FINANCIAL ACCOUNTING & REPORTING

MABALACAT CITY COLLEGE

1. According to PAS1, Presentation of financial statements, the notes within the financial statements contain information
in addition to that presented in which two of the following?
I. Report on sustainability
II. Statement of financial position
III. Chairman's statement
IV. Statement of comprehensive income
a. I and II c. III and IV
b. I and III d. II and IV

2. Which of the following may be described as “flow” statement and reflect summarized results of transactions over a
period of time?
I. Statement of Financial Position
II. Statement of Comprehensive Income
III. Statement of Cash Flows
IV. Statement of Changes In Equity
a. III only c. III and IV only
b. II, III and IV d. I, II, III and IV

3. At a minimum, based on PAS 1, the face of the Statement of Financial Position shall include presentation of
a. Owner-occupied property
b. Investment property
c. Agricultural produce
d. Exploration and Evaluation assets

4. Which of the following must be included on the face of the Statement of Financial Position?
a. Intangible assets
b. Number of shares authorized
c. Contingent liability
d. Shares in an entity held by that entity

5. In a properly classified balance sheet, deferred taxes shall not be classified as

a. Current asset c. Non-current liability
b. Non-current asset d. Current

6. Are the following statements true or false, according to PAS1 Presentation of financial statements?
(1) Biological assets should be shown in the statement of financial position.
(2) The number of shares authorized for issue should be shown in the statement of financial position or the
statement of changes in equity or in the notes.
Statement 1 Statement 2
a. False True
b. True True
c. False False
d. True False

7. In a consolidated statement of financial position, the non-controlling interest is shown:

a. separately within the non-current liabilities;
b. separately within the non-current investments;
c. separately within the equity section;
d. as part of the total current liabilities of the group.

8. A liability shall be classified as a current liability when it satisfies any of the following criteria, except
a. It is expected to be settled in the entity’s normal operating cycle
b. It is primarily held for the purpose of being traded
c. It is due to be settled within fifteen months after the balance sheet date
d. The entity does not have an unconditional right to defer settlement of the liability for at least twelve months after
the balance sheet date.

9. Are the following statements true or false, according to PAS 1 Presentation of Financial Statement?
(1) An entity presenting a single Statement of comprehensive income should present a Statement of changes in
equity
(2) An entity presenting a separate Income statement and a Statement of comprehensive should present a
Statement of changes in equity.
Statement (1) Statement (2)
a. False false
b. False true
c. true false
d. true true
10. Inventories are assets (choose the incorrect one)
a. Held for sale in the ordinary course of business.
b. In the process of production for sale.
c. In the form of materials or supplies to be consumed in the production process or in the rendering of services.
d. Held for use in the production or supply of goods and services.

11. Under PAS 2, Inventories, which of the following costs would generally be excluded from the cost of inventory?
a. freight in
b. import duties
c. storage and warehousing costs
d. insurance while goods are in transit

12. Which of the following would not be reflected in the statement of comprehensive income?
a. An ordinary loss
b. Cumulative effect of a change in depreciation methods
c. Discontinued operations
d. Correction of an error in previously issued financial statements

13. Which of the following is not required to be presented on the income statement under PAS 1?
a. Revenue. c. Finance costs.
b. Other gains/losses. d. Tax expense.

14. Under PAS 1, Presentation of Financial Statements, which of the following is not required to be presented on the face
of the income statement?
a. Profit or loss
b. Tax expense
c. Finance costs
d. Income from ordinary activities

15. Which of the following would be reported on the Statement of Comprehensive Income?
a. Finance costs
b. Minority interest
c. Income tax payable
d. Correction of prior period error
16. A complete set of financial statements includes the following, except:
a. Statement of Financial Position
b. Statement of Comprehensive Income
c. Statement of Cash flows
d. Statement of retained earnings

17. Which of the following must be included on the face of the Statement of Financial Position?
a. Investment Property
b. Number of shares authorized
c. Contingent liability
d. Shares in an entity held by that entity

18. Which of the following losses are recognized in other comprehensive income?
a. losses from discontinued operations.
b. losses arising on translating the financial statements of a foreign operation.
c. losses on the revaluation of property, plant and equipment.
d. losses that management considers extraordinary items.

19. They show the results of management’s stewardship of the resources entrusted to it
a. financial statements
b. balance sheet
c. income statement
d. statement of cash flows

20. What is the objective of financial statements according to PAS 1?

a. To provide information about the financial position, performance, and cash flows of an entity that is useful to a
wide range of users in making economic decisions.
b. To prepare and present a balance sheet, an income statement, a cash flow statement, and a statement of
changes in equity
c. To prepare and present comparable, relevant, reliable, and understandable information to investors and creditors
d. To prepare financial statements in accordance with all applicable Standards and Interpretations

21. Which of the following must be included on the face of the Statement of Financial Position?
a. Contingent asset
b. Property, plant and equipment analyzed by class
c. Share capital and reserves analyzed by class
d. Deferred tax

22. In accordance with PAS 1, an entity must present additional line items in a statement of financial position when:
a. such presentation is relevant to an understanding of the entity’s financial position.
b. such presentation is a generally accepted practice in the sector in which the entity operates.
 c. such presentation is required by the tax authorities of the jurisdiction in which the entity operates.
d. all of the above

23. An asset shall be classified as current asset when it satisfies any of the following criteria, except
a. It is expected to be realized or held for sale or consumption in the normal course of the entity’s normal operating
cycle.
b. It is held primarily for the purpose of being traded
c. It is expected to be realized within twelve months after the end of the reporting period
d. It is cash or cash equivalent that is restricted from being exchanged or used to settle a liability for at least twelve
months after the end of the reporting period

24. The following costs are not included in the carrying amount of an item of property, plant and equipment, except
a. costs incurred while an item capable of operating in the manner intended by management has yet to be brought
into use or is operated at less than full capacity;
b. initial operating losses, such as those incurred while demand for the item’s output builds up
c. costs of relocating or reorganizing part or all of an entity’s operations
d. initial delivery and handling costs

25. Investment property includes

a. Property being constructed or developed on behalf of third parties.
b. Property that is being redeveloped for continuing use as owner-occupied property.
c. Property that is being constructed or developed for future use as an investment property.
d. Property leased to another entity under a finance lease.

26. The information provided below is for an item in Harris Corporation’s inventory at year-end.

Historical cost 125,000

Estimated selling price 150,000
Estimated completion cost 10,000
Sale’s agent commission 20% of selling price
Transportation cost to customer 5,000
Replacement cost 130,000

What should be the value of this inventory item in the company’s financial statements?
a. P130,000 c. P110,000
b. P125,000 d. P105,000

Use the following information for next two questions.

In 2014, A farmer purchased a vineyard at P200,000, which approximates its fair value less costs to sell at that time. At
December 31, 2014, the vineyard is valued at P365,000 (fair value less costs to sell). At December 31, 2015, the value
of the vines has not improved, but the vines has grapes on it worth P85,000. On June 30, 2016, the farmer harvests, at
a cost of P3,000, the grapes, at which stage the grapes are valued at P115,000 (fair value less costs to sell). The farmer
incurred costs of growing and cultivating the vineyard (e.g., fertilizer, water, etc.) amounting to P15,000, P10,000 and
P5,000 in the years 2014, 2015, and 2016, respectively.

On December 31, 2016, the farmer also incurs P40,000 direct costs in processing the grapes into barrels of wine to be
ready for sale to its customers.

27. The net amount to be recognized in 2016 profit or loss is

a. P107,000 c. P22,000
b. P 67,000 d. (P18,000)

28. The carrying amount of inventories of wine as of December 31, 2016 is

a. P155,000 c. P85,000
b. P125,000 d. P70,000

29. The following pertains to the biological assets owned by Pag-ibig Farms, Inc.:
Carrying amount at 1 January 2016 P919,140
Purchases 52,500
Gain arising from changes in fair value
less estimated costs to sell attributable 30,700
to physical changes
Gain arising from changes in fair value
less estimated costs to sell attributable 49,160
to price changes
Sales 201,400

The carrying amount of the biological assets on December 31, 2016 is

a. P850,100 c. P1,051,500
b. P999,000 d. P 902,600
30. Belle Co. determined after four years that the estimated useful life of its labeling machine should be 10 years rather
than 12 years. The machine originally cost P46,000 and had an estimated salvage value of P1,000. Belle uses
straight-line depreciation. What amount should Belle report as depreciation expense for the current year?
a. P3,200 c. P4,500
b. P3,750 d. P5,000
31. Trixie Company acquired a welding machine with an invoice price of P3,000,000 subject to a cash discount of 5%
which was not taken. Trixie incurred freight and insurance during shipment of P50,000 and testing and installation
cost of P200,000. However, Trixie incurred storage cost of P5,000 due to delay in installation caused by employees
strike at the plant . Trixie also incurred cost of P20,000 in removing the old welding machine prior to the installation
of the new one. Welding supplies were acquired at a cost of P100,000. The cost of the new welding machine should
be
a. P3,100,000 c. P3,250,000
b. P3,220,000 d. P3,400,000

32. On December 31, 2016, Prim Company traded in a used delivery truck with a cost and accumulated depreciation of
P150,000 and P96,000, respectively for a new delivery truck having a list price of P170,000 and cash price of
160,000 without trade-in or P75,000 with trade-in. The used truck has a fair value of P60,000 on the date of the
exchange. At what amount should the new truck be recorded on Prim's books?
a. P170,000 c. P135,000
b. P160,000 d. P129,000

33. Precious Company had the following property acquisitions during 2016:

 Acquired a tract of land in exchange for its own 50,000 ordinary shares, P100 par value, that had a market price
of P120 per share on the date of acquisition. The last property tax bill indicated assessed value of P2,400,000 for
the land.
 Received land from a benevolent major stockholder. No payment was required but Precious paid P50,000 for
legal expenses for land transfer. The land is fairly valued at P1,000,000.

What is the total increase in land as result of the acquisition?

a. P2,400,000 c. P7,050,000
b. P2,450,000 d. P7,000,000

34. The Decca Company purchased a machine for P360,000 on 1 January 2016 and received a government grant of P50,000
towards the capital cost. Company policy is to treat the grant as a reduction in the cost of the asset. The machine was
to be depreciated on a straight-line basis over 8 years and was estimated to have a residual value of P5,000 at the end
of this period.
Under PAS20 Government grants and government assistance, what should be the carrying amount of the machine at 31
December 2016?
a. P315,625 c. P266,875
b. P271,250 d. P271,875

35. On January 1, 2016, a farmer, has a herd of cows measured at fair value less costs to sell. He receives an annual
grant for the maintenance of cows of P100,000. The grant is payable by the government at the end of each financial
year as long as the farmer still holds the cows at the end of each financial year (i.e. December 31). The grant for the
year 2016 was actually received on January 10, 2017.

Under PAS 41, when will the grant be recognized as income from government grant?
a. January 1, 2016 at P100,000
b. December 31, 2016 at P100,000
c. January 10, 2017 at P100,000
d. Whenever the farmer decides

36. On 1 January 2016, an entity purchased an office block (building) for P1,000,000. The purchase price was funded by a
loan of P1,010,000 (including P10,000 loan raising fees). The loan is secured against the building. Non-refundable
property transfer taxes and direct legal costs of respectively P50,000 and P10,000 were incurred in acquiring the
building.

In 2016, the entity redeveloped the building into upmarket residential apartments for rent under operating leases to
independent third parties. Expenditures on redevelopment were:
 P100,000 planning permission
 P1,500,000 construction costs (including P60,000 refundable purchase taxes).

The redevelopment was completed and the apartments ready for rental on 1 October 2016.

The local government charged the entity property service taxes of P1,000 per month on the building.

What is the cost of the building at initial recognition?

a. P2,600,000 c. P2,609,000
b. P2,610,000 d. P2,599,000

37. A corporation is in the final stages of developing a computer software program that will be sold to the general public.
The company’s costs related to the software are as follows:

Product master production P1,000,000

Customer support and training 2,000,000
Development of a working model of the software 4,000,000

The costs associated with the product master production were incurred after the establishment of technological
feasibility. What amount, if any, should the corporation expense against earnings?
 a. P6,000,000 c. P4,000,000
b. P5,000,000 d. Nil

38. Sulphur Solutions is developing a new, lighter version of its sodium-sulphur battery that is to be used to store
electricity from residential wind turbines. During Year 1, it expends P290,000 on basic research to create greater
storage capacity. During Year 2, it incurs P200,000 per fiscal quarter to incorporate the new battery into its existing
production process. At the beginning of the fourth quarter of Year 2, Sulphur Solutions demonstrates that the
improved production process meets the criteria for recognition as an intangible asset. Sulphur also incurs P450,000
of expenditures in Year 3 to complete the development process. In accordance with PAS 38, Sulphur should record
the cost of the intangible asset at the end of Year 3
a. Nil c. P 650,000
b. P450,000 d. P1,250,000

39. On January 1, 2016, Major Company purchased a uranium mine for P800,000. On that date, Major estimated that
the mine contained 1,000 tons of ore. At the end of the productive years of the mine, Major Company will be
required to spend P4,200,000 to clean up the mine site. The appropriate discount rate is 8%, and it is estimated that
it will take approximately 14 years to mine all of the ore. Major uses the productive-output method of depreciation.
During 2016, Major extracted 100 tons of ore from the mine. Compute the amount of depletion for 2016.
a. P114,408 c. P223,000
b. P 80,000 d. P500,000

Use the following information for the next two questions.

A freehold property was originally acquired for P400,000. On December 31, 2015, the accumulated depreciation of the
property amounted to P110,000. Under PAS 36, its recoverable amount is P255,000, which represents the estimated value in
use. Shortly thereafter, as a consequence of a proposed move to new premises, the freehold property is classified as held for
sale. At the time of classification as held for sale, fair value less costs to sell is assessed at P250,000.

On March 31, 2016, the property market has improved, and fair value less costs to sell is now assessed at P300,000.

On June 30, 2016, the property is sold for P310,000.

40. What amount should be included as reversal of impairment loss in 2016?

a. P40,000 c. P5,000
b. P35,000 d. Nil

41. What amount should be included as gain or loss on disposal in 2016?

a. P20,000 c. P10,000
b. P55,000 d. P60,000

42. The following information was obtained from Bunder Co. as of December 31, Year 1:
 Bunder reported ending cash in bank balance in its general ledger at P251,407; however, the bank statement for
the same date showed an amount of P232,363.
 A customer’s check for P5,300 was returned by the bank because of insufficient fund (NSF). Included with the
return check was a bank advice #A1 for a related service charge of P25.
 Check #10276 for P9,218 payable to Blaze Co., a vendor, was recorded as 9,812.
 Customer checks totaling P126,200 received by Bunder on December 30 and 31 for P50,480 and P75,720,
respectively, were not credited on the company’s bank statatement. The customer checks on December 31, were
not yet recorded by Bunder.
 The following checks were recorded by Bunder but as of December 31, did not clear the bank:

Date Check # Amount

12/30 10302 P13,476
12/30 10304 12,342
12/30 10305 5,849

All of the above checks were mailed on December 31, Year 1 except for check #10302 which was voided on
January 5, Year 2.

 Two bank advices, bank advice #A2 for the collection of a customer’s note receivable for P4,350 and bank advice
#A3 for the related collection fee of P50 were not recorded by Bunder.

What is the correct cash in bank of Bunder Co. as of December 31, Year 1?
a. P340,372 c. P264,652
b. P326,896 d. P251,176

Use the following information for the next three items:

On January 1, 2016, Comforter Company sold equipment with a carrying amount of P800,000 to Cold Company. As
payment, Cold gave Comforter Company a P1,200,000 note. The note bears an interest rate of 5% and is to be repaid in
three annual installments of P400,000 (plus interest on the outstanding balance). The first payment was received on
December 31, 2016. The market price of the equipment is not reliably determinable. The prevailing rates of interest for
notes of this type are 10% and 12% on January 1, 2016 and December 31, 2016, respectively.

43. How much should be recognized as gain on sale of equipment in 2016?

a. P400,000 c. P260,458
b. P297,348 d. P 0
44. The interest income to be recognized in 2017 is
a. P 40,000 c. P 74,708
b. P 69,587 d. P109,735

45. The current portion of the notes receivable as at December 31, 2016 is
a. P365,292 c. P400,000
b. P381,791 d. P747,083

Use the following information for the next two questions.

On January 1, 2016, Ferrari Company acquired P5,000,000, 8%, bonds for P4,620,921. The bonds mature on January 1,
2021 and pay interest annually every December 31. On December 31, 2016 the prevailing rate of these bonds is 9%.

46. Assuming that Ferrari’s business model for the above investment neither involves collecting contractual cash flows
nor selling the investment, what is the total amount should Ferrari report in 2016 profit or loss?
a. P617,093 c. P415,883
b. P462,092 d. P400,000

47. Assuming that Ferrari’s business model for the above investment involves collecting contractual cash flows only, what
is the total amount should Ferrari report in 2016 profit or loss?
a. P617,093 c. P415,883
b. P462,092 d. P400,000

48. Assuming that Ferrari’s business model for the above investment involves both collecting its contractual cash flows
and selling the investment, what is the total amount should Ferrari report in 2016 comprehensive income?
a. P617,093 c. P415,883
b. P462,092 d. P400,000
49. In 2015, the Subaru Motors, Inc. purchased equity securities of C Company at a cost of P1,000,000. As of December
31, 2015, Subaru determined its fair value at P880,000. On March 31, 2016, Subaru sold the securities for
P1,100,000.

Assuming that the securities have been designated as at fair value through profit or loss, what amount of gain on the
sale of securities should be included in the entity’s 2016 profit or loss?
a. P100,000 c. P220,000
b. P120,000 d. Nil

50. Alcala Company owns 50% of Aparri Company’s preference shares and 30% of its ordinary shares. Aparri’s shares
outstanding at December 31, 2014 includes P20,000,000 of 10% cumulative preference shares and P50,000,000 of
ordinary shares. Aparri reported profit of P10,000,000 for the year 2016. What amount should Alcala report as
share of profit of associate for the year 2016?
a. P3,000,000 c. P2,400,000
b. P3,400,000 d. P4,400,000

51. On January 1, 2016, Palugi Bank made a P1,000,000, 8% loan. Interest is receivable at the end of each year, with
principal amount due at the end of five years. At the end of 2016, the first year’s interest of P80,000 has yet to be
received because the borrower is experiencing financial difficulties. The borrower negotiated a restructuring of the
loan. The payment of all the interest for 5 years will be delayed until the end of the 5-year term. In addition, the
amount of principal repayment will be dropped from P1,000,000 to P500,000. What is the loan impairment loss on
December 31, 2016?
a. P238,500 c. P338,500
b. P288,000 d. P388,000

52. On December 31, 2014, Quite Chubby borrowed from Piggy Bank, signing a 5-year non-interest-bearing note for
P100,000. The note was issued to yield 10% interest. Unfortunately, during 2016, Chubby began to experience
financial difficulty. As a result, at December 31, 2016, Piggy Bank determined that it was probable that it would
receive back only P75,000 at maturity. The market rate of interest on loans of this nature is now 11%. How much
should be recognized as loan impairment loss in 2016?
a. P11,952 c. P20,292
b. P18,782 d. P 5,743

53. On January 1, 2016, Guiguinto Company received a 3-year, P10,000,000 loan, with interest payments occurring at
the end of each year and the principal to be repaid on December 31, 2018. The interest rate for the first year is the
prevailing market rate of 8%, and the rate in 2017 and 2018 will be equal to the market interest rate on January 1.
In conjunction with this loan, Guiguinto enters into an interest rate swap agreement to receive a swap payment
(based on P10,000,000) if the January 1 interest rate is greater than 8% and will make a swap payment if the rate is
less than 8%. The interest swap payment will be made on December 31, 2017 and 2018. On January 1, 2017, the
interest rate is 9 percent, and on January 1, 2018, the interest rate is 10 percent.

How much should be recognized on Guiguinto’s December 31, 2016 statement of financial position as a result of the
interest rate swap?
a. P175,911 receivable c. P200,000 payable
b. P174,387 receivable d. P200,000 receivable
54. On March 1, Chow Corporation entered into a firm commitment to purchase specialized equipment from the Gifu
Trading Company for ¥80,000,000 on June 1. The exchange rate on March 1 is ¥100 = P1. To reduce the exchange
rate risk that could increase the cost of the equipment in Php, Chow pays P20,000 for a call option contract. This
contract gives Chow the option to purchase ¥80,000,000 at an exchange rate of ¥100 = P1 on June 1. On June 1, the
exchange rate is ¥105 = P1. How much did Chow save by purchasing the call option (answers rounded to the nearest
peso)?
a. P20,000
b. P27,619
c. P47,619
d. Chow would have been better off not to have purchased the call option.

55. Malolos Company has the Philippine peso as its functional currency. The entity expects to purchase equipment from
USA for $20,000 on March 31, 2017. Accordingly, the entity is exposed to a foreign currency exchange risk. If the
dollar increases before the purchase takes place, the entity will have to pay more pesos to obtain the $20,000 that it
will have to pay for the equipment.

To offset the risk of any increase in the dollar rate, the entity enters into a forward currency contract on October 1,
2016 to purchase $20,000 in six months for a fixed amount of P1,000,000 or P50 to $1. The entity designates the
forward currency contract as the hedging instrument in a cash flow hedge of its exposure to increases in the dollar
exchange rate.

On December 31, 2016, the exchange rate is P52 to $1 and on March 31, 2017, the exchange rate is P53 to $1. In
the December 31, 2016 statement of financial position, the company should record the value of the forward contract
as a(n)?
a. P40,000 asset c. P1,040,000 asset
b. P40,000 liability d. P1,040,000 liability

 end 