar materials in the future
C. merchandise sold under FOB shipping point, located in the warehouse awaiting shipment
D. inventories sold under instalment sale whereby the entity retains the title
R

30. I. FIFO is in accordance with the ordinary merchandising procedure that the goods are sold in the
order they are purchased. The rule is "first come, first sold".
II. Under moving average method, a new weighted average unit cost must be computed after
every purchase, purchase return and sale return.
A. True, false C. False, false
B. False, true D. True, true

31. Raw materials and manufacturing supplies held for use in the production of inventories are
A. required under PAS 2 Inventories to be separately presented from the other inventories.
B. not disclosed since they are normally immaterial.
C. not written down below cost if the finished products in which they will be incorporated are
expected to be sold at or above cost.
D. all of these

32. LEBANON CORP. included the following items under inventory:

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 4

 Materials 1,400,000
Advance for materials ordered 200,000
Goods in process 650,000
Unexpired insurance on inventory 60,000
Advertising catalogs and shipping cartons 150,000
Finished goods in factory 2,000,000
Finished goods in entity-owned retail store, including 50% profit on cost 750,000
Finished goods in hands of consignees including 40% profit on sales 400,000
Finished goods in transit to customers, shipped FOB destination at cost 250,000
Finished goods out on approval, at cost 100,000
Unsalable finished goods, at cost 50,000
Office supplies 40,000
Materials in transit, shipped FOB shipping point,
excluding freight of P30,000 330,000
Goods held on consignment, at sales price, cost P150,000 200,000
What is the correct amount of inventory?
A. 5,375,000 C. 5,500,000
B. 5,250,000 D. 5,540,000

33. Presented below is a list of items that may or may not reported as inventory in a company’s
December 31 balance sheet.

w
1 Goods out on consignment at another company’s store P800,000
2 Goods sold on installment basis 100,000
3 Goods purchased f.o.b. shipping point that are in transit at

ie
December 31 120,000
4 Goods purchased f.o.b. destination that are in transit
at December 31 200,000
5 Goods sold to another company, for which our company

6
7
covers all costs related to the inventory
Goods sold where large returns are predictable ev
has signed an agreement to repurchase at a set price that

Goods sold f.o.b. shipping point that are in transit December 31

300,000
280,000
120,000
R
8 Freight charges on goods purchased 80,000
9 Factory labor costs incurred on goods still unsold 50,000
10 Interest cost incurred for inventories that are routinely manufactured 40,000
11 Costs incurred to advertise goods held for resale 20,000
PA

12 Materials on hand not yet placed into production 350,000

13 Office supplies 10,000
14 Raw materials on which a the company has started production,
but which are not completely processed 280,000
15 Factory supplies 20,000
16 Goods held on consignment from another company 450,000
C

17 Costs identified with units completed but not yet sold 260,000
18 Goods sold f.o.b. destination that are in transit at December 31 40,000
19 Temporary investment in stocks and bonds that will be resold
in the near future 500,000
EO

How much of these items would typically be reported as inventory in the financial statements?
A. P2,300,000 C. P2,260,000
B. P2,000,000 D. P2,220,000
34. MALAYSIA INC. reported the following transactions for the month of June:
Purchases Sales
June 1 (balance) 800 @ P365 June 2 600 @ P550
R

3 2,200 @ 310 6 1,600 @ 550

7 1,200 @ 330 9 1,000 @ 550
15 800 @ 340 10 400 @ 600
22 500 @ 350 18 1,400 @ 600
25 200 @ 600
What is the cost of ending inventory on a FIFO perpetual basis?
A. 411,000 C. 429,000
B. 416,000 D. 447,000

35. On September 30, 2014, a flood at TAIWAN COMPANY’s warehouse caused severe damage to its
entire inventory. Based on recent history, TAIWAN had a gross profit of 25% of net sales. The
following data were gathered for the nine months ended September 30:
Inventory, January 1, P520,000; Purchases, P4,120,000; Purchase returns, P60,000; Sales,
P5,600,000 and Sales discounts, P400,000.
A physical inventory disclosed usable damaged items which TAIWAN estimates can be sold to a jobber
for P70,000. The company uses the gross profit method.

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 5

 How much is the estimated cost of inventory loss on September 30, 2014?
A. P310,000 C. P380,000
B. P320,000 D. P450,000

36. The records of TAIWAN CORP. show the following for the current year:
Cost Retail
Beginning inventory 340,000 640,000
Purchases 4,500,000 7,300,000
Freight in 100,000
Purchase return 150,000 250,000
Purchase allowance 90,000
Departmental transfer in 100,000 160,000
Net markup 150,000
Net markdown 500,000
Sales 6,600,000
Sales allowance 50,000
Sales returns 150,000
Employee discount 100,000
Spoilage and breakage 200,000
What is the amount of estimated cost of ending inventory under the conventional retail and average
cost retail, respectively?

w
A. P 480,000 & P 512,000 C. P 450,000 & P 480,000
B. P 480,000 & P 450,000 D. P 512,000 & P 480,000

ie
TOPIC 6: BIOLOGICAL ASSETS
37. The following are items related to agricultural activity of an entity. Which of the following is within the
scope of PAS 41?
I. Government grant in relation to coffee plants
II.

B.
Land used to plant lumber trees.
III. Dairy cattle
A. I and II
II and III
D.
E.
ev
I, II and III
Answer not given
R
C. I and III

38. Which statement is correct concerning biological assets and agricultural produce?
A. Agricultural produce are measured at fair value less costs to sell at initial recognition and at
PA

each subsequent reporting period.

B. Changes in fair value of a biological assets or an agricultural produce are included in the
determination of income of the current period.
C. Inventories comprising agricultural produce that an entity has harvested from its biological
assets are measured on initial recognition at fair value.
D. A conditional government grant related to a biological asset that has been measured at fair
C

value less costs to sell should be recognized as income when the grant becomes receivable.

39. SEYCHELLES INC. purchased 1,000 llamas on January 1, 2014. These llamas will be sheared
semiannually and their wool sold to specialty clothing manufacturers. The llamas were purchased for
EO

P148,000. During 2014 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 SEYCHELLES’ statement of financial position on June 30, 2014?
A. P128,850 C. P148,000
B. P146,850 D. P156,250
R

TOPIC 7 & 8: PROPERTY, PLANT AND EQUIPMENT

40. 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. I and II only C. II, III and IV only
B. II and IV only D. I, II, III and IV

41. A company is legally obligated for the costs associated with the retirement of a long-lived asset
A. only when the obligation arises at the outset of the assets use.
B. only when it hires another party to perform the retirement activities.
C. only if it performs the activities with its own workforce and equipment.

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 6

 D. whether it hires another party to perform the retirement activities or performs the activities
itself.

42. In an exchange with a commercial substance, determine the correct statement:

I. No gain or loss on exchange shall be recognized if the fair values of the assets cannot be
determined.
II. Loss on exchange shall be deferred and not recognized immediately.
A. I only C. Both I and II
B. II only D. Neither I nor II

Use the following information in answering the next item(s):

FINLAND INC. purchased land for P2,000,000 as a plant site. There was a small office building on the
land with fair value of P700,000 which the entity will continue to use with some modification and
renovation. The entity decided to construct a factory building and incurred the following costs:
Materials and supplies 3,200,000
Excavation 100,000
Labor on construction 2,500,000
Cost of remodeling old office building 200,000
Imputed interest on corporations own money
used during construction 50,000
Cash discounts on materials purchased 60,000

w
Supervision by management during construction 30,000
Compensation insurance premiums for workers 50,000
Payment of claim for injuries not covered by insurance 5,000

ie
Clerical and other expenses during construction 30,000
Paving of streets and sidewalks 40,000
Plans and specifications 150,000
Legal cost of conveying land 10,000

43.
Legal cost of injury claim
Saving on construction
What is the cost of land?
A. 1,300,000 C.
ev
1,350,000
15,000
200,000
R
B. 1,310,000 D. 1,400,000
44. What is the cost of office building?
A. 700,000 C. 900,000
PA

B, 750,000 D. 950,000
45. What is the cost of factory building?
A. 5,970,000 C. 6,050,000
B. 6,000,000 D. 6,060,000
46. MOROCCO CORP. purchased a machine on December 2, 2004 at an invoice price of P4,500,000 with
C

terms 2/10, n/30. On December 10, 2004, MOROCCO paid the required amount for the machine. On
December 2, 2004, SR paid P80,000 for delivery of the machine and on December 31, 2004, it paid
P310,000 for installation and testing of the machine. The machine was ready for use on January 1,
2005. 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
EO

actually produced during the first two years were 30,000 in 2005 and 48,000 in 2006. MOROCCO
decided to use the productive output method of depreciation. What is the depreciation of the machine
for 2005?
A. 600,000 C. 960,000
B. 720,000 D. 1,560,000
R

47. On January 1, 2007, SPAIN CORP. acquired equipment to be used in its manufacturing operations.
The equipment has an estimated useful life of 5 years and an estimated residual value of P650,000.
The depreciation applicable to this equipment was P1,200,000 for 2008 computed under the sum of
years’ digits method. What was the acquisition cost of the equipment?
A. 4,500,000 C. 6,000,000
B. 5,150,000 D. 6,650,000

TOPIC 9: GOVERNMENT GRANTS

48. S1: Government assistance for the purpose of PAS 20 does not include benefits provided only
indirectly through action affecting general trading conditions, such as the provision of
infrastructure in development areas or the imposition of trading constraints on competitors.
S2: Grants related to assets are grants whose primary condition is that an entity qualifying for them
should acquire or construct long-term assets.
A. True, false C. False, false
B. False, true D. True, true

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 7

49. How are grants related to depreciable assets accounted for?
A. Recognized in profit or loss during the year of grant.
B. Recognized directly in shareholder’s equity during the year of grant.
C. Recognized in other comprehensive income and transferred to profit or loss as the asset is
depreciated.
D. Initially recorded as a deferred credit and transferred to profit or loss over the periods and in
the proportion in which depreciation expense on the asset is recognized.

50. On January 2, 2018 the government granted and transferred a land to ECUADOR CORP. for a nominal
consideration of P 10,000. The market value of the land on this date was P 10,000,000. The condition
attached to the grant was ECUADOR shall clean up the water pollution in the river for 10 years. If
ECUADOR CORP. elects to measure the land at the fair value, what amount of deferred income should
he company report in its December 21, 2020 statement of financial position?
A. P 6,993,000 C. P 7,992,000
B. P 7,000,000 D. P 8,991,000
51. On January 2, 2017, GUYANA INC. receives a government loan of P2,000,000 paying a coupon
interest of 2% per year. The loan is repayable at the end of year 5. GUYANAs borrowing cost is 9%
per annum. The below-market interest is provided by the government to enable GUYANA to bear cost
of 2% per annum on the nominal value of the loan. What amount of deferred income should GUYANA
report in the statement of financial position as of December 31, 2019?
A. P 128,440 C. P 354,381

w
B. P 246,276 D. P 453,561

TOPIC 10: BORROWING COSTS

ie
52. The capitalization of borrowing costs as part of the cost of a qualifying asset commences on the date
when all of the following conditions are met: (choose the incorrect statement)
A. The entity incurs expenditures for the asset
B.
C.

D.
The entity incurs borrowing costs

ev
It undertakes activities that are necessary to prepare the asset for its intended use or sale
excluding technical and administrative work prior to the start of physical construction
It undertakes activities that are necessary to prepare the asset for its intended use or sale
including technical and administrative work prior to the start of physical construction
R
53. In relation to PAS 23, which of the following statements is incorrect?
A. When the construction of a qualifying asset is completed in parts and each part is capable of
being used while construction continues on other parts, capitalization of borrowing costs shall
PA

cease when substantially all the activities necessary to prepare that part for its intended use or
sale are completed.
B. An entity shall cease capitalizing borrowing costs when substantially all the activities necessary
to prepare the qualifying asset for its intended use or sale are complete.
C. Borrowing costs eligible for capitalization are those which are avoidable, meaning those that
C

would have been avoided if the expenditure on the qualifying asset had not been made.
D. None from the choices.

54. On January 1, 2016, BEAST CORP. started construction of a new office building. To finance
construction, BEAST borrowed P 15,000,000 specifically for the construction of the building. Interest
EO

accruing on the loan is 10%. However, a part of the borrowing is used for working capital and other
business needs during the year. Investment income earned on temporary investments of proceeds
from the borrowing amounted to P 50,000 which was received in cash on October 1, 2016.
Expenditures on the building amounted P 6,000,000 which was incurred evenly during the year. How
much is the capitalizable borrowing cost?
A. 298,750 C. 295,000
R

B. 300,000 D. 1,450,000

TOPIC 11: WASTING ASSETS AND DEPLETION

55. In relation to PFRS 6, which of the statements is correct?
S1: Exploration for and evaluation of mineral resources is the search for mineral resources before
the entity has obtained legal rights to explore in a specific area.
S2: PFRS 6 requires an entity to capitalize exploration and evaluation costs
A. S1 only C. Both statements
B. S2 only D. None from the statements

56. Which of the following is excluded in the cost of wasting assets?

I. Exploration costs resulting to empty holes accounted for under the successful effort method.
II. Tangible development costs where its useful life is longer than the useful life of the wasting
assets.
A. I only C. Both I and II

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 8

 B. II only D. Neither I nor II

Use the following information in answering the next item(s):

On January 1, 2015, SPIDERMAN MINING CORP. acquired property containing mineral resources for
P150,000,000. Total cost of exploration and intangible development costs was P 8,000,000.
SPIDERMAN is mandated by the Mining Act to restore the site after 4 years. Based on most reliable
measurement, the amount of restoration cost is P 12,000,000 and current market-based discount
rate is 10%. On the same date, SPIDERMAN acquired movable and immovable tangible equipment.
The movable tangible equipment amounted P 6,000,000 while the immovable tangible equipment
amounted to P 9,000,000. Geologists estimate that the total units estimated to be extracted is
12,000,000. It is estimated that 1,500,000 units will be extracted each year during the useful life of
the wasting assets.
The movable equipment has a useful life of 20 years while the immovable equipment has an
estimated useful life of 10 years.
Actual units extracted in 2015 and 2016 were 1,600,000 and 1,700,000, respectively.

57. How much is the initial cost of the mineral deposit?

A. P 166,196,161 C. P 158,000,000
B. P 170,000,000 D. P 158,196,161
58. How much is the depletion in 2015?

w
A. P 22,666,667 C. P 21,066,667
B. P 22,159,488 D. P 21,092,822

ie
59. How much is the 2015 depreciation of the movable equipment?
A. P 300,000 C. P 750,000
B. P 800,000 D. P 1,125,000
60.

61.
A.
B.
P 900,000
P 1,200,000
How much is the interest expense in 2015?
C.
D. ev
How much is the 2015 depreciation of the immovable equipment?
P 1,125,000
P 750,000
R
A. P 819,616 C. P 1,200,000
B. Nil D. P 2,049,040

TOPIC 12: INTANGIBLE ASSETS

PA

62. The cost of purchasing patent rights for a product that might otherwise have seriously competed with
one of the purchasers patented products should be
A. charged to expense in the period of purchase.
B. amortized over the legal life of the purchased patent.
C. added to factory overhead and allocated to production of the purchasers product.
D. amortized over the remaining estimated life of the original patent covering the product whose
C

market would have been impaired by competition from the newly patented product.
63. Ace Company purchased King Company at a cost that resulted in recognition of goodwill having an
expected 10-year benefit period. However, Ace plans to make additional expenditures to maintain
goodwill for a total of 20 years. What costs should be capitalized and over how many years should
EO

they be amortized?
Costs capitalized Amortization period
A. Acquisition costs only not applicable
B. Acquisition costs only 10 years
C. Acquisition and maintenance costs 10 years
D. Acquisition and maintenance costs 20 years
R

64. I. If an entity cannot distinguish the research phase from the development phase, the entity shall
treat the expenditure as if it were incurred in the development phase only.
II. Intangible assets with finite life are amortized and NOT required to be tested for impairment
annually while intangible assets with indefinite life are NOT amortized but required to be tested
for impairment annually.
III. An intangible asset can be revalued ONLY when there is an active market for such intangible
asset.
A. True, false, false D. False, true, true
B. False, false, false E. True, false, true
C. True, true, true

65. DIANA CORP. incurred the following costs during the current year:
Modification to the formulation of a chemical product 135,000
Trouble-shooting in connection with breakdowns

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 9

 during commercial production 150,000
Design of tools, jigs, molds and dies involving new technology 170,000
Seasonal or other periodic design changes to existing products 185,000
Laboratory research aimed at discovery of new technology 215,000
In the income statement for the current year, what amount should be reported as research and
development expense?
A. 335,000 C. 470,000
B. 385,000 D. 520,000

66. Determine the amount to be recognized as intangible assets from the following data:
Deposits with advertising agency which will be used
to promote goodwill P45,000
Excess of cost over net assets of purchased subsidiary 400,000
Franchise to operate a local fast food 100,000
Marketing costs of introducing new products 150,000
Organization costs 50,000
Patents 244,000
Research and development costs expected to benefit
future periods 300,000
Unamortized bond discount 155,000
A. 964,000 C. 1,214,000

w
B. 814,000 D. 744,000

TOPIC 13: IMPAIRMENT OF ASSETS

ie
67. Given the following, how is impairment loss computed?
X = carrying amount
Y = fair value less costs of disposal
Z = value in use
A.
B.
C.
D.
Impairment loss = X – Y

ev
Impairment loss = higher between of Y and Z minus X
Impairment loss = lower between of Y and Z minus X
Impairment loss = Z – Y
R
68. I. If the fair value less cost to sell of an asset being tested for impairment is higher than its
carrying amount, value in use is not necessary to be computed.
II. The discount rate to be computed shall be after-tax discount rate.
PA

III. An intangible asset with indefinite life shall be tested for impairment annually regardless of
existence of any impairment indicators.
A. True, false, false D. False, false, false
B. False, false, true E. Answer not given
C. True, true, false
C

69. One of the cash generating units of GREEN CORP. is the production of liquor. On December 31, 2014,
the entity believed that the assets of the cash generating unit (CGU) are impaired based on an
analysis of economic indicators. The assets and liabilities of the cash generating unit at carrying
amount on December 31, 2014 are:
EO

Cash 4,000,000
Accounts receivable 6,000,000
Allowance for doubtful accounts 1,000,000
Inventory 7,000,000
Property, plant and equipment 22,000,000
Accumulated depreciation 4,000,000
R

Goodwill 3,000,000
Accounts payable 2,000,000
Loans payable 1,000,000
The entity determined that the value in use of the cash generating unit is P30,000,000.
The accounts receivable are considered collectible, except those considered doubtful.
What is the impairment loss to be allocated to property, plant and equipment?
A. 2,400,000 C. 4,000,000
B. 2,880,000 D. 4,200,000

70. On January 1, 2014, BLUE CORP. purchased a patent with a cost of P1,160,000, a useful life of 5
years. The company uses the straight-line method of depreciation. At December 31, 2015, the
company determines that impairment indicators are present. The fair value less cost to sell of the
patent is estimated to be P540,000. The patent’s value-in-use is estimated to be P565,000. The
assets remaining useful life is estimated to be 2 years. BLUE’s 2015 income statement will report loss
on impairment of
A. P15,000 C. P156,000

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 10

 B. P131,000 D. P363,000

TOPIC 14: INVESTMENT IN EQUITY SECURITIES

71. At initial recognition, an entity may make an irrevocable election to present in other comprehensive
income subsequent changes in the fair value of an investment in equity securities within the scope of
PFRS 9 that is not held for trading. In accounting for such financial instruments, all of the following
are true except
A. amounts presented in other comprehensive income are not be subsequently transferred to profit
or loss.
B. the entity may transfer any cumulative fair value gains or losses within equity.
C. dividends received on the investments are recognized in profit or loss.
D. cumulative fair value gains or losses are transferred to profit or loss when the financial asset is
derecognized.

72. An entity sells an investment that is measured at FVPL during the year. The realized gain or loss on
the sale is computed as
A. the difference between the sale price and the carrying amount of the investment as at the date
of sale.
B. the difference between the sale price and the original acquisition cost of the investment.
C. the difference between the net proceeds received from the sale and the carrying amount of the
investment as at the date of sale.

w
D. the difference between the net proceeds received from the sale and the carrying amount of the
investment as at the date of sale adjusted for any accumulated fair value gains or losses
recognized since the investment was acquired.

ie
73. At the beginning of current year, MERCURY CORP. acquired 200,000 ordinary shares of an investee for
P9,000,000. The investment is measured at fair value through other comprehensive income. At the
time of purchase, the investee had outstanding 800,000 shares with a carrying amount of

*
*
*
The investee reported net income of P1,800,000.
ev
P36,000,000. The following events took place during the year:

MERCURY received from the investee a dividend of P0.75 per ordinary share.
The market value of the investees share had declined to P40 at year -end.
R
What is the carrying amount of the investment at year-end?
A. 8,000,000 C. 9,300,000
B. 9,000,000 D. 9,450,000
PA

74. On January 1, 20x1, MARS CORP. purchased 12,000 shares of VENUS CORP. for ₱400,000.
Commission paid to broker amounted to ₱20,000. Management made an irrevocable choice to
subsequently measure the shares at fair value through other comprehensive income. On December
31, 20x1, the shares were quoted at ₱40 per share. On January 3, 20x2, all of the shares were sold
at ₱60 per share. Commission paid on the sale amounted to ₱24,000. How much is the unrealized
gain (loss) recognized in profit or loss on December 31, 20x1?
C

A. (60,000) C. (80,000)
B. 60,000 D. 0

TOPIC 15: INVESTMENT IN ASSOCIATES

EO

Use the following information to answer the next questions:

Las Palmas, Inc. bought 40% of Adams outstanding ordinary shares on January 2, 2015, for
P4,000,000. The carrying amount of Adams net assets at the purchase date totaled P9,000,000. Fair
values and carrying amounts were the same for all items except for plant and inventories, for which
fair values exceeded their carrying amounts by P900,000 and P100,000, respectively. The plant has
an 18-year life. All inventories were sold during 2015. During 2015, Adams reported profit of
R

P1,200,000 and paid a P200,000 cash dividend.

75. What amount should Las Palmas report in its statement of comprehensive income from its investment
in Adams for the year ended December 31, 2015?
A. P480,000 C. P360,000
B. P420,000 D. P320,000

76. What is the investment carrying value reported in Las Palmas statement of financial position at
December 31, 2015?
A. P4,400,000 C. P4,340,000
B. P4,380,000 D. P4,000,000

77. ALEXANDER CORP. has acquired 30,000 shares of the 100,000 shares outstanding GRAHAM BELL INC.
for P2,700,000 on January 2, 2014. GRAHAM BELL’s net asset at the time of acquisition was
P9,000,000. For the year ended December 31, 2014, GRAHAM BELL reported a net income of
P1,200,000 and paid dividends of P600,000. On January 2, 2015, GRAHAM BELL issued addition

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 11

 50,000 shares at the prevailing market price of its shares at P120 per share. All the newly issued
shares were sold to new investors.
What amount of dilution gains or losses should ALEXANDER recognize?
A. none C. P360,000
B. P240,000 D. P480,000

TOPIC 16: INVESTMENT IN DEBT SECURITIES

78. The following may be reclassified into a different category, except
A. Debt investment at FVOCI
B. Debt investment at amortized cost
C. Debt investment held for trading
D. Debt investment at FVPL under the FV option

79. An entity holds a portfolio of debt investments. The debt investments are not held-for-collection but
managed to profit from interest rate changes. As a result the entity accounts for these investments at
FVPL. As part of its strategic planning process, completed in the fourth quarter of 2018, the entity
decides to reclassify the investments into amortized cost. The entity will account for this change
A. Retrospectively in 2018
B. Prospectively in 2019
C. Retrospectively in 2019
D. Prospectively in 2018

w
ie
Use the following information in answering the next item(s):
On April 1, 2016, POTASSIUM CORP. acquired 4-year bonds with a face value of P 2,000,000 and
stated interest of 10% per year payable annually on December 31. The bonds were acquired to yield

80.
A. P 1,884,814 C.
ev
12%. The bonds are to be appropriately classified as financial asset at amortized

How much is the purchase price of bonds on April 1, 2016?

P 1,834,814
R
B. P 1,878,460 D. P 1,934,814

81. How much is the interest income for 2016?

A. P 150,000 C. P 173,911
PA

B. P 169,061 D. P 85,578

TOPIC 17: INVESTMENT PROPERTY

82. If an investment property is acquired on a deferred settlement basis, which of the following costs are
to be capitalized?
I. Interest expense III. Cost of day-to-day service
C

II. Transfer taxes

A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III
EO

83. Which of the following assets held by an enterprise would not qualify as investment property as
defined by IAS 40, Investment Property?
A. Land held for capital appreciation
B. Building held to earn rentals
C. Land for sale in the ordinary course of business
R

D. Land held for undetermined future use

Use the following information in answering the next item(s):

SQUIRTLE CORP., a real estate firm, and its subsidiaries have provided you, their PFRS specialist, with
a list of the properties they own:
• A building owned by SQUIRTLE CORP. being leased out to WARTORTLE CORP., a subsidiary of
SQUIRTLE CORP., P 20,000,000.
• A property costing P34M held by a subsidiary of SQUIRTLE CORP. in the ordinary course of its
business.
• Land held for undetermined future use costing P 15,000,000.
84. In its separate financial statement, what should be the amount of investment property to be reported
by SQUIRTLE CORP.?
A. P69M C. P54M
B. P35M D. P15M

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 12

85. In the consolidated financial statement of SQUIRTLE CORP. and its subsidiaries, what amount should
be reported as investment property in its statement of financial position?
A. P 69M C. P 54M
B. P 35M D. P 15M

TOPIC 18: FUNDS & OTHER INVESTMENTS

86. PASAY CORP. purchased a P1,000,000 ordinary life insurance policy on its president. PASAY CORP. is
the beneficiary under the life insurance policy. The policy year and the entitys accounting year
coincide. Additional data available for the year ended December 31,2014 are as follows:
Cash surrender value, January 1 43,500
Cash surrender value, December 31 54,000
Annual advance premium paid January 1 20,000
Dividend received July 1 3,000
What amount should be reported as life insurance expense for 2014?
A. 6,500 C. 17,000
B. 9,500 D. 20,000

TOPIC 19: DERIVATIVES

87. All of the following are characteristics of a derivative, except
A. It is settled at a future date.
B. The value changes in response to an underlying.

w
C. It requires no initial or a small initial net investment.
D. It is acquired for the purpose of generating a profit from short-term fluctuation in market factor.

ie
TOPIC 20: CURRENT LIABILITIES
88. Which of the following is not a liability?
(1) Debit balances on accounts payable
(2) Credit balances on accounts receivable
(3) Stock dividends payable
(4) Redeemable preference shares
A.
B.
1 and 4
2 and 3
D.
E.
ev
1, 3 and 4
2 and 4
R
C. 1 and 3

89. The following information about PAMPANGA CORP. is available at December 31, 2004:
Accounts payable 8,000,000
PA

Accounts receivable with credit balance 2,000,000

Cash balance at BICOL Bank 10,000,000
Cash overdraft at BOCIL Bank 1,500,000
Deferred serial bonds, issued at par and bearing interest
at 12%, payable in semiannual installments of P500,000
due April 1 and October 1 of each year, the first bond to
C

be paid on April 1, 2006. Interest is also paid semiannually.

Interest accrued is not yet recorded 5,000,000
Employee income taxes withheld 1,000,000
Estimated expenses of meeting warranties on merchandise previously sold 3,000,000
EO

Estimated damages as a result of unsatisfactory performance on a contract 4,000,000

Stock dividend payable 2,000,000
The December 31, 2004 balance sheet should report current liabilities at (M2)
A. 19,500,000 C. 20,500,000
B. 19,650,000 D. 20,650,000
R

90. The balance in CAGAYAN INC.’s accounts payable account at December 31, 2014, was P1,100,000
before considering the following information:
• Goods shipped FOB shipping point on December 20, 2014, from a vendor to CAGAYAN were lost
in transit. The invoice cost of P20,000 was not recorded by CAGAYAN. On January 6, 2015,
CAGAYAN filed a P20,000 claim against the common carrier.
• On December 27, 2014, a vendor authorized CAGAYAN to return, for full credit, goods shipped
and billed at P35,000 on December 2, 2014. The returned goods were shipped by CAGAYAN on
December 27, 2014. A P35,000 credit memo was received and recorded by CAGAYAN on
January 6, 2015.
What amount should CAGAYAN report as accounts payable in its December 31, 2014, balance sheet?
A. P1,065,000 C. P1,115,000
B. P1,085,000 D. P1,120,000

TOPIC 21: NOTES AND LOANS PAYABLE

91. A corporation borrowed money from a bank to build a building. The long-term note signed by the
corporation is secured by a mortgage that pledges title to the building as security for the loan. The

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 13

 corporation is to pay the bank P80,000 each year for 10 years to repay the loan. Which of the
following relationships can you expect to apply to the situation? (M1)
A. The amount of interest expense will remain constant over the 10-year period.
B. The balance of mortgage payable will remain a constant amount over the 10-year period.
C. The balance of mortgage payable at a given statement of financial position date will be reported
as a non-current liability.
D. The amount of interest expense will decrease each period the loan is outstanding, while the
portion of the annual payment applied to the loan principal will increase each period.

92. In a debt settlement in which the debt is continued with modified terms, a gain should be recognized
at the date of settlement whenever the
A. carrying amount of the debt is less than the total future cash flows.
B. present value of the debt is less than the present value of the future cash flows.
C. present value of the debt is greater than the present value of the future cash flows.
D. carrying amount of the debt is greater than the present value of the future cash flows.

93. On January 1, Year One, a company buys three acres of land for exactly P800,000 with the amount to
be paid on December 31, Year Three. Interest of 3 percent (P24,000) will be paid each December 31
although a 10 percent annual rate is viewed as reasonable. The present value of P1 in three years at
10 percent annual interest is .75. The present value of an ordinary annuity of P1 for three years at 10
percent annual interest is 2.49. The present value of an annuity due of P1 for three years at 10

w
percent annual interest is 2.74. On a December 31, Year One balance sheet, at what amount should
the company report as the liability for this land?
A P353,414 C P701,736

ie
B P636,000 D P856,000

TOPIC 22: BONDS PAYABLE

94. Costs incurred in connection with the issuance of ten-year bonds which sold at a slight premium shall
be
A.
B.
C.
Capitalized as organization cost
Expensed in the year in which incurred ev
Charged to retained earnings when the bonds are issued
R
D. Reported in the statement of financial position as a deduction from bonds payable and
amortized over the ten-year bond term

95. On June 30, 2011, REDBULL CORP. had outstanding 8%, P3,000,000 face amount, 15-year bonds
PA

maturing on June 30, 2021. Interest is payable on June 30 and December 31. The unamortized
amount of the bond discount on June 30, 2011 was P135,000. On June 30, 2011, REDBULL acquired
all of these bonds at 94 and retired them. What net carrying amount should be used in computing
gain or loss on this early extinguishment of debt? (E)
A. P2,820,000. C. P2,955,000.
B. P2,865,000. D. P3,000,000.
C

TOPIC 23: COMPOUND FINANCIAL INSTRUMENT

96. On January 1, 2013, B-MEG INC. issued convertible bonds with a face value of P5,000,000 for
P6,000,000. The bonds are convertible into 50,000 shares with P100 par value. The bonds have a 5-
EO

year life with 10% stated interest rate payable annually every December 31. The fair value of the
convertible bonds without conversion option is computed at P5,399,300 on January 1, 2013. On
December 31, 2015, the convertible bonds were not converted but fully paid for P5,550,000. On such
date, the fair value of the bonds without conversion privilege is P5,400,000 and the carrying amount
is P5,178,300. What is the loss on the extinguishment of the convertible bonds on December 31,
2015?
R

A. 0 C. 221,700
B. 150,000 D. 371,700

TOPIC 24: PROVISIONS

97. Under IFRS, a contingency is described as
A. An estimated liability.
B. A potentially large liability.
C. The same as it is described by US generally accepted accounting principles.
D. An event which is not recognized because it is not probable that an outflow will be required or
the amount cannot be reasonably estimated.

98. S1: A contingent asset is not recognized because this may result to recognition of income that may
never be realized.
S2: A provision for the decommissioning of an oil installation or a nuclear plant station shall be
recognized to the extent that an entity is obliged to rectify damage already caused
A. True, false C. False, false

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 14

 B. False, true D. True, true

99. DLSU COMPANY includes three coupons in each package of crackers it sells. In exchange for 20
coupons, a customer will receive a cheese plate. DLSU estimates that 30% of the coupons will be
redeemed. In 2010, DLSU sold 4,000,000 boxes of crackers and purchased 150,000 cheese plates at
$2.50 each. During the year, 970,000 coupons were redeemed. What amount should DLSU record as
premium expense for 2010?
A. $121,250 C. $375,000
B. $450,000 D. $500,000

100. UE CORP. uses GAAP for its financial reporting. It produces machines that sell globally. All sales are
accompanied by a one-year warranty. At the end of the year, the company has the following data:
• 2,000 units were sold during the year.
• The trend over the past five years has been that 4% of the machines were defective in some
way and had to be repaired. Of this 4%, half required a full replacement at a cost of $3,000 per
unit and half were able to be repaired at an average cost of $300.
What is the expected value of the warranty cost provision? (M1)
A. $240,000 C. $264,000
B. $132,000 D. $120,000

TOPIC 25: EMPLOYEE BENEFITS

w
101. Under a defined contribution plan, the retirement benefits expense is
A. equal to an actuarially determined amount
B. equal to the agreed periodic contribution to the fund

ie
C. equal to the contribution made during the period
D. zero, if no employee retired during the period

102. Which of the following statements is incorrect in relation to termination benefits?

A.

B.
benefit.
ev
A benefit that is in any way dependent on providing service in the future is a termination

The event that gives rise to an obligation for termination benefit is the termination of
employment.
R
C. A benefit resulting from mandatory retirement is a postemployment benefit rather than a
termination benefit.
D. A benefit resulting from termination of employment at the request of an employee without an
entity offer is not a termination benefit.
PA

103. On January 1, 2014, DEL PILAR CORP. reported the following balances in relation to a defined benefit
plan prior to the adoption of PAS 19R:
Fair value of plan assets 8,000,000
Unamortized past service cost 1,500,000
Projected benefit obligation 9,000,000
C

The remaining average vesting period for the employees

covered by the past service cost is 5 years.
Current service cost 1,500,000
Interest expense on PBO 900,000
EO

Interest income and actual return on plan assets 800,000

Contribution to the plan 2,000,000
Benefits paid to retirees 1,000,000
On December 31, 2014, what is the prepaid or accrued benefit cost?
A. 400,000 accrued C. 600,000 accrued
B. 400,000 prepaid D. 600,000 prepaid
R

TOPIC 26: INCOME TAXES

104. Renner Corporations taxable income differed from its accounting income computed for this past year.
An item that would create a permanent difference in accounting and taxable incomes for Renner
would be
A. making installment sales during the year.
B. a balance in the Unearned Rent account at year end.
C. a fine resulting from deficiency in past income tax payments
D. using accelerated depreciation for tax purposes and straight-line depreciation for book purposes.

105. Which of the following is the most likely item to result in a deferred tax asset?
A. Prepaid expenses
B. Unearned revenues
C. Using accelerated depreciation for tax purposes but straight-line depreciation for accounting
purposes

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 15

 D. Using the completed-contract method of recognizing construction revenue tax purposes, but
using percentage-of-completion method for financial reporting purposes

106. HOPE CORP. sells household furniture. Customers who purchase furniture on the installment basis
make payments in equal monthly installments over a two-year period, with no down payment
required. HOPEs gross profit on installment sales equals 40% of the selling price of the furniture.
For financial accounting purposes, sales revenue is recognized at the time the sale is made. For
income tax purposes, however, the installment method is used. There are no other book and income
tax accounting differences, and HOPEs income tax rate is 30%.
If HOPEs December 31, 2001, balance sheet includes a defer red tax liability of $90,000 arising from
the difference between book and tax treatment of the installment sales, it should also include
installment accounts receivable of
A. $90,000. C. $300,000.
B. $225,000. D. $750,000.

107. LEGACY INC. reported current tax expense of P5,000,000 for 2015. The changes in assets and
liabilities are as follows:
December 31, 2015 December 31, 2014
Deferred tax asset 1,000,000 800,000
Deferred tax liability 450,000 600,000
Income tax payable 500,000 200,000

w
The deferred tax liability was caused by accelerated depreciation and the deferred tax asset is for
rentals received in advance. What amount of total tax expense should be recognized in 2015?
A. 4,650,000 C. 5,350,000

ie
B. 4,950,000 D. 5,650,000

TOPIC 27: LEASES

108. GGWP CORP. leased equipment for the entire nine-year useful life, agreeing to pay P500,000 at the

next eight years.

ev
start of the lease term on December 31, 2019, and P500,000 annually on each December 31 for the

The present value on December 31, 2019 of the nine lease payments over the lease term using the
rate implicit in the lease which GGWP knows to be 10% was P3,165,000. The December 31, 2019
R
present value of the lease payments using GGWPs incremental borrowing rate of 12% was
P2,985,000. GGWP made a timely second lease payment. What amount should be reported as lease
liability on December 31, 2020?
A. 3,500,000 C. 2,283,200
PA

B. 2,431,500 D. 2,485,000

109. TGIF CORP. is a dealer in machinery. On January 1, 2019, a machinery was leased to another entity
with the following provisions:
Annual rental payable at the end of each year 3,000,000
Lease term and useful life of machinery 5 years
C

Cost of machinery 8,000,000

Residual value-unguaranteed 1,000,000
Implicit interest rate 12%
PV of an ordinary annuity of 1 for 5 periods at 12% 3.60
EO

PV of 1 for 5 periods at 12% 0.57

At the end of the lease term on December 31, 2023, the machinery will revert to TGIF CORP. TGIF
CORP. incurred initial direct cost of P300,000 in finalizing the lease agreement. What amount should
be reported as interest income for 2019?
A. 1,364,400 C. 1,800,000
B. 1,296,000 D. 926,000
R

110. The lease payments include all of the following, except

A. Fixed lease payments C. Leasehold improvement
B. Variable lease payments D. Residual value guarantee of the lessee

TOPIC 28 & 29: SHAREHOLDERS’ EQUITY

111. In relation to callable and redeemable preference shares, which of the below statements is incorrect?
I. Dividends of both types of shares are presented within profit or loss.
II. Gain or loss on redemption of redeemable preference shares are presented within the equity
section rather than in profit or loss.
III. Both types of shares have mandatory redemption date.
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III

112. S1: Redeemable preference shares are classified by the issuer as reduction in shareholder’s equity.

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 16

 S2: Short-term subscriptions receivable are not classified as an offset to shareholder’s equity.
S3: Additional paid-in capital from unpaid subscriptions is recorded on the date of issuance of
shares.
A. True, false, false D. False, true, false
B. False, true, true E. False, false, false
C. True, false true

113. KANDONG COMPANY began operations on January 1, 2013, by issuing at P15 per share one-half of
the 475,000 ordinary shares (P1 par value) that had been authorized for issue. In addition, Kandong
has 250,000 5% preference shares (P5 par value) authorized; During 2013, Kandong reported net
income of P512,500 and declared dividends of P118,750.
During 2014, Kandong completed the following transactions:
Jan. 10 Issued an additional 50,000 ordinary shares for P17 per share.
Apr. 2 Issued 75,000 preference shares for P8 per share.
July 21 Authorized the acquisition of a custom-made machine to be delivered in January 2015.
Kandong appropriatdP147,500 of retained earnings for the purchase of the machine.
Oct. 25 Issued an additional 25,000 preference shares for P9 per share.
Dec. 31 Reported P607,500 of net income and declared a dividend of P317,500 to shareholders
of record on January 31,2015, to be paid on February 4, 2015.
What is the total shareholders equity on December 31, 2014?
A. P5,773,500 C. P3,956,250

w
B. P6,238,750 D. P5,921,250

114. ORANGE CORP. issued 10,000 of its 6% preference share; par P100, at P125 per share. Each share

ie
carried a detachable share warrant for one share of ORANGEs ordinary share, P40 par, at a specified
option price of P50 per share. Immediately after issuance, the market value of ORANGEs preference
share was P1,140,000 and the warrants was P60,000. What portion of the proceeds should be
credited to ordinary share warrants outstanding?
A.
B.
None
P60,000
C.
D.
ev
P 62,500
P250,000

115. Which of the following statements is correct regarding shareholders’ equity?

R
I. Both retained earnings appropriated and unappropriated are presented within shareholders’
equity.
II. Donation of shares from entity’s shareholders is not recorded upon receipt of the shares.
A. I only C. Both I and II
PA

B. II only D. Neither I nor II

116. Conditions warranted that an entity should have a quasi-reorganization. Immediately after
reorganization, the retained earnings account
A. has a zero balance.
B. remains the same as it was before.
C

C. is frozen and dated, and subsequent transactions will be show separately.

D. has a debit balance equal to the write-down of the assets which were overstated.

117. CARAMBOLA CORP. was organized on January 1, 2014 with 100,000 authorized shares of P100 par
EO

value. The following transactions occurred:

January 15 Sold 30,000 shares at P150 per share
February 14 Issued 2,000 shares for legal services with a fair value of P300,000. The shares on
this date are quoted at P160 per share
March 27 Purchased 5,000 treasury shares at a cost of P12 per share
October 31 Issued P4,000,000 convertible bonds at 110. The bonds are quoted at 97 without the
R

conversion feature.
November 5 Declared a 2-for-1 share split when the market value of the share was P160.
December 17 Sold 10,000 shares at P75 per share.
What total amount should be recognized as share premium on December 31, 2014?
A. 1,830,000 C. 2,370,000
B. 1,850,000 D. 2,390,000

TOPIC 30: SHARE-BASED COMPENSATION

118. On January 1, 2015, DJ CORP. granted share options to each of the 300 employees working in the
sales department. The share options vest at the end of a three-year period provided that the
employees remain in the entitys employ and provided the volume of sales will increase by more than
10% per year. The fair value of each share option on grant date is P20. If the sales increase by more
than 10%, each employee will receive 200 share options. If the sales increase by more than 15%,
each employee will receive 300 share options. On December 31, 2015, the sales increased by more
than 10%, and no employees have left the entity. On December 31, 2016, the sales increased by

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 17

 more than 15% and 20 employees left the entity. What amount of compensation expense should be
recognized for 2016?
A. 400,000 C. 720,000
B. 560,000 D. 800,000

119. On January 1, 2012, DAGA CORP. granted an employee an option to purchase 3,000 shares with par
value of P5 at P20 per share. The option became exercisable on December 31, 2013. The option was
exercised on January 10, 2014. The market price of the share is P30 on January 1, 2012, P50 on
December 31, 2013, and P45 on January 10, 2014. The market price of the option is P8 on January
1, 2012, P9 on December 31, 2013 and P11 on January 10, 2014. What amount should be
recognized as compensation expense for 2012?
A. 12,000 C. 30,000
B. 15,000 D. 45,000

TOPIC 31: BOOK VALUE PER SHARE

120. The stockholders’ equity of Retro Company on December 31, 2008 includes the following:
12% Preferred Stock, 20,000 shares, P100 par value P2,000,000
14% Preferred Stock, 10,000 shares, P300 par value 3,000,000
Common Stock, 50,000 shares, P100 par value 5,000,000
Retained Earnings 2,240,000
Additional Paid-in Capital 1,500,000

w
The 12% stock is cumulative and fully participating. The 14% stock is non-cumulative and fully
participating. Dividends have not yet been paid for 3 years.
Compute for the book value per ordinary share.

ie
A. 130.00 C. 127.50
B. 135.00 D. 132.00

TOPIC 32: EARNINGS PER SHARE

Use the following information in answering the next item(s):

ev
ESMERALDA CORP. had 300,000 ordinary shares outstanding on January 1, 2019. On April 1, 2019,
ESMERALDA had issued 3,000, P1,000 bonds carrying an interest of 10% convertible to 200,000
ordinary shares. ESMERALDA has no other potentially dilutive securities. The bonds were actually
R
converted on October 1, 2019. During the year, ESMERALDA earned net income after tax amounting
to P1,400,000. The company is subject to 30% tax rate.

121. What is ESMERALDA’s basic earnings per share for 2019?

PA

A. 4.67 C. 3.11
B. 4.00 D. 2.80
122. What is ESMERALDA’s diluted earnings per share for 2019?
A. 3.46 C. 3.34
B. 4.27 D. 3.01
C

TOPIC 33 & 34: FINANCIAL STATEMENTS (PAS 1)

123. S1: Under Materiality and Aggregation, dissimilar accounts are not presented separately if
immaterial.
S2: Not all financial statements are prepared on an accrual basis.
EO

S3: A statement of financial position must be presented more prominently than statement of
comprehensive income since it presents accumulated information for a business since its
inception.
A. True, false, false D. False, true, true
B. False, true, false E. Answer not given
C. True, true, false
R

124. Regarding statement of financial position, which of the following statements is (are) correct?
I. Used in presenting information regarding the entity’s requirement for additional financing.
II. The standard prescribes the use of account form rather than report form.
A. I only C. Both I and II
B. II only D. Neither I nor II

125. Which of the following statements is incorrect concerning fair presentation of financial statements?
A. Fair presentation requires the faithful representation of the effects of transactions and other
events.
B. In virtually all circumstances, a fair presentation is achieved by compliance with applicable
PFRS.
C. Financial statements shah present fairly the financial position, financial performance and cash
flows of an entity.
D. An entity whose financial statements comply with PFRS shall not make an explicit and
unreserved statement of such compliance in the notes.

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 18

126. The following accounts and their balances appear in an unadjusted trial balance of JEJE CORP. as of
December 31, 2014:

Cash, P400,000; Accounts receivable, P2,000,000; Inventory, P500,000; Accounts payable,

P300,000; Notes payable, P200,000.

□ The cash account includes collection in January 2015 of P200,000 account from customer who
was given a cash discount of P10,000.
□ It also includes a January 2015 cash sale of P50,000. Gross profit on the sale was 40%.
□ From the amount collected, the company fully paid a bank loan of P100,000 with interest of
P20,000 accruing January 2015.
What is the correct amount of working capital on December 31, 2014?
A. P2,380,000 C. P2,400,000
B. P2,390,000 D. P2,410,000

127. GGWP CORP. provided the following information on December 31, 2014:
Employee income taxes withheld 900,000
Cash balance at First State Bank 2,500,000
Cash overdraft at Harbor Bank 1,300,000
Accounts receivable with credit balance 750,000

w
Estimated expenses of meeting warranties 500,000
Estimated damages as a result of
unsatisfactory performance on a contract 1,500,000

ie
Accounts payable 3,000,000
Deferred serial bonds, issued at par and bearing interest at 12%,
payable in semiannual installments of P500,000 due April 1 and
October 1 of each year, the last bond to be paid on October 1, 2020.

B.
Interest is also paid semiannually.

7,950,000
C.
D.
ev
What amount should be reported on December 31, 2014 as total current liabilities?
A. 7,350,000 8,100,000
9,100,000
5,000,000
R
TOPIC 35: STATEMENT OF CASH FLOWS
Use the following in answering the next item(s):
GOODS COMPANY provided the following data for the current year:
PA

Purchase of real estate for cash (cash was borrowed from bank) 5,500,000
Sale of investment securities for cash 5,000,000
Dividend paid 6,000,000
Issuance of ordinary shares for cash 2,500,000
Purchase of patent for cash 1,250,000
Payment of bank loan 1,500,000
C

Increase in customers deposit 200,000

Issuance of bonds payable for cash 3,000,000

128. What is the net cash used in investing activities?

EO

A. 500,000 C. 3,750,000
B. 1,750,000 D. 6,750,000

129. What is the net cash provided by financing activities?

A. 3,500,000 C. 5,000,000
B. 4,500,000 D. 5,500,000
R

TOPIC 36: OPERATING SEGMENTS

130. The equity of MIRAK CORP. is traded on a recognized stock exchange. MIRAK regularly reports the
financial results of five different business units to its chief operating decision maker. The relevant
revenues for the year ended 31 December 20X7 for these five operations, as a percentage of total
external and internal revenue, were as follows:
% internal % external total
1 3 35 38
2 10 14 24
3 15 5 20
4 0 9 9
5 0 9 9
28 72 100
In accordance with PFRS 8 Operating segments, the reportable segments of MIRAK are
A. 1 and 2 only C. 1, 2, 3 and 4 only
B. 1,2 and 3 only D. 1, 2, 3, 4, and 5

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 19

TOPIC 37: RELATED PARTIES
131. Related parties include all of the following, except
A. Associate
B. Parent, subsidiary and fellow subsidiaries
C. Two venturers simply because they share joint control over a joint venture
D. Key management personnel and close family members of such key management personnel

132. Unrelated parties include all of the following, except

A. Two venturers simply because they share joint control over a joint venture.
B. Key management personnel and close family members of such individuals.
C. Providers of finance in the course of their normal dealings with an entity by virtue only of those
dealings.
D. Single customer with whom an entity transacts a significant volume of business merely by virtue
of the resulting economic dependence.

TOPIC 38: NCAHFS & DISCONTINUED OPERATIONS

133. GG CORP. Company is a diversified entity with nationwide interests 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 1,2014 the board of directors voted
to approve the disposal of this division. The sale is expected to occur in August 2015. The food

w
distribution had the following revenue and expenses in 2014: January 1 to September 30, revenue of
P35,000,000 and expenses of P27,000,000; October 1 to December 31, revenue of P15,000,000 and
expenses of P 10,000,000. The carrying amount of the divisions net assets on December 31, 2014

ie
was P56,000,000 and the fair value less cost of disposal was P58,000,000. The sale contract requires
Zebra to terminate certain employees incurring an expected termination cost of P4,000,000 to be paid
by December 15,2015. The income tax rate is 30%o. In the income statement for the year ended
December 31, 2014, what amount should be reported as income from discontinued operation?
A.
B.
6,300,000
7,700,000

TOPIC 39: EVENTS AFTER THE REPORTING PERIOD

C.
D.
ev
8,300,000
9,000,000
R
134. Adjusting events after the reporting period does not include:
A. Bankruptcy of a customer which occurs after the reporting period.
B. The determination after the reporting period of the cost of assets purchased or the proceeds
from assets sold before the reporting date.
PA

C. The discovery of fraud or errors that show the financial statements were incorrect.
D. Major ordinary share transactions and potential ordinary share transactions after reporting
period.

TOPIC 40: INTERIM FINANCIAL REPORTING

135. WOW CORP. reported P950,000 net income for the quarter ended September 30, 2014 which included
C

the following after-tax items:

• A P600,000 gain from expropriation realized on April 30, 2014 was allocated equally to the
second, third and fourth quarters of 2014.
• A P150,000 loss resulting from a change in inventory valuation method was recognized on
EO

August 1, 2014.
In addition, the entity paid P480,000 on February 1, 2014 for 2014 calendar-year property taxes. Of
this amount, P120,000 was allocated to the third quarter of 2014.
For the quarter ended September 30, 2014, what amount should be reported as net income?
A. 750,000 C. 1,000,000
B. 900,000 D. 1,100,000
R

136. Which of the following statements is incorrect regarding interim reporting?

A. PFRS requires a complete set of financial statements at the interim reporting date.
B. No accruals or deferrals in anticipation of future events during the year should be reported.
C. PFRS does not mention about the integral and independent view of interim financial reporting.
D. PFRS requires entities to expense interim amount like advertising expenditures that could
benefit later interim periods.

TOPIC 41: ACCOUNTING CHANGES AND ERROR CORRECTION

137. Which is the reason why entities are permitted to change accounting policy?
A. The change will be long-term.
B. The change is made by the internal auditor.
C. The change would allow the presentation of a more favorable profit picture.
D. The change would result in providing more reliable and relevant information about financial
position, financial performance and cash flows

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 20

138. 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 liability and an overstatement of equity.
D. An understatement of cost of goods sold and liability and an overstatement of asset

139. A receipt of P12,600 cash from a customer as a payment on account was incorrectly credited to
service revenue. What is the effect of this error on the financial statements of the company?
A. Assets are overstated by P12,600 and equity is overstated by P12,600.
B. Assets are overstated by P25,200 and equity is overstated by P25,200.
C. Assets are understated by P12,600 and equity is understated by P12,600.
D. Assets are understated by P12,600 and liabilities are understated by P12,600.

140. On January 1, year 1, Newport Corp. purchased a machine for P1,000,000. The machine was
depreciated using the straight-line method over a 10-year period with no residual value. Because of a
bookkeeping error, no depreciation was recognized in Newports year 1 financial state ments, resulting
in a P100,000 overstatement of the book value of the machine on December 31, year 1. The
oversight was discovered during the preparation of Newports year 2 financial statements. What
amount should Newport report for depreciation expense on the machine in the year 2 financial
statements?

w
A. P 90,000 C. P110,000
B. P100,000 D. P200,000

ie
TOPIC 42: CASH TO ACCRUAL BASIS
Use the following information in answering the next item(s):
Emmyrelle Company provided the following selected accounts, cash receipts and disbursements for
the current year:

Accounts receivable
Notes receivable
Accounts payable
ev December 31
250,000
150,000
120,000
January 1
300,000
100,000
160,000
R
Notes payable 200,000 150,000
Prepaid insurance 30,000 10,000
Cash receipts for current year
Cash sales 500,000
PA

Collections of accounts receivable, net of discounts of P40,000 1,800,000

Collections of notes receivable 80,000
Bank loan - one year, dated December 31 100,000
Purchase returns and allowances 60,000
Cash disbursements for current year
Cash purchases 130,000
C

Payments on accounts payable, net of discounts of P20,000 1,500,000

Payments on notes payable 400,000
Insurance 220,000
Other expenses 650,000
EO

Sales returns and allowances 50,000

141. Under accrual basis, what is the amount of gross sales for the current year?
A. 1,920,000 C. 2,420,000
B. 1,970,000 D. 2,470,000

142. Under accrual basis, what is the amount of gross purchases for the current year?
R

A. 1,830,000 C. 1,960,000
B. 1,890,000 D. 2,020,000

TOPIC 43: ACCOUNTING PROCESS

143. Which of the following statements is incorrect?
A. Transactions often overlap accounting periods
B. Every adjusting entry affects both a balance sheet and an income statement
C. All of the accounts of a specific business enterprise are referred to as a ledger
D. The fact that an expense is recognized on the income statement indicates that an equivalent
outlay of cash has been made in the same period

144. Reversing entries may not be made on adjusting entries for

A. the accrual of income or expense
B. the unexpired portion of prepayments
C. the unearned portion of advances received
D. the expired portion of prepayments

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 21

TOPIC 44: SMEs
145. An SME shall account for investments in associate after initial recognition using
A. Either cost model or fair value model and using the same policy for all investments in
associates.
B. Either cost model or fair value model and the model can be elected on an investment by
investment basis.
C. Any of the cost model, equity method or fair value model and the model can be elected on an
investment by investment basis.
D. Any of the cost model, equity method or fair value model and using the same accounting policy
for all investments in associates.

- END OF EXAMINATION -

w
ie
ev
R
PA
C
EO
R

Financial Accounting & Reporting by Karim G. Abitago, CPA Page 22