Started on Tuesday, 24 May 2022, 8:13 PM

State Finished
Completed on Tuesday, 24 May 2022, 9:15 PM
Time taken 1 hour 1 min
Grade 18 out of 20 (90%)
Question 1
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On January 2, 2014, Power Company acquired a building costing P6,000,000. Power
Company estimated that the useful life of the property is 20 years. Power Company’s policy
is to depreciate all depreciable assets using a double declining balance method, without
scrap. On January 2, 2019, the building was remeasured at P3,080,000 and with a
remaining revised useful life of 10 years and changed its method of depreciation to sum of
the years digit. On January 2, 2020, Power Company converted the property into
investment property when the fair value is P3,000,000. What amount of unrealized gain or
revaluation surplus should Grand Company recognize in its shareholders’ equity on the date
of transfer?

a.
P542,940

b.
P680,983

c.
P303,017

d.
P159,923
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The correct answer is: P680,983

Question 2
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Ef Corp. incurred P420,000 of research and development costs to develop a product for
which a patent was granted on January 2, 2015. Legal fees and other costs associated with
registration of the patent totaled P80,000. The patent has a remaining useful economic life
of 10 years. On March 31, 2020, Ef paid P80,000 for legal fees in a unsuccessful defense of
the patent. What total amount should be charge against income in 2020 related to the
patent?

a.
P120,000

b.
P112,000

c.
P82,000

d.
P118,000
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The correct answer is: P120,000

Question 3
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ABC purchased an equipment on January 1, 2018 at cost of P1,000,000. This equipment
was depreciated over its useful life of ten years with a residual value of 10%. On December
31, 2019, ABC determined that the recoverable amount of the equipment was only
P5,000,000 with no residual value and appropriately recognized an impairment loss.
However on December 31, 2020, the fair value had increased to P7,000,000 and the
management of Gordon deemed to reverse impairment that was previously recorded. What
is the gain on impairment to be shown in 2020 income statement?
a.
3,000,000

b.
2,500,000

c.
2,625,000

d.
2,925,000
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The correct answers are: 2,500,000, 2,625,000, 2,925,000, 3,000,000

Question 4
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Mystic Corporation incurred the following costs in 2020:

What amount should Mystic record as research development expense in 2020?

a.
1,140,000

b.
1,000,000

c.
550,000

d.
740,000
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The correct answer is: 550,000
Question 5
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On January 2, 2013, Excel Company has completed the construction of a building for a total
cost of P9,840,000. The building is to be depreciated on sum-of-years-digit basis over its
estimated useful life of 40 years. On January 2, 2018, Excel converted the building into a
commercial establishment with only minor renovation costs incurred. In consultation with an
appraiser, the building’s fair value as of January 2, 2018 was P11,970,000. On January 2,
2020 due to sudden change in the economic environment, Excel is evaluating possible
impairment and determined that the recoverable value of the building was P6,000,000.
What is the amount of impairment loss, if any, on January 2, 2020?

a.
P1,250,000

b.
P732,000

c.
P483,000

d.
P1,311,000
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The correct answer is: P1,250,000

Question 6
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1On January 1, 2017 Aye Company purchased a patent for P420,000 from an inventor who
had developed a new manufacturing process. At the time of the purchase, the patent had a
remaining legal life of 10 years. At the end of 2020 after amortization had been recorded
through December 31, 2019, Aye Company concluded that the estimated discounted future
cash flows from the patent to be P200,000 as required to test for impairment.

By how much should the revenue in year 2020 be charged related to the patent?

a.
P52,000

b.
None

c.
P42,000

d.
P94,000
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The correct answer is: P94,000

Question 7
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Sy Corp. incurred P420,000 of research and development costs to develop a product for
which a patent was granted on January 2, 2015. Legal fees and other costs associated with
the registration of the patent totaled P80,000. On March 31, 2020, Sy paid P150,000 for
legal fees in a successful defense of the patent. The total amount capitalized for the patent
through March 31, 2020 must be

a.
P150,000

b.
P650,000

c.
P80,000

d.
P230,000
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The correct answer is: P80,000

Question 8
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On June 30, 2020, the balance sheet of Lourdes Company reported the following:

The equipment was measured using the cost model and depreciated on a straight-line basis
over a 10-year period. On December 31, 2020, the directors of Lourdes decided to change
the basis of measuring the equipment from the cost model to the revaluation model. The
equipment was revalued to its fair value of P4,550,000 with an expected useful life of 5
years. If the income tax rate is 35%, what amount should Lourdes report as revaluation
surplus on December 31, 2020?

a.
1,050,000

b.
1,300,000

c.
845,000

d.
682,500
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The correct answer is: 845,000

Question 9
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Almighty Company was granted a patent on January 1, 2017, and appropriately capitalized
P4,500,000 of related costs. Almighty was amortizing the patent over its estimated life of 15
years. During 2020, Almighty paid P1,500,000 in legal costs in successfully defending an
attempted infringement of the patent. After the legal action was completed, Almighty sold
the patent to the plaintiff for P7,500,000. The policy is to take no amortization in the year of
disposal. In its 2020 income statement, what amount should Almighty report as gain from
sale patent?

a.
2,400,000

b.
2,700,000

c.
1,500,000

d.
3,900,000
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The correct answer is: 3,900,000

Question 10
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The general ledger of Vince Company on December 31, 2020 included the following
accounts:
In the preparation of Vince’s statement of financial position on December 31, 2020, what
amount should be reported as total intangible assets?

a.
507,000

b.
510,000

c.
537,000

d.
480,000
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The correct answer is: 510,000

Question 11
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Ely Co. bought a patent from Baden Corp. on January 1, 2020, for 450,000. An independent
consultant retained by Ely estimated that the remaining useful life at January 1, 2020 is 15
years. Its unamortized cost on Baden’s accounting records was 225,000; the patent had
been amortized for 5 years by Baden. How much should be amortized for the year ended
December 31, 2020 by Ely Co.?

a.
22,500

b.
45,000

c.
30,000

d.
0
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The correct answer is: 30,000

Question 12
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Gee Company acquires a patent from Mike Company in exchange for 2,500 shares of
Gee’s P5 par value ordinary shares and P75,000 cash. When the patent was initially issued
to Mike Company, Gee Company’s shares were selling at P7.50 per share. When Gee
Company acquired the patent, its shares were selling for P9 a share. Gee Company should
record the patent at what amount?

a.
87,500

b.
97,500

c.
93,750

d.
75,000
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The correct answer is: 97,500

Question 13
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DEE COMPANY acquired 3 patents in January, 2020. The patents have different lives as
indicated in the following schedule:
Patent Zee is believed to be uniquely useful as long as the company retains the right to use
it. In June 2020, the company successfully defended its right to patent Way. Legal fees of
P450,000 were incurred in this action. The company’s policy is to amortize intangible assets
by the straight-line method to the nearest half year. The company reports on a calendar
year basis. The amount of amortization to be recognized for 2020 is

a.
1,050,000

b.
1,020,000

c.
1,100,000

d.
1,095,000
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The correct answer is: 1,050,000

Question 14
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On January 2015, Bee Corporation purchased a patent for a new consumer product for
P720,000. At the time of purchase, the patent was valid for fifteen years. Due to a
competitive nature of the product, however, the patent was estimated to have a useful life of
only ten years. During 2020 the product was permanently removed from the market under
governmental order because of a potential health hazard present in the product. What
amount should Bee charge to expense during 2020, assuming amortization is recorded at
the end of each year?

a.
P72,000

b.
P480,000

c.
P360,000

d.
P288,000
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The correct answer is: P360,000

Question 15
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Vicks Company owned a building on January 1, 2018 with historical cost of P40,000,000.
The property is depreciated over 40 years on a straight-line basis with no residual value.
The entity adopted the revaluation model of measuring property, plant and equipment. The
building has so far been revalued twice at fair value as follows:

What is the revaluation surplus to be reported in the statement of changes in equity on

December 31, 2021?

a.
18,900,000

b.
18,000,000

c.
18,200,000

d.
18,500,000
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The correct answer is: 18,000,000

Question 16
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On June 30, 2021, the statement of financial position of Lucille Company reported the
following balances:

The equipment was measured using the cost model and depreciated on a straight-line basis
over a 10-year period. On December 31, 2021, the directors of Lucille decided to change
the basis of measuring the machinery from the cost model to the revaluation model. The
machinery was revalued to its fair value of P4,550,000 with an expected remaining life of 5
years. The entry to record the revaluation using the proportional method will include

a.
A debit to machinery of P1,300,000

b.
A debit to accumulated depreciation of P1,750,000

c.
A credit to accumulated depreciation of P2,450,000

d.
A credit to accumulated depreciation of P700,000
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The correct answer is: A credit to accumulated depreciation of P700,000

Question 17
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On January 1, 2019, Stanley Bank loaned P7,000,000 to another entity. Interest of 10% is
payable annually every December 31 of each year and has a 5-year term. Stanley was able
to collect the 2019 and 2020 interest but failed to collect the 2021 interest from the entity
because of financial difficulties. The entity did not accrue the interest on December 31,
2021. The entity negotiated with Stanley on December 31, 2021 and agreed on the
following:

• The principal will be collected on December 31, 2024.

• The new interest rate is 8%. Stanley forgave the 2021 interest but the remaining interest
payments will be collected together with the principal on December 31, 2024.

How much is the impairment loss on December 31, 2021? (Round off PV factor to 2
decimals)

a.
490,000

b.
1,750,000

c.
0

d.
1,330,000
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The correct answer is: 490,000

Question 18
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Technique Co. has equipment with a carrying amount of 1,600,000. The expected future net
cash flows from the equipment are 1,630,000, and its fair value is 1,360,000. The
equipment is expected to be used in operations in the future. What amount (if any) should
Technique report as an impairment to its equipment?

a.
No impairment should be reported.

b.
240,000

c.
270,000

d.
30,000
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The correct answer is: No impairment should be reported.

Question 19
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On January 1, 2018, Vilax Company purchased equipment with a cost of P11,000,000, a
useful life of 10 years and no residual value. The entity used straight line depreciation. The
following information is available for impairment testing at each year end:

There is no change in the useful life or residual value. What amount should be reported in
the income statement for 2019?

a.
Depreciation P1,100,000

b.
Gain on reversal of impairment P800,000

c.
Gain on reversal of impairment P 1,200,000

d.
Impairment loss P1,350,000
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The correct answer is: Gain on reversal of impairment P800,000

Question 20
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Kelly Company acquired a machine for P3,200,000 on August 31, 2018. The machine has a
5-year life, a P500,000 residual value, and was depreciated using the straight-line method.
On May 31, 2021, a test for recoverability reveals that the expected net future undiscounted
cash inflows related to the continued use and eventual disposal of the machine total
P1,500,000. The machine’s fair value on the same date is P1,350,000 with no residual
value. What is the impairment loss to be recognized in 2021?

a.
90,000

b.
365,000

c.
215,000

d.
0
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The correct answer is: 365,000