NATIONAL FEDERATION OF JUNIOR PHILIPINNE INSTITUTE OF ACCOUNTANTS –

NATIONAL CAPITAL REGION

FINANCIAL ACCOUNTING REPORTING (FAR)

1. Which choice correctly describes the following statements?

Statement I:If an entity cannot distinguish the research phase from the
development phase, it should treat an expenditure on a project as if it
were incurred in the research phase only and recognize an expense
accordingly.
Statement II:If it is difficult to distinguish between a change in
accounting estimate and a change in accounting policy, then the change
is treated as a change in estimate and must be accounted for currently
and prospectively.
Statement III:In rare circumstances, when a retirement benefit plan has
attributes of both defined benefit plan and defined contribution plan,
the plan is deemed as a defined contribution plan.
a. Only statement I is false
b. Only statement II is true
c. Only statement III is true
d. Only statement III is false

2. Which is the correct order of the following steps in the accounting

cycle?
Step 1: Preparation of financial statements
Step 2: Making closing entries in the general journal
Step 3: Posting transaction entries in the general ledger
Step 4: Making reversing entries in the general journal
a. 2,3,4,1
b. 3,1,2,4
c. 2,4,3,1
d. 3,1,4,2

3. Which of the following terms is NOT descriptive of SMEs?

a. Private entities
b. Listed companies
c. Small and medium-sized entities
d. Non-publicly accountable entities

4. What criterion is excluded in the definition of cash equivalents under

PAS 7?
a. Subject to an insignificant change in value
b. Short-term, highly liquid investments
c. Investment in high-quality instruments
d. Readily convertible to known amounts of cash

5. The following data pertaining to the cash transactions and bank account
of Squires Company for May 2017:

Cash balance, per accounting records, May 31, 2017 P171,940

Cash balance, per bank statement, May 31, 2017 319,480
Bank service charge for May 1,090
Debit memo for the cost of printed checks delivered by the
bank: the charged has not been recorded in the accounting
records 1,250
Outstanding checks, May 31, 2017 67,280
Deposit in May 30 not recorded by bank until June 1 48,800
Proceeds of bank loan on May 30, not recorded in the
accounting records 57,000
Check number 1008 issued to a supplier entered in the
accounting records as P21,000 but deducted in the bank
statement at an erroneous amount of 12,000
Stolen check lacking an authorized signature, deducted
from Squires account by the bank in error 8,000
Customer’s check returned by the bank marked NSF,
indicating that the customer’s balance was not adequate
to cover the check, no entry has been made in the accounting
records to record the returned check 7,600

What is the correct cash balance of Squire Company for the month ended
May 31, 2017?
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a. P291,150 c. P309,000
b. P300,000 d. P310,090

6. Which of the following is LEAST likely to be included in the cost of

inventory?
a. Freight In
b. Cost to store goods
c. Purchase cost of goods
d. Excise tax on goods purchased

7. The proprietor of Patrick Company, has apprehensions of possible pilferage

in merchandise inventory for December 31, 2017, he requested you to have
test checks based on available information and report to him your
findings. The following data were furnished to you:

12/31/16 12/31/17
Physical inventory, at cost P 450,000 P402,000
Sales, net 4,000,000
Cost of sales 2,400,000
Accounts receivable – trade 200,000 350,000
Accounts payable – trade 500,000 420,000

Additional information:
In 2017, accounts receivable of P20,000 was written-off. Total Sales
returns were P10,000 and purchase returns, P30,000. Cash receipts from
customers (after P30,000 discounts) totaled P6,000,000 while cash payments
to trade creditors amounted to P4,000,000.

Assuming gross profit rate in 2017 is the same as in 2016, what is the
amount of inventory shortage as of December 31, 2017?
a. P220,000 c. P248,000
b. P230,000 d. P252,000

8. Omega Finance granted a 10%, 2-year P5,000,000 loan to Duchess Company on

January 1, 2017. The interest is payable every December 31 for each year
during the term of the contract. Omega Finance incurred an origination
cost of P328,326 but charge Duchess Company P150,000 as origination fee.
The effective rate is now 8% after considering the origination costs and
origination fee. After paying the interest that is due on December 31,
2017, Duchess Company informed Omega Finance about their financial
difficulty. Omega Finance has now considered that the loan to Duchess
Company is now impaired. Reliable estimate shows that the projected cash
flows from the loan are as follows: P2,000,000 on December 31, 2018 and
P3,000,000 on December 31, 2019.

What amount of impairment loss on the loan should Omega Finance recognize
on December 31, 2017?
a. None c. P462,963
b. P373,371 d. P668,723

9. Marceline Company has the following information pertaining to its

biological assets for the year 2017:
A herd of 100, 2-year old animals was held at January 1, 2017. Ten
animals aged 2.5 years were purchased on July 1, 2017 for P5,400, and ten
animals were born on July 1, 2017. No animals were sold or disposed of
during the period. Per unit fair values less estimated point-of-sale
costs were as follows:

2.0-year old animal at January 1, 2017 P5,000

Newborn animal at July 1, 2017 3,500
2.5-year old animal at July 1, 2017 5,400
Newborn animal at December 31, 2017 3,600
0.5-year old animal at December 31, 2017 4,000
2.0-year old animal at December 31, 2017 5,250
2.5-year old animal at December 31, 2017 5,550
3.0-year old animal at December 31, 2017 6,000

What is the fair value of the biological assets as of December 31, 2017?

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a. P554,000 c. P700,000
b. P581,500 d. P735,000

10. Which of the following shall be treated as part of PPE (Property, Plant &
Equipment) according to PAS 38 on intangible assets?
a. Operating system
b. Application software
c. Digitally stored database
d. Outsourced online program

11. Margot Corporation has one of its many departments that perform machining
operations on parts that are sold to contractors. A group of machines
have an aggregate book value at the latest balance sheet date (December
31, 2017) totaling P369,000. It has been determined that this group of
machinery constitutes a cash generating unit for purposes of applying PAS
36. Upon analysis, the following facts about future expected cash
inflows and outflows become apparent based on the diminishing
productivity expected of the machinery as it ages, and the increasing
costs that will be incurred to generate output from the machines.

Costs, excluding PV of Discount

Year Revenues Depreciation Rate of 5%
2016 P225,000 P 84,000 .952
2017 240,000 126,000 .907
2018 195,000 165,000 .864
2019 60,000 45,000 .823
Total P720,000 P420,000

The fair value less cost to sell of the machinery in this cash-generating
unit is determined by reference to use machinery quotation sheets
obtained from a prominent dealer. After deducting disposition costs, the
net selling price is calculated as P253,500.

What is the amount of impairment loss to be recognized by Margot Company

on December 31, 2017?
a. P93,105 c. P101,255
b. P99,215 d. P115,500

12. For purposes of measuring impairment losses under PAS 36, which of the
following items shall be excluded in estimating future cash flows in
determining the value in use of an asset?
a. Cash inflows or outflows from financing activities or income tax
receipts or payments
b. Projections of cash inflows from the continuing use of the asset
c. Projections of cash outflows that are necessarily incurred to
generate the cash inflows from continuing use of the asset
d. Net cash flows to be received (or paid) for the disposal of the
asset at the end of its useful life

13. On January 2, 2002, Beige Company has completed the construction of a

building for a total cost of P15,000,000. The building is to be
depreciated on a straight-line basis over its estimated useful life of 50
years. On January 2, 2017, Beige converted the building into a
commercial establishment with only minor renovation costs incurred. In
consultation with an appraiser, the building’s sound value as of January
1, 2017 was P14,700,000. In January 1, 2018, due to sudden change in the
economic environment, Beige is evaluating possible impairment. Reliable
estimate revealed that the building has a remaining useful life of 10
years and will provide a total net cash inflow of P1,500,000 per year.
Implicit rate is 10%.
What is the amount of impairment loss, if any, on January 1, 2018?
a. none c. P 984,000
b. P948,000 d. P1,214,000

14. On January 2, 2016, Modern Company, a medium-sized entity, acquired all

the net assets of Ancient Ltd for P3,000,000. The identifiable net
assets of Ancient at the time of acquisition is P2,000,000. The net
identifiable net assets of Ancient had a remaining life of 10 years.

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Ancient Ltd is a cash-generating-unit. On December 31, 2016, the
recoverable amount of Ancient Ltd was P1,360,000.

In year 2017, the business situation improves in the country and

government policies change. As a result, management re-estimates the
recoverable amount of Ancient Ltd. At the end of year 2017, the
recoverable amount of Ancient Ltd is P1,910,000. Beginning of year 2017,
Modern Company had decided to change it s depreciation rate to 10% per
annum on carrying value of the net identifiable assets.

What amount of impairment recovery should Modern Company report in its

2017 profit or loss?
a. None c. P440,000
b. P396,000 d. P686,000

15. Research and development cost for Headway Corporation for the year ended
December 31, 2017:

Project A. Expected total revenues P7,000,000, starting in early 2019.

Expected total costs will be P5,000,000. Costs incurred to date, all in
2017, are P2,200,000.
Project B. Expected total revenues P6,000,000. Costs incurred to date
are P3,500,000. Expected total costs are P4,500,000. The commencement
of commercial sales is uncertain due to problems in raising funds to
cover the final development costs.
Project C. Expected total revenues, P3,500,000 with P1,000,000 of
revenue already earned in 2017. Total development costs incurred, all
in 2017, were P3,800,000.
Research projects. Total costs spend in 2017 were P1,500,000.
What total amount should be charged against income in 2017 related to
the research and development costs?
a. 1,500,000 c. 5,300,000
b. 5,000,000 d. 6,300,000

16. Vital Company is engaged in the retail sale of high-definition

televisions (HDTVs). Each HDTV has a 24-month warranty on parts. If a
repair under a warranty is required, a charge for the labor is made.
Management has found that 20% of the HDTVs sold require some work before
the warranty expires. Furthermore, the average cost of replacement
parts has been P1,200 per repair. At the beginning of January, the
account for the estimated liability for product warranties had a credit
balance of P286,000. During January, 112 HDTVs were returned under the
warranty. The cost of the parts used in repairing the HDTVs was
P175,300 and P188,840 was collected as service revenue for the labor
involved. During January 2017, the month before the Super Bowl, Vital
Company sold 450 new HDTVS.

What is the balance of the warranty liability as of January 31, 2017?

a. P175,300 c. P218,700
b. P208,700 d. P286,000

17. Any loss incurred from the sale of treasury shares shall be charged to
a. Share premium from original issuance, share premium from treasury
shares and then retained earnings.
b. Loss on sale of treasury shares to be reported as other expense
c. Retained earnings and then share premium from treasury shares
d. Share premium from treasury shares and then retained earnings.

18. Salvation Corporation had two (2) issues of securities outstanding –

ordinary share and an 8% convertible bond issue with a face amount of
P16,000,000. Interest payment dates of the bond issue are June 30 and
December 31. The conversion clause in the bond indenture entitles the
bondholders to receive forty (40) shares of P20 par value ordinary share
in exchange for each P1,000 bond. On June 30, 2017, the holders of
P2,400,000 face value bonds exercised the conversion privilege. The
equity component of the convertible debt at the time of issue is
P950,000. The market price of the bonds on that date was P1,100 and

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the market price of the ordinary share was P35. The total unamortized
bond discount at the date of conversion was P1,000,000.
In applying the book value method, what amount should Salvation credit
to the “Share Premium in Excess of Par” account as a result of this
conversion?
a. P160,000 c. P 472,500
b. P330,000 d. P1,440,000

19. Jason Company has taken out a foreign loan of $100,000 that is recorded
at P4,400,000. At the reporting date, the carrying value of the loan is
P4,000,000. The unrealized exchange gain of P400,000 is included in
profit or loss, but will be taxable when the gain is realized on the
repayment of the loan.

If the current and future tax rates are 34% and 35% respectively, what
amount of deferred tax asset should the company recognize?
a. None c. P140,000
b. P136,000 d. P276,000

20. Dividends in the form of noncash assets are measured at

a. Fair value of the assets distributed
b. Carrying amount of the assets distributed
c. Either the carrying amount or fair value of the assets distributed
d. Neither the carrying amount nor fair value of the assets distributed

21. On December 31, 2016, the shareholders’ equity section of Marvel

Company’s balance sheet appeared as follows:
Contributed capital:
Common stock, P8 par value, 200,000 shares authorized issued and
Outstanding 60,000 shares P 480,000
Additional paid in capital 1,280,000
Total P1,760,000
Retained earnings 824,000
Total P2,584,000

The following are selected transactions involving stockholders’ equity

in 2017:

On January 4, 2017 the board of directors obtained authorization for

20,000 shares of P40 par value non-cumulative preferred stock (that
carried an indicated dividend rate of P4 per share and was callable at
P42 per share. On January 14, the company sold 12,000 shares of
preferred stock at P40 per share and issued another 2,000 in exchange
for an equipment valued at P80,000. On March 8, the board of directors
declared a 2 for 1 split on the common stock. On April 20, after the
stock split, the company purchased 3,000 shares of common stock for the
treasury at an average price of P12 per share, 1,000 of these shares
subsequently were sold on May 4 at an average price of P16 per share. On
July 15, the board of directors declared a cash dividend of P4 per share
on the preferred stock and P.40 on common shares. The date of record
was July 25 and the dividends were paid on August 15. The board of
directors declared a 15% stock dividend on November 28 when the common
stock was selling for P20 per share. The date of record was on December
15 and dividend was to be distributed on January 5, 2018. Net loss for
the year, P218,000.

What is the balance of the stockholders’ equity of Marvel Company as of

December 31, 2017?
a. P2,720,800 c. P2,802,800
b. P2,780,800 d. P2,820,800

22. For equity-settled share-based payment transactions, the entity shall

measure the goods or services received and the corresponding increase in
equity:
Statement I: Directly at fair value of the goods or service received
Statement II: Indirectly, by reference to the fair value of the equity instruments
granted, if the fair value of the goods or services received cannot be estimated reliably
a. Only statement I is true

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b. Only statement II is true
c. Both statements I and II are true
d. Neither of the statements is true

23. Derby Company, a public limited company, has granted share options to its
employees with a fair value of P12,000,000. The options vest in three
years’ time. The company uses the fair value model to estimate the fair
value of the options, the number of employees that will vest and the
revision of estimates such as the following:
 Grant date – January 1, 2016, estimate of employees leaving the
company during the vesting period – 5%.
 Revision of estimate – January 1, 2017 – estimate of employees
leaving the company during the vesting period – 6%.
 Actual number of employees leaving the company - December 31,
2018 – 5%.
 What would be the amount of expense charged in the income
statement for the year ended Dec. 31, 2018?
a. P3,760,000 c. P3,880,000
b. P3,800,000 d. P4,000,000

24. The classification of a share-based payment has an impact on its measurement. What are
the classifications for share-based payment transactions under PFRS 2?
a. Vested, not vested
b. Entity-settled and group settled
c. Equity-settled, cash-settled and share option-settled
d. Equity-settled, cash-settled, share based payment transactions
with a settlement choice

25. Roberts Company, a public limited company, has granted 20 share

appreciation rights to each of its 500 employees on January 1, 2016. The
rights are due to vest on December 31, 2019, with payment being made on
December 31, 2020. Assume that 80% of the awards vest. Share prices are
as follows: January 1, 2016, P15; December 31, 2016, P18; December 31,
2019, P21; December 31, 2020, P19.

How should the settlement of the transaction be accounted for on December

31, 2020?
a. payment to employees of P32,000; no gain recorded
b. payment to employees of P16,000, gain of P33,000 is recorded
c. payment to employees of P48,000, no gain recorded
d. payment to employees of P32,000, gain of 16,000 is recorded

26. Cruiser Company reported net income of P3,000,000 for year 2017. During
2017, Cruiser Company sold equipment costing P250,000 with accumulated
depreciation of P120,000 for a gain of P50,000. In December 2017, the
company purchased equipment costing P500,000 with cash and 12% note
payable of P300,000. Depreciation expense for the year was P520,000.
Changes occurred in several balance sheet accounts as follows:

Equipment P250,000 increase

Accumulated depreciation 400,000 increase
Note payable 300,000 increase

In Cruiser’s 2017 statement of cash flows, net cash used in investing

activities should be
a. P 20,000 c. P220,000
b. P120,000 d. P350,000

27. Island Company owes P2,000,000 plus P180,000 of accrued interest to

First State Bank. The debt is a 10-year, 10% note. During 2014,
Island's business deteriorated due to a faltering regional economy. On
December 31, 2017, First State Bank agrees to accept an old machine and
cancel the entire debt. The machine has a cost of P3,900,000,
accumulated depreciation of P2,210,000, and a fair market value of
P1,900,000.

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How much should Island Company recognize as a finance income in its
profit or loss as a result of the financial liability’s derecognition?
a. P210,000 c. P310,000
b. P280,000 d. P490,000

28. Silver Company purchased a plot of land with a building at a cost of

P10,000,000 in 2015. The land portion accounted for P2,000,000 of the
purchase price. The building is depreciated on a straight-line basis
over 50 years, charging a full year’s depreciation in the year of
acquisition and none in the year of disposal. On January 2, 2017, the
land and building was revalued upward. An independent professional
valuer placed a valuation of P18,000,000 on the existing use basis, of
which P4,000,000 was attributable to the land portion. The surplus was
incorporated in the accounts.

What is the total amount of revaluation surplus should the company

recognize on January 2, 2017?
a. P2,000,0000 c. P6,320,000
b. P4,000,000 d. P8,320,000

29. Which of the following is NOT an example of a derivative financial

instrument?
a. A forward exchange contract
b. A commercial bill contract
c. A futures contract
d. An option contract

30. To encourage entities to expand their operations in a specified

development zone, where it is difficult for entities to obtain financing
for their projects, the government provides interest-free loans to fund
the purchase of manufacturing equipment. On January 1, 2015, in
accordance with the development scheme, an entity receives an interest-
free loan from the government for P5,000,000 for a period of three years.
The market rate of interest for similar loans is 5% per year (ie the
market rate of interest for a similar three-year loan to the entity).
There are no future performance conditions attached to the interest-free
loan.

What amount should be included immediately in the profit or loss on

January 1. 2015?
a. None c. P464,853
b. P238,095 d. P680,815

31. A herd of 5 four year old animals was held on 1 January 2017. On 1 July
2017 a 4½ year old animal was purchased. The fair values less estimated
point of sale costs were as follows: 4 year old animal at 1 January 2017
P15,000; 4½ year old animal at 1 July 2017 P15,900; 5 year old animal at
31 December 2017 P17,250. What amount should the company recognize in
its December 31, 2017 statement of comprehensive income related to the
animals as a result of the change in their fair market value?
a. P10,000 c. P15,900
b. P12,600 d. P28,500

32. If the price of the underlying is greater than the strike or exercise price of the underlying, the call
option is
a. At the money
b. In the money
c. On the money
d. Out of the money

33. At the inception of the lease contract, the lease term is determined to
be equivalent to 55% of the economic life of the leased property If the
lease contract contains a bargain purchase option, the lessee should
record the lease as
a. Neither asset nor liability
b. Asset but not liability
c. Asset and liability
d. Expense

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34. The Minor Company leased a freehold building for 20 years, the useful
life of the building, with effect from 1 January 2017. At that date the
fair value of the leasehold interest was P7.5 million of which P6.0
million was attributable to the building. Annual rentals of P800,000 are
payable in advance on 1January.

How much should Minor recognize as an operating lease expense in the

year ended 31 December 2017, according to IAS17 Leases?
a. Nil c. P640,000
b. P160,000 d. P800,000

35. What item appears first on the statement of cash flows prepared using
the direct method?
a. Net income
b. Depreciation
c. Retained earnings
d. Cash receipts from customers

36. Extracts from the draft financial statements of Delta for the year ended
31 December 2017, are set out below:

Statement of comprehensive income

Revenue P250,000
Cost of sales Opening inventories P30,000
Purchases 218,000
Closing inventories (52,000) (196,000)
Gross profit 54,000
Other operating expenses (all cash costs except
for depreciation of P11,000) (21,600)
Profit from operations 32,400

Statement of financial position extracts 31 Dec 2017 31 Dec 2016

Trade receivables 68,000 23,000
Trade payables 21,600 42,800

What is the cash from operations for Delta for the year ended 31
December 2017 using the direct method?
a. P22,500 net outflow c. P40,400 net outflow
b. P38,600 net outflow d. P44,800 net outflow

37. Cross Company holds a portfolio of receivables with carrying amount of

P2,000,000. The company enters into a factoring arrangement with
Finance Company under which it transfers the portfolio via an assignment
to Finance Company in exchange for P1,800,000 of cash. All sums
collected from debtors are paid by Cross Company to a specifically
nominated bank account opened by Finance Company. Cross Company agrees
to reimburse Finance Company in cash for any shortfall between the
amount collected from the receivable and consideration received of
P1,800,000. Once the receivables have been repaid, any sums collected
above P1,800,000 less any interest on the initial payment the date the
debtors pay, will be paid to Cross Company.

What amount of receivable should Cross Company continue to recognize

immediately after the transfer?
a. none c. P1,800,000
b. P200,000 d. P2,000,000

38. Seadrill Engineering licensed software to oil-drilling firms for 5

years. In addition to providing the software, the company also provides
consulting services and support to ensure smooth operation of the
software. The total transaction price is P350,000. Based on standalone
values, the company estimates the consulting services and support have a
value of P100,000 and the software license has a value of P250,000.

Assuming the performance obligations are not interdependent, the journal

entry to record the transaction includes
a. a credit to Sales Revenue for P250,000 and a credit to Unearned
Service Revenue of P100,000.

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b. a credit to Service Revenue of P100,000.
c. a credit to Unearned Service Revenue of P100,000.
d. a credit to Sales Revenue of P350,000.

39. On January 2, 2014, Star Company originates a 10-year 7% P4,000,000.

The loan carries an annual interest rate of 7% and is repayable at par
at the end of year 10 (December 31, 2023). Star Company charges a 1.25%
(P50,000) non-refundable loan origination fee to the borrower and also
incurs P100,000 in direct origination costs. The contract specifies
that the borrower has an option to pre-pay the instrument at
approximately equal to instrument’s amortized cost at each exercise
date, and that no penalty will be charged for pre-payment. But at the
inception of the contract, Star Company expects the borrower not to pre-
pay, the amortization period is equal to the instrument’s full term and
for that reason the effective yield rate is determined at 6.823%.

What is the amortized cost of the instrument on December 31, 2015?

a. P4,050,000 c. P4,042,413
b. P4,046,331 d. P4,038,288

40. The following statements are based on PAS 28 (Investment in Associates):

Statement I: An investment in an associate shall be accounted for using
the equity method (benchmark) or cost method (alternative).
Statement II: An investor shall discontinue the use of equity method
from the date when it ceases to have significant influence over an
associate and shall account for the investment in accordance with PAS
39.
Statement III: On the loss of significant influence, the investor shall measure at
historical cost any investment the investor retains in the former associate.
a. Only statement I is false
b. Only statement II is true
c. Only statement III is true
d. All of the statements are false

41. On May 1, 2014, Golden Company purchased a short-term P4,000,000 face

value 9% debt instruments for P3,720,000 excluding the accrued interest
and classified it as a investment to profit or loss which is based on the
business model of the entity to buy and sell portfolio of securities and
to make profit for shorter movements in the market rate of interest.
Golden Company incurred and paid P20,000 transaction cost related to the
acquisition of the instrument. The debt instruments mature on January
1, 2017, and pay interest semi-annually on January 1 and July 1. On
December 31, the fair market value of the instruments is P3,880,000 On
February 2, 2015, Graham Company sold the debt security for P3,960,000.

What amount should Golden Company report for short-term debt securities
on December 31, 2014?
a. P3,600,000 c. P3,880,000
b. P3,720,000 d. P3,960,000

42. On January 2, 2014, Marco Company purchased 200,000 shares (20%) of Polo
Company’s ordinary share for P4,500,000. During 2014, Polo reported the
following in its statement of comprehensive income a P4,000,000 net
income and a P500,000 unrealized gain from its investment in available
for sale. Polo Company paid cash dividends of P3,000,000 on December
31, 2014. On January 1, 2015, Marco Company sold 50,000 shares of Polo
Company at the current market value of Polo’s shares at P32 per share.

What amount of gain should Marco Company recognize from the sale of
50,000 shares?
a. P400,000 c. P450,000
b. P425,000 d. P500,000

43. Which of the following items is an example of investment property?

a. Property that is leased to another entity under a finance lease
b. Property that is being constructed or developed on behalf of
third parties

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c. Property that is being constructed or developed for future use as
investment property
d. Property held for short-term sale in the ordinary course of
business

44. On January 2, 2014, Haven Corporation acquired a track of land that is

to be sold in the ordinary conduct of business. The purchase price of
the property of P50,000,000 was paid in cash and a total transaction
costs of P500,000 related to the acquisition of the property was also
paid at a later date. The land was subdivided into 2,000 lots (200
square meters for every lot) for an additional cost of P5,500,000. On
December 31, 2014, the market value of the lot was P1,500 per square
meter.

As of December 31, 20151, only 20,000 square meters are still unsold and
market value of the lot had increased to P1,600 per square meter. On
this date, Haven Corporation decided to transfer the remaining lots into
investment property that is to be carried under the fair value model.
There was no additional cost incurred on the change of intention on the
property.

What amount of gain should Haven Corporation recognize as a result of

the transfer?
a. P29,200,000 c. P29,475,000
b. P29,225,000 d. P29,500,000

45. Man Company purchased 10% of Kind Corporation’s 200,000 outstanding

shares of ordinary shares on January 2, 2014 for P2,500,000. On January
2, 2014, Man Company purchased another 40,000 shares of Kind for
P6,000,000. There was no goodwill as a result of either acquisition Kind
reported earnings of P6,000,000 and P7,000,000 for the year ended
December 31, 2014 and December 31, 2015, respectively. No dividends were
declared in years 2014 and 2015, respectively by Kind Company.

What amount of income from investment should Man Company report in its
statement of comprehensive income related to its investment for the year
ended December 31, 2015?
a. none c. P1,400,000
b. P600,000 d. P2,100,000

46. At Dec. 31, 2014, Proof Company had 450,000 shares of ordinary shares
outstanding. On September 1, 2011, an additional 150,000 shares of
ordinary shares were issued. In addition, Proof had P10,000,000 of 6%
convertible bonds outstanding at December 31, 2014 which are convertible
into 300,000 shares of ordinary shares. The carrying value of the bonds
as of December 31, 2014 and based on a rate of 8% is P9,205,800. No
bonds were converted into ordinary shares in 2011. The net income for
the year ended December 31, 2015 was P3,750,000.

Assuming the income tax rate was 32%, what should be the diluted earnings
per share for the year ended Dec. 31, 2015 of Proof Company?
a. P5.20 c. P5.44
b. P5.31 d. P7.50

47. On January 2, 2011, Brand Company received a grant of P60,000,000 to

compensate it for costs it incurred in planting trees over a period of
five years. Brand Company will incur such cost in this manner:

Years 2011 2012 2013 2014 2015

Costs P2,000,000 P4,000,000 P6,000,000 P8,000,000 P10,000,000

Actual costs incurred in planting the trees showed P2,000,000 and

P4,000,000 in years 2011 and 2012, respectively. However, in 2013 and up
to year 2014, the company has stopped planting trees.

Due to the non-fulfillment of its obligation, the government is demanding

an immediate repayment of the grant in the amount of P50,000,000 which is
considered reasonable.

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What amount should be recognized as an expense related to the repayment
of grant?
a. None c. P44,000,000
b. P2,000,000 d. P50,000,000

48. In 2014, a typhoon completely destroyed a building belonging to Carpet

Corporation. The building cost P2,500,000 and had accumulated
depreciation of P1,200,000 at the time of the loss. Carpet received a
cash settlement from the insurance company and reported a loss of
P525,000. In Carpet’s 2014 cash flow statement, how much would be the
net changes that would be reported in the cash flows from investing
activities section?
a. P250,000 increase c. P775,000 increase
b. P525,000 increase d. P1,300,000 increase

49. Monk Company is experiencing financial difficulty and is negotiating

trouble debt restructuring with its creditors to relieve its financial
stress. Monk has a P3,000,000 note payable to Megabank. The bank is
considering acceptance of an equity interest in Monk Company in the form
of 200,000 ordinary shares valued at P12 per share. The par value of
the ordinary share is P10 per share. Monkey Company incurred total
transaction costs of P80,000 related to the issue of shares.

What is the amount of share premium to be reported by Monk in its

statement of financial position as a result of the restructuring
assuming the issue of equity is a conversion of debt?
a. None c. P 920,000
b. P200,000 d. P1,000,000

50. Dweller Inc. incurred P500,000 of capitalizable costs to develop computer

software during 2015. The software will earn total revenues over its 4-
year life as follows: 2015 - P400,000; 2016 - P500,000; 2017 - P600,000;
and 2018 - P500,000.

What amount of the computer software costs should be expensed in 2015?

a. P100,000 c. P175,000
b. P125,000 d. P500,000

51. Podium Company has incurred P200,000 of research expenditure on a project

to develop a new type of fuel and has expensed these costs. On January
2, 2014, Portal Company purchases the research project, including certain
patents that have been registered by Podium Company for P300,000 and
recognizes the costs as and intangible asset. Subsequently, Portal
Company incurred P400,000 of expenditure on completing the research phase
and decides to develop the product commercially. It incurs a further
cost of P600,000 in bringing the product to a stage where the conditions
for recognizing development costs of an internally generated intangible
asset are met. Further costs of P2,000,000 are incurred in bringing the
product into a condition where it is ready for use in the manner the
management intend. Initial marketing costs and losses are incurred of
P400,000 before the product was successfully launched.

What total amount should Portal Company recognize as an asset related to

the above costs?
a. P 300,000 c. P2,700,000
b. P2,300,000 d. P3,300,000

52. On January 2, 2015, Chronic Company is committed to a plan to sell a

manufacturing facility and has initiated actions to locate a buyer.
Chronic Company does not intend to transfer the facility to a buyer
until after it ceases all operations of the facility and eliminates the
backlog of uncompleted customer orders. The facility was constructed
for a total cost of P6,300,000. Its estimated useful life was for a
period of 30 years and with an estimated salvage value of P300,000. As
of January 2, 2015, the carrying value of the facility is P4,300,000 and
a recoverable value of P4,500,000. As of December 31, 2015, Chronic
Company has yet to complete the customers’ orders and the facility has a
recoverable amount of P4,275,000.

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On December 31, 2015, Chronic Company should classify the facility as

a. Property, plant & equipment valued at P4,300,000
b. Property, plant and equipment at P4,100,000
c. Non-current asset held for sale and valued at P4,500,000
d. Non-current asset held for disposal and valued at P4,275,000

53. Nestle Corporation, one of the largest mining company, paid P20,000,000
to the local government for the right explore and extract mineral
reserves in an area of interest. The following costs were also incurred
related to the exploration and evaluation activities of the entity:
Total exploration costs, P7,000,000 and evaluation costs of P3,000,000.
Results of the study revealed that the total estimated mineral reserves
is 10,000,000 tons. Nestle Company started its commercial production in
year 2014. The company produced 1,200,000 tons in 2014.

What is the amount of amortization/depletion on the capitalized

intangible exploration and evaluation cost for the year 2014?
a. P2,000,000 c. P3,240,000
b. P2,760,000 d. P3,600,000

54. Barton, Inc. received the following information from its pension plan
trustee concerning the operation of the company's defined-benefit pension
plan for the year ended December 31, 2016.
January 1, 2016 December 31, 2016
Fair value of pension plan assets P4,200,000 P4,500,000
Defined benefit obligation 4,800,000 5,160,000
Accumulated OCI—Net Gain / Loss -0- (90,000)
The service cost component of pension expense for 2016 is P360,000 and
the past service cost due to an increase in benefits is P60,000. The
discount rate is 10%. What is the amount of pension expense for 2016?
a. P360,000 c. P480,000
b. P432,000 d. P531,000

55. At the end of the current year, Kennedy Co. has a defined benefit
obligation of P335,000 and pension plan assets with a fair value of
P245,000. The amount of the vested benefits for the plan is P225,000.
Kennedy has an accumulated actuarial gain of P8,300. What account and
amount related to its pension plan will be reported on the company’s
statement of financial position?
a. Pension liability of P74,300 c. Pension asset of P233,300
b. Pension liability of P90,000 d. Pension asset of P110,000

56. When a change in the tax rate is enacted into law, its effect on existing
deferred income tax accounts should be
a. handled retroactively in accordance with the guidance related to
changes in accounting standards.
b. considered, but it should only be recorded in the accounts if it
reduces a deferred tax liability or increases a deferred tax asset.
c. reported as an adjustment to tax expense in the period of change.
d. applied to all temporary or permanent differences that arise prior to
the date of the enactment of the tax rate change, but not subsequent
to the date of the change.

57.Lehman Corporation purchased a machine on January 2, 2013, for P2,000,000.

The machine has an estimated 5-year life with no residual value. The
straight-line method of depreciation is being used for financial
statement purposes and the following accelerated depreciation amounts
will be deducted for tax purposes:
2013 P400,000 2016 P230,000
2014 640,000 2017 230,000
2015 384,000 2018 116,000
Assuming an income tax rate of 30% for all years, the net deferred tax
liability that should be reflected on Lehman's statement of financial
position at December 31, 2014, should be
Deferred Tax Liability
Current Noncurrent

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a. P0 P72,000
b. P4,800 P67,200
c. P67,200 P4,800
d. P72,000 P0

58. Statement III: Deferred tax assets and liabilities shall be measured at the tax rates that are
expected to apply to the period when the asset is realized or the liability is settled, based on
tax rates (and tax laws) that have been enacted or substantively enacted by the end of the
reporting period.
a. Only statement I is false
b. Only statement II is false
c. Only statement III is false
d. None of the statements is false

59. Which of the following is the proper way to report a contingent asset
when its realization is virtually certain?
a. As an asset
b. Disclose only
c. As unearned revenue
d. Research and development

60. Which of the following is not listed under the “faithful representation”
characteristic of financial information based on the Conceptual Framework
of Financial Reporting?
a. Prudence
b. Neutrality
c. Completeness
d. Freedom from error

61. Determine the true statement regarding IFRS when referred collectively.
a. The term “IAS” generally covers “IFRS”
b. The term “IFRS” generally covers “IAS”
c. The term “IAS” generally covers “IFRIC”
d. The term “IFRIC” generally covers “IFRS”

62. The investor’s interest income for a period would be lowest if the bonds is purchased at
a. In between interest payment dates
b. At the face value of the bonds
c. A discount
d. A premium

63. Other than financial liabilities measured at fair value through profit
or loss, how are financial liabilities subsequently measured under PFRS?
a. Fair value if acceptable to the entity.
b. Amortized cost using the effective interest rate method.
c. Amortized cost using the stated interest rate of the debt.
d. The amount of undiscounted cash that would be required to settle
the obligation at the end of the reporting period.

64. For small and medium entities, “SIRE” may under certain conditions
replace which two (2) financial statements?
a. Balance Sheet and Income Statement
b. Balance Sheet and Statement of Comprehensive Income
c. Income Statement and Statement of Changes in Equity
d. Statement of Comprehensive Income and Statement of Changes in
Equity

65. Under PAS 7, interest payments can be classified as part of either

a. Investing or financing activities
b. Operating or investing activities
c. Operating or financing activities
d. Operating, investing or financing activities

66. The component of defined benefit cost include all of the following,EXCEPT:

a. Service cost
b. Net interest

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c. Remeasurements
d. Plan contributions

67. Earnings per share disclosures are required only for

a. Public entities
b. Private entities
c. Entities with complex capital structure
d. Entities that change their capital structure during the reporting
period

68. The failure to record an accrued expense at year-end will result in

overstatement errors of
Net income Working capital Cash
a. No No Yes
b. No Yes No
c. Yes No No
d. Yes Yes No

69. An entity received an advanced payment for special order goods that are to be
manufactured and delivered within six months. The advanced payment is reported in the
statement of financial position as
a. Deferred charges
b. Current liability
c. Contra asset account
d. Noncurrent liability

70. Which of the following is NOT a description or a function of the Financial Reporting
Standards Council (FRSC)?
a. It establishes generally accepted accounting principles in the
Philippines.
b. It assists the Professional Regulatory Board of Accountancy
(BoA) in carrying out its power and function to promulgate
accounting standards in the Philippines.
c. It is the successor of Accounting Standards Council (ASC) and the
creator of Philippine Interpretations Committee (PIC).
d. It receives financial support principally from the Professional
Regulations Commission (PRC).

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