Far. Diagnostic: Response: Correct Answer: Score: 0 Out of 1 No

FAR.
DIAGNOSTIC
Question 1
A company had the following items relevant to 2021 earnings:
 Loss from an earthquake, P200,000.

 Gain on disposal of a segment, P100,000.
 P160,000 loss due to expropriation of one of the plants by a foreign government.
The company's income from continuing operations (pretax) prior to reporting the above items is
P1,300,000. The effective tax rate is 35 percent. 200,000 ordinary no par shares were outstanding
throughout the entire year. The company should report income from continuing operations of
Response: P780,000
Correct answer: P611,000
Score: 0 out of 1 No
Question 2
Which of the following is recognized in profit or loss if the equity investment is designated as a
financial asset at fair value through other comprehensive income?
Response: Impairment gains and losses

Correct answer: None of these
Question 3
An entity has the following information:
12/31/20 12/31/21
Cumulative temporary
difference giving rise to
future taxable amounts
P8 million P10 million
Cumulative temporary
difference giving rise to
the future deductible
amounts 6 million 5 million
Tax rate 30% 30%
The deferred tax expense for the year 2021 is

Response: P900,000
Score: 1 out of 1 Yes
Question 4
Guelleh Corporation was organized on January 3, 2021. Guelleh was authorized to issue 50,000
ordinary shares with a par value of P10 per share. On January 4, Guelleh issued 30,000 ordinary
shares at P25 per share. On July 15, Guelleh issued an additional 10,000 shares at P20 per share.
Guelleh reported income of P33,000 during 2021. In addition, Guelleh declared a dividend of P.50 per
share on December 31, 2021. The amount reported on Guelleh Corporation's December 31, 2021,
balance sheet as shareholders' equity was
Response: P950,000
Question 5
An entity is required to publish interim financial reports and is currently considering the accounting for
the following:
 Sales of the entity for the first two quarters are as follows:
Quarter ended Amount
March 31 P3,200,000
June 30 3,000,000
 On January 1, the entity signed a 1-year rental with quarterly payments of P100,000 due at the
end of each quarter. In addition, the entity must pay contingent rent of 5% of all sales in excess of
P10,000,000. The contingent rent is payable on January 31 of the following year. The entity
estimates that it is probable that it will pay additional rent.
 The entity sells electrical goods, and normally 5% of customers claim on their warranty. The
provision in the first quarter was calculated as 5% of sales to date. However, in the second quarter, a
design fault was found and warranty claims were expected to be 10% for the whole year.
 The entity paid P400,000 fire insurance premium for the calendar year.
 The entity paid P600,000 on February 1 for the calendar-year property tax.
 In the first week of April, the entity made unanticipated major repairs to its equipment at a cost of
P180,000.
 The inventory at June 30 was includes P500,000 of slow moving inventory that is expected to be
sold for a net amount of P300,000.
The total expense to be recognized in the entity’s profit or loss for the quarter ended June 30 is
Response: P1,215,000
Correct answer: P1,215,000
Question 6
Assume an entity has the following transactions for the month of June:
Purchases Units Unit cost Total cost
June 1 (balance) 400 P3.20 P 1,280
3 1,100 3.10 3,410
7 600 3.30 1,980
15 900 3.40 3,060
22 250 3.50 875
3,250 P10,605
Sales Units Selling price per unit
June 2 300 P5.50
6 800 5.50
10 700 6.00
18 700 6.00
25 150 6.00
2,650
QUESTIONS:
FIFO
Response: P1,956
Question 7
The following may be classified as either current or noncurrent, except
Response: Investment in associate
Correct answer: Investment in associate
Question 8
Which of the following is not subject to impairment in accordance with PAS 36?
Response: Property, plant and equipment carried at revalued amount

Correct answer: Investment property carried at fair value
Question 9
Ondimba Corp. bought a new printing machine. The cost of the machine was P80,000. The
installation costs were P5,000 and the employees received training on how to use the machine, at a
cost of P2,000. Before using the machine to print customers’ orders, a test was undertaken and the
paper and ink cost P1,000.
What should be the cost of the machine in the company’s statement of financial position?
Response: P80,000
Question 10
In accordance with Section 22 of the PFRS for SMEs, to the extent that the equity instruments have
been subscribed for but not issued, and the entity has not yet received the cash or other resources,
the entity shall
Response: Shall recognize the subscription receivable as a current asset.

Correct answer: Not recognize an increase in equity.
Question 11
Which of the following represents a liability?
Response: The obligation to provide goods that customers have ordered and paid for during the
current year.
Correct answer: The obligation to provide goods that customers have ordered and paid for during
the current year.
Question 12
Lourenco Corp., an entity required to apply the PFRS for SMEs, is engaged in a research and
development project to produce a new product. In the year ended Dec. 31, 2020, the company spent
P1,200,000 on research and concluded that there were sufficient grounds to carry the project on to its
development stage and a further P750,000 had been spent on development. At that date
management had decided that they were not sufficiently confident in the ultimate profitability of the
project and wrote off all the expenditure to date to the income statement. In 2021 further direct
development costs have been incurred of P800,000 and the development work is now almost complete
with only an estimated P100,000 of costs to be incurred in the future. Production is expected to
commence within the next few months. Unfortunately, the total trading profit from sales of the new
product is not expected to be as good as market research data originally forecasted and is estimated
at only P1,500,000. How much should be capitalized as of December 31, 2021?
Response: P800,000
Correct answer: Nil
Question 13
The cash account shows a balance of P38,000 before reconciliation. The bank statement does not
include a deposit of P2,300 made on the last day of the month. The bank statement shows a
collection by the bank of P940 and a customer's check for P220 was returned because it was NSF. A
customer's check for P450 was recorded on the books as P540, and a check written for P79 was
recorded as P97. The correct balance in the cash account is
Response: P40,948
Question 14
The following pertains to an entity’s biological asset:
Price of the asset in the principal market P18,000
Price of the asset in a different market 19,000
Selling price in a binding contract to sell 20,000
Estimated commissions to brokers 1,800
Estimated transport and other costs necessary

to get asset to the market 1,000
The biological asset should be measured at
Response: P17,200
Question 15
On January 1, 2020, Geingob Corporation purchased P1,000,000 10% bonds for P1,051,510 (including
broker’s commission of P20,000). Interest is payable annually every December 31. The bonds
mature on December 31, 2022. The bonds are held for collection only. The prevailing market rate for
the bonds is 9% at December 31, 2020. On December 31, 2021, Geingob sold the bonds at 105. How
much should Geingob Corporation recognize as gain on sale of bonds on December 31, 2021?
Response: P18,490
Question 16
Kenyatta Company assigns some of its patents to other enterprises under a variety of licensing
agreements. In some instances advance royalties are received when the agreements are signed, and
in others, royalties are remitted within sixty days after each license year-end. The following data are
included in Jessa's December 31 balance sheet:
2020 2021
Royalties receivable P90,000 P85,000
Unearned royalties 60,000 40,000
During 2021 Jessa received royalty remittances of P200,000. In its income statement for the year
ended December 31, 2021, Kenyatta should report royalty income of
Response: P215,000
Question 17
Biya Company reported assets totaling P870,000. The following information relates to those assets:
a. A rival company recently offered to give a P100,000 signing bonus to the head of Biya's fabrication
department if she would leave Biya and join the rival company. She declined. Biya has consequently
recorded a long-term asset, "Employees Under Contract," for P100,000.
b. Biya purchased a patent from a small research firm for P75,000. Subsequent research has shown
that the patented technology doesn't work as well as originally thought and the technology actually
has no economic use. Biya reports the patent at its amortized cost of P60,000.
c. An independent appraiser recently set Biya's market value at P500,000. This exceeded the book
value of equity by P120,000. Accordingly, Biya recorded Goodwill totaling P120,000.
d. Near the end of the year, Biya paid P30,000 for the exclusive right to market electronic equipment
to be imported from abroad. Biya reported this as a P30,000 "Intangible Asset."
e. Biya placed an advertisement for its products in a local newspaper. The newspaper advertisement
cost the entity P20,000 which the entity paid on December 1. Although the advertisement will only
appear in the December 31 newspaper, the entity expects that the advertisement will continue to
generate additional sales of its products in January next year. Biya reported this as a P20,000
"Intangible Asset."
f. When Biya started business three years ago, it was required to deposit P5,000 with the local
electric utility. The deposit is refundable if Biya cancels its electric service. Biya earns no interest on
the deposit. The deposit is recorded as an "Other Long-Term Asset."
After considering the items above, what should be the total of Biya's reported assets?
Response: P565,000
Question 18
The accountant of Letsie Company made the following adjusting entry on December 31.
Rent Expense
P1,800
Prepaid Rent P1,800
If annual rent is paid in advance every October 1, the original transaction entry made was
Response: Debit Rent Expense and credit Cash, P7,200.

Correct answer: Debit Prepaid Rent and credit Cash, P7,200.
Question 19
Ouattara Inc. furnishes you with the following list of accounts:
Accounts payable P 66,000
Accounts receivable 40,000
Accumulated depreciation 44,000
Advances to sales persons 10,000
Advertising Expense 72,000
Allowance for Bad Debts 10,000
Bonds payable 80,000
Cash 22,000
Certificates of deposit 16,000
Share capital, (par) 100,000
Deferred income tax liability 46,000
Equipment 215,500
Inventory 55,000
Investment in X Co. shares
(20% of outstanding shares owned) 76,500
Investment in Y Co. shares

(trading securities) 21,000
Share premium 42,500
Premium on Bonds Payable 6,000
Prepaid Insurance 6,000
Rent revenue 37,000
Rent revenue received in advance (4 months) 12,000
Retained earnings 97,500
Taxes payable 10,000
Tools 52,000
The company’s working capital is
Response: P62,000
Question 20
Which statement is incorrect regarding materiality judgments?
Response: Public availability of information relieves an entity of the obligation to provide material

information in its financial statements.
Correct answer: Public availability of information relieves an entity of the obligation to provide

material information in its financial statements.
Question 21
In 2021, a fire completely destroyed a building belonging to Mbasogo Company. The cost of the
building was P8,000,000 and had accumulated depreciation of P5,000,000 at the time of fire.
Mbasogo received a cash settlement from an insurance company and reported a casualty loss of
P500,000. In its 2021 statement of cash flows, the net change reported in the cash flows from
investing activities should be
Response: P3,000,000 decrease
Correct answer: P2,500,000 increase
Question 22
Which of the following is required to be allocated to non?8-controlling interests and owners of the
parent in the statement of profit or loss and OCI?
Response: Both a and b.
Correct answer: Profit or loss for the period
Question 23
Afwerki Company and its divisions are engaged solely in manufacturing operations. The following data
pertain to the industries in which operations were conducted for the current year.
Identifiable asse
Total Operating profit
ts
revenue
P13,000,0
1 P4,000,000 P25,000,000
00
10,000,00
2 2,000,000 20,000,000
0
3 8,000,000 1,500,000 15,000,000
4 3,000,000 1,000,000 7,000,000
5 3,500,000 900,000 7,500,000

6 700,000 5,500,000
2,500,000
P40,000,0
P10,100,000 P80,000,000
00
In its segment information for the current year, how many reportable segments does Afwerki have?
Response: Five
Correct answer: Three
Question 24
Issoufou Corp. has the following accounts with an associate:
Investment in ordinary shares P4,500,000
Investment in preference shares 1,600,000
Loans receivable - unsecured 900,000

Loans receivable - secured 500,000
Accounts receivable 200,000
Accounts payable 100,000
If the ‘share of loss of associate’ recognized by Issoufou Corp. is P6,500,000, how much should be
allocated to Loans receivable – unsecured?
Response: P400,000
Question 25
Which of the following is a not possible implication of COVID-19 pandemic in accounting for property,
plant and equipment (PPE)?
Response: Depreciation may not be recognized because the assets are idle.

Correct answer: Depreciation may not be recognized because the assets are idle.
Question 26
The following balances are shown in the shareholders' equity of Vaz Company on Dec. 31, 2020:
Preference share capital, P10 par,

100,000 shares P1,000,000
Ordinary share capital, P10 par,

500,000 shares, 5,000,000
Share premium - preference 50,000
Share premium – ordinary 200,000
Retained earnings 100,000
Total P6,350,000
During 2021, the following transactions pertaining to the shareholders' equity were completed:
 Retirement of 5,000 preference shares at P9 per share.

 Purchase of 5,000 ordinary shares at P12 per share to be held as treasury shares.
 Share split, ordinary, 2 for 1.
 Reissue of 2,000 treasury shares at P8 per share.
 Profit for 2021, P300,000.
The total retained earnings at Dec. 31, 2021 is
Response: P392,000
Question 27
Zewde Inc., paid P1,200,000 in December 2020 for its inventory. In December 2021, one half of the
inventory was sold for P1,000,000 when the replacement cost of the original inventory was
P1,400,000. Ignoring income taxes, how much is the net income to reported in the current cost
accounting income statement for 2021?
Response: P300,000
Question 28
The following pertains to Ghazouani, Inc. on December 31 of the current year: Checking account
balance P925,000; an overdraft in special checking account at same bank as normal checking account
of P17,000; certificate of deposit P400,000; cash held in a bond sinking fund P200,000; postdated
check from customer P11,000; certified check from customer P9,800; NSF check received from
customer P15,000; cash advance to subsidiary of P300,000; postage stamps on hand P620; utility
deposit paid to electric company P8,000; currency and coins in a petty cash fund (the company has
not replenished the fund to the imprest amount of P5,000) P800. The correct amount that should be
reported as cash is
Response: P918,600
Question 29
Assoumani Inc. received a legal notice on December 15, from the environmental protection agency
local (EPAL) to fit smoke detectors in its factory on or before June 30 next year. The cost of fitting
smoke detectors in its factory is estimated at P250,000. How should Assoumani Inc. treat this in its
financial statements for the year ended December 31?
Response: Because Assoumani Inc. can avoid the future expenditure by changing the method of
operations and thus there is no present obligation for the future expenditure, no provision is required
at December 31, but as there is a possible obligation, this warrants disclosure in footnotes to the
financial statements.
Correct answer: Because Assoumani Inc. can avoid the future expenditure by changing the
method of operations and thus there is no present obligation for the future expenditure, no provision
is required at December 31, but as there is a possible obligation, this warrants disclosure in footnotes
to the financial statements.
Question 30
Total debits and total credits in selected accounts of Masisi Company, after closing entries were posted
are given below.
Debits Credits
Materials P 600,000 P 200,000
Goods in process 500,000 300,000
Material purchases 2,500,000 2,500,000
Purchase discounts 100,000 100,000
Transportation in 200,000 200,000
Direct labor 3,000,000 3,000,000
Manufacturing overhead 1,500,000 1,500,000
Finished goods 700,000 400,000
Cost of goods sold was
Question 31
Which statement is correct regarding accounting for inventories in accordance with PAS 2?
Response: Inventories are valued at lower of cost or market; the market is subject to a floor and a
ceiling limitation.
Correct answer: None of these.

Question 32
The following information relates to the defined benefit pension plan for the Tebboune Company for
the year ended Dec. 31, 2021.
Defined benefit obligation, Jan. 1 P8,700,000
Defined benefit obligation, Dec. 31 9,700,000
Fair value of plan assets, Jan. 1 8,500,000
Fair value of plan assets, Dec. 31 9,400,000
Current service cost 1,300,000

Employer contributions 1,500,000
850,000
Benefits paid to retirees
Market yield on high quality

corporate bonds 5%
Average return on corporate shares 8%
Incremental borrowing rate 10%
Expected return on plan assets 7%
QUESTIONS:
The actual return on plan asset is
Response: P425,000
Question 33
Which of the following is (are) peculiar to a small entity?
I. No other comprehensive income items

II. Measurement of inventories at the lower cost or NRV
III. Measurement of investment property using revaluation model
IV. Measurement of investments in shares that are traded in an active market at the lower of cost or
fair value
Response: I and IV only

Correct answer: I and IV only
Question 34
The following transactions and events relate to el-Sisi Company for the current accounting period.
Sold merchandise costing P450,000 for P100,000 cash and P700,000 on open account.
(a)
A perpetual inventory system is used.
(b) Purchased land for P1,000,000 cash and a P3,000,000 mortgage.
(c) Received payment on account, P120,000.
(d) Estimated that utilities expense for the coming six months will total P80,000.
(e) Declared a cash dividend totaling P100,000. The dividend will be paid in six weeks.
The foregoing transactions and events increased
Response: Total equity by P700,000

Correct answer: Net assets by P250,000
Question 35
Benin Inc. loaned P100,000 to Talon Corp. Talon has not been making the interest and principal
payments in accordance with the timing specified in the loan contract. How should Benin handle this
situation in its financial statements?
Response: Benin should consider this an impaired loan and adjust the loan account.
Correct answer: Benin should take this situation into account in determining whether the loan is
impaired.
Question 36
On Jan. 1, 2020, Keita Company received a grant of P50 million from a foreign government for the
construction of a laboratory and research facility with an estimated cost of P60 million and useful life
of 25 years. The facility was completed in early 2021. Company policy is to treat the grant as a
deduction from the cost of the asset. What should be the depreciation expense in respect of this
facility for the year ended Dec. 31, 2021, assuming that depreciation is calculated on a straight-line
basis?
Question 37
Kagame Company’s capital structure was as follows:
2020 2021
Outstanding securities:
Ordinary 1,000,000 1,000,000
Convertible preference 100,000 100,000
10% convertible bonds

payable P30,000,000 P30,000,000
During 2021, Kagame paid dividends of P15 per share on its preference shares. The preference
shares are convertible into 150,000 ordinary shares and the 10% bonds are convertible into 300,000
ordinary shares. Profit for 2021 was P10,000,000. The income tax rate is 35%. The diluted earnings
per share for 2021 should be
Response: P8.04
Correct answer: P8.04
Question 38
Mswati Company acquired land and an old building. Mswati acquired the land and building by
providing 40,000 of its shares that were trading on the Stock Exchange at price of P13 per share, and
by paying off the existing mortgage of P30,000 and back taxes on the old building of P5,000. Mswati
also paid P20,000 to demolish the old building on the land, P30,000 to an architect to design a new
building, and P220,000 to a contractor to build the building. How much is the cost of the new building
in accordance with PIC Q&A 2012-2?
Response: P300,000
Question 39
In accordance with the Conceptual Framework, an entity is unlikely to obtain rights
Response: From owning a debt instrument or an equity instrument.

Correct answer: By acquiring or creating know-how that is in the public domain.
Question 40
The Roopun Corporation started its business on January 1, 2021. After considering the collections
experience of other companies in the industry, Roopun Corporation established an allowance for bad
debts estimated to be 5% of credit sales.
Further analysis of the company’s accounts showed that merchandise purchased in 2021 amounted to
P2,250,000 and ending merchandise inventory was P375,000. Goods were sold at 40% above cost.
80% of total sales were on account. Total collections from customers, on the other hand, excluding
proceeds from cash sales, amounted to P1,500,000. Accounts written off during 2021 totaled
P12,500.
The net realizable value of accounts receivable as of December 31, 2021 is
Response: P512,500
Question 41
These are peso-denominated short-term fixed income securities issued by the Republic of
the Philippines through its Bureau of Treasury
Response: Treasury bills
Correct answer: Treasury bills
Question 42
Which of the following is incorrect regarding the implications of COVID-19 in accounting for
inventories?
Response: Capitalization of borrowing costs on inventories that are manufactured in large

quantities on a repetitive basis may need to be suspended.
Correct answer: Capitalization of borrowing costs on inventories that are manufactured in large

quantities on a repetitive basis may need to be suspended.
Question 43
Fonseca Company reported liabilities totaling P1,230,000. The following information relates to those
liabilities:
a. Fonseca reported a P100,000 bank loan payable. However, Fonseca intends to repay this loan in
January of the following year.
b. Fonseca has reported a P40,000 liability for the estimated cost of future warranty repairs based on
product sales for the past year.
c. Fonseca is being sued for P350,000 by a disgruntled employee. Fonseca's attorney thinks that it is
possible that Fonseca will lose the case. Fonseca has not yet recorded any liability for this potential
loss.
d. Fonseca receives consulting services from a local CPA. Expected services by the CPA for the
coming year will cost P35,000. No liability has been recorded.
e. Fonseca has reached an agreement with a major customer. Fonseca expects to provide services
totaling P400,000 over the coming three years. The customer has already paid Fonseca P100,000.
No liability has been recorded.
After considering these items, what should be the total of Fonseca's reported liabilities?
Question 44
Data from an entity’s records disclosed the following:
Goods available for sale P680,000
Sales 610,000
Sales returns and allowances 10,000
Gross profit rate 20%
The entity’s physical count revealed ending inventory with selling price of P192,000.
Compute the estimated cost of missing inventory.
Response: P38,400
Question 45
Chad Enterprises loaned P1,000,000 to Deby Inc. on January 1, 2019. The terms of the loan require
principal payments of P200,000 each year for 5 years plus interest at 8%. The first principal and
interest payment is due on January 1, 2020. Deby made the required payments during 2020 and
2021. However, during 2021 Deby began to experience financial difficulties, requiring Chad to
reassess the collectibility of the loan. On December 31, 2021, Chad determines that the remaining
principal payments will be collected, but the collection of interest is unlikely. The prevailing interest
rate for similar type of note as of December 31, 2021 is 10%.
How much should be recognized as impairment loss in 2021 profit or loss?
Response: P52,900
Question 46
Which statement is correct regarding presentation of financial statements in accordance with PAS 1?
Response: Deferred taxes are classified as current or noncurrent in the statement of financial

position based on the nature of the related asset.
Correct answer: Comparative information for prior year is required.

Question 47
Nguesso, Inc., assigned P10,000 to a finance company, receiving an advance of 90% less a service
charge of P400. Later P2,000 of these receivables were collected and remitted to the finance
company with an additional P200 of interest. Given this information, which entry would not be made?
Response: Debit Notes Payable, P2,000; Debit Interest Expense, P200; Credit Cash, P2,200.
Correct answer: Debit Cash, P8,600; Debit Assignment Service Charge Expense, P400; Credit
Accounts Receivable, P9,000.
Question 48
Which statement is correct regarding accounting for leases in accordance with PFRS 16?
Response: Lease term is the non-cancellable period for which a lessee has the right to use
an underlying asset, together with periods covered by an option to terminate the lease if the lessee is
reasonably certain to exercise that option.
Correct answer: Right-of-use assets that meet the definition of investment property shall be
presented in the statement of financial position as investment property.
Question 49
Assume the following information related to inventories held by an entity at the end of the reporting
period:
Item Cost NRV
P P 100,000 P 80,000
R 200,000 210,000
T 300,000 270,000
C 400,000 425,000
Total P1,000,000 P985,000
The loss on write-down is
Response: P15,000
Question 50
Mutharika showed income before income taxes of P250,000 on December 31, 2021. On your year-end
verification of the transactions of the company, you discovered the following errors:
a) P100,000 worth of merchandise was purchased in 2021 and included in the ending inventory.
However, the purchase was recorded only in 2022.
b) A merchandise shipment valued at P150,000 was properly recorded as purchases at year-end.
Since the merchandise were still at the port area, they were inadvertently omitted from the inventory
balance at December 31, 2021.
c) Business taxes for the 4th quarter of 2021, amounting to P50,000, was recorded when payment
was made by the firm in January, 2022.
d) Rental of P30,000 on an equipment, applicable for six months, was received on November 1,
2021. The entire amount was reported as income upon receipt.
e) Insurance premium covering the period from July 1, 2021 to July 1, 2022, amounting to
P120,000, was paid and recorded as expense on July 31, 2021. The company did not make any
adjustment at the end of the year.
The corrected income before income taxes for 2021 should be
Response: P290,000
Question 51
Section 27 of PFRS for SMEsrequires an entity to calculate the recoverable amount of goodwill and
other indefinite life intangible assets
Response: If impairment is indicated.

Correct answer: If impairment is indicated.
Question 52
The following information pertains to Weah Company for 2021:
a. The company had net monetary items of P1,600,000 on January 1.

b. Sales of P6,000,000 and purchases of P2,400,000 were made evenly throughout the year
c. Operating expenses of P1,800,000 and income tax expense of P1,200,000 were incurred evenly
throughout the year
d. Cash dividends of P400,000 were declared on November 30 and paid on December 31. Selected
values of the CPI-U during 2019 appear below:
Jan. 1 110.0
Average for year 121.0
Nov. 30 131.0
Dec. 31 133.1
The purchasing power loss for 2021 expressed in constant year-end pesos is
Response: P396,000
Question 53
At the current year-end, Nyusi Co has undertaken impairment tests on two machines. The following
information is relevant:
Machine 1 Machine 2
Cost P450,000 P250,000
Useful life 10 years 15 years
Age 4 years 3 years
Fair value P300,000 P230,000
Costs of disposal P15,000 P35,000
Value in use P260,000 P198,000
At what carrying amount should machinery be recognized in the accounts of Nyusi Co?
Response: P468,000
Question 54
An entity has the following items of Machinery at Dec. 31, 2020:
Machine No. Cost Acc. Dep.
1 P100,000 P95,000
2 200,000 160,000
3 300,000 210,000
4 400,000 240,000
Additional information:
 All items – useful is 10 years and the fair value is higher than the carrying amount at Dec. 31, 2021
 Machine No. 2 - idle during 2021
 Machine No. 3 - retired from active use on June 1, 2021 but not yet derecognized at Dec. 31, 2021
 Machine No. 4 - classified as held for sale in accordance with PFRS 5 on July 1, 2021 but still unsold
at Dec. 31, 2021
The total depreciation for the year 2021 is
Response: P75,000
Question 55
Tshisekedi Inc. manufactures steel. What will be the net cash flow from operating activities based on
the following information?
Issue of shares P 500,000
Repayment of debentures 300,000
Sale of goods on credit 1,200,000
Sale of goods on cash 300,000
Cash purchases 800,000
Additional term loan 200,000
Purchase of additional plant 600,000
Bad debts written off 20,000
Receivables, 1/1 500,000
Receivables, 12/31 600,000
Response: P500,000 outflow
Correct answer: P580,000 inflow
Question 56
An entity is required to publish interim financial reports and is currently considering the accounting for
the following:
 Sales of the entity for the first two quarters are as follows:
Quarter ended Amount
March 31 P3,200,000
June 30 3,000,000
 On January 1, the entity signed a 1-year rental with quarterly payments of P100,000 due at the
end of each quarter. In addition, the entity must pay contingent rent of 5% of all sales in excess of
P10,000,000. The contingent rent is payable on January 31 of the following year. The entity
estimates that it is probable that it will pay additional rent.
 The entity sells electrical goods, and normally 5% of customers claim on their warranty. The
provision in the first quarter was calculated as 5% of sales to date. However, in the second quarter, a
design fault was found and warranty claims were expected to be 10% for the whole year.
 The entity paid P400,000 fire insurance premium for the calendar year.
 The entity paid P600,000 on February 1 for the calendar-year property tax.
 In the first week of April, the entity made unanticipated major repairs to its equipment at a cost of
P180,000.
 The inventory at June 30 was includes P500,000 of slow moving inventory that is expected to be
sold for a net amount of P300,000.
The total expense to be recognized in the entity’s profit or loss for the quarter ended March 31 is
Response: P705,000
Question 57
Rajoelina Company borrowed P400,000 on a 10 percent note payable to finance a new warehouse
Rajoelina is constructing for its own use. The only other debt on Rajoelina's books is a P600,000, 12
percent mortgage payable on an office building. At the end of the current year, average accumulated
expenditures on the new warehouse totaled P475,000. Rajoelina should capitalize interest for the
current year in the amount of
Response: P47,500
Question 58
Adama Company issued P1,000,000, 5%, 5-year convertible bonds for P1,045,000. Bonds are
convertible at the investor’s option into 200,000 ordinary shares. Interest is payable quarterly. Bonds
without the conversion feature would have been issued to yield 6%. What is the value of the
conversion feature?
Response: P87,080
Question 59
The following account balances relating to property, plant and equipment of an entity appear on the
books on December 31, 2020:
Land P 6,000,000
Building 45,000,000
Accumulated depreciation 11,250,000
Plant, property and equipment have been carried at cost since their acquisition. The building was
acquired on January 1, 2011. The straight-line method for depreciation is used. On January 1, 2021,
the company revalued property plant and equipment and on the same date, competent appraisers
submitted the following:
Replacement cost
Land P 8,000,000
Building 60,000,000
What is the revaluation surplus on December 31, 2021?
Question 60
An entity grows tomato vines, harvests the tomatoes and produces tomato ketchup. To which of the
following does PAS 41 apply?
I. The tomato vines

II. The tomatoes growing on the tomato vines
III. The harvested tomatoes
IV. The production of tomato ketchup
Response: I and II only

Correct answer: I and II only
Question 61
Which of the following is least likely related to an entity whose financial statements are not prepared
on a going concern basis?
Response: Assets written down to their value in use.

Correct answer: Assets written down to their value in use.
Question 62
Which of the following is least likely affected by the COVID-19 outbreak?
Response: Identification of related parties

Correct answer: Identification of related parties
Question 63
Assume an entity has the following transactions for the month of June:
Purchases Units Unit cost Total cost
June 1 (balance) 400 P3.20 P 1,280
3 1,100 3.10 3,410
7 600 3.30 1,980
15 900 3.40 3,060
22 250 3.50 875
3,250 P10,605
Sales Units Selling price per unit
June 2 300 P5.50
6 800 5.50
10 700 6.00
18 700 6.00
25 150 6.00
2,650
QUESTIONS:
Moving average
Response: P1,956
Question 64
The general ledger trial balance of Kabore Corp. includes the following accounts for the current year:
Sales revenue P975,000
Interest income 20,000
Share of profit of associates 15,000
Other income 8,000
Decrease in inventories of finished goods 25,000
Raw materials used 350,000
Employee benefit expenses 150,000
Loss on translation of foreign operations 30,000
Depreciation of property and equipment 45,000
Impairment of property 80,000
Finance costs 35,000
Other expenses 45,000
Income tax expense 75,000
How much should be reported as profit for the year?
Response: P213,000
Question 65
Which of the following reserve cannot be presented as negative (i.e. equity deduction)?
Response: Changes in fair value of financial liabilities designated as fair value through profit or loss
attributable to the liability’s credit risk
Correct answer: Changes in revaluation surplus

Question 66
The following information relates to the defined benefit pension plan for the Tebboune Company for
the year ended Dec. 31, 2021.
Defined benefit obligation, Jan. 1 P8,700,000
Defined benefit obligation, Dec. 31 9,700,000
Fair value of plan assets, Jan. 1 8,500,000
Fair value of plan assets, Dec. 31 9,400,000
Current service cost 1,300,000
Employer contributions 1,500,000
850,000
Benefits paid to retirees
Market yield on high quality

corporate bonds 5%
Average return on corporate shares 8%
Incremental borrowing rate 10%
Expected return on plan assets 7%
QUESTIONS:
The net amount to be recognized in 2021 OCI is
Response: P230,000
Feedback:
Question 67
Conde Corporation which is subject to a 35% tax rate reported current tax expense of P4,000,000 for
the year ended December 31, 2021, its first year in operations. The following items were also
recognized in the statement of financial position during the year. Deferred tax asset in the amount of
P560,000 arising from an installment sale expected to be collected equally in 2022 and 2023. And a
deferred tax liability of P1,440,000, caused by accelerated depreciated methods used in tax reporting.
P440,000 of the deferred tax liability is expected to reverse with in 2022 while the balance in later
years. The 2021 total income tax expense is
Question 68
At the beginning of year 1, Addo Corporation grants 100 share options to each of its 200 employees.
Each grant is conditional upon the employee remaining in service over the next three years. The
entity estimates that the fair value of each option is P21. On the basis of a weighted average
probability, the entity estimates that 60 employees will leave during the three-year period and
therefore forfeit their rights to the share options.
Suppose that 15 employees leave during year 1. Also suppose that by the end of year 1, the entity’s
share price has dropped, and the entity reprices its share options, and that the repriced share options
vest at the end of year 3. The entity estimates that a further 35 employees will leave during years 2
and 3. During year 2, a further 10 employees leave, and the entity estimates that a further 10
employees will leave during year 3. During year 3, a total of 8 employees leave.
The entity estimates that, at the date of repricing, the fair value of each of the original share options
granted (ie before taking into account the repricing) is P10 and that the fair value of each repriced
share option is P13.
The amount to be recognized as expense in year 3 is
Response: P400,800
Question 69
The Dec. 31, 2021, the balance sheet of Buhari reflected the following:
Total assets (market value P298,000) P252,000
Total liabilities P 70,000

Preference shares, P.10 cumulative,
non-participating, P2.20 liquidation
preference per share, 20,000 shares
outstanding?2? 50,000
Ordinary shares, no-par, 30,000 shares
outstanding?2? 120,000
Retained earnings (no dividends were
declared or paid in 2020 - 2021) 12,000
P252,000
Assume the company sold all of the assets at Dec. 31, 2021, at market value for cash; paid off the
liabilities and distributed all of the remaining cash to the shareholders. The amount of cash per share
that each common shareholder would receive would be:
Response: P6.07
Correct answer: P6.07
Question 70
Which of the following are related parties?
Response: Both a and b.
Correct answer: Neither a nor b.
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FAR.

 Loss from an earthquake, P200,000.

Response: Impairment gains and losses

Tax rate 30% 30%

The deferred tax expense for the year 2021 is

Quarter ended Amount

Purchases Units Unit cost Total cost

June 1 (balance) 400 P3.20 P 1,280

3 1,100 3.10 3,410

7 600 3.30 1,980

15 900 3.40 3,060

22 250 3.50 875

Sales Units Selling price per unit

June 2 300 P5.50

6 800 5.50

10 700 6.00

18 700 6.00

25 150 6.00

Response: Property, plant and equipment carried at revalued amount

Response: Shall recognize the subscription receivable as a current asset.

Score: 1 out of 1 Yes

Price of the asset in the principal market P18,000

Price of the asset in a different market 19,000

Selling price in a binding contract to sell 20,000

Estimated commissions to brokers 1,800

Estimated transport and other costs necessary

The biological asset should be measured at

2020 2021

Royalties receivable P90,000 P85,000

Unearned royalties 60,000 40,000

Response: Debit Rent Expense and credit Cash, P7,200.

Accounts payable P 66,000

Accounts receivable 40,000

Accumulated depreciation 44,000

Advances to sales persons 10,000

Advertising Expense 72,000

Allowance for Bad Debts 10,000

Bonds payable 80,000

Certificates of deposit 16,000

Share capital, (par) 100,000

Deferred income tax liability 46,000

Investment in Y Co. shares

Share premium 42,500

Premium on Bonds Payable 6,000

Prepaid Insurance 6,000

Rent revenue 37,000

Rent revenue received in advance (4 months) 12,000

Retained earnings 97,500

Taxes payable 10,000

The company’s working capital is

Response: Public availability of information relieves an entity of the obligation to provide material

Correct answer: Public availability of information relieves an entity of the obligation to provide

Score: 1 out of 1 Yes

3 8,000,000 1,500,000 15,000,000

4 3,000,000 1,000,000 7,000,000

5 3,500,000 900,000 7,500,000

Investment in ordinary shares P4,500,000

Investment in preference shares 1,600,000

Loans receivable - unsecured 900,000