REAL EXCELLENCE ONLINE REVIEW

FINAL PREBOARD EXAMINATIONS

OCTOBER 2022

1. Determine the incorrect statement regarding treasury shares.

I. Acquisition of treasury shares does not affect the net assets of an entity.
II. Precedent to the acquisition of treasury shares is the availability of unrestricted balance of
retained earnings.
III. If treasury shares are reissued for noncash consideration, the proceeds shall be measured by
carrying amount of the noncash consideration received
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III

2. HARITH CORP. has the following outstanding liabilities as of December 31, 2022:
5 year, 10% Note payable, issued April 1, 2018 P2,000,000
3 year, 8% Loans payable, issued July 1, 2022 1,500,000
Additional information
• The 10% note payable was refinanced on December 28, 2022. Under the existing loan facility,
the entity had the discretion to refinance or roll over the note payable for at least twelve months

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after the end of reporting period.
• The 8% loans payable’s covenant was breached before year-end. The lender agreed to give the
borrower a grace period of 6 months on December 29, 2022.

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What is the total amount of current liabilities?
A. P0 C. P210,000
B. P2,000,000 D. P1,710,000

3.
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HOPEFUL COMPANY is in the business of telecommunication. It is given a concession by the
government to operate the business for 10 years. In the year 2011, it sets up its telecommunication
network facilities. The agreement with the government requires the company to decommission the
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network facilities at the end of the concession period. Based on the current technology, the cost of
decommissioning at the end of 10 years is estimated at P150,000,000. Because of the changes in the
technology in decommissioning work, it is reasonably probable that the cost of decommissioning
would be reduced by the end of the concession period. The company estimates that there is a 30%
(high) chance the cost will be P90,000,000, a 40% (medium) chance the cost will be P100,000,000
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and a 30% (low) chance the cost will be P110,000,000. The residual value of the facilities is negligible
and no gain or loss is expected from their eventual disposal after 10 years. The current risk-free rate
of interest is 5%. For the risks specific to the liability, the variability of the possible outflows, an
additional 10% on the expected cash outflows is considered a reasonable estimate.
What is the amount of provision required for the decommissioning costs that should be recognized
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and included as additional cost of the facilities?

A. None C. P67,530,458
B. P61,391,325 D. P70,906,981
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4. Under PAS 12, which of the below statements is correct?

S1: Deferred tax expense or benefit is the net change in DTL and DTA for the period. If the increase
in DTL exceeds the increase in DTA, the difference is a deferred tax benefit.
S2: Deferred tax asset and deferred tax liability are based on future tax rates while current tax
asset and current tax liability are based on current tax rates.
A. True, false C. False, false
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B. False, true D. True, true

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

CAREBEAR COMPANY and its divisions are engaged solely in manufacturing operations. The following
data pertains to the industries in which operations were conducted for the year ended December 31,
2022:
Segments Revenue from Revenue from Operating Profit Identifiable Assets
outsiders within (Loss)
One 1,800,000 200,000 2,600,000 4,000,000
Two 1,300,000 300,000 2,800,000 3,600,000
Three 500,000 700,000 2,400,000 2,800,000
Four 450,000 150,000 (1,200,000) 1,600,000
Five 540,000 360,000 (1,000,000) 1,400,000
Six 300,000 -----0---- __700,000 _600,000
Total 4,890,000 1,710,000 6,300,000 14,000,000

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

 On January 1, 2018, VALENZUELA CORP. purchased a P2,500,000 ordinary life insurance policy on its
president. VALENZUELA CORP. is the beneficiary under the life insurance policy. Additional information
for the year 2022 are as follows: Cash surrender value, January 1, P300,000; Cash surrender value,
December 31, P420,000; Annual insurance premium paid on January 1, 2022, P360,000; Dividend
received on August 1, P30,000. The president died on October 30, 2022 and the policy was collected
on December 1, 2022.

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 150,000
BPI checking account (5,000)
BPI savings account 500,000
BDO checking account (20,000)
BDO time deposit 100,000
Security bank savings account (10,000)
Coins and currencies 30,000
IOUs from employees 25,000
Treasury bond acquired December 30, 2019 maturing February 15, 2020 50,000
Money order 15,000
Bonds payable maturing June 30, 2020 150,000

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DATU PUTI CORP. purchased a long-term asset for P1,800,000 on January 1, 2020 with a useful life of
8 years and no residual value. According to the company’s accounting policy, the asset shall be

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depreciated over its useful life using SYD method. On January 1, 2022, the entity classified the asset
as held for sale. The fair value of the equipment on January 1, 2022 is P1,200,000 and the cost of
disposal is P100,000. On December 31, 2022, the entity believed that the criteria for classification as
held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but to

disposal is P300,000.
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continue to use it. On that date, the fair value of the equipment is P1,300,000 and the cost of

On September 1, 2022, UFC COMPANY approved a formal plan to sell a business segment. The sale
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will occur in March 2023. The segment had a profit before tax of P700,000 during the entire year
(January to December) of 2022. As of year-end, the carrying value of the segment was P4,000,000
and the recoverable amount was P3,850,000. During 2022, the company paid employees severance
and relocation costs of P150,000 as a direct result of the discontinuing operations. Income tax rate is
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35%.

5. Using the quantitative threshold, how many reportable segments does CAREBEAR COMPANY have?
A. six C. four
B. five D. three
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6. What amount should VALENZUELA report in its statement of profit or loss as life insurance expense
for the current year, 2022?
A. P230,000 C. P170,000
B. P210,000 D. P190,000
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7. What amount is to be reported as cash by KARDEL for the year ended December 31, 2019?
A. P770,000 C. P720,000
B. P800,000 D. P700,000

8. What amount should DATU PUTI report within profit or loss as a result of the reclassification in 2022?
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A. P100,000 C. P200,000
B. P350,000 D. P450,000

9. How much will be reported as income from discontinued segment by UFC COMPANY, net of tax in
2022?
A. P260,000 C. P357,500
B. P455,000 D. P400,000
10. Using accrual basis, AKAI’s reported its operating expenses at P150,000 for the calendar year 2022.
Additional information regarding its operating expenses is as follows:
1/1/2022 12/31/2022
Prepaid expenses P25,000 30,000
Accrued expenses 45,000 60,000
Depreciation during the year is P25,000.
What amount was paid for operating expenses?
A. P115,000 C. P135,000
B. P140,000 D. P160,000

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

Use the following information in answering the next item(s):
SARADA CORP. presented the following account balances in relation to its liabilities as of December
31, 2022:
Accounts payable P 1,350,000
Salaries payable 900,000
Deferred tax liability ?
Finance lease liability 3,150,000

The following additional information pertains to these liabilities:

a) The accounts payable of P 1,350,000 was before any necessary year-end adjustments relating
to the following:
• Goods were in transit to SARADA from a vendor on December 31, 2022. The invoice cost
was P75,000. The goods were shipped FOB shipping point on December 29, 2022 and
were received on January 2, 2023.
• Goods shipped FOB destination on December 21, 2022, from a vendor to SARADA, were
received on January 6, 2023. The invoice amounts P37,500.
• On December 27, 2022, SARADA wrote and recorded checks totaling P60,000 which were
mailed on January 10, 2023.
b) The accrued salaries payable pertains to the liability for compensated absences accrued in the
previous year 2,500 days unused vacation leave, from 2021 were forwarded to 2022, from

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which 1,900 days were exercised. By the end of the current year, additional 3,000 days earned
in the current, year were unused by the employees. Unused leave can be carried over 2 years,
thereafter it shall expire. The company also estimates, as per past, experience, that only 805 of

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the unused leaves will ultimately be exercised. Salary rate in 2021 was at 450 per day while
salary rate in 2022 is at P475 per day. Payment of salaries including exercise of leaves were
appropriately debited to current year salaries expense.
c) SARADA CORP. prepared the following reconciliation of the financial income and taxable income
for 2022:
Pretax financial income
Permanent difference ev 8,000,000
(700,000)
Temporary difference capitalized interest for book and expensed for tax (350,000)
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Taxable income 6,950,000
Cumulative temporary differences amounted to P 300,000 on December 31, 2021 and P
650,000 on December 31, 2022. The income tax rate is 30%.
d) The finance lease liability above represents the remaining total lease payments to be paid to the
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lessor. On December 31, 2021, SARADA CORP. leased a machine another entity for a five-year
period. Equal annual payments under the lease are P1,050,000 including P50,000 annual
executory cost and are due on December 31 of each year. The first payment was made on
December 31, 2021 and the second payment was made on December 31, 2022. The five lease
payments are discounted at 10% over the lease term. The present value of minimum lease
payments at the inception of the lease and before the first annual payment was P4,170,000.
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11. In SARADA CORP.s December 31, 2022 statement of financial position, how much should be the
accounts payable?
A. P 1,410,000 C. P 1,462,500
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B. P 1,425,000 D. P 1,485,000

12. What is the adjusted liability for compensated absences to be included in the accrued salaries as of
December 31, 2022?
A. P1,225,000 C. P1,368,000
B. P1,280,000 D. P1,710,000
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13. What amount should be reported as deferred tax asset or liability on December 31, 2022?
A. P195,000 liability C. P105,000 liability
B. P195,000 asset D. P105,000 asset

14. What amount should be reported as total tax expense for the year ended December 31, 2022?
A. P1,890,000 C. P2,190,000
B. P1,980.000 D. P2,280,000

15. On December 31, 2022, what amount should be reported by SARADA CORP. as lease liability?
A. P3,170,000 C. P2,853,000
B. P3,150,000 D. P2,487,000

16. Which of the following statements is true regarding interim reporting?

A. Interim reports are not required.
B. Interim reports are required quarterly.

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

 C. The discrete view is required for interim reporting.
D. Interim reports require the preparation only of an income statement and a statement of
financial position.

17. In accordance to PAS 33, all of the following statements are correct, except:
A. There is no need to present diluted loss per share if basic loss per share decreased as a result of
the computation of diluted loss per share.
B. Earnings per share amounts are still presented even if they are negative.
C. Earnings per share computations apply only to ordinary shares.
D. When ordinary shares are issued without a corresponding change in resources, the basic EPS as
well as diluted EPS and the weighted average number of shares outstanding during the period
and all periods presented are adjusted for retrospectively.

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

At the beginning of current year, an entity was authorized to issue share capital of 100,000 shares
with P30 par value. The entity had the following share capital transactions during the year:
Jan. 1 Issued 80,000 shares at P 70 per share.
May 1 Reacquired 4,000 treasury shares at P 65 per share.
July 1 Approved a share split of 5 for 1.
October 31 Issued a 10% share dividend when the market value of a share is P 25.
December 31 Reissued all of the treasury shares at P 35.

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December 31 Net income for the year was P 4,500,000.
18. What total amount should be reported as share capital at year-end?
A. 3,200,000 C. 2,940,000

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B. 3,428,000 D. 2,628,000

19. What total amount should be reported as share premium at year-end?

A. 3,200,000 C. 3,922,000

20.
B. 3,640,000 D.

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4,362,000

What amount of retained earnings should be reported at year-end?

A. 3,550,000 C. 3,430,000
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B. 4,500,000 D. 2,950,000

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

On April 1, 2018, CAVS CORP issued a 10% term bonds the face amount of which is P3,000,000,
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maturing on January 1, 2023. The issue price of the bonds is P2,867,149 in order to yield a 12%
effective interest. Interest is payable every December 31.
On September 30, 2019, the bonds were retired at a price of P3,000,000.

21. What is the interest expense for the year 2018?

A. 344,058 C. 335,058
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B. 258,043 D. 251,293

22. What is the gain or loss to be presented in profit or loss resulting from the early retirement of the
bonds?
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A. 63,790 loss C. 72,102 gain

B. 161,209 gain D. 152,898 loss

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

SITUATION 1: An entity had 2,500,000 ordinary shares outstanding on January 1, 2022. An additional
500,000 ordinary shares were issued on April 1, 2022, and 250,000 more on July 1, 2022. On
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October 1, 2022, the entity issued 50,000, P 1,000 face amount, 7% convertible bonds. Each bond is
convertible into 40 ordinary shares. No bonds were converted into ordinary shares in 2022. The net
income for the year 2022 was P 15,000,000.

SITUATION 2: The net income for the year ended December 31, 2022 for GEMINI CORP. was
P3,520,000. Additional data follow:
Purchases of plant assets P 2,800,000
Depreciation of plant assets 1,480,000
Dividends declared on plant assets 970,000
Net decrease in non-cash current assets 290,000
Loss on sale of equipment 130,000

SITUATION 3: On January 1, 2020, VIRGO CORP. granted 100 share options each to 500 employees,
conditional upon the employees remaining in the entitys employ during the vesting period. The share
options vest at the end of a three-year period. On grant date, each share option has a fair value of
P30. The par value per share is P100 and the option price is P120.

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

 On December 31, 2021, 30 employees have left and it is expected that on the basis of a weighted
average probability, a further 30 employees will leave before the end of the three-year period.

On December 31, 2022, only 20 employees actually left and all of the share options are exercised on
such date.

23. What amount should be reported as basic earnings per share?

A. 5.00 C. 6.00
B. 4.62 D. 4.80

24. What amount should be reported as diluted earnings per share?

A. 4.29 C. 4.46
B. 4.11 D. 3.12

25. What should be the cash provided from operating activities in GEMINIs statement of cash flows for
the year ended December 31, 2022?
A. P 5,130,000 C. P 5,420,000
B. P 5,290,000 D. P 7,250,000

26. What amount should be reported as compensation expense for 2022?

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A. 500,000 C. 380,000
B. 880,000 D. 470,000

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27. In accounting for operating leases, which of the following is incorrect?
A. Lease payments are recognized as income by the lessor or expense by the lessee on a straight-
line basis over the lease term, unless other systematic basis is more representative of the patter
in which benefit from the use of the underlying asset is diminished.
B.

C.
D.
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A lease bonus paid by the lessee to the lessor in addition to the periodic rental is treated as
prepaid rent expense by the lessee and subsequently amortized over the lease term.
Initial direct costs incurred by lessor is recognized as expense when incurred.
Depreciation of the leased asset is not recognized by the lessee.
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28. In accounting for government grants, which of the following statements is incorrect?
A. Under net presentation of government grants related to asset, deferred income from
government grant is decreased as income from government grant is recognized.
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B. Grant related to depreciable asset shall be recognized as income over the periods and in
proportion to the depreciation of the related asset.
C. Under net presentation of government grants related to income, deferred income from
government grant is decreased as income from government grant is recognized.
D. In the case of a nonmonetary grant, both the government grant and the asset are recorded
based on the fair value of the nonmonetary asset.
C

29. ALUCARD CORP. has reported a net income amounting to P300,000 for the year 2019. The following
errors were discovered during the year when the entity’s books were already closed.
a) In 2018, the company did not record accrual for interest income which were fully received in
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2019 amounting to P5,000.

b) An item of PPE purchased last April 1, 2019 was fully expensed by ALUCARD, amounting to
P50,000. The PPE was supposed to be depreciated using double declining balance method and
has a useful life of 10 years.
c) In December 31, 2018, prepaid insurance was overstated by P20,000
d) In December 31, 2019, accrued salaries payable was understated by P15,000.
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What is the adjusted net income of ALUCARD for the year ended December 31, 2019?
A. P328,182 C. P343,182
B. P335,000 D. P316,200

30. INDIA COMPANY reviewed its year-end inventory and found the following items:
A. A package containing a product costing P81,600 was standing in the shipping area when the
physical inventory was conducted. This was not included in the inventory because it was marked
"Hold for shipping instructions". The purchase order was dated December 19 but the package
was shipped and the customer was billed January 2, 2015.
B. A special machine, fabricated to order for a particular customer, was finished and in the shipping
room on Dec. 30, 2014. The customer was billed on that date and the machine was excluded in
the inventory. The machine costing P230,000 was shipped Jan. 2, 2014.
C. Merchandise costing P23,500 was received on January 3, 2015 and the related purchase invoice
was recorded January 5, 2015. The invoice showed the shipment was made December 29,
2014, FOB destination.

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

 D. Goods costing P150,000 were sold and delivered on Dec. 20, 2014. The sale was accompanied
by a repurchase agreement that INDIA will "buyback" the inventory in February 2015.
How much is the inventory adjustment on December 31, 2014?
A. P81,600 increase C. P461,600 increase
B. P231,600 increase D. P485,999 increase

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

On January 1, 2022, ITALY CORP. acquired a parcel of land to be used as a future factory site. At that
time, an old building was situated and management decided to demolished such old building and
construct a new one as the old one is not suited to be a factory. ITALY paid for the acquisition of the
land and old building at a lump-sum price of P1,200,000. On that date, the land and the old building
have a fair value of P1,125,000 and P125,000, respectively.

The following costs were incurred in relation to the acquisition of the land and construction of the new
building:
Broker’s commission on the acquired properties P40,000
Title registration costs 20,000
Payment of delinquent property taxes 50,000
Cost of razing old building 77,250
Proceeds from salvaged materials from demolished building 5,000
Payments to tenants to vacate the old building 30,000

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Contract cost of new building 1,500,000
Building permit 70,000
Special assessment for city improvement on water and sewer 40,000

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Landfill for building site 35,000
Option fee for properties acquired 30,000
Option fee for properties not acquired 15,000
Temporary building to house tools and materials 90,000
Survey before construction of new building

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On January 1, 2022 ITALY had the following borrowings outstanding for the whole year.
10% long-term note
25,000

P1,600,000
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12% bank loan 800,000
8% short-term note 800,000
The construction started on January 1, 2022 and the warehouse was completed on September 30,
2022. The total contract costs, the basis of the amount loaned for the new building, were incurred
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evenly during the year. The newly constructed building shall be depreciated using the straight-line
method over its estimated useful life of 10 years.

On July 1, 2022, ITALY CORP. purchased an office equipment with at a price of P500,000 on
installment basis. The terms of payment are as follows:
• P100,000 downpayment.
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• For the remaining amount, ITALY shall issue a 5-year non-interest bearing note with an annual
installment of P80,000. On this date, the market rate of interest is 10%. (Round off present
value factors in 2 decimal places)
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In addition, the following costs in relation the acquisition of the office equipment were incurred:
Cost of training for personnel who will use the machine 25,000
Cost of safety rails and platforms surrounding machine 60,000
Testing and installation cost – net of P3,000 proceeds from samples 37,000
Cost of removing old machine 10,000
Insurance cost of the equipment – 1 year starting July 1 36,000
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The equipment has an estimated residual value of P25,000 and to be depreciated over its estimated
useful life of 5 years using double declining balance method.

31. What is the initial cost of the land?

A. P1,335,000 C. P1,425,500
B. P1,308,000 D. P1,435,500

32. What is the initial cost of the new building?

A. P1,823,500 C. P1,788,500
B. P1,842,250 D. P1,688,500

33. What is the initial cost of the office equipment?

A. P525,200 C. P500,200
B. P528,200 D. P503,200
34. In relation to the above transactions, what is the net amount to be presented in profit or loss for the
year 2022?

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

 A. P601,978 C. P617,138
B. P455,750 D. P635,138
Net amount presented in profit or loss P617,138

Use the following information for the next item(s):

During the current year, an entity began work on a research and development project. The project
was completed and commercial production of the developed product began in later part of the year.
The following expenditures were included in the Research and Development expense account:
Salaries and wages for laboratory research 1,000,000
Design of pre-production prototype 200,000
Quality control during commercial production 10,000
Material and supplies consumed for laboratory research 400,000
Construction of preproduction prototype 150,000
Purchase of equipment used solely for the project with useful life of 5 years 600,000
Patent filing and legal fee for completed project 50,000
Payment to others for the research 300,000
Cost of adapting the now monitor for the specific needs of a customer 250,000

On December 31, 2022, the entity showed the following intangible assets:
Trademark 6,000,000
Patent 3,000,000

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The trademark has 8 years remaining in its legal life. However, it is anticipated that the trademark will
be routinely renewed in the future. Thus, the trademark is considered to have an indefinite life.

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Because of the inflationary economy, the trademark is expected to generate cash flows of P 200,000
per year. The appropriate discount rate is 10%. Mathematically, the discounted value of a stream of
indefinite annual cash flows is simply computed by dividing the annual cash flow by the discount rate.
The patent has a remaining economic life of 5 years. It is expected that the patent will generate cash

35.
ordinary annuity of 1 at 10% for 5 periods is 3.79.
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flows of P 500,000 per year. The appropriate discount rate is also 10%. The present value of an

What amount should be reported a research and development expense?

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A. 2,650,000 C. 2,900,000
B. 2,170,000 D. 2,350,000

36. What total amount should be recognized as impairment loss in 2022?

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A. 0 C. 4,000,000
B. 1,105,000 D. 5,105,000

37. Which of the following is a minimum line item in the statement of financial position in accordance with
PAS 1?
A. B. C. D.
C

Goodwill No No Yes No
Intangible Assets Yes Yes No Yes
Donated Capital Yes No Yes No
Non-controlling Interest Yes Yes No No
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Income Taxes Yes No Yes No

38. PFRS 8 adopts the MANAGEMENT APPROACH in identifying which segments are reportable. Under this
approach, operating segments used by management in its internal reporting are also operating
segments used for external reporting.
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Under PFRS 8, a "major customer" is defined as a single external customer providing revenue which
amounts to 10% or more of an entitys external revenue ONLY.
A. True, false C. False, false
B. False, true D. True, true

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

BONIFACIO CORP. had a defined benefit plan for the employees. On January 1, 2018, the entity
provided me following balances related to this plan:
Fair value of the plan assets 2,700,000
Projected benefit obligation 3,400,000
During 2018, the actuary provided the following information:
Service cost 450,000
Actual return on plan assets 270,000
Benefits paid to retirees 410,000
Discount rate 7%
Contribution to the plan ?

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

 BONIFACIO reported a pension liability of P 468,000 on December 31, 2018.
39. What amount of employee benefit expense should be reported for 2018?
A. 499,000 C. 418,000
B. 450,000 D. 459,000

40. What is the cash contribution to the plan asset for 2018?
A. 418,000 C. 232,000
B. 731,000 D. 650,000

41. In relation to standard setting, which of the statements is correct?

A. FRSC is the current standard setting-body in the Philippines. Its current pronouncements are
PASs.
B. The chairman and members of the FRSC shall have a term of 2 years renewable for another
term.
C. The Philippine Interpretations Committee (PIC) members were appointed by the PRC and
include accountants in public practice, the academe and regulatory bodies and users of financial
statements.
D. In setting standards, the Chairman of FRSC will establish a task force when deems it
appropriate to assist in identifying problems and issues with respect to a project on the Councils
agenda.
E. The chairman and members of FRSC should all be certified public accountants (CPAs).

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42. In relation to accounting, all of the following statements are true, except:
A. As part of the adjusting entry of unearned income accounted for using the liability method, the

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earned portion is recognized as income while the unearned portion remains as liability.
B. Transplacement errors, transposition errors and classification errors are errors revealed by the
preparation of trial balance.
C. Delivery truck purchased on account is NOT recorded in the purchases journal.

43.
D.

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Closing the books is an application of the periodicity concept.

REXXAR COMPANY provided the following information for October and November 2014:
Checks and charges recorded by bank in November, including
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a November service charge of P4,000 and NSF check of P20,000 550,000
Service charge made by bank in October and
recorded by depositor in November 2,000
Total credits to cash in all journals during November 620,000
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Customer NSF check returned in October and redeposited in November

(no entry made by depositor in either October or November) 40,000
Outstanding checks on October 31, 2014 that cleared in November 230,000
What is the amount of outstanding checks on November 30, 2014?
A. 282,000 C. 302,000
B. 300,000 D. 322,000
C

Use the following information for the next item(s):

On January 1, 2019, an entity was indebted to a bank under a P 4,800,000, 10% loan. The loan was
dated January 1, 2017 and was due on December 31, 2020. The annual interest was last paid on
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December 31, 2017. The entity was experiencing financial troubles and therefore the bank considered
the loan impaired. The bank agreed to reduce last years interest and the remaining two years
interest payments to P 200,000 each and delay all such payments on December 31, 2020. The
present value of 1 at 10% for two periods is 0.83.

The entity also reported the net realizable value of accounts receivable in the amounts of P 1,000,000
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and P 1,200,000 on December 31, 2019 and 2018 respectively. It was also disclosed that the
allowance for doubtful accounts on December 31, 2019 and 2018 were P 100,000 and P 130,000
respectively. Credit sales amounted to P 4,770,000 and collections from customers totaled
P4,800,000. Certain accounts were written off during the year.

44. What is the impairment on the loan for the year ended December 31, 2019?
A. 318,000 C. 484,000
B. 918,000 D. 884,000

45. What amount of accounts receivable was written off during the year?
A. 200,000 C. 150,000
B. 100,000 D. 0

46. What is the doubtful accounts expense for the year ended December 31, 2019?
A. 100,000 C. 300,000
B. 130,000 D. 170,000

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47. PAMPANGA CORP. disclosed the following liability account balances on December 31, 2022:
Trade accounts payable (a) P700,000
Deferred tax liability (expected full reversal in 2023) 300,000
(b)
Bonds payable 550,000
Premium on bonds payable 50,000
Financial liability designated at FVPL – maturing in 2024 (c) 150,000
Contingent liability 40,000
8% Serial bonds payable (with equal annual payments of 200,000)
issued on October 1, 2022 1,000,000
Accrued expenses (d) 140,000
Additional information:
(a) Trade accounts payable presented above is net debit balance in suppliers account of P20,000.
In addition, possible adjustments on the following are not yet considered:
• Checks drawn but not yet released to payees amounted to P14,000 while checks drawn
and released to payees but were post-dated amounted to P16,000.
• Goods in transit from a vendor to PAMPANGA CORP. on December 31, 2022 with an invoice
cost of P60,000 purchased FOB destination was not yet recorded. The goods were received
in January 2023.
• Goods shipped FOB shipping point, freight prepaid from a vendor on December 28, 2022
was unrecorded as of year-end. The invoice cost is P40,000 excluding the freight cost of

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P5,000.
(b) In accordance with the bond indenture, PAMPANGA is required create and maintain a bond
sinking fund of P30,000 every month starting January 1, 2022, the date when the bonds were

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issued. Unfortunately, PAMPANGA breached such provision, resulting to immediate payment of
the liability on March 1, 2023. The bonds have a nominal interest rate of 10%.
(c) The financial liability has a nominal interest rate of 12% and was issued on July 1, 2022.

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(d) The reported balance of accrued expenses is the balance of the account on January 1, 2022.
The following information is provided for your evaluation:
PAMPANGA received P50,000 worth of advertising bill on January 7, 2023, comprising
costs of P21,000 for advertisements in December 2022 issues, and P29,000 for
advertisements in January 2023 issues of the newspaper.
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• The store lease calls for fixed rent of P150,000 per month, payable at the beginning of the
month, and an additional rent equal to 5% of gross sales over P1,200,000 per calendar
year, payable on January 31 of the following year. The gross sales for 2022 is P2,000,000.
• Accruals for interest expense are yet to be made.
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What is the total amount of current liabilities should PAMPANGA report on its 2022 statement of
financial position?
A. P1,310,000 C. P1,950,000
B. P2,210,000 D. P1,910,000
48. FLORAL CORP. has several contingent liabilities on December 31, 2022. A brief description of each
C

liability is as follows:
• A personal injury liability suit for P500,000 was brought against FLORAL CORP. in March 2022.
The management and legal counsel of FLORAL CORP. concluded that it is not probable that
FLORAL CORP. will be responsible for damages and that P150,000 is the best estimate of the
damages.
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• In July 2022, FLORAL CORP. became involved in a tax dispute with the BIR pertaining to 2021
income tax. In December 2022, a judgment for P400,000 was assessed against FLORAL CORP.
by the tax court. FLORAL CORP. is appealing the amount of the judgment. The tax advisor and
legal counsel of FLORAL CORP. believed it is probable that the assessment can be reduced on
appeal by 50%.
• FLORAL CORP. signed as guarantor for P200,000 loan by PNB to TINTED CORP. a principal
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supplier of FLORAL. By reason of financial difficulties, it is probable that FLORAL CORP. shall pay
the P200,000 loan with only a 60% recovery anticipated from TINTED CORP.
Determine the amount of provision to be recognized on December 31, 2022
A. 200,000 C. 350,000
B. 400,000 D. 550,000

49. Which of the following is not an investment property?

A. Land held for capital appreciation
B. Building rented out to employees paying market rent
C. Land held for undetermined future use
D. Building leased out to another entity under operating lease

50. Which of the following is NOT a related party?

A. Another entity where the entity exercises significant influence.
B. Key management personnel of the entity.
C. Co-venturers in a joint venture.

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

 D. Postemployment benefit plans for the benefit of employees of another entity where the entity
exercises control over such another entity.
51. Regarding financial liabilities, which of the following statements is correct?
A. They are classified as either FVPL, FVOCI or amortized cost.
B. Financial liabilities at amortized cost present gains on losses on changes in fair value within
profit or loss.
C. Transaction costs are expensed within profit or loss for financial liabilities at fair value through
profit or loss.
D. Financial liabilities at fair value through profit or loss are amortized and computes interest
expense based on the nominal interest rate.

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

On July 1, 2022, DA VINCI COMPANY acquired a 30% interest in the ordinary shares of an investee
for P1,300,000. On that date, the book value of the investee’s net assets amounted to P3,000,000.
Moreover, The carrying amount of the net assets acquired equaled fair value except for equipment
whose fair value exceeded the carrying amount by P800,000. The remaining useful life of the
equipment is five years.

During 2022, the associate reported the following in its statement of comprehensive income a
P1,200,000 net income and unrealized gain from its FVOCI investments, net of tax amounting to
P300,000. The unrealized gain was recognized at year-end. DA VINCI received cash dividends

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amounting to P40,000 on October 31, 2022.

52. What is the carrying amount of the investment in associate account as of December 31, 2022?

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A. P1,534,000 C. P1,416,000
B. P1,506,000 D. P1,400,000

53. Assuming RENE COMPANY is a medium-sized entity. What is the carrying amount of the investment in
associate account as of December 31, 2022?
A.
B.
P1,534,000
P1,506,000
C.
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P1,416,000
P1,408,000
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54. On January 1, 20x1, an entity issues bonds with face amount of P5,000,000 for P5,200,000. The
bonds mature on December 31, 20x3 and pay annual interest of 12%. The bonds can be converted
into 10,000 ordinary shares of the entity with par value per share of P200. On January 1, 20x1, the
bonds are selling at 101 without the conversion feature. The effective interest rate on the bonds is
PA

11.59%. On January 1, 20x3, the entity retires the bonds at a call premium of P200,000. Without the
conversion feature, the bonds are selling at 102. What net amount is to be presented in profit or loss
for the year 20x3?
A. 81,114 C. 31,114
B. 50,000 D. 131,114
C

55. Which of the following accounting concepts have been eliminated in the PFRS for small entities?
(1) Accounting for revaluation of PPE.
(2) Accounting for investment properties using fair value model
(3) Capitalization of development costs in relation to internally developed intangible assets.
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A. 1 and 2 D. 1, 2 and 3
B. 2 and 3 E. Answer not provided
C. 1 and 3

56. Which of the following can be capitalized as an intangible asset?

A. Internally generated customer list.
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B. Website development cost for a website used internally and where the customers cannot place
an order.
C. Cost of computer software incurred during operating stage.
D. None from the choices.

57. Under the Conceptual Framework for Financial Reporting, which of the below statements is incorrect?
S1: Chapter 1, Objective of Financial Reporting, is known as the foundation of for the Framework
which includes the qualitative characteristics that make accounting information useful.
S2: The requirements of the Conceptual Framework prevail over those of the Philippine Financial
Reporting Standard in case of conflict between the two.
S3: Enhancing qualitative characteristics address the content or substance of the financial report
and include comparability, understandability, verifiability, timeliness.
A. S1 and S2 C. None from the statements
B. S2 and S D. All of the statements

58. JUPITER CORP. made several investment in equity securities:

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

 • Received from URANUS CORP. P 260,000 in lieu of a 15% stock dividend. JUPITER owns 8,000
of the total 80,000 outstanding shares of URANUS CORP. which it has acquired for P 1,800,000
• MERCURY COMPANY declared a 20% stock dividend on March 15, 2018 at which time
MERCURYs shares was quoted at P 30 per share. JUPITER CORP. originally owns 10,000
MERCURY COMPANY shares. On December 28, 2018 MERCURY declared a cash dividend of P8
per share, for holders on record as of January 15, 2019, to be distributed on January 31, 2019
• Received 2,000 common shares of PLUTO COMPANY in lieu of cash dividend. The market price of
PLUTOs shares was P 40
The total dividend income to be reported in JUPITER CORP.’s profit or loss statement for 2018 is
A. 171,200 C. 200,000
B. 160,000 D. 216,000

59. On January 1, 2012, PAPA CORP. purchased the debt instruments of MAMA CORP. with a face value of
P5,000,000 bearing interest rate of 8% for P4,621,006 to yield 10% interest per year. The bonds
mature on January 1, 2017 and pay interest annually on December 30. PAPA CORP. has a business
model of collecting all contractual cash flows including the interest and principal.

At what amount should the investment in debt security be disclosed in the statement of financial
position dated December 31, 2014?
A. P4,621,006 C. P4,751,418
B. P4,683,107 D. P4,826,560

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60. According to PAS 8, which of the following is incorrect?
A. When it is difficult to distinguish a change in an accounting policy from a change in accounting

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estimate, the change is treated as a change in an accounting estimate.
B. Change in an accounting estimate does not affect the financial statements of prior period
C. Retrospective application means restating the opening balances of assets, liabilities and equity
for the earliest prior period presented.

61.
D.

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Changes in accounting policy is NOT always be treated retrospectively.

In accounting for defined benefit retirement plan, the retirement benefit expense in the current period
includes all of the following except:
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A. The result of any plan termination, settlement or curtailment
B. Actuarial gains and losses
C. Current service cost
D Gain or loss on early settlement of retirement plan
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62. The stockholders’ equity of GORD CORP. as of December 31, 2019 are as follows:
12% Preferred Stock, P100 par value, liquidation value P120 P2,000,000
10% Preferred Stock, P50 par value, liquidation value P55 1,000,000
Common Stock, P20 par value 1,000,000
Donated Capital 580,000
C

Additional Paid-in Capital 1,400,000

Retained Earnings 1,200,000
The 12% preferred stock is cumulative and participating. The last dividend payment was on 2015.
Compute the book value per ordinary share.
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A. P32.40 C. P29.60
B. P60.00 D. P40.00

63. PUNO AGRICULTURAL CORP., a medium size entity, is one of the booming companies in the
agriculture sector. At the beginning of 2022, it took out a loan of P500,000 in order to finance
specifically the construction of its administrative office. The loan carried annual interest at 10%. Work
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on the building was substantially complete on September 30, 2022. The building has a useful life of
10 years and to be depreciated using the straight-line method.

In addition, PUNO AGRICULTURAL CORP. presented the following adjusted balances on December 31,
2022:
Land related to agricultural activity P120,000
Farm house related to agriculture 90,000
Agricultural produce after the point of harvest 30,000
Bearer plants 60,000
Bearer animals 75,000
Poultry chickens (used for laying eggs and for consumption) 80,000
What is the total amount of PPE that PUNO should report on its current year, statement of financial
position?
A. P697,500 C. P795,000
B. P735,000 D. P757,500

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

64. S1: No portion of revaluation surplus shall be transferred or recycled to other account except
retained earnings.
S2: Transfer of revaluation surplus, either by piecemeal or lumpsum transfer, does not affect total
shareholders’ equity.
A. True, false C. False, false
B. False, true D. True, true

65. The closing inventory of NORTH KOREA CORP. amounted to P116,400 excluding the following two
inventory lines:
Item one - 400 items, which had cost P40 each. All were sold after the balance sheet date for P30
each, with selling expenses of P2,000 for the batch.

Item two - 200 different items, which had cost P30 each. These items were found to be defective at
the balance sheet date. Rectification work after the balance sheet date amounted to P1,200, after
which they were sold for P35, with selling expenses totaling P300.
Which of the following figures should appear in the statement of financial position of NORTH KOREA
CORP.?
A. P116,400 C. P131,900
B. P126,400 D. P132,400

66. An entity is a dealer in machinery. On January 1, 2018, machinery was leased to another entity with

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the following provisions:
Annual rental payable at the end of each year 2,000,000
Lease term and useful life of machinery 5 years

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Cost of machinery 6,000,000
Residual value-unguaranteed 1,000,000
Implicit interest rate 12%
PV of an ordinary annuity of 1 for 5 periods at 12% 3.60
PV of 1 for 5 periods at 12%

What is the interest income for 2018?

A. 720,000 C.
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There is no transfer of title nor bargain purchase option.

864,000
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B. 795,600 D. 932,400

67. The following information is provided for GREEN CORP:

Common stock, P 10 par P 340,000
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Bonds payable 28,000

Additional paid-in capital from conversion of preferred stock into common 3,000
Retained earnings 100,000
Additional paid-in capital on preferred stock 10,000
Common stock subscribed 30,000
Unrealized capital 5,600
C

Premium on bonds payable 2,000

Preferred stock, 6%, P 100 par 80,000
What is the amount of contributed capital for GREEN CORP.?
A. P 430,000 C. P 463,000
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B. P 433,000 D. P 468,600

68. Under PAS 41, which of the following is not considered as an agricultural activity?
A. Aquaculture C. Ocean fishing
B. Perennial cropping D. None from the choices
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69. Which of the following events doesn’t require an adjustment to the current year’s financial
statements?
(1) A change in the estimate of warranty obligation due to changes in circumstances occurring after
the reporting period but did not exist as of the end of the reporting period.
(2) Errors discovered after the reporting period and after the financial statements are authorized for
issue.
A. Both 1 and 2 C. 2 only
B. 1 only D. Neither 1 nor 2

70. On April 1, 2018, WARRIORS CORP, purchased an office equipment for an invoice price of P150,000.
Such price is to be paid in 3 equal annual instalments every April 1 starting next year. The equipment
has a useful life of 10 years with no salvage value. The market rate of interest on April 1 is 12%.
What is the net amount to be presented on the statement of comprehensive income for the year
2018? (Round-off present value factors in 2 decimal places)
A. P10,800 D. P15,000
B. P26,400 E. Nil

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

 C. P19,800

- END OF EXAMINATION -

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