Far Reviewer For Cpale

FINANCIAL ACCOUNTING AND REPORTING (PROBLEMS)
Compiled by Vhin
SITUATIONAL 1
Information relevant to four different companies follows:

 A review of the accounting records of Ritch Company reflected an adjusting entry made on
August 31, 2021 to reconcile the bank statement balance and the cash balance shown in the
company’s accounting records, as follows:
Cash in Bank 6,272.60

Account Receivable 15,202.40
Expense 125.00
Notes Receivable 20,000.00
Interest Revenue 1,600.00
Pre-adjustment cash balance in the accounting records was P76,837. At August 31,
outstanding checks and undeposited collections were P12,075 and P7,280, respectively.
 Kei Company uses the net price method of accounting for cash discounts. In one of its
transactions on December 31, 2021, Kei Company sold merchandise with a list price of
P4,000,000 to a client who was given a trade discount of 20% and 10%. Credit terms given
by Kei Company were 5/10, n/30. The goods were shipped FOB destination, freight collect.
Total freight charge paid by the client was P100,000. On December 20, 2021, the client
returned damaged goods originally billed at P400,000.
 Jovit Company acquired a building on January 1, 2013 at a cost of P30 million. The building
has an estimated life of fifteen years and a residual value of P3 million. The building was
revalued on January 1, 2021 and the revaluation revealed a fair value of P22 million;
residual value of P4 million and revised remaining life of ten years. It is the company policy to
transfer some of the surplus to retained earnings as the asset being used.
 A building previously occupied by Lance Company with a cost of P10 million and an
accumulated depreciation of P5.5 million is reclassified as investment property. At the time of
reclassification, the building has a fair value of P5 million.
1. What is the bank statement balance of Ritch Company at August 31, 2021?
a. P70,564.40
b. P78,314.60
c. P83,109.60
d. P87,904.60
2. What is the net realizable value of the accounts receivable of Kei Company on December 31,
2021?
a. P2,636,000
b. P2,592,000
c. P2,492,000
d. P2,380,000
3. What is the revaluation surplus that Jovit Company should report on December 31, 2021?
a. P5,760,000
b. P6,400,000
c. P8,460,000
d. P9,400,000
4. Using the fair value model, upon reclassification to investment property, at what amount
should Lance record the investment property and what amount of gain is recognized in profit
or loss, respectively?
a. P4.5 million and P500,000
b. P5 million and P0
c. P5 million and P500,000
d. P4.5 million and P0
FAR PROBLEMS Compiled by Vhin
SITUATIONAL 2
The following information pertains to three different companies:

 On January 1, 2021, Yvette Company classified non-current assets as held for sale that had
a carrying amount of P2,500,000. On this date, the assets are expected to sold for
P2,300,000. Reasonable and expected disposal cost to be incurred for sale was expected at
P100,000. By December 31, 2021, the asset had not been sold and management after
considering its options decided to place back the non-current asset into operations. On that
date, Yvette Company’s managers estimated that the non-current asset was now expected to
be selling at P1,800,000 with a disposal cost of P50,000, while depreciation for 2021 was
computed at P500,000 if the non-current was not classified as held for sale.
 Tiktok Company acquired a patent right on July 1, 2019 for P1,250,000. The asset has a
remaining legal life of 10 years but due to the rapidly changing technology, management
estimates a useful life of only five years. On January 1, 2021, management is uncertain that
the process can actually be made economically feasible, and decides to write down the patent
to an estimated market value of P750,000. Amortization will be taken over three years from
that time.
 On January 1, 2020, Edmond Company purchased bonds with face value of P5,000,000
designated as at amortized cost. The company paid P4,742,000. The bonds mature on
December 21, 2022 and pay 6% interest annually on December of each year with 8% effective
yield. The bonds are quoted at 105 on December 31, 2020. The bonds are sold at 110 on
December 31, 2021.
5. How much is the additional loss that shall be reported by Yvette Company in the 2021
statement of comprehensive income?
a. P200,000
b. P450,000
c. P250,000
d. P-0-
6. What is the amount of impairment loss recognized in the accounts of Tiktok Company in the
year 2021?
a. P312,500
b. P250,000
c. P125,000
d. P100,000
7. What is the carrying amount of patent that Tiktok Company should be reported in its
December 31, 2021 statement of financial position?
a. P500,000
b. P625,000
c. P937,500
d. P1,250,000
8. What amount of gain on sale of Edmond Company’s bonds should be reported in the 2021
statement of comprehensive income?
a. P758,000
b. P592,931
c. P672,291
d. P678,640
SITUATIONAL 3
Information relevant to four different companies follows:
 The following costs were incurred by Simon Company related to inventory: After sales
warranty cost, P750,000; Brokerage commission to agents, P600,000; Delivery costs to
customers, P120,000; Freight, P2,000,000; Handling costs relating to imports, P300,000;
Import duties, P1,200,000; Insurance on inventories in transit, P1,000,000; Invoice cost of
merchandise inventory purchased, P15,000,000; Salary of accountants, P1,800,000; Sales
commission of sales agents, P900,000; Storage costs of finished goods, P540,000; VAT on
importation, P500,000
 On January 1, 2021, Robert Company issued P10 million bonds that will mature in five
years. The bond indenture requires Robert to establish a sinking fund for the retirement of
these bonds, with annual deposit every January 1, starting January 1, 2021 up to January
1, 2026, in time for the maturity of the bonds. The fund is to be placed in a separate account
to be maintained in the company’s depository bank. Using an average annual interest rate of
10%, net of tax expected to be earned on this investment, the company determined that the
require annual deposit to be able to accumulate a total of P10 million is P1,489,070.20.
 The following information was included in the bank reconciliation for Kenneth Company for
September.
Checks and charges recorded by bank in September, including a

September service charge of P30 P17,210
Service charge made by bank in August and recorded on the
books in September 20
Total credits to Cash in al journals during September 19,802
Customer’s NSF check returned as a bank charge in August (no
entry made on books) 100
Customer’s check returned in August and redeposited in
September (no entry made on books in either August or 250
September)
Outstanding checks at September 30 13,260
Deposit in transit at September 30 600
 On April 30, 2021, Melanie Company purchased for cash 18,000 of the 60,000 voting shares
of Homer Company for P650,000. The amount exceeded the underlying equity acquired in
the net assets of Homer Company by P150,000. The excess is attributable to undervaluation
of Homer Company’s land and equipment by P250,000 and P100,000, respectively. At April
30, 2021, the equipment had a remaining useful life of 5 years. The remaining excess was
attributable to goodwill. During the year 2021, Homer Company reported profit of P600,000,
of which P120,000 was earned during January through April. Homer Company declared and
distributed dividend of P4 per share on June 30, 2021. Market price of Homer Company
shares at December 31, 2021 is P40 per share.
9. How much is the correct amount of inventory to be reported by Simon Company?

a. P17,100,000
b. P18,300,000
c. P19,500,000
d. P20,100,000
10. How much is the bond sinking fund balance at December 31, 2021, after making the
required year-end adjustment in the fund by Robert Company?
a. P1,489,070.20
b. P1,637,977.22
c. P1,629,842.80
d. P3,127,047.42
11. How much is the Outstanding checks of Kenneth Company at September 30?
a. P10,558
b. P10,658
c. P10,668
d. P15,962
12. What is the carrying amount of investment in associates reported in Melanie Company’s
statement of financial position at December 31, 2021?
a. P708,500
b. P716,000
c. P718,000
d. P720,000
SITUATIONAL 4
Information relevant to four different companies as follows:
 On July 1, 2021, after recording interest and amortization, Berting Company converted P2
million bonds of its 12% convertible bonds into 50,000 ordinary shares, P25 par value. On
the conversion date, the carrying amount of the bonds was P2,600,000 and the paid in
capital arising from the conversion privilege recognized in the accounts is P150,000. The
market value of the bonds without the conversion privilege was P2,800,000 and Berting
Company’s ordinary share was publicly traded at P45 each.
 On January 1, 2021, Moby Company sold machinery costing P800,000 with an accumulated
depreciation of P200,000 for P500,000 which is also its fair value. The sale meets the
requirements of IFRS 15. The remaining life of the machine is twenty years. Moby Company
immediately leased the machine back for P50,000 yearly payable at the end of the year for
five years. The implicit interest rate is 6%.
 Matt Co. made available the following information relative to its defined benefit obligation
plan for the year 2021: Benefit obligation, January 1, P9,000,000; Fair value of plan assets,
January 1, P10,000,000; Current service cost, P2,700,000; Discount rate, 12%; Benefit paid
to retirees, P2,200,000; Contribution to the plan, P2,000,000; Actual return on plan assets,
P1,100,000; Net actuarial gain due to remeasurement of benefit obligation, P400,000; Past
service cost due to amendment of the benefit plan, P500,000.
 Joe Company has three lines of business, each of which is a significant industry segment.
Company sales aggregated P1,800,000 in 2021, of which Segment Ace contributed 60%.
Traceable costs were P600,000 for Segment Ace from a total of P1,200,000 for the company
as a whole. In addition, P350,000 of common costs are allocated in the ratio of a segment’s
income before common costs to the total income before common costs.
13. Under IAS 32, what amount of share premium should Berting Company record as a result of
the conversion?
a. P1,500,000
b. P1,350,000
c. P500,000
d. P350,000
14. How much is the gain or loss on sale-leaseback to be reported by Moby Company on 2021?
a. P50,820 loss
b. P50,820 gain
c. P57,900 loss
d. P57,900 gain
15. Matt Co.’s fair value of plant assets at December 31, 2021 is _______
a. P11,300,000
b. P11,000,000
c. P10,900,000
d. P10,000,000
16. For Segment Ace, Joe Company should report a 2021 segment profit of
a. P200,000
b. P270,000
c. P280,000
d. P480,000
SITUATIONAL 5
Data gathered from the two different companies follows:
 Meggie Corporation has two classes of shares outstanding, 9%, P20 par preference share
capital and P70 par ordinary share capital. During the calendar year ending December 31,
2021, the company had the following equity transactions in chronological order:
No. of shares Price per

share
Issue of preference shares 10,000 P28
Issue of ordinary shares 35,000 70
Reacquisition and retirement of preference shares 2,000 30
Purchase of ordinary treasury shares 5,000 80
Share split 2-for-1
Reissue of ordinary treasury shares 5,000 52
The balance of the accounts in the shareholders’ equity section as of December 31, 2020
statement of financial position were: Preference share capital, 50,000 shares, P1,000,000;
Ordinary share capital, 100,000 shares, P7,000,000; Preference share premium, P400,000;
Ordinary share premium, P1,200,000; and Accumulated profits, P550,000
 Rye Company sells equipment service contracts that cover a two-year period. The sales price
of each contract is P5,000. Rye Company’s experience shows that of the total pesos spent for
repairs in service contracts, 40% is incurred evenly during the first contract year and 60%
evenly during the second-year contract year. Rye Company sold 1,000 contracts evenly
throughout 2020 and 800 contracts evenly throughout 2021.
17. After considering the given transactions of Meggie Corporation, how much is the total
shareholders’ equity at December 31, 2021?
a. P12,480,000
b. P12,680,000
c. P12,600,000
d. P10,150,000
18. What is the total cost of the remaining treasury shares of Meggie Corporation?
a. P-0-
b. P200,000
c. P260,000
d. P400,000
19. In its December 31, 2020 statement of financial position, what amount should Rye Company
report as unearned revenue?
a. P-0-
b. P1,500,000
c. P3,000,000
d. P4,000,000
20. How much should Rye Company report as contract service revenue for the ended December
31, 2021?
a. P800,000
b. P2,500,000
c. P3,300,000
d. P4,500,000
SITUATIONAL 6
The following information were gathered from the records of four different companies:
 On the December 31, 2021 statement of financial position of Sammy Co., the current
receivables consisted of the following: Trade accounts receivable, including 12% VAT,
P30,000; Trade notes receivable due in January 15, 2023, P25,000; Allowance for
uncollectible accounts, P(2,000); Claim against shipper for goods lost in transit (November
2021), P3,000; Receivable from sale of goods to employees net of huge discount, P5,000;
Selling price of unsold goods sent by Sammy on consignment at 130% of cost (not included
in Sammy’s ending inventory), P26,000; Security deposit on lease of warehouse used for
storing some inventories, P30,000
 Muldong Company reported inventory of P360,000 at December 31, 2021. The following data
were gathered to confirm the reported inventory: Inventory, December 31, 2020, P320,000;
Purchases during 2021, P1,410,000; Cash sales during 2021, P350,000; Shipment received
on December 27, 2021 included in physical inventory, but not recorded as purchases,
P10,000; Deposits made with suppliers, P20,000 entered as purchases (Goods were not
received during 2021); Collections on accounts receivable during 2021, P1,800,000;
Accounts receivable, December 31, 2020, P250,000; Accounts receivable, December 31,
2021, P300,000; Gross profit percentage on sales, 40%
 Renz Company has some old equipment that cost P700,000 with an accumulated
depreciation of P400,000. The equipment was traded in for a new machine from a dealer
company that had a list price of P800,000; however, the new machine could be purchased
without trade in for P750,000 cash. Renz Company paid P500,000 cash in the exchange.
 Megatron Mining began operations on January 5, 2021. Prior to engaging in exploratory and
development activities, it purchased a tract of land for P15 million. It is estimated that this
tract will yield 480,000 tons of ore with sufficient mineral content to make mining and
processing profitable. It is estimated that 15,000 tons of ore will be unearthed in the first and
last year and 30,000 tons every year in between. The land will have a residual value of
P750,000. The company built necessary structures and sheds on the land at a cost of
P3,600,000. It was completed in 2021 and it is estimated that these structures can serve 20
years but because they must be dismantled if they moved, they have no scrap value. The
company does not intend to use the structures elsewhere.
21. At December 31, 2021, the correct total of Sammy’s current net receivables is
a. P57,786
b. P61,000
c. P87,000
d. P91,000
22. What is the estimated inventory shortage of Muldong Company at December 31, 2021?
a. P60,000
b. P50,000
c. P40,000
d. P5,000
23. What is the amount of gain (loss) on the exchange made by Renz Company?
a. P50,000 gain
b. P50,000 loss
c. P300,000 loss
d. P250,000 loss
24. For the year 2021, how much should Megatron Mining report as depreciation expense
relating to the said structures and shed?
a. P112,500
b. P180,000
c. P211,760
d. P225,000
SITUATIONAL 7
The pertinent information below is provided by four different companies:
 At December 31, 2021, the following information was gathered for the biological assets of
Machix Poultry: Price of the biological assets in an active market, P3,600,000; Broker’s
commission, P45,000; Levies by the regulatory bodies, P12,000; Transport and other costs to
get the assets to the market, P40,000; Market prices in the previous month for similar assets,
P2,900,000
 Nardo Company is unable to meet interest payments and fund requirements to retire its
P1,500,000 bonds payable. Accrued interest on the bonds amounted to P150,000. The bonds
are held by Pedro Investments, Inc. In order to prevent bankruptcy, Nardo Company entered
into agreement with Pedro Financing, Inc. to exchange equity securities for the debt. Nardo
Company is issuing 20,000 shares of its P50 par value ordinary shares. The ordinary share is
currently selling at P65.
 Veronica Company, a public limited company, has purchased inventory of P100,000. The
company has offered the supplier a choice of settlement alternatives. The alternatives are
either receiving 1,000 shares of Veronica six months after the purchase date (valued at
P110,000 at the date of purchase) or receiving a cash payment equal to the fair value of 800
shares as of December 31, 2021 (estimated value P90,000 at the date of purchase).
 Moana Corp. has estimated that total depreciation expense for the year ending December 31,
2021 will amount to P30,000, and that 2021 year-end bonuses to employees will total
P60,000.
25. At how much should the biological assets be presented in the statement of financial position
of Machix Poultry?
a. P3,600,000
b. P3,543,000
c. P3,503,000
d. P2,900,000
26. How much is the gain on debt restructuring for Nardo Company?
a. P650,000
b. P350,000
c. P250,000
d. P-0-
27. What should be the accounting entry by Veronica Company at the date of purchase of the
inventory?
a. Dr. Inventory P90,000, Cr. Liability P90,000
b. Dr. Inventory P100,000, Cr. Liability P100,000
c. Dr. Inventory P100,000, Dr. Intangible asset P10,000, Cr. Liability P110,000
d. Dr. Inventory P100,000, Cr. Liability P90,000, Cr. Equity P10,000
28. In Moana’s interim income statement for the six months ended June 30, 2021, what is the
total amount of expense relating to depreciation and bonuses that should be reported?
a. P-0-
b. P15,000
c. P45,000
d. P90,000
SITUATIONAL 8
Data gathered from the two different companies follows:

 Harold Company has information of possible pilferage in its stock of merchandise at
December 31, 2021. The following data were available:
Dec. 31, 2020 Dec. 31, 2021

Physical inventory at cost P 600,000 P 1,000,000
Sales 4,000,000
Cost of goods sold 2,400,000
Accounts receivable-trade 1,200,000 1,350,000
Accounts payable-trade 1,500,000 1,850,000
Notes receivable-trade 525,000 370,000
Notes payable-bank 300,000 200,000
In 2021, accounts written off amounted to P100,000. Sales returns were P150,000 and
purchase returns were P80,000. Cash receipts from customers, after P200,000 discounts,
totaled P6,000,000 while cash payments to trade creditors amounted to P4,000,000 after
discounts of P300,000.
 The following pretax amounts pertain to Helsinki Company for the year ended December 31,
2021: Sales, P800,000; Distribution and administrative costs, P84,000; Other income,
P40,000; Interest expense, P4,000; Cost of goods sold, P480,000; Correction of prior period
error (credit), P16,000; Discontinued operations (debit), P40,000; Cumulative effect of change
in accounting policy (credit), P28,000; Retained earnings, January 1 (not restated), P160,000;
Dividends declared, P12,000; Income tax rate is 30%
 The following transactions affected the owners’ equity of Mikasa Corporation during 2021. At
the beginning of the year there are 100,000 ordinary shares outstanding. Profit for the year
ended December 31, 2021 is P2,120,000. Tax rate is at 30%
February 1 20,000 ordinary shares were sold in the market

April 1 Purchased 5,000 ordinary shares to be held as treasury
July 1 Issued P1,000,000, 5-year, 12% convertible bonds at face value. Each
P1,000 bond is convertible into 50 ordinary shares.
July 1 35,000 ordinary shares were sold
October 1 A 5% bonus issue was declared and distributed
29. The amount that Harold Company should report as net sales for the year 2021 under the
accrual basis is _____
a. P6,600,000
b. P6,500,000
c. P6,250,000
d. P6,095,000
30. How much retained earnings would be shown on December 31, 2021 statement of financial
position of Helsinki Company?
a. P310,400
b. P335,600
c. P341,200
d. P344,800
31. What is the number of shares to be used by Mikasa Company in the calculation of diluted
earnings per share?
a. 191,625
b. 183,750
c. 164,937
d. 96,687
32. How much is the diluted earnings per share of Mikasa Company?
a. P13.58
b. P13.36
c. P13.22
d. P13.11
SITUATIONAL 9
Data gathered from the three different companies follows:

 The following information is taken from Vinsmoke Company’s 2021 financial records:
Pretax accounting income P 1,500,000

Accrued warranty in excess of actual warranty expenditures 24,500
Excess tax depreciation (45,000)
Taxable income P 1,479,500
The temporary differences were created entirely in 2021. The future deductible amount is
expected to reverse in 2022 and the future taxable amount will reverse in equal amounts in
the next three years. Tax rates are: 30% in 2021; 32% in 2022; 34% in 2023; and 35% in
2024.
 Entity A had various equity investments at fair value through profit or loss transactions
during 2020 and 2021. The acquisition cost of all the securities in its portfolio during 2020
was P532,000. At December 31, 2020 and December 31, 2021, the market values of these
equity investments were P541,000 and P512,000, respectively. In 2022, all these securities
were sold for P550,000.
 Yorme Company has an equipment costing P700,000 with an estimated residual value of
P70,000 and an estimated useful life of six years. After using and depreciating the asset for
the past two years, the company upgraded the machine parts and the cost of upgrading
amounted to P120,000.
33. How much should Vinsmoke Company report as deferred tax asset and deferred tax liability,
respectively, at December 31, 2021?
a. P7,350 and P14,400
b. P7,840 and P14,400
c. P7,840 and P15,150
d. P7,350 and P15,150
34. What is the gain on sale reported in Entity A’s 2022 income statement?
a. P38,000
b. P18,000
c. P9,000
d. P-0-
35. Assuming that the securities held by Entity A are classified as at fair value through other
comprehensive income, what is the gain on sale reported in Entity A’s 2021 income
statement?
a. P-0-
b. P9,000
c. P18,000
d. P38,000
36. Assuming that the upgrading costs extended the asset’s economic useful life by an additional
two years, what is the revised depreciation expense for the third year using the straight-line
method and sum-of-the-years digits, respectively?
a. P90,000; P140,000
b. P90,000; P120,000
c. P101,667; P140,000
d. P101,667; P120,000
SITUATIONAL 10
The following are information provided by three companies:

 On January 1, 2021, Rod Company sold an equipment to Thanyarat Company of Thailand
for BHT1,000,000 with payment to be received in two years on January 1, 2023. On January
1, 2021, the exchange rate is BHT0.50=P1. On the same date, Rod enters into a forward
contract with a bank and agrees to sell BHT1,000,000 on January 1, 2023 at the rate of
BHT0.50=P1. On December 31, 2021, the exchange rate is BHT0.47=P1. On December 31,
2022, the exchange rate is BHT0.55=P1. The appropriate discount rate is 10%.
 Papa-P Company directed its IT team to develop its own website wherein customers can place
orders and will facilitate swift response to customer’s inquiries as well. The development took
four months to complete up to May 30, 2021. Papa-P incurred the following costs from Day 1
up to May 30, 2021: Market research, P15,000; Computer equipment, P35,000; Cost of
domain name, P15,000; Applications used on the web server, P50,000; Stress testing,
P5,000; Website layout design, P40,000; Security applications installed, P25,000; Seminars
and training for website maintenance of IT staff, P20,000; Uploading of website contents,
P30,000
 Shanks Company own office space held for leasing. The carrying amount of this property on
January 1, 2021 is P2,000,000 and has an estimated useful life of 10 years. Shanks
Company computes depreciation on the straight-line basis. On January 2, 2021, Shanks
Company entered into a lease contract with Feng Company for a term of three years until
December 31, 2023. The lease fee is P100,000 per month, under an agreement for an
increase annually at the rate of 5%. Shanks Company also requires a refundable deposit of
P300,000 to be paid in advance upon occupancy. Shanks Company P120,000 commission
and other fees with negotiating the lease.
37. On December 31, 2021, Rod Company should recognize a derivative asset/liability
amounting to _______
a. P105,498 asset
b. P105,498 liability
c. P116,056 asset
d. P116,056 liability
38. How much website cost should be presented as part of intangible assets in the statement of
financial position of Papa-P as of December 31, 2021?
a. P165,000
b. P180,000
c. P200,000
d. P220,000
39. If the website is developed solely for promoting and advertising Papa-P’s products, how much
should be capitalized in the statement of financial position of Papa-P?
a. P-0-
b. P35,000
c. P165,000
d. P235,000
40. Shanks Company should report net rental income for 2023 at
a. P1,221,000
b. P1,060,000
c. P1,021,000
d. P941,000
SITUATIONAL 11
Data for three different companies are provided as follows:

 On January 1, 2021, Roel, Inc. acquired as a long-term investment for P1,400,000, a 40%
interest in Joan Company when the fair value of Joan’s assets was P3,500,000. Due to
COVID-19 pandemic, Joan Company experienced difficulty in continuing its business and
reported the following net losses: P1,000,000 in 2021; P1,400,000 in 2022; P1,600,000 in
2023; and P800,000 in 2024. In order to sustain its operations, Roel made cash advances of
P400,000 to Joan Company in 2023. On December 31, 2024, it is not expected that Roel will
provide further financial support for Joan.
 Dante Corporation insures the life of its president for P8,000,000, the corporation being the
beneficiary of an ordinary life policy. The premium is P200,000. The policy is dated January
1, 2017. The cash surrender value on December 31, 2020 and 2021 are P60,000 and
P80,000 respectively. Dante follows the calendar year as its fiscal period. The president died
on October 1, 2021 and the insurance proceeds was collected on December 31, 2021. No
premium was refunded on the insurance settlement.
 The following information pertain to the only sale of inventory transaction of Jack Company
in 2021: Date of sale-December 23, 2021; No. of units sold, 10,000; Selling price, P150 per
unit; Right to return period – within 15 days; Estimated return for cash refund within 15
days – 5% of units sold; Estimated return for exchange of equal or greater value of
merchandise – 10%; Cost per unit, P100
41. What amount of loss should be reported by Roel Company as loss from investment in 2024?
a. P320,000
b. P800,000
c. P200,000
d. P120,000
42. What is the gain on life insurance settlement of Dante Corporation?

a. P7,800,000
b. P7,870,000
c. P7,875,000
d. P7,890,000
43. Compute the amount of sales to be recognized by Jack Company in 2021?

a. P1,500,000
b. P1,475,000
c. P1,425,000
d. P1,000,000
44. What amount of cost of goods sold will appear in Jack Company’s statement of income for
the ended 2021?
a. P925,000
b. P950,000
c. P975,000
d. P1,000,000
SITUATIONAL 12
Information provided relative to four different companies follows:

 For the past several years, the stewardship of the Chief Operating Officer (COO)of Vhin
Corporation is responsible for its successful operations. In the last year’s operations,
however, there was a slight decline in Vhin’s revenue figures. In order to motivate the COO to
obtain greater positive operations for the company, the board of directors approved a share
appreciation plan to take effect on January 1, 2019. The COO was issued share appreciation
rights exercisable for one year beginning January 1, 2021 provided that the officer is still in
the employ of the company at the date of exercise. The share appreciation right provides for a
cash payment equal to the excess of the Vhin share price over P50. The equivalent number of
shares for share appreciation rights will be based on the level of sales of the company at the
date of exercise as follows:
Level of sales Equivalent shares granted

P100 million to P200 million 10,000
Over 200 million 12,000
Actual sales achieved by Vhin Corporation and the share prices at the end of each year are
as follows:
Year Sales Share Price

2019 P120 million P77
2020 P250 million P75
 The shareholders’ equity of Archie Company on December 31, 2021 consists of the following
accounts: Preference share capital, 10%, cumulative, P100 par (50,000 shares), P5,000,000;
Ordinary share capital, P100 par (200,000 shares), P20,000,000; Subscribed ordinary
shares, net of subscription receivable of P4,000,000 (100,000 shares), P6,000,000; Treasury
ordinary shares at cost (50,000 shares), P4,000,000; Share premium, P10,000,000; Retained
earnings, P8,000,000. Preference dividends have not been paid for three years and have a
liquidation value of P110.
 Wolfgang Company factored P5,000,000 of accounts receivable. Control was surrendered to

Wolfgang. The transaction met the criteria to be accounted for as sale but subject to recourse
for non-payment. The fair value of the recourse obligation is P250,000. The finance assessed
a fee of 6% and retained a holdback equal to 10% of the accounts receivable. In addition, the
finance company charged 12% interest computed on a weighted average time to maturity of
the accounts receivable for 30 days.
 On December 31, 2021, Chewy Company determined the following data regarding its
chocolates. These chocolates could be sold as finished candy bars: Historical cost of
chocolates, P5,200,000; Replacement cost of chocolates, P4,000,000; Conversion cost to
process the chocolates into candy bars, P2,400,000; Estimated selling price of candy bars,
P8,000,000; Normal profit margin based on sales – 10%
45. How much is the compensation expense of Vhin Corporation for the year 2020?
a. P900,000
b. P515,000
c. P300,000
d. P165,000
46. Determine the book value per ordinary share of Archie Company
a. P210
b. P168
c. P166
d. P152
47. What amount was initially received by Wolfgang Company from the factoring of accounts
receivable?
a. P4,500,000
b. P4,200,000
c. P4,700,685
d. P4,150,685
48. Wolfgang Company should initially recognize a loss on factoring amounting to ______
a. P849,315
b. P755,000
c. P599,315
d. P349,315
49. What amount of chocolate inventory should be reported by Chewy Company on December
31, 2021?
a. P5,600,000
b. P5,200,000
c. P4,800,000
d. P4,000,000
50. Assume that Chewy Company can only sell the candy bars for P6,000,000, what amount
should be reported as chocolate inventory on December 31, 2021?
a. P5,600,000
b. P5,200,000
c. P4,800,000
d. P4,000,000
FAR SITUATIONAL
ANSWER KEY & SOLUTION
SITUATIONAL 1
Ritch Company
Pre-adjustment cash balance per books 76,837
Outstanding checks 12,075
Deposit in transit (7,280)
Net adjustment in the cash balance (debit) 6,273
Unadjusted balance per bank statement 87,905 (1) D
Kei Company
Invoice price of goods (4.0M x 80% x 90%) 2,880,000
Sales returns 400,000
Net sales 2,480,000
Less: freight paid by client 100,000
Net realizable value* 2,380,000 (2) D
*the 10-day discount period has alreadylapsed as of December 31
Jovit Company
Fair value 22,000,000
Carrying value
Cost 30,000,000
Accumulated depreciation (27M/15 yrs) x 8 (14,400,000) 15,600,000
Revaluation surplus, January 1, 2021 6,400,000
Amount transferred to retained earnings (6.4M/10) (640,000)
Revaluation surplus balance, December 31, 2021 5,760,000 (3) A
Lance Company
(Fair value model) Fair value, end of year 5,000,000
Reclassification from owner-occupied to investment property,
P500,000 difference is credited to revaluation surplus, not to P&L P-0- (4) B
SITUATIONAL 2
Yvette Company
Carrying amount after classification as held for sale on January 1, 2021
(lower between P2,200,000 and P2,500,000) 2,200,000
Fair value less cost to sell at December 31, 2021 (1.8M – 50,000) 1,750,000
Additional loss in 2021 450,000 (5) B
Tiktok Company
Amortization (1,250,000/5=250,000)
Carrying amount 1,250,000 – (250,000 x 1.5 years) 875,000

Fair value 750,000
Impairment loss 125,000 (6) C
New carrying value, January 1, 2021 750,000

Less: amortization for the year (750,000/3 years) 250,000
Patent carrying value, December 31, 2021 500,000 (7) A
Edmond Company
Sales price of bond investment (5.0M x 1.10) 5,500,000
Acquisition cost, January 1, 2020 4,742,000
Amortization of discount, December 31, 2020
Nominal interest (5.0M x 6%) 300,000
Effective interest (4,742,000 x 8%) 379,360 79,360
Amortized cost, December 31, 2020 4,821,360
Amortization of discount, December 31, 2021
Nominal interest 300,000
Effective interest (4,821,360 x 8%) 385,709 85,709 4,907,069
Gain on sale 592,931 (8) B
SITUATIONAL 3
Simon Company
Brokerage commission to agents 600,000
Freight 2,000,000
Handling costs relating to imports 300,000
Import duties 1,200,000
Insurance on inventories in transit 1,000,000
Invoice cost of merchandise inventory purchased 15,000,000
Correct inventory 20,100,000 (9) D
Robert Company
1st deposit on January 1, 2021 1,489,070.20
Interest (1,489,070.20 x 10%) 148,907.02
Bond sinking fund balance 1,637,977.22 (10) B
Kenneth Company
Outstanding checks, July 31 13,260
Checks cleared during July
Checks and charges recorded by bank 17,210
Less: July service charge (30)
Less: Customer’s NSF check charged in July (100) 17,080
Checks issued during July
Total of credits to cash in all journals 19,802
Service charge in June recorded in July (20) (19,782)
Outstanding checks, July 1 10,558 (11) A
Melanie Company
Acquisition cost 650,000.00
Share in reported income (600,000 – 120,000 ) x 30% 144,000.00
Adjustment in reported income (Attributable to equipment)
(100,000 x 30% = 30,000; 30,000/5 years = 6,000; 6000 x 8/12) (4,000.00)
Dividends received (18,000 x P4.00) (72,000.00)
Investment carrying value, December 31, 2021 718,000.00 (12) C
SITUATIONAL 4
Berting Company
Carrying amount of bonds converted 2,600,000
Paid in capital arising from conversion privilege 150,000
Total 2,750,000
Par value of ordinary shares issued (50,000 x 25) (1,250,000)
Share premium resulting from bond conversion 1,500,000 (13) A
Moby Company
Fair value of rights retained (P50,000 x 4.21) 210,500
Carrying value of right retained (210,500 ÷ 500,000 x 600,000) 252,600
Carrying value of right transferred (600,000 – 252,600) 347,400
Total proceeds 500,000

Present value of liability 210,500
Selling price of right transferred 289,500
Carrying value of right transferred 347,400
Loss on leaseback (57,900) (14) C
Matt Co.
Plan assets, beginning 10,000,000
Actual return on plan assets 1,100,000
Contribution to the plan 2,000,000
Benefits paid (2,200,000)
Plan assets, ending 10,900,000 (15) C
Joe Company
Segment Ace Total
Sales (P1,800,000 x 60%) 1,080,000 1,800,000
Traceable costs (600,000) (1,200,000)
Income before common costs 480,000 600,000
Cost allocated (P480,000/ P600,000 x P350,000) (280,000) (350,000)
Operating profit 200,000 250,000
(16) A
SITUATIONAL 5
Meggie Corporation
Total shareholders’ equity, December 31, 2020 10,150,000
Issue of preference shares (10,000 x 28) 280,000
Issue of ordinary shares (35,000 x 70) 2,450,000
Reacquisition and retirement of preference shares (2,000 x 30) (60,000)
Purchase of ordinary treasury shares (5,000 x 80) (400,000)
Share split (2-for-1) -
Reissue of ordinary treasury shares (5,000 x 52) 260,000
Total shareholders’ equity, December 31, 2021 12,680,000 (17) B
Purchase of treasury shares 5,000 @ P80 = P400,000
2-for-1 split 10,000 @ P40 = P400,000
Reissue of shares (5,000 @ P40 = 200,000)
Remaining treasury shares 5,000 @ P40 200,000 (18) B
Rye Company
Contracts sold in 2020 (1,000 x 5000) 5,000,000
Revenue recognized in 2020 (5.0M x 40% x ½) 1,000,000
Unearned revenue, December 31, 2020 (or 5M x 80%) 4,000,000 (19) D
From 2020 sales (5.0M x 40% x ½) + (5.0M x 60% x ½) 2,500,000

From 2021 sales (800 x 5,000 = 4M; 4M x 40% x ½) 800,000
Contract sales revenue for year 2021 3,300,000 (20) C
SITUATIONAL 6
Sammy Co.
Trade receivables 30,000
Trade notes receivable 25,000
Allowance for uncollectible accounts (2,000)
Claim against shipper for goods lost in transit 3,000
Receivable from sale of goods to employees net of huge discount 5,000
Current net receivables 61,000 (21) B
Muldong Company
Inventory, December 31, 2020 320,000
Purchases (1,410,000 + 10,000 – 20,000) 1,400,000
Cost of goods available for sale 1,720,000
Estimated cost of goods sold
350,000 +1.8M + 300,000 – 250,000 = 2,200,000 x 60% (1,320,000)
Estimated cost of ending inventory 400,000
Reported amount of ending inventory (360,000)
Inventory shortage 40,000 (22) C
Renz Company
Trade in allowance/Fair value of old asset (750,000 – 500,000) 250,000
Carrying value of old asset (700,000 – 400,000) 300,000
Loss on exchange (50,000) (23) B
Megatron Mining
Cost of structures and sheds 3,600,000
Estimated yield (in tons) ÷ 480,000
Depreciation rate per ton 7.50
Number of tons removed during 2021 x 15,000
Depreciation expense for 2021 112,500 (24) A
SITUATIONAL 7
Machix Poultry
Fair value of biological assets, December 31 3,600,000
Costs to sell (45,000 + 12,000) (57,000)
Biological assets (at FV less CTS), December 31, 2021 3,543,000 (25) B
Nardo Company
Carrying value of debt restructured (1.5M + 150,000) 1,650,000
Fair value of ordinary shares issued in settlement (20,000 x 65) 1,300,000
Gain on debt restructuring 350,000 (26) B
Veronica Company
Value of inventories 100,000
Fair value of debt 90,000
Residual to equity 10,000
**Journal Entry: Inventory (Dr.) 100,000

Liability (Cr.) 90,000 (27) D
Equity (Cr.) 10,000
Moana Company
Allocated equally between periods (30,000 + 60,000) ÷ 2 45,000 (28) C
SITUATIONAL 8
Harold Company
Cash receipts from customers 6,000,000
Accounts written off 100,000
Accounts receivable, beg (1,200,000)
Accounts receivable, end 1,350,000
Notes receivable - trade, beg (525,000)
Notes receivable - trade, end 370,000
Net sales 6,095,000 (29) D
Helsinki Company
Net profit
(800,000 – 84,000 + 40,000 – 4,000 – 480,000 – 40,000) x 70% 162,400
Retained earnings, January 1 160,000
Correction of prior period error, net of tax (16,000 x 70%) 11,200
Cumulative effect of change in accounting policy, net of tax (28,000 x 70%) 19,600
Dividends declared (12,000)
Retained earnings, December 31, 2021 341,200 (30) C
Mikasa Corporation
January 1 (100,000 x 1.05) 105,000
February 1 (20,000 x 1.05 x 11/12) 19,250
April 1 (5,000 x 1.05 x 9/12) (3,938)
July 1 (35,000 x 1.05 x 6/12) 18,375
weighted average number of shares 138,687
Number of shares for basic earnings per share 138,687

Potential ordinary shares (1,000 x 50 x 1.05 x 6/12) 26,250
Number of shares for diluted earnings per share 164,937 (31) C
Diluted earnings per share

2,120,000 + (1M x 12% x 6/12 x 70%) /164,937 13.11 (32) D
SITUATIONAL 9
Vinsmoke Company
Deferred tax asset (24,500 x 32%) 7,840
Deferred tax liability
(15,000 x 32%) + (15,000 x 34%) + (15,000 x 35%) 15,150 (33) C
Entity A
Selling price of the securities 550,000.00
Carrying amount/fair value, December 31, 2021 512,000.00
Gain on sale 38,000.00 (34) A
Gain on sale - NONE (assuming Entity A classified securities at FVOCI) - (35) A
Yorme Company
Straight line carrying value after two years
700,000 – (630,000/6 years) x 2 years 490,000
Upgrading costs 120,000
Total 610,000
Revised depreciation for third year (610,000 – 70,000)/ 6 years 90,000
SYD carrying value after two years [700,000 – (630,000 x 11/21)] 370,000.00
Upgrading costs 120,000.00
Total 490,000.00
Revised depreciation for third year (490,000 – 70,000) x 6/21 120,000.00 (36) B
SITUATIONAL 10
Rod Company
Forward contract selling price (BHT 1,000,000/0.5) 2,000,000
Less: peso equivalent, Dec. 31, 2021 (BHT 1,000,000/0.47) 2,127,660
Receivable from (payable to) bank, Dec. 31, 2021 (127,660)
multiply by prsent value of 1 at 10% 0.9091
Derivative asset (liability), Dec. 31, 2021 (116,056)
Note: The fair value adjustment loss of P116,056 (the corresponding debit to recognize the derivative
liability) is recognized in profit or loss. This will effectively offset the foreign exchange gain of P116,175
which is also recognized in profit or loss. The difference of P119 is due to rounding of the present value factor.
Papa-P Company
Cost of domain name 15,000
Applications used on the web server 50,000
Stress testing 5,000
Website layout design 40,000
Security applications installed 25,000
Uploading of website contents 30,000
Capitalized cost of website 165,000 (38) A
All the costs should be charged to expense, except the computer

equipment, which is capitalized as PPE amounting to P35,000 - (39) B
Shanks Company
Rental payments
1st year (100,000 x 12) 1,200,000
2nd year (105,000 x 12) 1,260,000
3rd year (110,250 x 12) 1,323,000
Total for 3 years 3,783,000
Rent revenue per year (3,783,000/3) 1,261,000

Initial direct costs (120,000/3) (40,000)
Depreciation expense (2,000,000/10) (200,000)
Net rental income 1,021,000 (40) C
SITUATIONAL 11
Roel, Inc.
Acquisition cost, January 1, 2021 1,400,000
Cash advances 400,000
Total investment in Joan 1,800,000
Share in losses of 2021 – 2023 (4M x 40%) (1,600,000)
Investment carrying amount, December 31, 2023 200,000 (41) C
(maximum amount of share in net loss for 2024)
Dante Corporation
Face value of life insurance policy 8,000,000
Cash surrender value of life insurance, December 31, 2020 (60,000)
Unexpired insurance (200,000 x 3/12) (50,000)
Gain from life insurance settlement 7,890,000 (42) D
Jack Company
Sales (10,000 units x P150 per unit) 1,500,000
Right of return (1,500,000 x 5%) – Refund Liability (75,000)
Sales revenue – 2021 1,425,000 (43) C
Cost of good sold (10,000 units x P100 per unit) 1,000,000

Cost of recover asset (10,000 units x 5% x P100 per unit) (50,000)
Cost of goods sold – 2021 950,000 (44) B
SITUATIONAL 12
Vhin Corporation
Compensation expense for 2019
10,000 shares x (77 – 50) = 270,000; 270,000 x ½ 135,000
Compensation expense for 2020

12,000 shares x (75 – 50) = 300,000; 300,000 – 135,000 165,000 (45) D
Archie Company
Total shareholders’ equity (subscribed, at gross amount) 49,000,000
Less: equity identified with preference shares
Liquidation value (50,000 x 110) 5,500,000
Dividends in arrears (5M x 10% x 3 years) 1,500,000 7,000,000
Equity identified with ordinary shares 42,000,000
Number of ordinary outstanding shares, including subscribed ÷ 250,000
Book value per share 168.00 (46) B
Wolfgang Company
Face amount of accounts factored 5,000,000
Service fee/commission fee/assessment fee (5,000,000 x 6%) (300,000)
Interest charge (5,000,000 x 12% x30/365) (49,315)
Factor's holdback (5,000,000 x 10%) (500,000)
Net proceeds from factoring 4,150,685 (47) D
Service fee/commission/assessment (see above) 300,000
interest charge (see above) 49,315
fair value of recourse obligation 250,000
Total loss on factoring 599,315 (48) C
Chewy Company
Historical cost of chocolates 5,200,000
Conversion cost 2,400,000
Total cost 7,600,000
Estimated selling price 8,000,000
Higher - Estimated selling price 8,000,000
Note: Since the cost P7,600,000 can be recovered from sale (P8,000,000), the material will not be written
down and it will still be measured at historical cost of P5,200,000 . (49) C
Historical cost of chocolates 5,200,000

Conversion cost 2,400,000
Total cost 7,600,000
Estimated selling price 6,000,000
Conclusion, (Higher - Cost) Impaired
Note: Even if the company continue to process the inventory to its finished products, the total cost of
P7,600,000 will not be recovered. Therefore, the raw materials should be written down to its Net Realizable
Value (replacement cost) of P4,000,000 (50) B
FINANCIAL ACCOUNTING AND REPORTING
SITUATIONAL PROBLEMS (PART 2)
Compiled by Vhin
SITUATIONAL 1
The following are relevant data of four different companies:
 On January 1, 2021, Aaron Company borrows P2,000,000 from National Bank at 11% annual interest.
IN addition, Aaron is required to keep a compensatory balance of P200,000 on deposit at National
Bank which will earn interest at 5%.
 On January 1, 2021, Abigail Corporation sold equipment costing P380,000 with accumulated
depreciation of P160,000 on the date of sale. Abigail received as consideration for the sale, a
P400,000, non-interest-bearing note, due January 1, 2024. There was no established exchange price
for the equipment and the note had no ready market. The prevailing rate of interest for a note of this
type at January 1, 2021 was 10%. The present value of 1 at 10% for three periods is 0.75.
 On December 31, 2021, Alexis Company issued P2 million, 12% serial bonds to be repaid in the
amount of P500,000 each year. Interest is payable annually on December 31. The bonds were issued
to yield 10% a year. The bond proceeds were P2,083,000 based on the present values at December 31,
2020. Alexis Company amortizes the bond discount by the interest method.
 Adrian Company provided the following information for the year ended December 31, 2021: Profit,
P2,000,000; Share capital, P5,600,000; Dividends declared, P1,200,000; Total assets, P14,950,000;
Share premium, P2,400,000; Prior period adjustment for 2020 over-depreciation, P500,000. The debt-
to-equity ration is 30% at December 31, 2021
1. The effective interest that Aaron Company pays on its P2,000,000 loan is
a. 10%
b. 11%
c. 11.5%
d. 11.67%
Annual interest expense (2,000,000 x 11%) P220,000

Less: Interest income on compensating
balance (200,000 x 5%) (10,000)
Total annual interest expense – net 210,000
Divided by: Available cash 1,800,000
Effective interest rate 11.67%
2. Assuming that the equipment was sold and the note described in the problem was received on July 1,
2021, all other data being the same, what is the interest revenue to be recognized by Abigail
Corporation for the year ended December 31, 2021?
a. P15,000
b. P16,000
c. P20,000
d. P30,000
Interest income for 2021 (400,000 x 0.75 x 10% x 6/12) P15,000
3. In its December 31, 2021 statement of financial position at what amount should Alexis Company
report the carrying value of the bonds?
a. P2,083,000
b. P2,051,300
c. P1,531,700
d. P1,551,300
Carrying value, December 31, 2020 P2,083,000

1st principal payment (500,000)
Amortization of premium
Effective interest (10% x 2,083,000) 208,300
Nominal interest (12% x 2.0M) 240,000 (31,700)
FAR SITUATIONAL PROBLEMS (PART 2) Compiled by Vhin
4. What was the retained earnings balance of Adrian Company on January 1, 2021?
a. P3,200,000
b. P2,200,000
c. P2,165,000
d. P1,165,000
Total equity, December 31, 2021 (14,950,000/130%) P11,500,000
Share capital (5,600,000)
Share premium (2,400,000)
Retained earnings, December 31, 2021 P 3,500,000
Prior period adjustment for 2020 over depreciation (500,000)
Dividends declared 1,200,000
Profit for 2021 (2,000,000)
Retained earnings, January 1, 2021 P2,200,000
SITUATIONAL 2
Data gathered with three companies are as follows:
 Boyet Company purchased P8,000,000, 11%, 5-year bonds on April 1, 2021, when the market interest
was 10%. The financial instruments meet the business model test and are classified as debt
investments at amortized cost. The bonds are purchased at P8,295,000 and pay interest annually on
March 31. Boyet Company uses the effective interest method of amortization and its accounting year
ends on December 31.
 On April 30, 2021, Vercon Company approved a plan to dispose of a segment of its business. At this
date, the entity is committed to a plan to sell the segment and classifies its assets as Held for Sale. The
carrying value of the segment's net assets at April 30 was P800,000. In compliance with IFRS 5, no
further depreciation or amortization was taken up on these assets until they were sold in November.
During November, disposal costs incurred by Vercon totaled P22,500. During the period January 1,
2021 through November 30, 2021, the segment had total revenues of P4,500,000 and total selling and
administrative expenses of P4,080,000. On November 30, 2021, the segment's net assets were sold for
P850,000. The income tax rate is 30%.
 Baldwin Company reported post-tax profit of P491,400 for the year ended December 31, 2021. Cost
of goods sold amounted to P2,108,000 which is P270,000 greater than the net purchases during the
year. Operating expenses amounted three times the peso amount of income tax expense. Beginning
inventory is three times the amount of ending inventory. Income tax rate is 30%.
5. How much is the interest revenue reported in Boyet Company's statement of comprehensive income
for the year ended December 31, 2021 and December 31, 2022??
a. P829,500 and P824,450
b. P622,125 and P825,713
c. P880,000 and P880,000
d. P622,125 and P824,450
Interest revenue for 2021 (829,500 (see table) x 9/12) P622,125
Interest revenue for 2022 (see table)

January 1 – March 31 829,500 x 3/12 207,375
April 1 – December 31 824,450 x 9/12 618,338 P825,713
Date Nominal Interest Effective Interest Amortization Carrying Value

4/1/21 8,295,000
3/31/22 880,000 829,500 50,500 8,244,500
3/31/23 880,000 824,450 55,550 8,188,950
6. What is the single amount reported as discontinued operations in Vercon’s profit or loss for 2021?
a. P447,500
b. P397,500
c. P313,250
d. P278,250
Operating profit of discontinued operations (4.5M – 4.08M) P420,000

Disposal costs incurred (22,500)
Gain on disposal of discontinued segment (850,000 – 800,000) 50,000
Net amount P447,500
Net of 30% tax x 70%
Amount reported as discontinued operations P313,250
7. How much were the total operating expenses of Baldwin Company during the year 2021?
a. P442,260
b. P552,620
c. P638,100
d. P631,800
Pre-tax profit (491,400/70%) = 702,000

Operating expenses (702,000 x 30% x 3) P631,800
8. What is the amount of Baldwin Company’s sales for the year 2021?
a. P3,441,800
b. P3,416,600
c. P3,418,000
d. P3,041,660
Pre-tax profit P 702,000

Operating expenses 631,800
Cost of goods sold 2,108,000
Sales for the year P3,441,800
SITUATIONAL 3
The following are data gathered from four different companies:
 On August 1, 2021, ABC Company leased two cars from Avis Cars for an initial period of 12 months with a
provision for a continuation of a month-to-month basis to be agreed by both parties two months prior to the
expiration of the 12 months lease contract. XYZ uses the "lease as expense" option to account for the
transaction. Lease payments are to be made as follows: 1st two months, P15,000 per month; Next three
months, P12,000 per month; Next three months, P10,000; and Last four months, P7,500 per month. After the
first year, the rent continues at P6,000 per month.
 Kelly Company reported pretax financial income of P6,500,000 and P8,200,000 for years 2020 and 2021,
respectively. The tax bases for its assets and liabilities on December 31, 2020 and December 31, 2021 were
equal to their carrying amounts except for property, plant and equipment and provision for warranty.
Equipment, costing P4,000,000 with estimated residual value of P400,000 and estimated useful life of 8 years,
was acquired on January 1, 2020. This asset was depreciated using straight-line method for financial reporting
purposes and sum-of-the-years' digits method for tax purposes. For years 2020 and 2021, the company
recorded warranty expense in its books amounting to P325,000 and P430,000, respectively. However, actual
warranty expenditures were posted in the accounts amounting to P290,000 and P330,000 for years 2020 and
2021, respectively. There are no other temporary differences during the two-year period. Income tax rate for all
years is 30%.
 Macky Company had the following ordinary share activities in 2021: January1, 500,000 ordinary shares
outstanding; March 1, issued new 60,000 ordinary shares; June 1, Ordinary share was split 2-for-l; November
1, Reacquired 48,000 ordinary shares. Macky Company had 100,000 shares of P20 par, 10% cumulative and
convertible Preference share outstanding throughout 2021. Each preference share is convertible into one
ordinary share, During the year 2021, the company reported profit of P2,930,000.
 At the beginning of 2021, Betina Company had retained earnings of P3,000,000. Throughout the year, the
company had 20,000 shares of P100 par value ordinary shares that are issued and outstanding. During the year
2021, Betina Company reported profit of P5,000,000, purchase treasury shares for P580,000, declared cash
dividends of P1,500,000, reissued all treasury shares at a gain of P180,000, and declared and issued 5,000
ordinary shares as bonus issue when the market value was P150 per share.
9. How much is ABC Company's rent expense for the year ended December 31, 2021 and prepaid rent
balance at December 31, 2021?
a. P66,000 and P13,500 respectively
b. P52,500 and P23,500 respectively
c. P52,500 and P13,500 respectively
d. P10,500 and P66,000 respectively
Total rental payments

(15,000 x 2) + (12,000 x 3) + (10,000 x 3) + (7,500 x 4) = 126,000
Rent expense per month (126,000/12) = 10,500
Rent expense, August 1 – December 31 (10,500 x 5 months) = P52,500
Total payments for 5 months (15,000 x 2) + (12,000 x 3) P66,000

Rent expense for the period (52,500)
Prepaid rent, December 31, 2021 P13,500
10. How much was the deferred tax asset and deferred tax liability at December 31. 2021?
a. P40,500 and P180,000 respectively
b. P10,500 and P180,000 respectively
c. P40,500 and P105,000 respectively
d. P180,000 and P105,000 respectively
Deferred tax asset, December 31, 2021 (35,000 + 100,000) x 30% P40,500
Deferred tax liability, December 31, 2021 (350,000 + 250,000) x 30% P180,000
11. What are the basic earnings per share and diluted earnings per share of Macky Company?
a. P2.68 and P2.11 respectively
b. P2.50 and P2.27 respectively
c. P2.55 and P2.30 respectively
d. P5.33 and P2.50 respectively
Basic earnings per share (2,930,000 – (100,000x20x 10%) / 1,092,000 P2.50

Diluted earnings per share (2,930,000/1,092,000+ (100,000 x 2) P2.27
12. What is the retained earnings balance of Betina Company at December 31, 2021?
a. P6,180,000
b. P5,750,000
c. P5,930,000
d. P6,000,000
Retained earnings, January 1, 2021 P3,000,000

Profit for the year 5,000,000
Cash dividends declared (1,500,000)
Large bonus issue (5,000 x 100 par) (500,000)
Retained earnings, December 31, 2021 P6,000,000
SITUATIONAL 4
The following are relevant data of four different companies:
 Johnny Company has the following data relating to accounts receivable for the year ended December
31, 2021: Accounts Receivable, January 1, P325,000; Allowance for Bad Debts, January 1, P18,400;
Sales during the year, all on account, terms: 5/10, 3/15, n/30, P2,800,000; Cash received from
customers during the year, P2,260,000; Accounts written off during the year, P17,500; Sales returns
and allowances, P14,280. An analysis of cash received from customers during the year revealed that
P1,140,000 was received from customers availingthe10-day discount period P873,000 was received
from customers availing the15-day discount period P12,000 represented recovery of accounts written
off, and the balance we' received from customers paying beyond the discount period. Johnny
Company's year-end balance of allowance for bad debts was estimated to be 5% of the outstanding
accounts receivable as at December31, 2021, based the aging of the accounts.
 Omicron Company acquired a building on January 1, 2021 for P270,000. At that date, the building
had a useful life of 15 years. At December 31, 2021, the fair value of the building was P360,000. The
building was classified as an investment property and accounted for under the cost model.
 The following information is taken from the records of Madelle Company for 2021: Post-tax profit,
P11,200,000; Amortization of premium of debt securities at amortized cost, P600,000; Purchase of
equipment, P6,000,000; Depreciation expense, P940,000; Decrease in accounts receivable, P800,000;
Decrease in accounts payable, P2,800,000; Issuance of long-term note payable for cash, P4,200,000;
Increase in inventories, P3,500,000; Gain on sale of land, P920,000; Increase in prepaid assets,
P290,000; Decrease in income tax payable, P1,280,000; Payment of cash dividends, P1,800,000;
Increase in wages payable, P68,000; Patent amortization expense, P650,000
 Bongbong Company determined that the amortization rate on its patents is unacceptably low due to
current advances in technology. The company decided at the beginning of 2021 to decrease the
estimated total useful life on all existing patents from 10 years to 8 years. Patents were purchased on
January 1, 2016 for P3,000,000. The estimated residual value is zero. Bongbong Company decided on
January 1, 2021 to change its depreciation method for manufacturing equipment from an accelerated
method to the straight-line method. The straight-line method is to be used for new acquisitions as well
as for previously acquired equipment. As of January 1, 2021, the total historical cost of depreciable
assets is P8,000,000 and the accumulated depreciation on those assets is P3,400,000. The expected
remaining useful life of Bengbu's depreciable assets as of January 1, 2021 is 10 years and the
expected residual value is P200,000.
13. How much is the Accounts receivable balance of Johnny Company at December 31, 2021?
a. P770,220
b. P758,220
c. P746,220
d. P742,220
Accounts receivable, January 1 P325,000

Sales during the year 2,800,000
Cash received from customers (2,260,000)
Accounts written off (17,500)
Sales returns and allowances (14,280)
Sales discounts
(1,140,000 ÷ 95%) x 5% P60,000
(87,000)
(873,000 ÷ 97%) x 3% 27,000
Recoveries of accounts written off 12,000
Accounts receivable, December 31 P758,220
14. According to IAS 40 Investment Property, what amounts should be carried in the statement of
financial position and recognized in profit or loss by Omicron Company?
a. P360,000 and No gain/loss, respectively
b. P270,000 and No gain/loss, respectively
c. P360,000 and Gain of P108,000, respectively
d. P252,000 and Expense of P18,000, respectively
Carrying amount (cost model) 270,000 x 14/15 P252,000

Depreciation expense (270,000/15) P 18,000
15. How much is the net cash flow from operating activities of Madelle Company during 2021?
a. P6,748,000
b. P5,548,000
c. P5,468,000
d. P4,268,000
Profit P11,200,000
Amortization of premium on debt securities at amortized cost 600,000
Depreciation expense 940,000
Decrease in accounts receivable 800,000
Decrease in accounts payable (2,800,000)
Increase in inventories (3,500,000)
Gain on sale of land (920,000)
Increase in prepaid assets (290,000)
Decrease in income tax payable (1,280,000)
Increase in wages payable 68,000
Patent amortization expense 650,000
Net cash flow from operating activities P5,468,000
16. What is the total charge against 2021 income of Bongbong Company as a result of the accounting
change?
a. P960,000
b. P940,000
c. P647,500
d. P627,500
Amortization of patents for 2021

Carrying value, January 1, 2021 (3.0M x 5/10) 1,500,000
Revised remaining life ÷ 3 years P500,000
Depreciation of manufacturing equipment
Depreciable carrying value, January 1, 2021
440,000
(8.0M – 3.4M – 200,000) = 4.4M; 4.4M/10 years
Total charge against 2021 income P940,000
SITUATIONAL 5
The following are data about four unrelated entities.
 Samson Company started business in 2020. It sells printers with a three-year warranty. Samson
Company estimates its warranty cost as a percentage of peso sales. Based on past experience, it is
estimated that 2% will be repaired during the first year of warranty, 4% will be repaired during the
second year of warranty and 6% will be repaired in the third year. In 2020 and 2021, the company
was able to sell 7.500 units and 8,400 units, respectively at a selling price of P5,000 per unit. The
company also incurred actual repair costs of P53,000 and P1,176,000 in 2020 and 2021, respectively.
 Covax Enterprise prepares quarterly interim financial reports in accordance with IAS 34. Covax 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, which was P10 million. However, in the second quarter,
a design fault was found and warranty claims were expected to be 10% for the whole of the year.
Sales in the second quarter were P15 million.
 On July 1, 2021, Charlene Company acquired a 25% interest in the outstanding share of Debbie
Company at a total cost of P1,750,000. The underlying equity of the shares acquired by Charlene
Company was P1,500,000. The difference was due to the following: Land with current fair value of
P750,000 more than its carrying amount; Depreciable plant assets with current fair value of P150,000
more than carrying amount; Inventories which are undervalued by P20,000. All other identifiable
assets of Debbie Company have fair values equivalent to their book values. The depreciable plant
assets have remaining useful lives of 10 years from the date of acquisition of the investment. All of
the inventories have been sold as of December 31, 2021. Charlene Company received P100,000
dividends from Debbie Company in 2021. Debbie Company reported P1,350,000 profit during the
year ended December 31, 2021. Interim reports from Debbie Company revealed that it earned
P650,000 during the first two quarters of 2021. There are no differences in accounting policies
between the two companies, nor do differences in reporting dates exist. Assume that there is no
indication of impairment in the shares as of December 31, 2021.
 Morris Company leased equipment from Philip Company on July 1, 2021, for an eight-year period
expiring on June 30, 2029. Equal annual payments under the lease are P100,000 and are due on July 1
of each year. The first payment was made on July 1, 2021. The rate of interest contemplated by
Morris and Philip is 8%. The cash selling price of the equipment is P620,625 and the cost of the
equipment on Philip Company's accounting records was P550,000. The lease is appropriately
recorded as a sale for accounting purposes by Philip Company.
17. What amount should Samson Company report as warranty expense in 2020?
a. P7,834,000
b. P5,040,000
c. P4,500,000
d. P3,970,000
Warranty expense in 2020 (7,500 x 5,000 x 12%) P4,500,000

18. What is the amount of liability for warranty reported in Samson Company’s December 31, 2021
statement of financial position?
a. P7,834,000
b. P5,040,000
c. P4,500,000
d. P3,024,000
Warranty expense for 2020 and 2021

(7,500 + 8,400) x 5,000 = 79.5M; 79.5M x 12% P9,540,000
Actual warranty expenditures (530,000 + 1,176,000) 1,706,000
Liability for warranty, December 31, 2021 P7,834,000
19. What would be the provision charged in the second quarter’s interim financial statements of Covax
Enterprise?
a. P750,000
b. P1,250,000
c. P1,500,000
d. P2,000,000
Total sales in the 1st and 2nd quarter (P10M + 15M) P25,000,000
Estimated warranty claim for the whole year X 10%
Total warranty provision as of the 2nd quarter 2,500,000
Warranty provision – 1st quarter (10M x 5%) (500,000)
Warranty provision – 2nd quarter P2,000,000
20. How much was the income from associate reported in Charlene Company’s profit and loss for the
year ended December 31, 2021?
a. P161,875
b. P166,250
c. P168,125
d. P175,000
Share in reported income (1,350,000 – 650,000) x 25% P175,000

Adjustment for the excess attributable to
Depreciable plant assets
(150,000 x 25% = 37,500; 37,500/10 years = 3,750; 3,750 x ½ (1,875)
Inventories (20,000 x 25%) (5,000)
Adjusted share in income P168,125
21. What is the amount of profit on the sale and the interest income that Philip Company would record for
the year ended December 31, 2021?
a. P0 and P0
b. P70,625 and P20,825
c. P0 and P20,825
d. P70,625 and P24,825
Cash selling price P620,625

Cost of equipment 550,000
Profit on sale P 70,625
Net investment, after 1st payment (620,625 – 100,000) = 520,625
Interest income (520,625 x 8% x 6/12) P 20,825
SITUATIONAL 6
Data about four independent entities are as follows:
 Korina Company is engaged in the sale of ladies’ accessories hat are being distributed in some malls
located in Metro Manila. The company’s accounting assistant prepares monthly bank reconciliation.
At August 31, 2021, cash receipts and cash disbursements per general ledger Cash in Bank account of
Korina Company are P321,000 and P265,000, respectively. The bank statement for the same month
indicates that only P302,000 in deposits were received during the month and checks clearing the bank
were P326,000. The July 31, 2021 bank reconciliation showed deposits in transit of P95,000.
Outstanding checks at August 31, 2021 were P125,800.
 Nagmina Corporation acquires a coal mine at a cost of P 1,500,000. Intangible development costs
total P360,000. After extraction has occurred, Nagmina must restore the property (estimated fair value
of the obligation is P 180,000), after which it can be sold for P510,000. Nagmina estimates that 5,000
tons of coal can be extracted.
 Archie Company must determine the December 31, 2021 year-end accruals for advertising and rent
expenses. On January 3, 2022, Archie Company received a P100,000 advertising bill, comprising of
P37,500 for newspaper advertisement that will be published monthly in the year 2022. The store lease
effective August 1, 2021 calls for fixed rent of P120,000 per month payable on or before the 5th day of
the current month. Included in the lease contract is contingent rent equal to 3% of net sales over
P2,000,000 per month that is requires to be paid on the 20th day of the following month. Net sales for
December 2021 were P5,500,000.
 Hambog Company reported an impairment loss of P500,000 in its income statement for the year
2018. This loss was related to an item of property, plant and equipment which was acquired on
January 1, 2010 with a cost of P4,000,000 (no residual value). Depreciation on the building is
computed on a straight-line basis and annual depreciation on cost is P160,000. Depreciation for year
2019 was computed based on the asset's recoverable amount at December 31, 2018. On December 31,
2021, the entity decided to measure its building using revaluation model. This building was then
appraised to a fair value of P3,240,000.
22. How much were the deposit in transit of Korina Company at July 31, 2021?
a. P62,500
b. P79,000
c. P114,000
d. P127,500
Deposit in transit, July 31 P95,000

Cash receipts per ledger 321,000
Deposits per bank statement (302,000)
Deposit in transit, August 31 P114,000
23. If 900 tons are extracted the first year, which of the following would be included in the journal entry
of Nagmina Corporation to record depletion?
a. Debit to Accumulated Depletion for P275,400
b. Debit to Inventory for P275,400
c. Credit to Inventory for P270,000
d. Credit to Accumulated Depletion for P459,000
Purchase price of property P1,500,000

Development costs 360,000
Restoration cost 180,000
Less: Residual value (510,000)
Depletable cost P1,530,000
Estimated reserves ÷ 5,000
Depletion rate 306
No. of tons extracted in the first year x 900
Depletion for 2021 P275,400
24. In its December 31, 2021 statement of financial position, Archie Company should report accrued
liabilities of
a. P105,000
b. P142,500
c. P167,500
d. P262,500
Accrued advertising P 37,500

Contingent rent (5.5M – 2M) x 3% 105,000
Accrued liabilities, December 31, 2021 P142,500
25. What amount of gain on impairment recovery should Hambog report in its 2021 income statement?
a. P1,673,750
b. P1,566,250
c. P1,100,000
d. P406,250
Life of asset (4.0M/160,000) = 25 years

Remaining life (25 – 9) = 16 years
Recovery of impairment (500,000 x 13/16) P 406,250
26. How much is the revaluation surplus, if any, recognized by Hambog Company at December 31,
2021?
a. P1,160,000
b. P1,066,250
c. P 406,250
d. P 128,750
Carrying value (4.0M x 16/25) P2,560,000

Impairment loss (given) 500,000
Recoverable value, December 31, 2018 P2,060,000
Depreciation for 3 years (2019 – 2021)
2,060,000/16 = 128,750/year; 128,750 x 3 years 386,250
Fair value 3,240,000
Increase in value P1,566,250
Unrecovered impairment loss (500,000 x 13/16) 406,250
Revaluation surplus recognized P1,160,000
SITUATIONAL 7
The following information are gathered from four different entities:
 Nicky Company has an equipment costing P700,000 with an estimated residual value of P70,000 and
an estimated useful life of six years. After using and depreciating the asset for the past two years, the
company upgraded the machine parts and the cost of upgrading amounted to P120,000.
 The following information is made available by Monterey Farms in Batangas City relating to its dairy
livestock during 2021. Carrying amount at January 1, P1,000,000; Fair value less cost to sell of
livestock purchased during the year, P340,000; Increase in fair value less cost to sell due to physical
changes, P180,000; Increase in fair value less cost to sell due to price changes, P40,000; Fair value
less cost to sell of livestock sold during the year, P890,000
 Rowell, Inc. uses the lower of cost and net realizable value for its products in its ending inventory.
Data pertaining to one of its products follows: Historical cost - P680; Normal profit - P240; Estimated
selling price - P1,200; Estimated cost of completion and disposal - P420
 On January 1, 2018, Entity A acquired an item of property, plant and equipment at a cost of P100,000.
The asset had an estimated residual value of P10,000 and a useful life of 10 years. The company uses
straight-line method of depreciation, computed to the nearest month. On October 1, 2021, the asset
was reclassified as "held for sale" under the strict criteria of IFRS 5. Its fair value on this date was
P5,000 and the cost to sell was estimated at P2,000. These estimates were considered valid on
December 31, 2021. In January 2022, the asset was sold for P50,000 and disposal costs incurred
amounted to P3,000.
27. Assuming that the upgrading costs improved the quality of the asset's output, what is the revised
depreciation expense for the third year using the straight-line method and sum-of-the-years' digits
method, respectively to be recorded by Nicky Company?
a. P135,000; P168,000
b. P135,000; P196,000
c. P152,000; P196,000
d. P152,000; P168,000

700,000 – (630,000/6 years) x 2 years P490,000
Total P610,000
Revised depreciation for third year (610,000 – 70,000)/ 4 years P135,000
SYD carrying value after two years

700,000 – (630,000 x 11/21) P370,000
Total P490,000
Revised depreciation for third year (490,000 – 70,000) x 4/10 P168,000
28. Assuming that the upgrading costs extended the asset's economic useful life by an additional two
years, what is the revised depreciation expense for the third year using the straight-line method and
sum-of-the-years' digits, respectively to be recorded by Nicky Company?
a. P90,000; P140,000
b. P90,000; P120,000
c. P101,667; P140,000
d. P101,667; P120,000

700,000 – (630,000/6 years) x 2 years P490,000
Total P610,000
Revised depreciation for third year (610,000 – 70,000)/ 6 years P90,000
SYD carrying value after two years

700,000 – (630,000 x 11/21) P370,000
Total P490,000
Revised depreciation for third year (490,000 – 70,000) x 6/21 P120,000
29. How much is the biological assets reported by Monterey Farm as at December 31, 2021?
a. P110,000
b. P330,000
c. P450,000
d. P670,000
Carrying amount at January 1 P1,000,000

Livestock purchased during the year 340,000
Increase in FV less cost to sell due to physical changes 180,000
Increase in FV less cost to sell due to price changes 40,000
Livestock sold during the year (890,000)
Biological assets at December 31 P 670,000
30. What amount shall be included in gross income of Monterey Farms as a result of the transactions on
its dairy livestock?
a. P890,000
b. P220,000
c. P280,000
d. P40,000
Increase in FV less cost to sell due to physical changes P180,000

Increase in FV less cost to sell due to price changes 40,000
Amount included in gross income P220,000
31. What is the inventory unit value for Rowell, Inc. product?
a. P540
b. P680
c. P780
d. P1,200
Cost is P680 which is lower than net realizable value of P780 (P1,200 – P420)
32. How much is the impairment loss reported by Entity A in profit or loss for the year 2021?
a. P25,000
b. P19,250
c. P18,250
d. P 8,250
Cost of asset P100,000

Accumulated depreciation at time of reclassification
(100,000 – 10,000)/10 years = 9,000; 9,000 x 3.75 years 33,750
Carrying amount P66,250
Fair value less cost to sell (50,000 – 2,000) 48,000
Impairment loss P18,250
SITUATIONAL 8
The following facts are gathered from four different entities:

 On July 1, 2021, Twin Head Corporation issued P5 million of its 10%, 7 -year bonds with one
detachable warrant attached to each P 1,000 bond. Each warrant provides for the right to purchase 20
shares of P15 par value ordinary for P20 each. The market value of the ordinary share was P25 each
at July 1, 2021, at that time, the bonds without the warrants are selling at 97. The compound financial
instrument was sold at 104.
 At the beginning of 2019, True Company offered share options to its key officers with a vesting
period of two years. By the end of 2020, in anticipation of the exercise of the options, the company
acquired 50,000 of its own ₱30 par ordinary shares and these were held in the treasury. At the time,
true company has 280,000 issued ordinary shares. During 2021, transactions involving True
Company’s ordinary shares were as follows: January 1 through October 31 – 30,000 treasury shares
were distributed to its key officers as part of the share option plan; November 1 – a 5-for-2 share split
took effect
 The books of Diego Company for the year ended December 31, 2021 showed pretax income of
P720,000. In computing the taxable income for income tax purposes, the following temporary
differences were taken into account. Depreciation deducted for tax purposes in excess of depreciation
recorded in the books – P32,000; Income from installment sales reportable for tax purposes in excess
of income recognized in the books, P24,000.
 The following information relates to the defined benefit plan of Claudia Corporation on January 1,
2021: Benefit obligation, P9,000,000; Fair value of plan assets, P10,500,000; Discount rate – 12%.
The actuary provided the following data for the year 2021: Service cost, P1,800,000; Benefit
payments to retirees, P1,400,000; Contribution to the fund, P2,100,000; Actual return on plan assets,
P900,000; Actuarial loss from remeasurement of benefit obligation, P210,000
33. What is the bond issue price allocated to the debt of Twin Head Corporation?
a. P5,200,000
b. P5,000,000
c. P4,850,000
d. P350,000
Bond price (5.0M x .97) P4,850,000

34. Assuming that all warrants are exercised and recorded in the accounts of Twin Head Corporation,
how much is the amount credited to share premium?
a. P850,000
b. P530,000
c. P500,000
d. P350,000
Value of warrants (5,200,000 – 4,850,000) P350,000

Cash received upon exercise of warrants (5,000 x 20 x 20) 2,000,000
Total P2,350,000
Par value of shares issued (5,000 x 20 x 15) 1,500,000
Share premium P 850,000
35. What amount should Diego Company record as current income tax liability at December 31, 2021
assuming a corporate income tax rate of 30%.
a. P187,200
b. P213,600
c. P216,000
d. P218,400
Pretax income P720,000

Tax depreciation in excess of book depreciation (32,000)
Income for tax purposes in excess of book income 24,000
Taxable income P712,000
Current income tax liability (712,000 x 30%) P213,600
36. What is the fair value of plan assets of Claudia Corporation on December 31, 2021?
a. P13,500,000
b. P12,250,000
c. P12,100,000
d. P10,480,000
Fair value of plan assets, beginning P10,500,000

Actual return 900,000
Contribution to the fund 2,100,000
Fair value of plan assets, December 31 P12,100,000
37. How much is the benefit obligation of Claudia Corporation at December 31, 2021?
a. P11,880,000
b. P10,690,000
c. P10,480,000
d. P10,270,000
Benefit obligation, beginning P9,000,000

Interest cost (12% x 9.0M) 1,080,000
Service cost 1,800,000
Actuarial loss from remeasurement of benefit obligation 210,000
Benefit obligation, December 31 P10,690,000
SITUATIONAL 9
Relevant data for three different companies follows:
 The following is a list of items to be included in the preparation of the 2021 statement of cash flows
from the Rayson Company. Gain on retirement of bonds, P92,000; Increase in inventory, P67,000;
Proceeds from sale of investment, P85,000; Proceeds from issuance of note, P250,000; Depreciation
expense, P107,000; Decrease in accounts receivable, P50,000; Payment for purchase of patent,
P198,000; Decrease in accounts payable, P40,000; Payment of dividends, P300,000; Net profit,
P554,000; Ordinary share exchanged for land, P140,000; Payment to retire bonds, P370,000; Payment
for purchase of equipment, P394,000; Loss on sale of investments, P48,000; Repurchase of treasury
shares, P120,000; Proceeds from issue of preference shares, P528,000; Amortization of discount on
debt securities at amortized cost, P15,000.
 On January 1, 2015, Sheila Company established a sinking fund to retire bonds payable due in 2025.
A bank was appointed as an independent trustee to manage the fund investment. On December 31,
2021, the trustee held P3,900,000 cash and P1,600,000 of securities in the sinking fund account. The
cash amount of P3,900,000 represents P3,700,000 in annual deposits to the fund and P200,000 of
investment income earned in those deposits prior to 2021. A bank representative informed Sheila that
P80,000 of interest and dividends has been earned in 2021; however, this amount will be received in
the first month of 2022.
 On September 30, 2021, Belfast Company issued face value, 5-year bonds at 102. Each P1,000 bond
was issued with 20 detachable share warrants, each of which entitled the bondholder to purchase one
share of P5 par ordinary share at P25. At time of issuance, there was no available market value for the
warrant The stated interest rate on the bonds is 11% payable annually every September 30. However,
the prevailing market rate of interest for similar bonds without warrants is 12%. The present value of
1 at 12% for 5 periods is 0.57 and the present value pf an ordinary annuity of 1 at 12% for 5 periods is
3.60. Belfast Company's accounting year ends on December 31.
 On December 31, 2021, IBM Company had outstanding P20 million face value convertible bonds
maturing on December 31,2019. Each P1,000 bond is convertible into 60 shares of IBM Company's
P10 par ordinary shares. The unamortized premium balance and Bond Conversion Privilege is
P350,000 and P640,000, respectively. On this date, an individual holding 2,000 of the bonds
exercised the conversion privilege When the market value of IBM Company's ordinary share was
P18.
38. How much is the net cash flow from operating activities of Rayson Company during 2021?
a. P575,000
b. P560,000
c. P554,000
d. P545,000
Net profit P554,000

Gain on retirement of bonds (92,000)
Increase in inventory (67,000)
Depreciation expense 107,000
Decrease in accounts receivable 50,000
Decrease in accounts payable (40,000)
Loss on sale of investments 48,000
Amortization of discount on debt securities at amortized cost (15,000)
Net cash flow from operating activities P545,000
39. How much is the net cash flow from investing activities during 2021?
a. P507,000
b. P367,000
c. P(507,000)
d. P(367,000)
Proceeds from sale of investment P85,000

Payment for purchase of patent (198,000)
Payment for purchase of equipment (394,000)
Net cash flow from investing activities (P507,000)
40. How much is the net cash flow from financing activities during 2021?
a. P260,000
b. P12,000
c. P(260,000)
d. P(12,000)
Proceeds from issuance of note P250,000

Payment of dividends (300,000)
Payment to retire bonds (370,000)
Repurchase of treasury shares (120,000)
Proceeds from issuance of preference shares 528,000
Net cash flow from financing activities (P12,000)
41. How much should Shell Company’s sinking fund be included in the statement of financial position of
Sheila Company among its non-current assets on December 31,2021?
a. P5,580,000
b. P5,380,000
c. P3,900,000
d. P3,700,000
Cash in sinking fund (including P200,000 earned prior to 2021) P3,900,000

Securities in sinking fund 1,600,000
Interest and dividends earned in 2021 (receivable in 2022) 80,000
Sinking fund balance, December 31, 2021 P5,580,000
42. On September 30, 2021, what amount should Belfast record as discount or premium on bonds
payable?
a. P170,000 discount
b. P400,000 discount
c. P170,000 premium
d. P400,000 premium
Value allocated to bonds

(5M x .57) + (5M x 11% x 3.60) P4,830,000
Face value of bonds 5,000,000
Discount on bonds payable P 170,000
43. How much is the interest expense of Belfast for the year ended December 31, 2021?
a. P150,000
b. P144,900
c. P137,500
d. P132,825
Interest expense for 2021 (4,830,000 x 12% x 3/12) P144,900
44. What is the amount credited to share premium upon conversion of the bonds of IBM Company?
a. P1,790,000
b. P899,000
c. P800,000
d. P-0-
Face value of bonds converted P2,000,000

Unamortized premium related to bonds converted (350,000 x 2/20) 35,000
Paid in capital arising from bond conversion privilege related to
64,000
bonds converted (640,000 x 2/20)
Total P2,099,000
Par value of ordinary shares issued in exchange (2,000 x 60 x 10) 1,200,000
Share premium recognized upon conversion P 899,000
45. Assume that on December 31, 2021, IBM Company retired the at 103. Without the conversion
privilege, these bonds would been 102%. How much is the gain or loss on the retirement taken to
profit or loss?
a. P60,000
b. P54,000
c. P15,000
d. P0
Retirement price related to bonds (2.0M x 1.025) P2,050,000

Carrying value of bonds retired (2.0M + 35,000) 2,035,000
Loss on retirement taken to profit or loss P 15,000
SITUATIONAL 10
Information pertaining to four different companies follows:
 On January 1, 2016, David Corporation acquired a building at a cost of P22 million. The building has
been depreciated using straight-line on the basis of a 20-year life, with a residual value of P2 million.
On January 1, 2021, an appraisal of the building by professional and competent appraisers reported a
fair value of P 20 million with an estimated residual value of p3 million and a remaining useful life of
10 years. It is the company's policy to transfer a portion of the revaluation surplus to retained earnings
while the asset is being used by the company. Assume that the accumulated depreciation of the
revalued asset is restated proportionately with the change in the gross carrying amount of the asset.
 Netrix Company’s outstanding share capital consisted of the following: 8% Preference share capital,
15,000 shares, ₱100 par, cumulative and fully participating. Ordinary share capital, 100,000 shares,
₱10 par. There were no dividends in arrears prior to the declaration of cash dividends. On December
15, the board of directors of Netrix Company declared cash dividends of ₱300,000.
 The statement of financial position of Vinton Company shows cash of P237,390. The following items
were found to comprise this amount: Cash in Metrobank, per bank statement (outstanding checks as
of year-end total P5,200) – P99,320; Savings account at Far East Bank – P30,800; Petty cash fund
(including expense receipts of P250) – P1,500; Cash on hand (undeposited sales receipts) – P4,200;
Sinking fund cash – P20,000; Cash in foreign bank (in equivalent pesos) – P62,000; Customer’s
checks on hand: Traveler’s checks – P4,450 and certified check – P3,120; 90-day BSP treasury bills –
P12,000.
 A new drug named “CORONA PILL” was introduced by Ranny Inc. onto the market in December 1,
2021. Ranny Inc.’s financial year ends on December 31, 2021. It was the only company that was
permitted to manufacture this patented drug. The drug is used by patients suffering from breathing
disorder. On March 31, 2022, after the drug was introduced, more than 1,000 patients died. After a
series of investigations, authorities discovered that when this drug was simultaneously used with
“NCOV TABLET,” a drug used to cure malaria, the patient’s blood would clot and the patient
suffered a stroke. A lawsuit for P100, 000, 000 has been filed against Ranny Inc. The financial
statements were authorized for issuance on April 30, 2022.
46. How much is the revaluation surplus recognized by David at January 1, 2021?
a. P2,700,00
b. P3,000,000
c. P4,000,000
d. P5,000,000
Fair value, January 1, 2021 P20,000,000
Carrying value, January 1, 2021
Cost P22,000,000
Accumulated depreciation
(22M – 2M)/20 = 1.0M; 1.0M x 5 years 5,000,000 17,000,000
Revaluation surplus recognized in the accounts P 3,000,000
47. How much is the annual depreciation charge by David for the building after revaluation?
a. P1,000,000
b. P1,700,000
c. P2,000,000
d. P2,700,000
Annual depreciation charge after revaluation (20M – 3M) / 10 years) = P1,700,000
48. Assuming that no further revaluation was recorded and the asset was sold on January 1, 2025 for
P13,500,000, what is the gain or loss recognized by David upon the disposal of the asset?
a. P300,000 gain
b. P300,000 loss
c. P2,000,000 gain
d. P2,000,000 loss
Selling price P13,500,000

Carrying value, January 1, 2025
Fair value, January 1, 2021 P20,000,000
Less depreciation for 4 years (1.7M x 4) 6,800,000 13,200,000
Gain on sale P300,000
49. What is the amount of dividends payable to Netrix ordinary shareholders?

a. ₱100,000
b. ₱120,000
c. ₱180,000
d. ₱300,000
Total cash dividends P300,000

Ordinary share dividends 300,000 x (1.0/2.5) * P120,000
*The total amount of dividends (300,000) is more than enough to cover the dividends on both
preference and ordinary shares of P200,000 (8% x 2.5M); Thus, the P300,000 may be divided
simply based on their total par since the preference shares are fully participating.
50. Assume that prior to the declaration of cash dividends, unpaid dividends on the preference shares
amounted to ₱75,000. How much is the dividend payable to each ordinary share of Netrix?
a. ₱0.90
b. ₱1.05
c. ₱1.80
d. ₱1.95
Total cash dividends P300,000

Less arrears on preference shares 75,000
Available for distribution proportionately P225,000
Dividend per ordinary share 225,000 x (1.0/2.5) =90,000; 90,000/100,000 shares P0.90
51. What is the correct amount of cash and cash equivalents in Vinton Company’s statement of financial
position?
a. P231,940
b. P211,940
c. P199,820
d. P196,820
Cash in Metrobank (99,320 -5,200) P 94,120

Savings account at Far East Bank 30,800
Petty cash fund (1,500 – 250) 1,250
Cash on hand 4,200
Cash in foreign bank (in equivalent pesos) 62,000
Travelers check 4,450
Certified check 3,120
90-day BSP treasury bills 12,000
Total cash and cash equivalents P211,940
52. Which of the following options is the appropriate accounting treatment for the post-reporting period
event of Ranny Inc. under PAS 10?
a. The entity should provide P100, 000, 000 provision because this is an “adjusting event” and
the financial statement were authorized to be issued after the accident.
b. The entity should disclose P100, 000, 000 as a contingent liability because it is an “adjusting
event”.
c. The entity should disclose P100, 000, 000 as a “contingent liability” because it is a
present obligation with an improbable outflow
d. Assuming the probability of the lawsuit being decided against Ranny Inc. is remote, the entity
should disclose it in the footnote, because it is a non-adjusting material event.
FINANCIAL ACCOUNTING AND REPORTING
SITUATIONAL PROBLEMS (PART 3)
Compiled by Vhin
SITUATIONAL 1
The following information are taken from four different entities:

 On January 1, 2021, Benjie Company purchased land by paying P
100,000 cash as down payment and signing a note with the seller.
The note is payable in three equal amounts of P 100,000 beginning
January 1, 2022. The note is non-interest bearing, but the
prevailing interest rate for similar notes at that time is 10%. The
present value of ordinary annuity of 1 at 10% for four periods is
3.17. The Present value of an annuity due of 1 at 10% for four
periods is 3.49
 The following properties are in the list of Admiral Company:
Warehouse that serves as storage of merchandise inventory —
P300,000; Farm land with potential for rice planting in the future.
Admiral is yet to decide on the final purpose of the property
whether for farming or for sale to generate profit- P 1,500,000;
Land and building used as office building – P 3,000,000; Office
unit leased to a subsidiary P 1,200,000; Machinery and equipment
leased out by Admiral under an operating lease — P 500,000;
Construction in progress (building) to be leased out once finished
— P 7,500,000; Land in Manila City situated beside a mall being
constructed acquired for potential capital appreciation — P
500,000; Commercial units being constructed on behalf of a client —
P 1,000,000; A condominium building with ten (10) units valued at
P100,000 per unit, half is occupied by the company as office of
executives while the remaining units are being leased out to
unrelated parties — P 1,000,000
 On January 1, 2018, the shareholders of Noah Company, a calendar –
year corporation, approved a plan and granted the company’s three
executives options to purchase a total of 3,000 shares of the
Company’s P100 par value ordinary shares. The option may be
exercised for one-year effective January 1, 2021. Based on an
option pricing model, the fair value of the option is P60. The
option price per share is P120. On February 14, 2020, one of the
executives who was granted an option to purchase 800 shares,
decided to resign from the organization. On January 21, 2021, the
remaining executives exercised their options.
 The following costs were incurred by Leon Company: Preopening costs
of a business facility, P100,000; Recipes, secret formulas, models
and designs, prototype, P150,000; Training, customer loyalty, and
market share, P50,000; Licensing, royalty, and stand-still
agreements, P250,000; Operating and broadcast rights, P350,000;
Goodwill purchased in a business combination, P500,000; A company-
developed patented drug approved for medical use, P130,000; A
license to manufacture a steroid by means of a government grant,
P260,000; A television advertisement that will stimulate the sales
in the technology industry, P130,000.
1. What is the cost of the land acquired by Benjie?

a. P400,000
b. P349,000
c. P317,000
d. P300,000
Cost of land/present value of payments (100,000 x 3.49) P349,000

FAR SITUATIONAL PROBLEMS PART 3 Compiled by Vhin
2. How much is the total investment property to be classified and
presented in the statement financial position of Admiral Company?
a. P9.2 million
b. P9.7 million
c. P11.2 million
d. P11.7 million
Farm land P 1,500,000

Office unit leased to a subsidiary 1,200,000
Construction in progress (building) 7,500,000
Land in Manila City 500,000
Condominium building 500,000
Total Investment Property P 11,200,000
3. How much of the above properties of Admiral Company are to be

classified as property, plant and equipment?
a. P3.8 million
b. P4.3 million
c. P4.8 million
d. P5.3 million
Warehouse for merchandise inventory P 300,000

Land and building used as office building 3,000,000
Machinery and equipment 500,000
Condominium building 500,000
Total PPE of Admiral Company P 4,300,000
4. How much is the compensation expense of Noah Company in the year

2020?
a. P60,000
b. P44,000
c. P12,000
d. P-0-
Compensation expense for 2018 and 2019 (3,000 x 60 = 180,000; 180,000 x 2/3 = 120,000)
Compensation expense for 2020 (2,200 x 60 = 132,000; 132,000 – 120,000) P12,000
5. How much of the above costs incurred by Leon Company are eligible
for capitalization according to IAS 38 Intangible Assets?
a. P1,490,000
b. P1,640,000
c. P1,690,000
d. P1,920,000
Recipes, secret formulas, models and designs, prototype P150,000

Licensing, royalty, and stand-still agreements 250,000
Operating and broadcast rights 350,000
Goodwill purchased in a business combination 500,000
A company-developed patented drug approved for medical use 130,000
A license to manufacture a steroid by means of a government grant 260,000
Total intangible assets P1,640,000
SITUATIONAL 2
Relevant data of four different companies are as follows:

● Maddie Merchandising Company reported an inventory of P345,600 at
December 31, 2021. You discovered that the inventory amount, among
others, included the following: Goods costing P21,600 ordered by a
customer on December 27, 2021, shipped FOB destination on December
29, 2021 and received by the customer at their warehouse on January
5, 2022. Goods costing P14,800 on December 25, 2021 shipped to
Venice FOB destination and received January 2, 2022. Goods costing
P19,200 held on consignment. Goods costing P12,400 ordered from a
supplier on December 26, 2021, shipped FOB shipping point on
December 28 but had not been received by December 31. Goods costing
P31,500 shipped by a vendor FOB seller on December 31, 2021 and
received by Maddie on January 5, 2022. Goods costing P12,500 which
was shipped FOB destination to a customer on December 29, 2021. The
goods are still in transit and the customer expected to receive the
merchandise on January 5, 2022. Goods costing P40,000 shipped by a
vendor FOB destination on December 29, 2021. The related invoice
was received and recorded on December 31, 2021. The goods were
received by Maddie on January 4, 2022.
● Timber Company had the following long-term receivable account
balances at December 31, 2020: Notes receivable from May Company,
P3,000,000; Notes receivable from officer, P1,500,000. Transactions
during 2021 and other information relating to Timber Company’s
long-term receivables were as follows: TheP3,000,000 notes
receivable, dated October 1, 2020 bears interest at 10%. Principal
payments of P1,000,000 plus appropriate interest are due on October
1, 2021, 2017, and 2018. The first principal and interest payment
were made on October 1, 2021. The P1,500,000 notes receivable is
dated January 1, 2020, bears interest at 8% and is due on January
1, 2018. Interest is payable annually on December 31 and all
interest payments were made on their due dates. On January 1, 2021,
Timber sold one of its divisions to Bucks Company for P1,000,000
under an installment sale contract. Bucks made a P370,000 cash down
payment on the same date and signed a five-year, 12% note for the
P630,000 balance. The equal annual payments of principal and
interest on the note will be P175,000 on January 1, 2017 through
January 1, 2021.
● On January 1, 2021, Chris Corporation signed a ten-year lease for
an equipment at P9,600 per year. The lease included a provision for
additional rental payment of 5% of annual company sales in excess
of P500,000. Chris Corporation's sales for the year ended December
31, 2021 were P600, 000. Upon execution of the lease, Chris
Corporation paid P2,400 as a bonus for the lease. The cost of the
leased asset is considered of low value in accordance with the
provisions of IFRS 16 Leases.
● Ralph Company had 200,000 Ordinary shares issued and outstanding at
December 31, 2020. On July 1, 2021, Ralph Company issued a 10%
bonus issue. Unexercised share options to purchase 40,000 ordinary
shares (adjusted for the 2021 bonus issue) at P20 per share were
outstanding at the beginning and end of 2021. The market price of
Ralph Company's ordinary share (which was not affected by the bonus
issue) was P25 during 2021. Profit for the year ended December 31,
2021 was P1,000,000.
6. What is the correct amount of inventory that should be reported by

Maddie in its December 31, 2021 statement of financial position?
a. P311,600
b. P290,800
c. P271,600
d. P259,100
Reported amount of inventory P345,600

Goods purchased still in transit shipped FOB destination (14,800)
Goods held on consignment (19,200)
Goods purchased still in transit shipped FOB destination (40,000)
Correct amount of inventory, December 31, 2021 P271,600
7. What is the accrued interest receivable on December 31, 2021 arising
from the data of Timber Company?
a. P275,000
b. P245,600
c. P154,600
d. P125,600
May Company (2.0M x 10% x 3/12) P 50,000

Bucks Company (630,000 x 12%) 75,600
Accrued interest receivable, December 31 P125,600
8. What is Chris rent expense for the year ended December 31, 2021?
a. P14,840
b. P14,600
c. P12,000
d. P9,600
Annual rental P 9,600

Additional rental (600,000 – 500,000) x 5% 5,000
Lease bonus to lessor (2,400/10) 240
Rent expense for the year P14,840
9. What is Ralph Company's 2021 diluted earnings per ordinary share,

rounded to the nearest centavo?
a. P4.23
b. P4.82
c. P5.00
d. P5.05
SITUATIONAL 3
Information from the records of four different entities are provided as

follows:
 Euclid Company purchased P8,000,000, 11%, 5-year bonds on April 1,
2021, when the market interest was 10%. The financial instruments
meet the business model test and are classified as debt investments
at amortized cost. The bonds are purchased at P8,295,000 and pay
interest annually on March 31. Euclid Company uses the effective
interest method of amortization and its accounting year ends on
December 31.
 The reported pretax financial income of Amelia Company is
P1,800,000 and current income tax rate is 30%. Assume the following
differences between the financial income and taxable income for the
year: Fines paid for late payment of taxes, P15,500. Premiums paid
on life insurance policy on officers, P200,000. Beneficiary named
in the policies is Amelia Company. Impairment loss recognized on
goodwill, P90,000. Excess of tax depreciation over book
depreciation, P30,000. Excess of warranty expense over actual
expenditures, P27,000. Excess of estimated uncollectible accounts
for financial reporting over the accounts actually written off for
tax reporting, P12,000. Rent collected in advance of period earned,
P35,000.
 The cash account of Pau Company showed a ledger balance of P396,980
on June 30. The bank statement as of that date showed a balance of
P415,000. Upon comparing the statement with the cash records, the
following facts were determined: There were bank service charges
for June of P1,500. A bank memo stated that ABC Company’s note for
P90,000 and interest of P2,600 had been collected on June 29, and
the bank has made a charge of P550 on the collection. (No entry had
been made in Pau Company’s books when ABC’s note was sent to the
bank for collection). Receipts of June 30 for P28,000 were not
deposited until July 2. Checks outstanding on June 30 totaled
P186,610. The bank had charged the Pau Company’s account for a
customer’s uncollectible check amounting to P45,320 on June 29. A
customer’s check for P90,000 had been entered as P60,000 in the
cash book; check no. 798 for P49,100 was recorded as P41,900 and
check no. 799 in the amount of P5,820 had been entered as P58,200.
Both checks had been issued to pay for the purchase of a piece of
equipment.
 Ariel, Inc. owns 500 ordinary shares of Rivera Company which has
several hundred thousand shares publicly traded. These 500 shares
were purchased by Ariel in early part of 2021 for P200 per share.
On August 20, 2021, Rivera distributed 500 rights to Ariel. Ariel
was entitled to buy one new share of Velasquez ordinary shares at
P180 and two share rights. On September 1, 2021, when the market
value of Velasquez ordinary share was P203, Ariel exercised all the
rights and received 250 ordinary shares.
10. At how much were the debt investments reported in the December 31,
2021 and December 31, 2022 statement of financial position of
Euclid Company?
a. P8,244,500 and P8,188,950
b. P8,295,000 and P8,244,500
c. P8,257,125 and P8,202,837
d. P8,257,125 and P8,188,950
11. How much is the interest revenue reported in Euclid Company's

statement of comprehensive income for the year ended December 31,
2021 and December 31, 2022?
a. P829,500 and P824,450
b. P622,125 and P825,713
c. P880,000 and P880,000
d. P622,125 and P824,450
12. Under IAS 12, how much is the taxable income of Amelia Company?
a. P2,149,500
b. P2,105,000
c. P2,079,000
d. P2,061,000
13. How much is the deferred tax asset and deferred tax liabilities to
be reported by Amelia Company?
a. P9,000 and P22,200
b. P22,200 and P9,000
c. P11,700 and P19,500
d. P19,500 and P11,700
Deferred tax asset (74,000 x 30%) P22,200

Deferred tax liability (30,000 x 30%) P 9,000
14. What is the amount of cash to be shown in the June 30 statement of

financial position of Pau Company?
a. P531,790
b. P517,940
c. P517,390
d. P487,390
15. How much is the investment income recognized by Ariel Inc. upon
exercise of the rights?
a. P11,500
b. P5,750
c. P750
d. P-0-
SITUATIONAL 4
The following are given data of four different entities:

 Carolina Company started the construction of a warehouse on January
1, 2021. The total costs incurred as of December 31, 2021 amounted
to P2,000,000 including capitalized borrowing cost of P350,000. At
the beginning of 2022, the construction of the warehouse resumed.
Total expenditures during 2022 amounted to P800,000. Carolina's
accountant computed the average expenditure of asset for 2022 of
P450,000. The related of obligation 10% per outstanding annum all
throughout 2022 is P25,000,000 and bears an interest of 10% per
annum.
 On December 31.2021. Winie Company has an item of machinery with a
cost of P4,500,000 and an accumulated depreciation of P1,800,000.
On this date, the machinery is found to be impaired due to
obsolescence and a major physical damage. The entity made an
assessment and test for recoverability of the asset and determined
that the machinery's estimated selling price is P2,500,000 and
estimated disposal cost is P250,000. The entity expects net future
undiscounted cash flows related to the continued use and eventual
disposal of the machinery of P2,600,000. The net future discounted
cash flows related to the continued use and eventual disposal of
the machinery using a discount rate of 10% is P2,180,000.
 On July 1, 2021, Twin Head Corporation issued P5 Million of its
10%, 7 -year bonds with one detachable warrant attached to each P
1,000 bond. Each warrant provides for the right to purchase 20
shares of P15 par value ordinary for P20 each. The market value of
the ordinary share was P25 each at July 1, 2021, At that time, the
bonds without the warrants are selling at 97. The compound
financial instrument was sold at 104.
 Sunny Company presented the following data for 2021: Assets,
January 1 – P5,400,000; Liabilities, January 1, P3,240,000;
Shareholders’ equity, January 1 - ?; Dividends paid in 2013 –
P1,080,000; Increase in share capital – ordinary – P972,000;
Shareholders’ equity, December 31 - ?; Net income – P1,080,000
16. Compute the capitalizable borrowing cost of Carolina Company for

2022
a. P80,000
b. P189,000
c. P245,000
d. P280,000
17. Winie Company should report an impairment loss in 2021 of:

a. P100,000
b. P200,000
c. P450,000
d. P520,000
18. Assuming that the machinery has an estimated useful life of 10
years at the time of acquisition, how much is the depreciation
expense to be recognized by Winie Company for the year ended
December 31, 2022?
a. P450,000
b. P433,333
c. P375,000
d. P363,333
19. Assuming that all warrants are exercised and recorded in the
accounts, how much is the amount credited to share premium?
a. P850,000
b. P530,000
c. P500,000
d. P350,000
20. What is the shareholders’ equity of Sunny Company at December 31,

2021?
a. P1,890,000
b. P1,998,000
c. P3,132,000
d. P3,186,000
SITUATIONAL 5
The following are relevant data of four different entities:

 Several years ago, Irene company purchased a P3,000,000 ordinary
life insurance policy on its president and the company is the named
beneficiary. Additional data are available for the year ended
December 31, 2021. Cash surrender value of life insurance, December
31,2021- P117,000; Annual premium paid in advance on January 1,
2021- P50,000; Life insurance expense recognized in the statement
of comprehensive income for the year ended December 31, 2021-
P38,000.
 On September 30, 2021, a fire at Avena Company's warehouse caused
severe damage to its entire inventory. Based on recent history,
Avena has a gross profit of 30% of net sales. A physical inventory
disclosed usable damaged goods which Avena estimates can be sold to
a jobber for P50,000. The following information is available from
Avena's records for the nine months ended September 30, 2021:
Inventory, January 1 – P550,000; Total purchases received and
recorded, Jan. 1 - Sept. 30 – P3,000,000; Total freight cost of
goods purchased and received – P60,000; Total credit memo received
on goods purchased and received – P200,000; Total discounts taken
on purchases – P80,000; Invoice received for goods purchased but
still in transit shipped September 30, 2021, FOB shipping point –
P120,000; Total sales delivered and recorded, Jan. 1 - Sept. 30 –
P3,600,000; Unrecorded sales invoice for goods delivered –
P300,000; Total sales returns accounted and recorded, Jan. 1 -
Sept. 30 – P160,000; Total sales discounts taken by customers on
recorded sales – P40,000.
 On December 31, 2015, Shanghai Company's patent has a carrying
amount of P570,000. This patent was acquired on October 10, 2013
and has an estimated total useful life of ten years. Subsequent
transactions and relevant information relating to the patent
follows: On January 5, 2016, the company spent P90,000 in
successfully prosecuting an attempted infringement on the patent.
At the beginning of 2018, Shanghai Company incurred additional
costs of P142,000. It is expected that future economic benefits
will flow to the enterprise as a result of this expenditure through
a substantial cost saving and the asset is expected to be useful
until December 31, 2024. The company's policy is to take half-year
depreciation in the acquisition and half year in the year of
derecognition using straight line method. The company reports on a
calendar year basis.
 The following partial information is taken from the comparative
statement of financial position of Joshua Corporation:
Shareholder’s Equity Dec. 31, 2022 Dec. 31, 2021

Ordinary share capital, P5 par;
20M shares authorized; 15M
shares issued and 9M shares
outstanding as of Dec. 31, 2022, P75M P45M
and ___M shares issued and ___M
shares outstanding as of Dec.
31, 2021.
Additional issued capital on ordinary
shares 520M 392M
Retained earnings 197M 157M
Treasury shares, at cost, 6 million
shares as of December 31, 2022 and 4
million shares as of December 31,
(72M) (50 M)
2021
Total shareholders’ equity P720M P544M
21. How much must have been the cash surrender value of life insurance
at Irene’s December 31, 2020, financial statements?
a. P12,000
b. P105,000
c. P117,000
d. P129,000
22. Using the gross profit method, how much is the inventory loss of
Avena Company?
a. P602,000
b. P662,000
c. P782,000
d. P832,000
23. How much is the patent amortization for the year 2018 of Shanghai
Company?
a. P88,000
b. P80,000
c. P76,000
d. P57,000
Patent amortization expense for 2016

570,000/7.5 years = 760,000; 760,000/10 P76,000
24. How much is the patent's carrying value of Shanghai Company at

December 31, 2021?
a. P642,000
b. P570,000
c. P418,000
d. P240,000
Patent’s carrying value, December 31, 2021 (560,000 x 3/7) P240,000
25. What was the average price (rounded to the nearest peso) of the
additional shares issued by Joshua in 2022?
a. P5 per share
b. P26 per share
c. P39 per share
d. cannot be determined from the given information
SITUATIONAL 6
Information provided relative to four different companies follows:

 In packages of its products, Candy Company includes coupons that
may be presented at retail stored to obtain discounts on other
candy products. Retailers are reimbursed for the face amount of
coupons redeemed plus 10% of that amount for handling costs. Candy
Company honors requests for coupon redemptions by retailers up to
three months after the consumer expiration date. Candy Company
estimates 70% of all coupons issued will be redeemed. Information
relating to coupons issued by Candy Company during 2021 is as
follows: Consumer expiration date – December 31, 2021; Total face
amount of coupons issued – P300,000; Total payments to retailers as
of December 31, 2021 – P110,000.
 On August 1, 2021, Circus Company approved a formal plan to sell a
business segment. The sale is expected to take place on February 1,
2022. Operating income of the segment from January 1 to August 1,
2021 was P1,500,000 and operating income of the segment from August
1 to December 31, 2021 was P100,000. On August 1, 2021, the
carrying amount of the segment's net assets was P4,000,000 and the
fair value less cost to sell at December 31, 2021 was P3,800,000.
Assume an income tax rate of 30%.
 Kaye Company's terms of sale is 3/10, 1/20, n/60 and it provides
for uncollectible accounts based on aging of its receivables at
year-end. The balance of selected accounts taken from the December
31, 2020 statement of financial position of Kaye Company are as
follows: Accounts Receivable - P674,000; Allowance for Bad Debts -
P24,000. The following transactions (in summary) affecting accounts
receivable occurred during the year ended December 31, 2021: Sales
on account – P3,000,000; Cash received from customers – P3,200,000.
Cash received includes the following: Customers paying within the
10-day discount period – P1,746,000; Customers paying within the
20-day discount period – P990,000; Recovery of accounts written off
– P6,000; Customers paying beyond the discount period - ?; Accounts
receivable written off as worthless – P22,000; Credit memoranda for
sales returns – P12,000. An aging of the accounts receivable and
estimate of uncollectible accounts at December 31, 2021 revealed
the following:
Age Amount Probability of

non-collection
Less than 30 days 150,000 2%
31-90 days 120,000 8%
91-120 days 86,000 15%
More than 120 days Balance 30%
 On January 1, 2021, Villa Company classified non-current assets as

held for sale that had a carrying amount of P2,500,000. On this
date, the assets are expected to be sold for P2,300,000. Reasonable
and expected disposal cost to be incurred for sale was expected at
P 100,000. By December 31, 2021, the asset had not been sold and
management after considering its options decided to place back the
non-current asset into operations. On that date, Villa Company's
managers estimated that the non-current asset was now expected to
be selling at P1,800,000 with the disposal cost of P50,000, while
depreciation for 2021 was computed at P500,000 if the non-current
asset was not classified as held for sale.
26. What amount should Candy Company report as a liability for
unredeemed coupons at December 31, 2021?
a. P-0-
b. P100,000
c. P121,000
d. P154,000
27. How much is reported in Circus Company's 2021 statement of

comprehensive income under the caption "Discontinued Operations”?
a. P1,600,000
b. P1,400,000
c. P1,120,000
d. P980,000
28. What are the balances of accounts receivable and the related
allowance account of Kaye Company at December 31, 2021?
a. P376,000 and P25,300
b. P382,000 and P25,300
c. P376,000 and P33,300
d. P382,000 and P33,300
29. How much is the bad debts expense of Kaye Company for the year
2021? (IGNORE THIS QUESTION, IT IS NOT RELATED TO QUESTION # 28,
Sorry may error on my part 
a. P275,000
b. P425,000
c. P440,000
d. P640,000
30. How much is the additional loss of Villa Company that shall be
reported in its 2021 statement of comprehensive income?
a. P200,000
b. P450,000
c. P250,000
d. P-0-
SITUATIONAL 7
Information pertaining to four different companies follows:

 On January 1, 2020, Grace Company acquired 30% of the voting share
capital of Ruby Company for P5,000,000 which was equal to the book
value of interest acquired. The investee reported net profit of
P4,000,000 for 2020 and P6,000,000 for 2021 but paid no dividends
during the two-year period. On July 1, 2022, Grace Company sold
one-half of the investment for net proceeds of P4,480,000. The fair
value of the remaining investment was P4,500,000 on July 1, 2022
and P4,850,000 on December 31 2022. The remaining investment is to
be held at fair value through other comprehensive income.
 Lance Company is experiencing financial difficulties and a downward
trend in its operations. The firm is unable to service its debt and
as a result, has missed payment of an annual interest on its loan
from Bank of Manila. The principal amount of the loan is P2,000,000
(which is already due) with annual interest of 12% payable
annually. Lance management has negotiated a modification of its
debt's terms with its creditors. The creditors agree to the
following new terms (assume that at this time, the prevailing
market rate of interest remained at 12%): forgive all accrued
interest; reduce the principal amount of the loan to P1,800,000;
extend the payment of principal for two years; and reduce the
interest rate for the remaining two years to 8%.
 The shareholders’ equity of Oliver Corporation on December 31, 2021
consists of the following accounts: Preference Share Capital, 10%,
cumulative, P100 par (50,000 shares) – P5,000,000; Ordinary Share
Capital, P100 par (200,000 shares) – P20,000,000; Subscribed
Ordinary Shares, net of Subscription Receivable of P4,000,000
(100,000 shares) – P6,000,000; Treasury Ordinary Shares, at cost
(50,000 shares) – P4,000,000; Share premium – P10,000,000; Retained
Earnings – P8,000,000. Preference dividends have not been paid for
three years and have a liquidation value of P110.
 On January 1, 2021, Randy Corporation signed a ten-year non-
cancelable lease for a certain machinery. The terms of the lease
called for Rand Corporation to make annual payments of P100,000 at
the end of each year for ten years with title to pass to Rand at
the end of this period. The machinery has an estimated useful life
of 15 years and no salvage value. Randy uses the straight-line
method of depreciation for all of its property, plant and
equipment. The lease payments were determined to have a present
value of P671,008 at an effective rate of 8%.
31. How much is the unrealized gain on equity investment reported in

the 2022 other comprehensive income?
a. P2,230,000
b. P1,880,000
c. P950,000
d. P350,000
32. How much is the gain on debt restructuring to be recognized by

Lance Company?
a. P562,040
b. P440,000
c. P322,040
d. P-0-
33. The book value per ordinary share of Oliver Corporation is

a. P210
b. P168
c. P166
d. P152
34. With respect to the capitalized lease, Randy Corporation should

record for 2021,
a. lease expense of P100,000.
b. interest expense of P44,734 and depreciation expense of
P38,068.
c. interest expense of P53,681 and depreciation expense of
P44,734.
d. interest expense of P45,681 and depreciation expense of
P67,101.
SITUATIONAL 8
Information relevant to four different companies are as follows:

 Perry Company established a petty cash fund of P10,000 on July 1,
2021. At the end of the month, the count of cash on hand indicated
that P3,557.40 remained in the fund. A review of the petty cash
vouchers disclosed the following expenses had been incurred during
the month: Office Supplies – P841.60; Postage – P780.00;
Representation – P1,000.00; Transportation – P1,321.40; and
Miscellaneous – P837.60. Other items found in the petty cash drawer
were as follows: A sympathy envelope containing P3,500,
representing employees’ contributions for the death of mother of
the Company’s messenger; and an employees check for P1,100 dated
August 15, 2021.
 Chummy Corporation is determining the amount of pretax financial
income for 2021 by making adjustments to taxable income from
company's income tax return. The tax return indicates taxable
income of P760,000 on which a tax liability of P228,000 has been
recognized. Following is the list of items that may be required to
determine pretax financial income from the amount of taxable
income. Accelerated depreciation for tax purposes was P268,000
while straight-line depreciation on these assets in the books is
P160,000. Impairment loss on goodwill of P90,000 was not included
as a deduction in the tax return, but may be deducted in the
financial income. Interest on treasury bills was not included in
the tax return. During the year, P49,400 was received on these
investments.
 Jack Company grants all employees two weeks paid vacation for each
full year of employment. Unused vacation time can be accumulated
and carried forward to succeeding years, and will be paid at the
salaries in effect then vacations are taken or when employment is
terminated. During 2021, there was no employee turnover. Jack
granted a 10% across the board salary increase to all employees on
October 1, 2021, its annual salary increase date. Information
relation to the year ended December 31, 2021 follows: Liability for
vacation pay, January 1 – P50,000; Accrued vacation taken from
January 1, 2021 - September 30, 2021 (pre 2021 accruals) – P40,000;
Vacations earned for work in 2021, adjusted to current rates –
P40,000.
 In December 31,2021 trial balance of Beauty Incorporated, the
following accounts are available: Cash Surrender Value- P37,500;
Investment in Subsidiary- P500,000; Investment Property- P750,000;
Plant Expansion Fund- P150,000; Tax Fund- P2,500; Sinking Fund
Cash- P125,000; Accrued Interest Receivable on sinking fund
securities- P12,500; Change Fund – P25,000; Sinking Fund
Securities- P250,000; Advances to Related Party- P50,000.
35. The given information of Perry Company indicates that there is a

a. Cash shortage of P562.00
b. Cash overage of P562.00
c. Cash shortage of P538.00
d. Cash overage of P538.00
36. What is Chummy Corporation's deferred tax liability at December 31,
2021?
a. P248,220
b. P108,000
c. P32,400
d. P20,220
37. What amount is reported as liability for vacation pay at Jack

Company’s December 31, 2021 statement of financial position?
a. P61,000
b. P60,000
c. P51,000
d. P40,000
38. How much should be reported as non-current investment at the

December 31, 2021 statement of financial position of Beauty
Incorporated?
a. P575,000
b. P1,125,000
c. P1,862,500
d. P1,875,000
SITUATIONAL 9
Data available for four different companies follows:

 On December 1, 2021, Kobe Corporation established a petty cash fund
of P5,000. On December 31, 2021, the petty cash fund was examined
and found to have receipts and documents for miscellaneous expenses
amounting of P2,740 and a petty cash voucher for P1,250 signed by
an employee as an IOU. In addition, there was cash amounting to
P860.
 On January 1, 2020, Cherry Company purchased Waldo Company for
P25,000,000 when Waldo Company's net assets had a fair value of
P21,000,000, The excess payment was appropriately recognized as
goodwill and is expected to have a benefit period of 10 years.
During 2021, Cherry spent an additional P1,150,000 on expenditures
designed to maintain goodwill. Due to these expenditures, at
December 31, 2021, Cherry estimated that the benefit period of
goodwill had increased an additional 10 years.
 Edmond Company purchased of P4,000,000 of 10% bonds of Sapphire
Company on January 1, 2021, paying P3,761,000. The bonds mature
January 1, 2029; interest is payable each July 1 and January 1. The
discount of P239,000 provides an effective yield of 11%. Edmond
Company uses the effective-interest method and appropriately
carries this debt investment at amortized cost.
 On September 30, 2021, a fire at Chantelle Company's only warehouse
caused severe damage to its entire inventory. Based on recent
history, Chateau has a gross profit of 30% on cost. The following
information is available from Chateau's records for the nine months
ended September 30, 2021. Inventory, January 1 - P550,000;
Purchases - P3,000,000; Net sales P3,640,000. A physical inventory
disclosed usable damaged goods which Chantelle estimates can be
sold to a jobber for P50,000.
39. Assuming that no replenishment was made at year end, what entry
would be required to record adjustment of the petty cash fund of
Kobe Corporation on December 31, 2021?
a. Miscellaneous Expense 2,740
Petty Cash Fund 860
Receivable from Employees 1,250
Cash short and over 150
Cash in bank 5,000
b. Miscellaneous Expense 2,740

Receivable from Employee 1,250
Cash short and over 150
Petty Cash Fund 4,140
c. Miscellaneous Expense 2,740

Cash Short and Over 150
Cash in Bank 4,140
d. Miscellaneous Expense 2,740

Cash in Bank 3,990
40. In its December 31, 2021 statement of financial position, what

amount should Cherry Company report as goodwill?
a. P5,150,000
b. P4,500,000
c. P4,000,000
d. P3,200,000
41. For the year ended December 31, 2021, Edmond Company should report
interest revenue from the Sapphire bonds of
a. P376,000
b. P411,087
c. P414,087
d. P400,000
42. Assuming that Chantelle company's gross profit rate is 30% based on
sales, what is the estimated cost of merchandise lost by the fire?
a. P1,102,000
b. P952,000
c. P750,000
d. P700,000
SITUATIONAL 10
The following information pertain to four different companies:

 In the tax jurisdiction on Arnold, a publicly listed company, a tax
deduction is allowed for the intrinsic value of the share options
issued to employees. The company issued options on January 1, 2021,
worth P15 million to employees. They vest in three years. The share
options’ intrinsic value at December 31, 2021, was P12 million. The
tax rate in the jurisdiction is 30%.
 Diana Company implemented the adoption of PAS 19, Employee Benefits

in accounting for its employee benefits in 2020, the first year of
Liliana’s operations. The records of Liliana show the following as
of December 31, 2021 and 2020:
2021 2020
Fair value of plan assets P 10,400,000 P 7,000,000
Projected benefit obligation 6,200,000 4,000,000
Prepaid benefit cost P 4,200,000 P 3,000,000
The actuarial reports as of December 31, 2021 and 2020 shows asset
ceiling of P3,000,000 and P1,600,000, respectively. The following
information are available for 2021: Current service cost –
P1,800,000; Contribution to the plan – P2,400,000; Actual return on
plan assets – P1,000,000; Discount rate – 10%
 Angela Company has one class of ordinary share outstanding, and no
other securities are potentially convertible into ordinary shares.
Angela Company's 2020 audited financial statements reported
earnings per share of P5.28. On April l, 2021, a 10% bonus issue
was declared which was issued on May 1, 2021. On October 1, 2021,
12,000 new shares were issued for cash, Profit reported by Angela
Company for 2020 and P2021 were P528,000 and P825,000,
respectively.
 Johnson Corp. received a grant related to a factory building that

it bought on January 2, 2021. The total amount of the grant was P9
million. Johnson Corp. acquired the building from an industrialist
identified by the government. If Johnson Corp. did not purchase the
factory building, which was located in the slums of the city, it
would have been repossessed by a government agency. Johnson Corp.
purchased the factory building for P27 million. The useful life of
the building is not considered to be more than three years, mainly
due to the fact that it was not properly maintained by the previous
owner.
43. What is the tax effect of the Arnold’s issuance of share options at
December 31, 2021?
a. P1.5 million benefit to statement of comprehensive income.
b. P1.2 million benefit to statement of comprehensive income.
c. P1.5 million benefit recognized in equity
d. P1.2 million benefit recognized in equity
44. What would be the tax effect on Arnold’s issuance of share options
if the intrinsic value at December 31, 2021, was P21 million?
a. P2.1 million tax benefit to income
b. P2.1 million recognized in equity
c. P1.5 million tax benefit to income, P0.6 million recognized in
equity.
d. P1.5 million recognized in equity, P0.6 million tax benefit to
income.
45. What is the retirement benefit expense to be reported by Diana

Company in P&L for the year 2021?
a. P1,500,000
b. P1,640,000
c. P1,360,000
d. P1,800,000
46. How much is the net actuarial gain/loss taken to OCI of Diana
Company during the year 2021?
a. P300,000
b. P340,000
c. P500,000
d. P640,000
Net effect on asset ceiling:

2020 (3.0M – 1.6M) P1,400,000
2021 (4.2M – 3.0M) 1,200,000
Decrease in effect of asset ceiling P 200,000
Interest expense on effect of asset ceiling (1.4M x 10%) 140,000
Actuarial gain on asset ceiling P 340,000
Actual return on plan assets P1,000,000

Expected return on plan assets (700,000)
Actuarial gain P 300,000
Actuarial gain on asset ceiling 340,000
Actuarial gain – OCI 2021 P 640,000
47. What amount should be shown in Diana Company’s statement of

financial position at December 31, 2021 as Prepaid Retirement
Benefit Cost?
a. P2,400,000
b. P2,600,000
c. P3,000,000
d. P4,200,000
The amount reported in the statement of financial position is equal to the asset ceiling
as of December 31, 2021.
48. What amount should Angela Company report as earnings per share in
its 2021 and 2020 comparative statement of comprehensive income?
a. 2021 - P7.30; 2020 - P5.28
b. 2021 - P7.30; 2020 - P4.80
c. 2021 – P6.76; 2020 – P4.80
d. 2021 – P6.76; 2020 – P5.28
2021 (825,000/113,000 shares*) P7.30

2020 (5.28/110%) P4.80
*528,000/5.28 = 100,000; (100,000 x 1.10) + (12,000 x 3/12) =113,000
49. If Johnson's policy is to treat the grant as a reduction in the

cost of the asset, how much depreciation should be recognized in
2021?
a. P-0-
b. P3,000,000
c. P6,000,000
d. P9,000,000
50. On January 5, 2023, the whole amount of government grant became
repayable due to noncompliance by Johnson. How much loss should be
recognized in 2023 as a result of noncompliance?
a. P-0-
b. P3,000,000
c. P6,000,000
d. P9,000,000
Amount of grant recognized as income in 2021 and 2022 (9M x 2/3) P6,000,00
SITUATIONAL 11
The following information pertaining to three different entities

follows:
 The Rayver Corporation began operations in 2021. The company
purchases computer equipment from manufacturers and then sells to
retail stores. During 2021, the bookkeeper used a check register to
record all cash receipts and cash disbursements. No other journals
were used. The following is a recap of the cash receipts and
disbursements made during the year.
Cash receipts
Sale of ordinary shares P 50,000
Collections from customers 320,000
Borrowed from local bank on April 1, signed
note requiring Principal and interest at
12% to be paid on March 31, 2022 40,000
Total cash receipts P410,000
Cash disbursements
Purchase of merchandise P220,000
Payment of salaries 80,000
Purchase of equipment 30,000
Payment of rent on building 14,000
Miscellaneous expenses 10,000
Total cash disbursements P354,000
You are called in to prepare the financial statements at December

31, 2021. The following additional information was provided to you.
a. Customers owed the company P22,000 at year-end. Of this amount,

it was anticipated that P3,000 would be uncollectible. There were
no actual bad debt write-offs in 2021.
b. At year-end, P30,000 was still due to suppliers of merchandise
purchased on credit.
c. Merchandise costing P50,000 remained on hand at year-end.
d. Salaries owed to employees at year-end amounted to P5,000.
e. On December 1, P3,000 rent was paid to the owner of the building
used by Rev Company. This represented rent for the period December
to February.
f. The equipment, which has a 10-year life and no salvage value,
was purchased on January 1, 2021. Straight-line depreciation is
used.
 A draft of the condensed statement of financial position for Julie

Ann Company as of December 31, 2021 contains the following list of
assets and their balances:
Trade and other receivables P 147,000

Cash and cash equivalents 98,000
Deferred tax asset 85,000
Property, plant & equipment
(net of P550,000 accumulated depreciation) 3,200,000
Prepayments 130,000
Inventories 220,000
The following information has been obtained.

 Trade and other receivables included P60,000 sales price of
goods in transit to customers at December 31, 2021, P40,000 of
which were shipped FOB shipping point. The company maintains a
uniform mark up on cost at 25%.
 The inventory is based on physical count of goods at the close
of business on December 31.
 Property, plant and equipment included the following:
o Land acquired in 2020 intended for future use costing
P800,000
o Equipment costing P200,000 that is fully depreciated, but
still being used by the entity
o Land and building, costing P200,000 and P950,000,
respectively, being leased to various tenants under
operating leases. The accumulated depreciation of said
building is P230,000.
o P248,000 purchase price of land with an undetermined
future use.
 Included in prepayments is cash surrender value of officer's
life insurance policy of P35,000.
 The memorandum records of Marian Trading at January 1, 2021, show
the following data: Defined Benefit Obligation – P2,600,000; Fair
value of plan assets – P3,000,000. The following information for
2021 is also provided: Service cost – P800,000; Actual return of
plan assets – P300,000; Benefits paid – P350,000; Contribution to
the plan – P780,000; Actuarial loss on remeasurement of defined
benefit obligation – P100,000; Discount rate – 9%
51. How much are Rayver Corporation’s sales and purchases during 2021?
a. P342,000 and P250,000
b. P298,000 and P190,000
c. P342,000 and P190,000
d. P298,000 and P250,000
Collections from customers P 320,000

Accounts receivable, end 22,000
Sales for the year P 342,000
Payments for purchase of merchandise P 220,000

Accounts payable, end 30,000
Purchases for the year P 250,000
52. Total operating expense of Rayver Corporation for the year ending
December 31, 2021 is
a. P113,000
b. P110,000
c. P97,000
d. P85,000
Salaries expense (80,000 +5,000) P 85,000

Rent expense (14,000-2,000) 12,000
Depreciation expense (30,000/10) 3,000
Miscellaneous expenses 10,000
Total operating expenses P110,000
53. What is the correct amount of Julie Ann’s trade and other
receivables at December 31, 2021?
a. P87,000
b. P107,000
c. P127,000
d. P147,000
54. What is the correct amount of Julie Ann’s inventories at December

31, 2021?
a. P235,000
b. P236,000
c. P250,000
d. P252,000
55. What is the correct amount of Julie Ann’s property, plant and
equipment at December 31, 2021?
a. P1,832,000
b. P2,032,000
c. P2,280,000
d. P3,200,000
56. What is the correct amount of Julie Ann’s non-current assets at
December 31, 2021?
a. P3,035,000
b. P3,120,000
c. P3,235,000
d. P3,320,000
57. How much is the net prepaid/accrued defined benefit cost that
Marian Trading shown on December 31, 2021 statement of financial
position?
a. P400,000 prepaid
b. P400,000 accrued
c. P346,000 prepaid
d. P346,000 accrued
58. How much is the retirement benefit expense of Marian Trading to be

taken to P&L for the year 2021?
a. P836,000
b. P834,000
c. P764,000
d. P694,000
59. How much is the retirement cost that Marian Trading is taken to OCI
for the year 2021?
a. P70,000 net actuarial gain
b. P70,000 net actuarial loss
c. P130,000 net actuarial gain
d. P130,000 net actuarial loss
60. What are the balances of Benefit Obligation and Plan Assets of
Marian Trading at Dec. 31, 2021?
a. P3,184,000 and P3,730,000
b. P3,384,000 and P3,700,000
c. P3,184,000 and P3,700,000
d. P3,384,000 and P3,730,000
ADDITIONAL QUESTIONS
Problem 1
Entity A has a 10% interest in Entity X, which it acquired prior to 2021
for P300,000. This investment was classified as Financial Asset at Fair
Value through Profit or Loss (FVTPL). In March 2021, Entity A acquires a
further 15% interest in Entity X for P720,000 (its then fair value),
giving Entity A significant influence over Entity X. transaction costs
of P50,000 were incurred for the 15% interest. The original 10% interest
had a fair value of P480,000 at that date.
1. If Entity A used the “fair value as deemed cost approach” in

accordance with PIC Interpretations, the cost of the investment in
associate is:
a. P1,020,000
b. P1,070,000
c. P1,200,000
d. P1,250,000
Fair value of 10% interest P 480,000

Purchase price of 15% interest 720,000
Transaction cost on 15% interest 50,000
Cost of 25% interest P1,250,000
Journal entry:
Investment in associate P1,250,000

Cash (P720,000 + P50,000) P770,000
Equity investment – FVTPL 480,000
Under the Fair value as deemed cost approach, the entity is

exchanging its initial interest (plus consideration paid for the
additional interest) for a significant interest in the investee
(exchange view). Hence, the entity’s investment in associate is
measured at the fair value at the time the significant influence
acquired.
2. If Entity A used the “accumulated cost approach” in accordance with
PIC Interpretations, the cost of the investment in associate is:
a. P1,020,000
b. P1,070,000
c. P1,200,000
d. P1,250,000
Fair value of 10% interest P 300,000

Purchase price of 15% interest 720,000
Transaction cost on 15% interest 50,000
Journal entry:

Adjustment to cost of equity inv. 180,000
Cash (P720,000 + P50,000) P770,000
Equity investment – FVTPL 480,000
Under the accumulated cost approach, the entity is purchasing

additional interest while retaining the initial interest (non-
exchange view). Hence, the entity’s investment in associate is
measured at the accumulated cost (original consideration).
Problem 2
On January 2, 2020 Entity B acquired 15% interest in Entity Y by paying
P2,000,000 for 10,000 ordinary shares. On this date, the net assets of
Entity Y totaled P12,000,000. The fair values of Entity Y’s identifiable
assets and liabilities were equal to their book values. The investment
in Entity Y is classified as Financial Asset at Fair value through Other
Comprehensive Income (FVTOCI). On January 1, 2021, Entity B paid
P4,500,000 for 30,000 additional ordinary shares of Entity Y, which
represents a 25% interest in Entity Y. The fair value of Entity Y’s
identifiable net assets, was equal to their book values of P13,000,000.
During 2020 and 2021 the following occurred:
Entity Y’s Profit Dividends paid by Entity Y

2020 P2,000,000 P1,000,000
2021 5,000,000 1,500,000
Te fair values of Entity B’s investment in Entity Y shares are as

follows: December 31, 2020 – P2,700,000; December 31, 2021 – P8,700,000.
3. The amount to be recognized in Entity A’s 2020 profit or loss

related to investment is:
a. P150,000
b. P300,000
c. P700,000
d. P850,000
Dividend income (P1,000,000 x 0.15) P150,000

4. If Entity B used the “fair value as deemed cost approach” in
accordance with PIC Interpretations, the cost of the investment in
associate is:
a. P6,500,000
b. P6,650,000
c. P7,200,000
d. P7,350,000
Fair value of 15% interest P2,700,000

Purchase price of 25% interest 4,500,000
Journal entry:

Cash P4,500,000
Equity investment – FVTOCI 2,700,000
The cumulative fair value gain of P700,000 (P2,700,000 –

P2,000,000) may be transferred to retained earnings.
5. If Entity B used the “fair value as deemed cost approach” in

accordance with PIC Interpretations, the carrying amount of the
investment in Entity Y as of December 31, 2021 is:
a. P6,500,000
b. P7,900,000
c. P8,050,000
d. P8,600,000

Share in profit for 2021 (P5M x 40%) 2,000,000
Dividends received in 2021 (P1.5M x 40%) ( 600,000)
Carrying amount, December 31, 2021 P8,600,000
6. If Entity B used the “accumulated cost approach” in accordance with

PIC Interpretations, the cost of the investment in associate is:
a. P6,500,000
b. P6,650,000
c. P7,200,000
d. P7,350,000
Purchase price of 15% interest P2,000,000

Purchase price of 25% interest 4,500,000
Journal entry:

Adjustment to cost of equity inv. 700,000
Cash P4,500,000
Equity investment – FVTOCI 2,700,000
The cumulative fair value gain of P700,000 (P2,700,000 –

P2,000,000) may be transferred to retained earnings.
7. If Entity B used the “accumulated cost approach” in accordance with
PIC Interpretations, the carrying amount of the investment in
Entity Y as of December 31, 2021 is:
a. P6,500,000
b. P7,900,000
c. P8,050,000
d. P8,600,000

Share in profit for 2021 (P5M x 40%) 2,000,000
Dividends received in 2021 (P1.5M x 40%) ( 600,000)
Carrying amount, December 31, 2021 P7,900,000
Problem 3
Entity C issued a financial liability designated as FVTPL for
P1,000,000. At the end of the reporting period, the fair value of the
financial liability decreased by P100,000 attributable to the following:
Credit risk – P30,000; Interest rate risk – P60,000; Other price risk –
P10,000.
8. The decrease in fair value of the financial liability to be

recognized in profit or loss is:
a. P-0-
b. P70,000
c. P90,000
d. P100,000
9. The decrease in fair value of the financial liability to be

recognized in other comprehensive income (OCI) is:
a. P-0-
b. P10,000
c. P30,000
d. P70,000
10. If recognition of certain changes in fair value in OCI would create

or enlarge an accounting mismatch in profit or loss, the decrease
in fair value of the financial liability to be recognized in OCI
is:
a. P-0-
b. P10,000
c. P30,000
d. P70,000
FINANCIAL ACCOUNTING AND REPORTING (THEORIES)
Compiled by Vhin
Note: this material is compiled and constructed solely for educational/review purposes and shall not be used
for business and profit motive. If there is/are any discrepancies with this material please contact me via
telegram. I hope this material will help you in preparing for CPALE. God Bless!
SET 1
1. Continuing Professional Development (CPD) is required for:

A. Renewal of CPA license
B. Accreditation to practice accountancy profession
C. Both the renewal of the CPA license and accreditation to practice accountancy profession
D. Neither renewal of CPA license nor accreditation to practice accountancy profession
2. Which of the following is the first steps within hierarchy of guidance to which management refers, and
whose applicability at considers, when selecting accounting policies?
A. Consider the applicability of the definitions, recognition criteria, and measurement concepts in the
Conceptual Framework.
B. Apply the requirements in the PRFS dealing with similar and related issues.
C. Consider the most recent pronouncements of other standard-setting bodies to the extent they do not
conflict with PFRS or the Conceptual Framework.
D. Apply a standard from PFRS if it specifically relates to the transaction, event, or condition.
3. How does the conceptual framework describe the qualitative characteristics of financial statements?
A. Non-qualitative aspects of financial position and financial performance
B. Measure the extent to which an entity has complied with all relevant standards and interpretations
C. Broad classes of financial effects of transactions and other events
D. Attributes that make the information provided in financial statements useful to user
4. Objectivity is assumed to be achieved when an accounting transaction

A. allocates revenue or expenses in a rational and systematic manner.
B. is recorded in a fixed amount of pesos.
C. involves an arms’ length transaction between two independent parties.
D. involves the payment or receipt of cash.
5. The items which are amounts reclassified to profit in the current period but were recognized in other
comprehensive income in the current or previous period are
A. Correcting entries
B. Prior period errors
C. Reclassification adjustments
D. Extra-ordinary items
6. Which of the following statements is false regarding adjusting entries?

A. Adjusting entries involve accruals or deferrals.
B. Cash is neither debited nor credited as a result of adjusting entries.
C. Each adjusting entry affects one revenue account and one expense account.
D. Each adjusting entry affects one statement of financial position and one income statement
account.
7. Which of the following statements are true?

I. Adjustment of the petty cash account is made at the end of the period to avoid understatement
of expenses and overstatement of cash.
II. II. Entries are made to the petty cash account to increase or decrease the size of the fund or to
adjust the balance if not replenished at year-end.
III. The imprest petty cash system in effect adheres to the rule of disbursements by check.
IV. The petty cash account is debited when the fund is replenished.
A. I, II and III
B. I, III and IV
C. I and II
D. II, III and IV
8. Theoretically, the amount of estimated future returns and allowance on credit sales should be recorded
during the period of sales so as not to overstate sales and ending accounts receivable. In practice,
these estimates are rarely recorded because
A. these is too much uncertainty surrounding such estimates
B. the amount of such returns and allowances is usually not material.
C. such estimates are not allowed according to generally accepted accounting principles
D. the amount of such returns and allowances tend to fluctuate too greatly from period to period.
GOLDEN CENTURY QUIZZERS – FAR THEORIES
9. Wakwak Company prepares an accounts receivable aging schedule with a series of computation as
follows: 2% of the total peso balances from 1-60 days past due, plus 5% of the total peso balance of
accounts from 61-120 days past due and so on. How would you describe the total amount determined
in this series of computation?
A. It is the amount of bad debts expense for the year.
B. It is the amount that should be added to the allowance for bad debts at year end.
C. It is the amount of the desired credit balance of the allowance for bad debts to be reported in the
year-end financial statements.
D. When added to the total of the accounts written off during the year, this new sum is the desired
credit balance of the allowance account.
10. A situation where the seller actually paid the freight charges but is not legally. responsible for the same.
A. FOB destination, freight prepaid
B. FOB destination, freight collect
C. FOB shipping point, freight prepaid
D. FOB shipping point, freight collect
11. Which statement is not true about the gross profit method of inventory valuation?
A. It may be used to estimate inventories for interim statements.
B. It may be used to estimate inventories for annual statements.
C. It may be used by auditors.
D. It may be used to estimate inventory pilferages.
12. An entity installed a new production facility and incurred a number of expenses at the point of
installation. The entity's accountant is arguing that most expenses do not qualify for capitalization.
Included in those expenses are initial operating losses. These should be
A. Deferred and amortized over a reasonable period of time.
B. Expensed and charged to the income statement.
C. Capitalized as part of the cost of the plant as a directly attributable cost.
D. Taken to retained earnings since it is unreasonable to present it as part of the current year's income
statement.
13. Which of the following statements are correct?

I. Donations of property, plant and equipment should be recorded at the fair value of the donated
asset at the time of donation.
II. When a group of assets is acquired for a lump sum price, the total cost should be allocated to the
individual assets based on their carrying amounts.
III. Property acquired in exchange for shares or other securities in the enterprise should be recorded at
its fair value or the fair value of the securities, whichever is more clearly evident.
IV. When property is acquired in exchange for another asset, its cost is usually determined by reference
to the fair value of the asset received.
A. I, II and III
B. I, III and IV
C. II, III, and IV
D. I, II, III and IV
14. Gain or loss from disposal of investment property is the difference between the
A. Fair value and carrying amount of the asset
B. Gross disposal proceeds and fair value of the asset
C. Net disposal proceeds and carrying amount of the asset
D. Gross disposal proceeds and carrying amount of the asset
15. Galaw Inc. bought a private jet for the use of its top-ranking officials. The cost of the private jet is P15
million and can be depreciated either using a composite useful life or useful lives of its major
components. It is expected to be used over a period of seven years. The engine of the jet has a useful
life of five years. The private jet's tires are replaced every two years. The private jet will be depreciated
using the straight-line method over
A. Seven years composite useful life.
B. Five years useful life of the engine, two years useful life of the tires, and seven years useful life
applied to the balance cost of the jet.
C. Two years useful life based on conservatism (the lowest useful life off all the parts of the jet).
D. Five years useful life based on a simple average of the useful lives of all major components of the jet.
16. Which statements are correct concerning goodwill?

I. Goodwill shall not be amortized because its useful life is indefinite.
II. Goodwill shall be tested for impairment at least annually or more frequently if events or changes
in circumstances indicate a possible impairment.
III. Further costs of developing, maintaining and restoring goodwill should be capitalized.
IV. Once impairment loss is recognized for goodwill, the loss taken up is not allowed to be reversed in
a subsequent period.
A. I,II and III

B. I,III and IV
C. I,II and IV
D. II,III and IV
17. In relation to the amortization of intangible assets, the general rule in PAS 38 Intangible Assets is that unless
demonstrated otherwise
A. the residual value does not enter into the determination of the amortization charge.
B. the residual value need not be reviewed at the end of each annual reporting period.
C. all intangible assets have a residual value at least equal to the amount maintenance costs incurred.
D. the residual value is presumed to be zero.
18. Which of the following is a characteristic of a current liability but not a long-term liability?
A. Unavoidable obligation.
B. Present obligation that entails settlement by probable future transfer or use of cash, goods, or
services.
C. Liquidation is reasonably expected to require use of existing resources classified as current assets or
create other current liabilities.
D. Transaction or other event creating the liability
19. The generally accepted method of accounting for gains or losses from the early extinguishment of debt
treats any gain or loss as
A. an adjustment to the cost basis of the asset obtained by the debt issue.
B. an amount that should be considered a cash adjustment to the cost of any other debt issued over
the remaining life of the old debt instrument.
C. an amount received or paid to obtain a new debt instrument and, as such, should be amortized
over the life of the new debt.
D. a difference between the reacquisition price and the net carrying amount of the debt which should
be recognized in the period of redemption.
20. Cegg Company sells appliances that include a three-year warranty, Service calls under the warranty are
performed by an independent mechanic under a contract with Cegg. Based on experience, warranty
costs are estimated at P300 for each machine sold. When should Cegg Company recognize these
warranty costs?
A. Evenly over the life of the warranty
B. When the service calls are performed
C. When payments are made to the mechanic
D. When the machines are sold
21. Under PFRS, which of the following accounts would not be considered a “provision”?
A. Warranty liabilities
B. Bad debts
C. Taxes payable
D. Note payable
22. Select the statement that is incorrect concerning the appropriations of retained earnings.
A. Appropriations of retained earnings do not change the total amount of shareholders' equity.
B. Appropriations of retained earnings reflect funds set aside for a designated purpose, such as plant
expansion.
C. Appropriations of retained earnings can be made as a result of contractual requirements.
D. Appropriations of retained earnings can be made at the discretion of the board of directors.
23. Each of the following is ownership right held by ordinary shareholders, unless specifically withheld by
agreement, except
A. the right to vote on policy issues
B. the right to share in profits when dividends are declared (in proportion to the percentage of shares
owned by the shareholders)
C. the right to dividends equal to a stated rate times par (if dividends are paid)
D. the right to share in the distribution of any assets remaining at liquidation after other claims are satisfied
24. Compensation cost for a share-based payment to employees that is classified as a liability is measured
as
A. The change in fair value of the instrument for each reporting period
B. The total fair value at grant date
C. The present value of cash payments due over the life of the grant
D. The actual cash outlay for the period
25. Jack Co. maintains a defined benefit pension plan for its employees. The service cost
component of Jack’s net periodic pension cost is measured using the
A. Projected benefit obligation
B. Expected return on plan assets
C. Unfunded vested benefit obligation
D. Unfunded accumulated benefit obligation
26. Which of the following is the most likely item to result in a deferred tax liability?
A. Expenses and losses that are deductible after they are recognized in financial income.
B. Revenues or gains that are taxable before they are recognized in financial income.
C. Expenses and losses that are deductible before they are recognized in financial income.
D. Revenues or gains that are recognized in financial income but are never included in taxable income.
27. For interim reporting, the income tax expense for the second quarter should be computed by using
A. statutory tax rate for the year.
B. effective tax rate expected to be applicable for the second quarter.
C. effective tax rate expected for the full year as estimated at the end of the first quarter.
D. effective tax rate expected for the full year as estimated ate the end of the second quarter.
28. Which of the following statements is incorrect?

A. An entity shall present separately each material class of similar items.
B. If a line item is not individually material, it remains to be presented separately as a line item
C. An entity need not provide a specific disclosure required by PFRS if the information is not material,
except when required by law.
D. The final stage in the process of aggregation and classification is the presentation of condensed and
classified data, which form line items in the financial statements.
29. Earl Co. disclosed in the notes to its financial statements that a significant number of its
unsecured trade accounts receivables are with companies that operate in the same industry.
This disclosure is required to inform financial statement users of the existence of
A. Concentration of market risk
B. Risk of measurement uncertainty
C. Concentration of credit risk
D. Off-balance sheet risk of accounting loss
30. In its financial statements, Galante Corp. uses the equity method of accounting for it’s 30% ownership of
Sundy Corp. At December 31, 2021, Galante has a receivable from Sundy. The receivable is to be
reported in Galante’s 2021 financial statement as
A. The total amount of the receivable should be disclosed separately
B. The total receivable should be included as part of the investment in Sundy Corp., without
separate disclosure
C. None of the receivable should be reported, but the entire receivable should be offset
against Sundy corp’s payable to Galante Corp.
D. Seventy percent of the receivable should be separately reported, with the balance offset
against 30% of Sundy Corp. payable to Galante Corp.
SET 2
1. Assuming constant inventory quantities, which of the following inventory-costing methods will produce a
lower inventory turnover ratio in an inflationary economy?
a. FIFO (first in, first out).
b. LIFO (last in, first out).
c. Moving average.
d. Weighted average.
2. Which of the following statements correctly describes the proper accounting for nonmonetary
exchanges that are deemed to have commercial substance?
a. It defers any gains and losses.
b. It defers losses to the extent of any gains.
c. It recognizes gains and losses immediately.
d. It defers gains and recognizes losses immediately.
3. The replacement cost of an inventory item is below the net realizable value and above the net realizable
value less a normal profit margin. The inventory item's original cost is above the net realizable value. Under
the lower of cost or market method, the inventory item should be valued at:
a. Original cost.
b. Replacement cost.
c. Net realizable value.
d. Net realizable value less normal profit margin.
4. Which of the following transactions qualify as a discontinued operation?

a. Disposal of part of a line of business.
b. Planned and approved sale of a segment.
c. Phasing out of a production line.
d. Changes related to technological improvements.
5. Grayson Co. incurred significant costs in defending its patent rights. Which of the following is the
appropriate treatment of the related litigation costs?
a. Litigation costs would be capitalized regardless of the outcome of the litigation.
b. Litigation costs would be expensed regardless of the outcome of the litigation.
c. Litigation costs would be capitalized if the patent right is successfully defended.
d. Litigation costs would be capitalized only if the patent was purchased rather than internally
developed.
6. Milton Co. pledged some of its accounts receivable to Good Neighbor Financing Corporation in return
for a loan. Which of the following statements is correct?
a. Good Neighbor Financing cannot take title to the receivables if Milton does not repay the loan.
Title can only be taken if the receivables are factored.
b. Good Neighbor Financing will assume the responsibility of collecting the receivables.
c. Milton will retain control of the receivables.
d. Good Neighbor Financing will take title to the receivables, and will return title to Milton after the
loan is paid.
7. The senior accountant for Carlton Co., a public company with a complex capital structure, has just
finished preparing Carlton's income statement for the current fiscal year. While reviewing the income
statement, Carlton's finance director noticed that the earnings per share data has been omitted. What
changes will have to be made to Carlton's income statement as a result of the omission of the earnings
per share data?
a. No changes will have to be made to Carlton's income statement. The income statement is
complete
without the earnings per share data.
b. Carlton's income statement will have to be revised to include the earnings per share data.
c. Carlton's income statement will only have to be revised to include the earnings per share data if
Carlton's market capitalization is greater than P5,000,000.
d. Carlton's income statement will only have to be revised to include the earnings per share data if
Carlton's net income for the past two years was greater than P5,000,000.
8. When accounting for income taxes, a temporary difference occurs in which of the following scenarios?
a. An item is included in the calculation of net income, but is neither taxable nor deductible.
b. An item is included in the calculation of net income in one year and in taxable income in a
different year.
c. An item is no longer taxable due to a change in the tax law.
d. The accrual method of accounting is used.
9. The original cost of an inventory item is above the replacement cost. The inventory item's replacement
cost is above the net realizable value. Under the lower of cost or market method, the inventory item
should be valued at:
a. Original cost.
b. Replacement cost.
c. Net realizable value.
d. Net realizable value less normal profit margin.
10. Each of the following is a component of the changes in the net assets available for benefits of a defined
benefit pension plan trust, except:
a. The net change in fair value of each significant class of investments.
b. Contributions from the employer and participants.
c. Benefits paid to participants.
d. The net change in the actuarial present value of accumulated plan benefits.
11. Which of the following transactions is included in the operating activities section of a cash flow statement
prepared using the indirect method?
a. Gain on sale of plant asset.
b. Sale of property, plant and equipment.
c. Payment of cash dividend to the shareholders.
d. Issuance of common stock to the shareholders.
12. Wood Co.'s dividends on noncumulative preferred stock have been declared but not paid. Wood has
not declared or paid dividends on its cumulative preferred stock in the current or the prior year and has
reported a net loss in the current year. For the purpose of computing basic earnings per share, how should
the income available to common stockholders be calculated?
a. The current-year dividends and the dividends in arrears on the cumulative preferred stock should
be added to the net loss, but the dividends on the noncumulative preferred stock should not be
included in the calculation.
b. The dividends on the noncumulative preferred stock should be added to the net loss, but the
current year dividends and the dividends in arrears on the cumulative preferred stock should not
be included in the calculation.
c. The dividends on the noncumulative preferred stock and the current-year dividends on the
cumulative preferred stock should be added to the net loss.
d. Neither the dividends on the noncumulative preferred stock nor the current-year dividends and
the dividends in arrears on cumulative preferred stock should be included in the calculation.
13. Giaconda, Inc. acquires an asset for which it will measure the fair value by discounting future cash flows
of the asset. Which of the following terms best describes this fair value measurement approach?
a. Market.
b. Income.
c. Cost.
d. Observable inputs.
14. In a period of falling prices, the use of which of the following inventory cost flow methods would typically
result in the highest cost of goods sold?
a. Weighted average cost
b. Specific identification
c. LIFO
d. FIFO
15. The fair value for an asset or liability is measured as:

a. The appraised value of the asset or liability.
b. The price that would be paid to acquire the asset or received to assume the liability in an orderly
transaction between market participants.
c. The price that would be received when selling an asset or paid when transferring a liability in an
orderly transaction between market participants.
d. The cost of the asset less any accumulated depreciation or the carrying value of the liability on
the date of the sale.
16. A company has a 22% investment in another company that it accounts for using the equity method.
Which of the following disclosures should be included in the company's annual financial statements?
a. The names and ownership percentages of the other stockholders in the investee company.
b. The reason for the company's decision to invest in the investee company.
c. The company's accounting policy for the investment.
d. Whether the investee company is involved in any litigation.
17. Which of the following statements is correct as it relates to changes in accounting estimates?
a. Whenever it is impossible to determine whether a change in an estimate or a change in
accounting principle occurred, the change should be considered a change in principle.
b. Whenever it is impossible to determine whether a change in accounting estimate or a change in
accounting principle has occurred, the change should be considered a change in estimate.
c. It is easier to differentiate between a change in accounting estimate and a change in accounting
principle than it is to differentiate between a change in accounting estimate and a correction of
an error.
d. Most changes in accounting estimates are accounted for retrospectively.
18. Which of the following items is not subject to the application of intra-period income tax allocation?
a. Operating income.
b. Discontinued operations.
c. Income from continuing operations.
d. None of the foregoing.
19. Which of the following common characteristics of derivative financial instruments distinguishes them from
other types of financial instruments?
a. They impose a contractual obligation by one entity to deliver cash to a second entity to convey
a contractual right.
b. They are financial investments in stocks, bonds, or other securities that are marketable.
c. They have a notional amount or payment provision that is based on the changes in one or more
underlying variables.
d. Most financial instruments are valued on the balance sheet at fair value, but derivatives are
valued on the balance sheet at cost.
20. A company acquired an item of property, plant and equipment that consists of individual components
with costs that are both significant and insignificant in relation to the total cost of the item. Which of the
following statements represents the methodology that should be used to measure and record
depreciation expense under IFRS?
a. The individual components may be combined and depreciated using a weighted-average useful
life computed for the asset as a whole.
b. Each component with a cost that is significant in relation to the total cost of the item should be
depreciated separately, and the company may elect to immediately expense the cost of the
remaining items that are individually insignificant.
c. The individual components may be combined and depreciated over the useful life of the asset
based on the company's established policy for that asset category.
d. Each component with a cost that is significant in relation to the total cost of the item should be
depreciated separately; approximation techniques may be used to depreciate the cost of the
remaining items that are individually insignificant.
21. Under IFRS, what valuation methods are used for intangible assets?
a. The cost model or the fair value model.
b. The cost model or the revaluation model.
c. The cost model or the fair value through profit or loss model.
d. The revaluation model or the fair value model.
22. For companies that prepare financial statements in accordance with IFRS, plant, property, and
equipment should be valued using which models?
a. The cost model or the fair value model.
b. The cost model or the revaluation model.
c. The cost model or the fair value through profit or loss model.
d. The revaluation model or the fair value model.
23. Which of the following is true about biological assets under IFRS?
a. Biological assets are only found in Biotech companies.
b. Biological assets are living animals or plants and must be disclosed as a separate item on the
balance sheet.
c. Biological assets must be valued at cost.
d. Biological assets do not generally have future economic benefits.
24. Roland Corp. signed an agreement with Linx, which requires that if Linx does not meet certain contractual
obligations, Linx must forfeit land worth P4,000,000 to Roland. Roland’s accountants believe that Linx will
not meet its contractual obligations, and it is probable Roland will receive the land by the end of year 2.
Roland uses IFRS for reporting purposes. How should Roland report the land?
a. As investment property in the asset section of the balance sheet.
b. As a contingent asset in the current asset section of the balance sheet.
c. In a footnote disclosure if the economic benefits are probable.
d. As a contingent asset and other comprehensive income for the period.
25. Under IFRS, if a long-term debt becomes callable due to the violation of a loan covenant
a. The debt may continue to be classified as long-term if the company believes the covenant can
be renegotiated.
b. The debt must be reclassified as current.
c. Cash must be reserved to pay the debt.
d. Retained earnings must be restricted in the amount of the debt.
26. Under IFRS, issued convertible bonds are

a. Separated into debt and equity components with the liability component recorded at fair value
and the residual assigned to the equity component.
b. Always recorded using the fair value option.
c. Recorded at face value for the liability along with the associated premium or discount.
d. Recorded at face value without consideration of a premium or discount.
27. Which of the following is true regarding reporting deferred taxes in financial statements prepared in
accordance with IFRS?
a. Deferred tax assets and liabilities are classified as current and noncurrent based on their expiration
dates.
b. Deferred tax assets and liabilities may only be classified as noncurrent.
c. Deferred tax assets are always netted with deferred tax liabilities to arrive at one amount
presented on the balance sheet.
d. Deferred taxes of one jurisdiction are offset against another jurisdiction in the netting process.
28. In accounting for share-based compensation, what interest rate is used to discount both the exercise
price of the option and the future dividend stream?
a. The firm’s known incremental borrowing rate.
b. The current market rate that firms in that particular industry use to discount cash flows.
c. The risk-free interest rate.
d. Any rate that firms can justify as being reasonable.
29. Which of the following statement is correct?

a. A long-term fund is necessary to be establish for long-term liabilities incurred
b. Cash dividends are periodically received based on the cash surrender value of the life insurance
c. Long- term advances and deposits fall under the category of financial assets at FVPL or OCI.
d. Any income earned from a bind sinking fund is taken to profit or loss in the period earned.
30. Karl Raphael Inc. deals extensively with foreign entities, and its financial statements reflect these foreign
currency transactions. Subsequent to the balance sheet date, and before the “date of authorization” of
the issuance of the financial statements, there were abnormal fluctuations foreign currency rates. Karl
Raphael Inc. should
a. Adjust the foreign exchange year-end balances to reflect the abnormal adverse fluctuations in
foreign exchange rates.
b. Adjust the foreign exchange year-end balances to reflect all the abnormal fluctuations in foreign
exchange rates (and not just adverse movements).
c. Disclose the post – balance sheet event in footnotes as a non – adjusting event.
d. Ignore the post – balance sheet event.
SET 3
1. Under which of the following circumstances would an entity's current year financial statements not
qualify as first IFRS financial statements?
a. The entity prepared its financial statements in the previous year under IFRS for internal purposes.
b. The entity prepared its previous year's financial statements under its national GAAP.
c. The entity prepared its previous year's financial statements in conformity with all requirements of
IFRS but did not contain an explicit and unreserved statement of compliance with IFRS.
d. The entity prepared its previous year's financial statements in conformity with all requirements of
IFRS and contained an explicit and unreserved statement of compliance with IFRS
2. How should a first-time adopter of IFRS recognize the adjustments required to present the opening IFRS
statement of financial position?
a. All of the adjustments should be recognized in profit or loss.
b. Adjustments that are capital in nature should be recognized in retained earnings and adjustments
that are revenue in nature should be recognized in profit or loss.
c. Current adjustments should be recognized in profit or loss and noncurrent adjustments should be
recognized in retained earnings.
d. All of the adjustments should be recognized directly in retained earnings or, if appropriate, in
another category of equity.
3. The effect of a change in accounting policy that is inseparable from the effect of a change in
accounting estimate should be reported
a. By restating the financial statements of all prior periods presented.
b. As a correction of an error.
c. As a component of income from continuing operations, in the period of change and future periods
if the change affects both.
d. As a separate disclosure after income from continuing operations, in the period of change and
future periods if the change affects both.
4. If it is impracticable to determine the cumulative effect of an accounting change to any of the prior
periods, the accounting change should be accounted for
a. As a prior adjustment
b. On a prospective basis
c. As a cumulative effect change in the income statement
d. As an adjustment to retained earnings in the first period presented.
5. Which of the following does not qualify as an underlying?

a. Insurance index
b. Equity shares
c. Exchange rate
d. Commodity price
6. When accounting for income taxes, a temporary difference occurs when

a. An item is included in the calculation of net income in one year and taxable income in a different
year.
b. An item is included in the calculation of net income but is neither taxable nor deductible.
c. The accrual method of accounting is used.
d. An item is no longer taxable due to a change in the tax law.
7. At the end of the accounting period, the current market value of a purchase commitment was less
than the fixed purchase price. Which treatment is most appropriate?
a. Neither describe the purchase obligation nor recognize a loss.
b. Describe the nature of the contract in a note to the financial statements, recognize a loss and
recognize a reduction in inventory equal to the amount of the loss
c. Describe the nature of the contract and the estimated amount of the loss in a note.
d. Describe the nature of the contract in a note to the financial statements and recognize a liability
for the accrued loss.
8. When collectibility is reasonably assured, the excess of the subscription price over the stated value of the
no par ordinary shares subscribed should be recorded as
a. No par ordinary shares
b. Share premium when the subscription is recorded.
c. Share premium capital when the subscription is collected.
d. Share premium capital when the ordinary shares are is issued.
9. A retained earnings appropriation can be used to

a. Absorb a fire loss when an entity is self-insured.
b. Provide for a contingent loss that is probable and reasonably estimable.
c. Smooth periodic income.
d. Restrict earnings available for dividends.
10. In accounting for share-based compensation, what interest rate is used to discount both the exercise
price of the option and the future dividend stream?
a. The entity’s known incremental borrowing rate.
b. The current market rate that entities in that particular industry use to discount cash flows.
c. The risk-free interest rate.
d. Any rate that entities can justify as being reasonable.

I. For a sale to be highly probable, management must be committed to a plan to sell the asset or
disposal group.
II. For a sale to be highly probable, the sale is expected to be a completed sale within two years
from the date of classification as held for sale.
III. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date.
IV. A noncurrent asset or disposal group that is to be abandoned does not qualify to be classified as
held for sale.
a. I, II and III
b. I, III and IV
c. I, II and IV
d. I, III and IV
12. Which of the following is not a reason for management and shareholders to favor debt financing over
equity financing?
a. The present owners remain in control of the corporation.
b. The interest incurred in debt financing is a deductible expense in arriving at taxable income
while dividends are not.
c. The charge for interest on the debt may be less than the amount of dividends that might be
expected by shareholders.
d. The interest on debt is not required to be and paid financial periodically position when the
enterprise results in unfavorable operations.
13. Which of the following statements relating to bonds is incorrect?

a. A bond is a debt instrument giving the issuer flexibility as to maturity date.
b. A bond's face value is the amount the issuer must pay to the bondholder at maturity.
c. A bond will typically sell at a discount when its nominal rate is less than the current market rate
of interest.
d. The owner of a registered bond is the person to whom interest payments are mailed.
14. On March 22, 2020, Squee Corporation received notification of legal action against the firm. Squee’s
attorneys determine that it is probable the company will lose the suit, and the loss is estimated as
P2,000,000. Squee’s accountants believe this amount is material and should be disclosed. Squee
prepares its financial statements in accordance with PFRS. How should the estimated loss be disclosed
in Squee’s financial statements at December 31, 2020?
a. As a loss recorded in other comprehensive income.
b. As a contingent liability reported in the balance sheet and a loss on the income statement.
c. As a provision for loss reported in the balance sheet and a loss on the income statement
d. In the footnotes to the financial statements as a contingency.
15. When a share dividend or bonus issue results in some shareholders being entitled to a fraction of a share,
the corporation may take any of the following alternatives, except to
a. issue fractional share warrants.
b. pay the shareholder an amount equal to the market price of the fraction share.
c. require the shareholder to surrender the equivalent fraction of a share.
d. require the shareholder to pay sufficient amount to receive a full share.
16. Which of the following is not a legal restriction related to profit distributions by a corporation?
a. The amount distributed to owners must be in compliance with the Philippine laws governing
corporations.
b. The amount distributed in any one year can never exceed the net income reported for that year.
c. Profit distributions must be formally approved by the board of directors.
d. Dividends must be in full agreement with the capital stock contracts as to preferences and
participation.
17. Initial direct costs incurred by the lessor in an operating lease should be
a. expensed in the year of incurrence by including them in the cost of goods sold or by treating
them as a selling expense
b. deferred and recognized as reduction in the interest rate implicit in the lease
c. capitalized as part of asset cost and depreciated over the lease term
d. deferred and carried on the statement of financial position until the end of the lease term
18. Initial direct costs incurred by the lessee are

a. Added to the right-of-use asset and expensed over an amortization period
b. Recorded as an expense at the beginning of the lease
c. Deferred in a lease until the asset is returned to the lessor
d. A reduction to the lease liability at the beginning of the lease
19. If the lessee and lessor use different interest rates to account for a finance/sales- type lease, then
a. the lessee is unaware of the lessor's implicit rate
b. total expenses for the lessee will equal the lessor's total revenues
c. PFRS has been violated by at least one party
d. the lessee will report more net income for the year
20. Under PAS 34, interim financial reports should be published

a. Once a year at any time in that year.
b. Within a month of the half-year end.
c. On a quarterly basis.
d. Whenever the entity wishes.
21. The interim financial report is intended to

a. provide an update on the latest complete set of annual financial statements.
b. correct error discovered subsequent to the release of the financial statements.
c. provide additional information not disclosed previously in the annual financial statements.
d. provide information that are requested by the investors in relation to a planned initial public
offering.
22. Operating segments that do not meet any of the quantitative thresholds
a. cannot be considered reportable.
b. may be considered reportable if the information is for internal use only.
c. may be considered reportable and separately disclosed if this is the practice within the
economic environment in which the entity operates.
d. may be considered reportable and separately disclosed if management believes that
information about the segment would be useful to the users of the financial statements.

a. An entity shall present separately each material class of similar items.
b. If a line item is not individually material, it remains to be presented separately as a line item
c. An entity need not provide a specific disclosure required by PFRS if the information is not
material, except when required by law.
d. The final stage in the process of aggregation and classification is the presentation of
condensed and classified data, which form line items in the financial statements.
24. Which of the following offsetting cases is not permitted by PFRS?

a. Receivables from the carrier against the trade payables with supplier. The inventories were lost
on transit before the reporting period on term FOB shipping point.
b. An entity presents on a net basis gains and losses arising from a group of similar transactions, for
example, foreign exchange gains and losses or gains and losses arising on financial instruments
held for trading, except when material.
c. An entity presents gains and losses on the disposal of non-current assets, including investments
and operating assets, by deducting from the amount of consideration on disposal the carrying
amount of the asset and related selling expenses
d. An entity may net expenditure related to a provision that is recognized in accordance with PAS
37 Provisions, Contingent Liabilities and Contingent Assets and reimbursed under a contractual
arrangement with a third party against the related reimbursement.
25. KARL Inc. decided to extend its reporting period from a year (12-month period) to a 15-month period.
Which of the following is not required under PAS 1 in case of change in reporting period?
a. KARL Inc. should disclose the reason for using a longer period than a period of 12 months.
b. KARL Inc. should disclose that comparative amounts used in the financial statements are not
entirely comparable.
c. KARL Inc. should change the reporting period only if other similar entities in the geographical
area in which it generally operates have done so in the current year; otherwise, its financial
statements would not be comparable to others.
d. All the given statements are in accordance with PAS 1.
26. The level of rounding used in the financial statements refers to the
a. abbreviation of words used.
b. truncation of the amounts presented.
c. shortening of the notes by removing comparative figures
d. presentation of a concise financial report rather than a full financial report.
27. Accrual basis accounting

a. is not acceptable under GAAP
b. omits adjusting at the end of the period
c. results in higher income than cash basis accounting
d. leads to the reporting of more complete information than does cash-basis
28. Which of the following statements is correct regarding biological assets and agricultural produce?
a. Biological assets whose fair value cannot be determined reliably shall be measured at cost.
b. Agricultural produce shall be measured at cost less accumulated depreciation and
impairment losses, when its fair value cannot be estimated reliably.
c. The price in an active market is considered to be the best basis for determining the fair value
of biological assets and agricultural produce.
d. The change in fair value less cost to sell of biological assets is taken to equity in the period in
which the changes arise.
29. Which is the correct treatment of a stock dividend (bonus issue) issued in mid-year when
computing the weighted average number of ordinary shares outstanding for earnings per
share purposes?
a. The bonus issue should be weighted by the length of time that the additional number of
shares is outstanding during the period.
b. The bonus issue should be included in the weighted average number of ordinary shares
outstanding only if the additional shares result in a decrease of 3 percent or more in earnings
per share.
c. The bonus issue should be weighted as if the additional shares were issued at the beginning
of the year.
d. The bonus issue should be ignored since no additional capital was received.
30. In measuring an impairment loss, PFRS uses

a. undiscounted cash flows.
b. discounted cash flows.
c. a fair value test.
d. a replacement value test.
SET 4 (COMPREHENSIVE – ALL TOPICS IN SYLLABUS)
1. The enhancing qualitative characteristics of financial reporting are

A. cost-benefit and materiality.
B. relevance, reliability, and faithful representation.
C. completeness, neutrality, and freedom from error.
D. comparability, verifiability, timeliness, and understandability.
2. Verifiability implies
A. consensus
B. legal evidence
C. legal verdict
D. logic
3. Which of the following items would appear in the post-closing trial balance?
A. Distribution cost
B. Increase in the fair value of trading securities
C. Loss from write-down of inventory to net realizable value
D. Cumulative balance of unrealized fair value gain of FA-FVOCI
4. An appropriate reversing entry

A. is dated the first day of the next accounting period.
B. must be made because they are required by accounting standards.
C. is usually made for adjusting entries that affect deferred items only.
D. is often used to correct entries which were initially based on estimates.
5. Which of the following statements is false?

A. Cash may be offset against a liability if the deposit of funds in a restricted account clearly constitutes
the legal discharge of the liability.
B. Petty cash fund of P30,000 composed of currency and coins of P22,000 and unreplenished petty cash
vouchers of P8,000 should be shown in the current asset section at P22,000 only.
C. Marketable securities and commercial papers may be shown as part of cash provided this is disclosed.
D. Not all items included in cash constitute legal tender.
6. Makwarta Incorporated prepares a four-column bank reconciliation. Check no. 8888 was written for
P6,780 on the books, but the check was written and cleared the bank for the correct amount, P7,680. The
correct treatment on the reconciliation would be:
A. on the bank side, add P900 to receipts and add P900 to ending balance.
B. on the bank side, deduct P900 from payments and add P900 to ending balance.
C. on the book side, add P900 to payments and deduct P900 from ending balance.
D. on the book side, deduct P900 from payments and add P900 to ending balance.
7. Which of the following is not an appropriate procedure for controlling the petty cash fund?
A. The petty cash custodian obtains signed receipts from each individual to whom petty cash is paid.
B. Surprise counts of the fund are made from time to time by a superior of the petty cash custodian to
determine that the fund is being accounted for satisfactorily.
C. Upon receiving petty cash receipts as evidence of disbursements, the general cashier issues to the
petty cash custodian a company check, rather than cash, to replenish the fund.
D. The petty cash custodian files receipts by category of expenditure after their presentation to the
general cashier so that variations in different types of expenditures can be monitored.
8. What is “recourse” as it relates to selling receivables?

A. The obligation of the seller of the receivables to pay the purchaser in the case of the debtor fails to
pay.
B. The obligation of the purchaser of the receivables to pay the seller in the case of the debtor fails to
pay.
C. The obligation of the seller of the receivables to pay the purchaser in the case of the debtor returns
the product related to the sales.
D. The obligation of the purchaser of the receivables to pay the seller if all of the receivables.
9. When specific customers’ account is written off by a company using the allowance method, the effect
on profit and amortized cost of accounts receivable are, respectively
A. no effect, decrease.
B. no effect, no effect.
C. decrease, decrease.
D. decrease, no effect.

A. If credit terms to customers were 2/10, n/30, a two percent discount will be granted if payment is
made within 10 days of the date of sale.
B. If the allowance for doubtful accounts has been underestimated, a sale of the related receivables
to a factor is more likely to result in a gain than in loss.
C. If the estimate of bad debts expense is made on the basis of net credit sales, an entry is made each
period to the account, “Allowance for Doubtful Accounts,” without regard to the prior balance in
that account.
D. If the estimate of bad debts expense is made on the basis of net realizable value of the accounts
receivable, the balance of the account, “Allowance for Doubtful Accounts,” is adjusted so that the
adjusted balance reflects the computed amount needed to properly value the receivables.
11. When comparing the allowance method of accounting for bad debts with direct write off method,
which of the following is true?
A. The direct write off method is exact and also better illustrates the matching concept.
B. The direct write off method is theoretically superior
C. The direct write off method requires two separate entries to write off an uncollectible account.
D. The allowance method is less exact but it better illustrates the matching principle.
12. When the direct write off method of recognizing bad debts expense is used, the entry to write off a
specific customer account would
A. increase profit
B. have no effect on profit
C. increase the accounts receivable balance and increase profit
D. decrease the accounts receivable balance and decrease profit.
13. When the direct write off method of recognizing bad debts expense is used, the entry to write off a
specific customer account would
A. increase profit
B. have no effect on profit
C. increase the accounts receivable balance and increase profit
D. decrease the accounts receivable balance and decrease profit.
14. It is predetermined amount withheld by a factor as a protection against customer returns, allowance
and other special adjustments.
A. Equity in assigned accounts
B. Service charge
C. Factor’s holdback
D. Loss on factoring
15. If a merchandise company ended a period with a larger inventory than it had at the beginning of the
period, which of the following statements must be true?
A. The cost of goods sold was greater than net purchases.
B. Profit was greater than gross profit on sales.
C. The cost of goods sold was lesser than net purchases.
D. The cost of goods available for sale was smaller than the cost of goods sold.
16. The gross profit method of estimating inventory would not be useful when
A. a periodic system is in use and inventories are required for interim statements.
B. inventories have been destroyed or lost by fire, theft, or other casualty, and the specific data
required for inventory valuation are not available.
C. the validity of inventory obtained by physical count is being established.
D. the relationship between gross profit and sales continues to be unstable over time.
17. When using the periodic inventory system, which of the following generally would not be separately
accounted for in the computation of cost of goods sold?
A. Trade discounts applicable to purchases during the period
B. Cash (purchase) discounts taken during the period
C. Purchase returns and allowances of merchandise during the period
D. Cost of transportation-in for merchandise purchased during the period
18. Costs which are inventoriable include all of the following except
A. costs that are directly connected with the bringing of goods to the place of business of the buyer.
B. costs that are directly connected with the converting of goods to a salable condition.
C. buying costs of a purchasing department.
D. selling costs of a sales department.
19. Sarah Company’s 2021 dividend revenue included only a part of the dividends received from its
investment in Jean Company. Sarah has an investment in Jean Company, which is designated at fair
value through profit or loss. The balance of the dividend reduced Sarah’s carrying amount for its
investment in Jean. This reflects the fact that Sarah accounts for investment in Jean as an
A. equity investment at FVOCI and all of Jean's 2021 dividends represent earnings after acquisition.
B. equity investment at FVPL and only a portion of Jean's 2021 dividend represents earnings after Sarah's
acquisition.
C. investment in associate, and Jean incurred a loss in 2021.
D. investment in associate, and its carrying amount exceeded the proportionate share of Jean's market
value.
20. When an investor uses the equity method to account for investment in associate, the investment account
will be increased when the investor recognizes
A. a proportionate interest in the profit of the investee.
B. a cash dividend received from the investee.
C. impairment of the goodwill related to the purchase.
D. depreciation related to the excess of market value over the carrying amount of the investee's
depreciable assets at the date of purchase by the investor.
21. Which of the following statements is correct regarding the disposal of equity investments?
A. No gain or loss is recognized on disposal of equity investments at fair value through profit or loss.
B. No gain or loss is recognized on disposal of investment in associates.
C. A gain or loss is recognized on the disposal of investment in associates for the difference between the
net disposal proceeds and the carrying amount of the investment.
D. A gain or loss is recognized on the disposal of equity investments at fair value for the difference
between the net disposal proceeds and the acquisition cost of the equity investment.
22. When the investor properly discontinues the use of the equity method,
A. the investment account is adjusted and any adjustment is included in other comprehensive income.
B. the carrying value of the investment is adjusted to conform with its recoverable amount.
C. the carrying value of the investment at the date it ceases to be an associate shall be regarded as its
cost on initial measurement as a financial asset.
D. the fair market value of the investment at the date it ceases to be an associate shall be regarded as
its cost on initial measurement as equity investment at fair value.
23. What should happen when the financial statements of an associate are not prepared to the same date
as the investor's accounts?
A. The associates should prepare financial statements for the use of the investor at the same date as
those of the investor.
B. The financial statements of the associate prepared up to a different accounting date will be used as
normal.
C. Any major transactions between the date of the financial statements of the investor and that of the
associate should be accounted for.
D. As long as the gap is not greater than three months, there is no problem.
24. A debt investment at fair value through profit or loss is reclassified to debt investment at amortized cost.
What amount is used at the transfer date to record the security in the amortized cost classification?
A. At amortized Cost at date of reclassification
B. At fair value at date of reclassification and difference between carrying amount and fair value is
taken to profit or loss.
C. At fair value at date of reclassification and difference amount and fair value is taken to other
Comprehensive income
D. At fair value at date of reclassification
25. Interest revenue for debt investments at fair value through profit or loss is computed based on the
instruments'
A. carrying amount using the effective interest
B. carrying amount using the nominal interest
C. face value using the effective interest rate.
D. face value using the nominal interest rate.
26. When there is objective evidence of impairment in value of debt investments measured at amortized
cost, the carrying amount of the asset shall be reduced either directly or through the use of an allowance
and the amount of the loss shall be
A. ignored.
B. recognized in equity.
C. recognized in profit or loss.
D. deferred until the date of derecognition.
27. The interest income reported for a debt investment at amortized cost initially acquired at a premium is
equal to
A. the effective interest rate multiplied by the face amount of the bond investment
B. the stated interest rate multiplied by the face amount of the bond investment
C. the effective interest rate multiplied by the carrying amount of the bond investment at the beginning
of the year
D. the stated interest rate multiplied by the carrying amount of the bond investment at the
beginning of the year
28. Impairments of debt investments at amortized cost are

A. recognized as component of OCI.
B. based on fair value for nontrading investments.
C. based on discounted contractual cash flows.
D. evaluated at each reporting date.
29. Cash surrender value of life insurance is recognized in the entity’s books when the entity pas the
insurance premium of its officers and
A. The entity is named beneficiary.
B. The named beneficiary is other than the entity.
C. The officer remains with the entity for at least 10 years.
D. The life insurance policy is expected to be surrendered after 10 years.
30. Which of the following statements is incorrect related to life insurance policy where the company is the
designated beneficiary?
A. Dividend received or receivable on account of the policy is recognized as income
B. Any premiums paid on the life insurance are recorded as life insurance expense
C. Any increase in cash surrender value is treated as a reduction to life insurance expense.
D. The proceeds minus the balance of the cash surrender value is taken to profit or loss upon accrual
of the insurance policy claim.
31. Which of the following accounts are credited upon the initial recognition of the cash surrender value?
A. Cash surrender value of life insurance policy
B. Cash
C. Life insurance expense
D. Prepaid life insurance
32. The difference between the present value of the security lease deposit and the actual cash paid is
debited to
A. Compensation expense
B. Prepaid lease expense
C. Interest receivable
D. Leases bonus payable
33. Which of the following would not be classified as Investment Property?

A. Land held for long term capital appreciation rather than for short term sale in the ordinary course of
business
B. Land held for currently undeterminable future use
C. Land held for short-term sale in the ordinary course of business
D. Building owned by the entity (or held by the entity under finance lease) and leased out under one
or more operating leases
34. What would be a valid reason for transfers from investment property to property, plan, and equipment?
A. When there is change in use
B. Based on the accountant’s discretion
C. When the entity adopts the fair value model
D. When there is a decrease in the fair value of the asset
35. When reclassification is made from owner-occupied property to investment property that will be carried
at fair value, any excess of the fair value over the carrying amount at the date of transfer is
A. ignored.
B. recognized as gain on the income statement.
C. credited to asset revaluation surplus.
D. recorded as a credit to liability account.
36. A gain arising from a change in the fair value of an investment property for which an entity has opted to
use the fair value model is recognized in
A. profit or loss for the year.
B. general reserve in the shareholder’s equity.
C. valuation reserve in the shareholder’s equity.
D. none of the above.
37. Which of the following would be appropriately classified as investment property?

A. Property held for future use as owner-occupied property
B. Property held for future development and subsequent use as owner-occupied property
C. Property occupied by employees
D. Property for rental purposes
38. Which of the following comprise the cost of an item of property, plant and equipment?
I. Purchase price
II. Import duties and non-refundable purchase taxes.
III. Any cost directly attributable in bringing the asset to the location and condition for its intended use.
IV. Fines paid for violation of import regulations.
A. I, II, and III

B. I, III and IV
C. I, II and IV
39. When a company purchases land with a building on it and immediately tears down the building so that
the land can be used for the construction of a plant, the costs incurred to tear down the building is
preferably
A. amortized over the estimated time period between the tearing down Of the old building and the
completion of the new building.
B. charged to profit or loss for the period.
C. added to the cost of the new building.
D. added to the cost of the land.
40. An entity installed a new production facility and incurred a number of expenses at the point of
installation. The entity's accountant is arguing that most expenses do not qualify for capitalization.
Included in those expenses are initial operating losses. These should be
A. Deferred and amortized over a reasonable period of time.
B. Expensed and charged to the income statement.
C. Capitalized as part of the cost of the plant as a directly attributable cost.
D. Taken to retained earnings since it is unreasonable to present it as part of the current year's income
statement.

I. Donations of property, plant and equipment should be recorded at the fair value of the donated
asset at the time of donation.
II. When a group of assets is acquired for a lump sum price, the total cost should be allocated to the
individual assets based on their carrying amounts.
III. Property acquired in exchange for shares or other securities in the enterprise should be recorded at
its fair value or the fair value of the securities, whichever is more clearly evident.
IV. When property is acquired in exchange for another asset, its cost is usually determined by reference
to the fair value of the asset received.
A. I, II and III
B. I, III and IV
C. II, III, and IV
42. Which of the following items are chargeable to the Land account?
I. Cost of survey by a geodetic engineer
II. Expenditure for fence, water system, sidewalk and pavement
III. Broker's commission and fees for registration and title transfer
IV. Attorney’s fee and any other expenditure for establishing clean title
A. I, II and III
B. l, III and IV
C. II, III and IV
43. An entity imported machinery to install in its new factory premises before year. end. However, due to
circumstances beyond its control, the machinery was delayed by a few months but reached the
factory premises before year-end. While this was happening, the entity learned from the bank that it
was being charged interest on the loan it had taken to fund the cost of the plant. What is the proper
treatment of freight and interest expense under PAS 16?
A. Both expenses should be capitalized.
B. Interest may be capitalized but freight should be expensed.
C. Freight charges should be capitalized but interest cannot be capitalized under these circumstances.
D. Both expenses should be expensed.
44. If the present value of a note in exchange for an item of property, plant and equipment is less than its
face amount, the difference should be
A. included in the cost of the asset.
B. amortized as interest expense over the life of the note.
C. amortized as interest expense over the life of the asset.
D. included as interest expense in the year of issuance.
45. Under PAS 20, government grants related to non-depreciable assets that require fulfillment of certain
conditions should be recognized as income
A. immediately.
B. when the grants are received.
C. when the related assets are sold.
D. over the periods that bear the costs of meeting the conditions.
46. In the case of grants related to an asset, which of these accounting treatments (balance sheet
presentation) is prescribed by PAS 20?
A. Record the grant at a nominal value in the first year and write it off in the subsequent year.
B. Either set up the grant as deferred income or deduct it in arriving at the carrying amount of the
asset.
C. Record the grant at fair value in the first year and take it to income in the subsequent year.
D. Take it to the statement of comprehensive income and disclose it as an extraordinary gain.
47. Which of the following is not specifically excluded from the purview of PAS 20?
A. Government participation in ownership of the entity.
B. Government grant covered by PAS 41 Agriculture.
C. Government assistance provided in the form of tax benefits.
D. Forgivable loan from the government
48. Borrowing costs shall be capitalized as part of the asset when

A. they relate to qualifying assets and the entity capitalizes them under PAS 23.
B. they relate to motor cars purchased for office use from a dealership in town.
C. they are not directly attributable to the acquisition of qualifying assets as defined under PAS 23.
D. they relate to the period after the qualifying assets are substantially ready for their intended use
although some minor routine administrative work is still going on.
49. An asset was constructed for an enterprise's own use. The asset was financed with specific new
borrowing. The interest cost incurred during the construction period as a result of expenditures for the
asset is
A. a part of the historical cost of acquiring the asset to be written off over the estimated useful life of
the asset.
B. taken as an interest expense in the construction period.
C. recorded as a deferred charge and amortized over the term of the borrowing.
D. apart of the historical cost of acquiring the asset to be written off over the term of the borrowing
used to finance the asset construction.
50. Capitalization of borrowing costs

A. shall be suspended during temporary periods of delay.
B. may be suspended only during extended periods of delays in which active development is delayed.
C. should never be suspended once capitalization commences.
D. shall be suspended only during extended periods of delays in which active development is
delayed.
51. Which of the following costs may not be eligible for capitalization as borrowing costs under PAS 23?
A. Interest on bonds issued to finance the construction of a qualifying asset.
B. Amortization of discounts or premiums relating to borrowings that qualify for capitalization.
C. Imputed cost of equity.
D. Exchange differences arising from foreign currency borrowings to the extent that they are regarded
as an adjustment to interest costs pertaining to a qualifying asset.
52. Which of the following may not be considered a "qualifying asset" under PAS 23?
A. A power generation plant that normally takes two years to construct.
B. An expensive private jet that can be purchased from a local vendor.
C. A toll bridge that usually takes more than a year to build.
D. A ship that normally takes one to two years to complete.
53. If the fair value less costs to sell cannot be determined,

A. the asset is not impaired.
B. the recoverable amount is the value-in-use.
C. the net realizable value is used.
D. the carrying value of the asset remains the same.
54. Value-in-use is
A. The market value.
B. The discounted present value of future cash flows arising from use of the asset and from its disposal.
C. The higher of an asset's fair valueless cost to sell and its market value.
D. The amount at which the asset is recognized in the statement of financial position.
55. Estimates of future cash flows normally would cover projections over maximum of
A. five years.
B. ten years.
C. fifteen years.
D. twenty years.
56. JCJ Printing Company determines that a printing press used in its operations has suffered a permanent
impairment in value because of technological changes. An entry to record the impairment should
A. recognize an extraordinary loss for the period.
B. include a credit to the equipment accumulated depreciation account.
C. include a credit to the equipment account.
D. not be made if the equipment is still being used.
57. When deciding on the discount rate that should be used, which factors should not be taken into
account?
A. The time value of money.
B. Risks that relate to the asset for which future cash flow estimates have not been adjusted.
C. Risks specific to the asset for which future cash flow estimates have been adjusted.
D. Pretax rates.
58. The term "intangible assets" is used in accounting to denote

A. current or non-current property items without physical characteristics.
B. assets with lesser economic significance because of the nature of such assets.
C. properties without physical characteristics that have long-term effects on a business enterprise.
D. such items as patents, copyrights, and claims against customers that can be valued on a monetary
basis.
59. Which of the following research and development related costs should be capitalized and amortized
over current and future periods?
A. Labor and material costs incurred in building a prototype model
B. Cost of testing equipment that will also be used in another separate research and development
project scheduled to begin next year
C. Administrative salaries allocated to research and development
D. Research findings purchased from another company to add a particular research project current in
process
60. In relation to amortization of intangible assets, PAS 38 Intangible Assets requires that intangible assets with
indefinite useful lives
A. are amortized by the straight-line method across their useful lives.
B. must be amortized across a period of no more than 20 years.
C. are not subject to an amortization charge.
D. should not be amortized in a period in which maintenance of the asset occur.
61. In relation to the amortization of intangible assets, the general rule in PAS 38 Intangible Assets is that unless
demonstrated otherwise
A. the residual value does not enter into the determination of the amortization charge.
B. the residual value need not be reviewed at the end of each annual reporting period.
C. all intangible assets have a residual value at least equal to the amount maintenance costs incurred.
D. the residual value is presumed to be zero.
62. PAS 38 Intangible Assets requires that the following items in relation to intangibles, each be disclosed
separately.
A. The opening balance of each intangible.
B. The closing balance of each intangible
C. Any impairment losses reversed in profit or loss during the period
D. All mounts of intangibles acquired during the period.
63. Using the revaluation model, intangible assets should be reported in the statement of financial position at
A. cost less accumulated amortization and impairment losses.
B. fair value at the date of revaluation less any subsequent accumulated amortization and any
subsequent impairment losses.
C. fair value at the date of acquisition accumulated amortization impairment losses.
D. amortized cost.
64. Which of the following should not be recognized as an asset?

A. Development costs incurred after establishing commercial and technological feasibility
B. Excess of cost over fair value of net assets acquired in a business combination which is treated as an
acquisition
C. Patent right purchased from an investor
D. Costs incurred in organizing a corporation
65. Legal fees in the registration of patent rights were incurred by an entity at the beginning of the year.
Towards the end of the year, legal fees were incurred in successfully defending the entity's patent rights.
What is the proper treatment of these legal fees?
A. Legal fees in the registration are expensed while legal fees in the patent
B. Legal fees in the registration are capitalized while legal fees in the defense are expensed.
C. Both legal fees are capitalized.
D. Both legal fees are expensed in the period incurred.
66. Which of following is not a similarity in the accounting treatment for depreciation and cost depletion?
A. The estimated life is based on economic or productive life
B. Assets subject to either are reported in the same classification on the statement of financial position.
C. The rates may be changed upon revision of the estimated productive life used in the original rate
computations.
D. Both depreciation and depletion are based on time.
67. Is an entity ever required or permitted to change its accounting policy for exploration and evaluation
expenditures?
A. Yes, entities are required to change their accounting policy for these expenditures if the change
would result in more useful information for users of financial statements.
B. Yes, entities are free to change accounting policy for these expenditures as long as the selected
policy results in information that is relevant and reliable.
C. Yes, but only if the change makes the financial statements more relevant to the economic decision-
making needs of users and no less reliable, or more reliable and no less relevant to those needs.
D. No, entities would be permitted to change accounting policy only on adoption of a new or revised
Standard that replaces the existing requirements in IFRS 6.
68. Which measurement model applies to exploration and evaluation assets subsequent to initial
recognition?
A. The cost model
B. The revaluation model
C. Either the cost model or the revaluation model
D. The recoverable amount model
69. Which of the following is considered as bearer plants?

A. Plants cultivated to be harvested as agricultural produce.
B. Plants such as cotton plants, tea bushes, grape vines, fruit trees and oil palms.
C. Plants cultivated to produce agricultural produce where there is more than a remote likelihood
that the entity will also harvest and sell the plants as agricultural produce.
D. Annual crops such as wheat and corn.
70. Which of the following is not a characteristic of bearer plants?

A. Used in the production or supply of agricultural produce.
B. Has remote likelihood of being sold as agricultural produce
C. Expected to bear produce at least once.
D. All of these are characteristics of bearer plants.
71. Which of the following costs are not included in costs to sell?
A. Commissions to brokers and dealers
B. Levies by regulatory bodies
C. Transfer taxes and duties
D. Transport and other costs necessary to get the asset to a market
72. Biological assets relating to agricultural activity shall be measured using

A. historical cost.
B. historical cost less accumulated depreciation and impairment.
C. fair value approach.
D. net realizable value.
73. Where the fair value of biological assets cannot be determined reliably, the biological asset should be
measured at
A. cost.
B. cost less accumulated depreciation.
C. net realizable value.
D. cost less accumulated depreciation and accumulated impairment losses.
74. Noncurrent assets or disposal group classified as held for sale shall be measured
A. at carrying amount.
B. at fair value less cost to sell.
C. at lower of the fair value less cost to sell and its carrying amount.
D. at higher of the fair value less cost to sell and its carrying amount.
75. If the 'fair value less cost to sell' is lower than the carrying amount of a noncurrent asset classified as held
for sale, the difference is treated as a(n)
A. Depreciation expense
B. Impairment loss
C. Note disclosure
D. Prior period adjustment
76. Which of the following sets of conditions would give rise to the accrual of a contingency?
A. Amount of loss is reasonably estimable and event occurs infrequently.
B. Amount of loss is reasonably estimable and occurrence of event is probable.
C. Event is unusual in nature and occurrence of event is probable.
D. Event is unusual in nature and occurs infrequently
77. Matic Company sells appliances that include a three-year warranty, Service calls under the warranty are
performed by an independent mechanic under a contract with Matic. Based on experience, warranty
costs are estimated at P300 for each machine sold. When should Matic Company recognize these
warranty costs?
A. Evenly over the life of the warranty
B. When the service calls are performed
C. When payments are made to the mechanic
D. When the machines are sold
78. Which of the following loss contingencies is normally accrued?

A. Pending or threatened litigation
B. General or unspecified business risk
C. Obligations related to product warranties
D. Risk of property loss due to fire
79. Teferi Co. provides repair services for the Vision TV set. Customers prepay the fee on the standard one-
year service contract. The 2020 and 2021 contracts were identical, and the number of contracts was
insignificantly less than the balance at December 31, 2020. Which of the following situations might account
for this reduction in the deferred revenue balance?
A. Most 2021 contracts were signed later in the calendar year than were the 2020 contracts
B. Most 2021 contracts were signed earlier in the calendar year than were the 2020 contracts
C. The 2021 contract contribution margin was greater than the 2020 contract contribution margin
D. The 2021 contribution margin was less than the 2020 contract contribution margin
80. A competitor has sued an entity for unauthorized use of its patented technology. The amount that the
entity may be required to pay to the competitor if the competitor succeeds in the lawsuit is determinable
with reliability, and according to the legal counsel it is less than probable (but more than remote) that an
outflow of the resources would be needed to meet the obligation. The that was sued should at year-end
A. Recognize a provision for this possible obligation
B. Make a disclosure of the possible obligation in the footnotes to the financial statements.
C. Make no provision or disclosure and wait until the lawsuit is finally decided and then expense the
amount paid on settlement, if any.
D. Set aside, as an appropriation, a contingency reserve, an amount based on the best of the possible
liability.
81. Liabilities are present obligations that represent

A. Both legal and constructive obligations.
B. Neither legal nor constructive obligations.
C. Legal obligations only.
D. Expected value.
82. Which of the following is not a characteristic of a financial liability at fair value through profit or loss?
A. It is held for trading
B. Upon initial recognition, it is designated at fair value through profit or loss.
C. It is a credit derivative that is designated either upon initial recognition or
D. Subsequently as at fair value through profit or loss. d. It is cash or an equity instrument of another
entity.
83. Which of the following does not refer to financial liability held for trading?
A. Acquired or incurred principally for the purpose of selling or repurchasing it in the near term.
B. An uncommitted but anticipated future transaction.
C. On initial recognition is part of a portfolio of identified financial instruments that are managed
together and for which there is evidence of a recent actual pattern of short-term profit-taking.
D. It is a derivative.
84. When the word accrued is used in connection with a current liability, it means
A. an expense has been incurred but is unpaid at the end of the reporting period.
B. an expense has been incurred for which cash has been paid.
C. the liability will not come due in the subsequent accounting period.
D. the liability being contested and may not be paid.
85. A company borrowed cash from a bank and issued to the bank a short-term non-interest-bearing note
payable. The bank discounted the note at 10% and remitted the proceeds to the company. The
effective interest rate paid by the company in this transaction would be
A. equal to the stated discount rate of 10%.
B. more than the stated discount rate of 10%.
C. Less than the stated discount rate of 10%.
D. Independent of the stated discount rate.
86. The proceeds from a bond issued with detachable share purchase warrants should be accounted for
A. entirely as bonds payable.
B. entirely as shareholders' equity.
C. partially as unearned revenue and partially as bonds payable.
D. partially as shareholders' equity and partially as bonds payable.
87. Conceptually, the proceeds from the sale of a bond will equal to
A. the face amount of the bond.
B. the present value of the principal amount due at the end of the life of the bond plus the present
value of the interest payments made during the life of the bond.
C. the face amount of the bond plus the present value of the interest payments during the life of the
bond.
D. the sum of the face amount of the bond and the periodic interest payments.
88. If bonds are issued between interest dates, the entry on the books of the corporation could include a
A. debit to Interest payable.
B. credit to Interest Receivable.
C. credit to Interest Expense.
D. credit to Unearned Interest.
89. A call privilege attached to a bond issue means that
A. the investor may convert bonds held to cash at his or her option.
B. the issuer may retire the bonds by paying a specified call price during a specified period.
C. the issuer may retire the bonds by paying a specified market price at the open market at any point
in the life of the bond.
D. the issuer may convert the bonds to some other form of equity security during a specified period
90. Among the short-term obligations of Arvin Dave Company as of December 31, the balance sheet date,
are notes payable totaling P250,000 with the PDAC National Bank. These are 90-day notes, renewable for
another 90-day period. These notes should be classified on the balance sheet of Arvin Dave Company
as
A. current liabilities.
B. deferred charges.
C. long-term liabilities.
D. intermediate debt
91. It is the accounting standard setting body created by the Professional Regulation Commission, upon the
recommendation of the Board of Accountancy (BOA), to assist the BOA in carrying out its powers and
functions under R.A. 9298
A. Accounting Standards Council (ASC)
B. Auditing and Assurance Standards Council (AASC)
C. Philippine Accounting Standards Board
D. Financial Reporting Standards Council (FRSC)
92. Philippine Financial Reporting Standards (PFRS) collectively include:

I. PFRS corresponding to IFRS
II. PAS corresponding to IAS
III. Philippine Interpretations corresponding to IFRIC and SIC Interpretations and Interpretations
developed by PIC
A. I only
B. I and II only
C. I and III only
D. I, II, and III
93. Which of the following is the first steps within hierarchy of guidance to which management refers, and
whose applicability at considers, when selecting accounting policies?
A. Consider the applicability of the definitions, recognition criteria, and measurement concepts in the
Conceptual Framework.
B. Apply the requirements in the PRFS dealing with similar and related issues.
C. Consider the most recent pronouncements of other standard-setting bodies to the extent they do not
conflict with PFRS or the Conceptual Framework.
D. Apply a standard from PFRS if it specifically relates to the transaction, event, or condition.
94. The FRCS recognizes that in a limited number of cases there may be a conflict between the Conceptual
Framework and a Philippine Financial Reporting Standards. In those cases, where there is a conflict,
A. the provisions of standards issued by IASB will prevail.
B. the professional judgement of the accountant should prevail and this may necessitate disclosure in
the notes.
C. the requirements of the Conceptual Framework prevail over those of the Philippine Financial
Reporting Standard.
D. the requirements of the Philippine Financial Reporting Standard prevail over those of the Conceptual
Framework.
95. Which if the following statements is false?

A. Nothing in the Conceptual Framework overrides any Standard or any requirement in a Standard.
B. To meet the objective of the general-purpose financial reporting, the Board may sometimes specify
requirements that depart from aspects of the Conceptual Framework.
C. Conceptual Framework for Financial Reporting was issued by the International Accounting Standards
Board in September 2010. It was revised in March 2018.
D. Revisions of the Conceptual Framework will automatically lead to changes to the Standards.
96.When should a lessor recognize as income a non-refundable lease bonus paid by a lessee on signing an
operating lease?
A. When received
B. At the inception of the lease
C. At the expiration of the lease
D. Over the lease term
97.Initial direct costs incurred by a lessor in consummating a manufacturer's or dealer's lease are
A. charged to unearned income in the first period of the lease term
B. charged to cost of sales in the first period of the lease term
C. deferred and allocated over the lease term in proportion to the recognition of rent revenue
D. deferred and allocated over the lease term on a straight-line basis.
98.Which one of the following is a correct statement of one of the indicators of a finance lease?
A. The lease transfers ownership of the property to the lessor.
B. The lease contains a purchase option.
C. The lease term is for the major part of the economic life of the leased property.
D. The minimum lease payments (excluding executory costs) equals or exceeds 90% of the fair value
of the leased property.
99.When measuring the discounted amount of future rentals to be capitalized as part of the purchase,
identifiable payments to cover taxes, insurance and maintenance should be
A. included with future rentals to be capitalized
B. excluded from future rentals to be capitalized
C. capitalized but at a different discount rate and for a relevant period that tends to be different from
the future rental payments
D. capitalized but at different discount rate and recorded in a different account from future rentals
100. An 8-year finance lease specifies equal minimum annual lease payments. Part of this payment represents
interest and part represents a reduction in the net lease liability. The portion of the minimum lease
payment in the fourth year applicable to the reduction of the net lease liability should be
A. the same as in the third year
B. less than in the third year
C. less than in the fifth year
D. more than in the fifth year
101. Past service cost as a result of a plan amendment is

A. recognized as expense in profit or loss.
B. recognized in other comprehensive income.
C. amortized over the average service lives of employees.
D. 2amortized over the remaining years until the vesting of benefits.
102. Which of the statements concerning plan assets are correct?

I. Plan assets are available to be used only to pay or fund employee benefits.
II. Plan assets are available to the reporting entity’s own creditors.
III. Plan assets can be returned to the reporting entity when the remaining assets of the fund are
sufficient to meet all the related employee benefit obligations of the plan of the reporting entity.
IV. Plan assets comprise assets held by a long-term employee benefit fund and qualifying insurance
policies.
A. I, II and III
B. II, III and IV
C. I, III and IV
D. I, II and IV
103. Which of the following employee benefits fall under the short-term category?
I. Wages, salaries and social security contributions
II. Short-term compensated absences
III. Profit sharing and bonuses payable in more than twelve months after the end of the period in
which the employee renders the related service
IV. Non-monetary benefits are current employees such as medical care, housing, car and free and
subsidized goods
A. I, II and III
B. I, II, and IV
C. I, III and IV
D. II, III and IV
104. Which among the following describes a post-employment benefit plan that is contributory?
A. The employer shoulders all the retirement benefit costs.
B. Both the employer and employee share in the retirement benefit costs.
C. The entity sets aside funds for future retirement benefits by making payments to a funding agency
such as a trustee, bank or insurance company.
D. The entity retains the obligation for the payment of retirement benefits.
105. Which of the following items would increase the fair value of plan assets in a defined benefit plan?
A. Actual return on plan assets
B. Expected return on plan assets
C. Retirement and benefits paid
D. Current service cost
106. Which of these assets should be included within the valuation of plan assets?
A. Unpaid contributions.
B. Unlisted corporate bonds that are redeemable but not transferable without the entity’s permission.
C. A loan to the entity that cannot be assigned to a third party.
D. Investments in listed companies.
107. Which of the following is not an uncertainty that complicates determining how much to set aside each
year to ensure that sufficient funds are available to provide the benefits promised under a defined benefit
plan?
A. Employee turnover
B. Number of employees who retired last year
C. Future inflation rates
D. Future compensation levels
108. Which of the following is the most likely item to result in a deferred tax liability?
A. Expenses and losses that are deductible after they are recognized in financial income.
B. Revenues or gains that are taxable before they are recognized in financial income.
C. Expenses and losses that are deductible before they are recognized in financial income.
D. Revenues or gains that are recognized in financial income but are never included in taxable income.
109. A temporary difference which would result in a deferred tax liability is

A. interest revenue on municipal bonds.
B. accrual of warranty expense.
C. excess of tax depreciation over financial accounting depreciation.
D. subscription received in advance.
110. Which of the following transactions would not result in a temporary difference between pretax financial
income and taxable income?
A. Payment of premiums for life insurance
B. Depreciation expense
C. Contingent liabilities
D. Product warranty costs
111. Which of the following is the most likely item to result in a deferred tax asset?
A. Using accelerated depreciation for tax purposes but straight-line depreciation for accounting
purposes
B. Using the completed-contract method for financial reporting purposes
C. Prepaid expenses
D. Unearned revenues
112. Due to differences between depreciation reported in the income statement and depreciation
deducted for tax purposes, Icebreaker Corp. has P5 million in temporary differences that will increase
taxable income next year. Assuming that Icebreaker has no other temporary differences, deferred
income taxes should be reported in this year's ending statement of financial position as a
A. current deferred asset.
B. noncurrent deferred tax liability.
C. current deferred tax liability.
D. noncurrent deferred tax asset.
113. Which of the following statements concerning PAS 12 Income Taxes are correct?
I. Accounting profit is profit or loss for a period before deducting tax expense.
II. Current tax liabilities for the current and prior periods shall be measured at the amount expected to
be paid the tax authorities using the tax rates that have been enacted by the reporting date.
III. Taxable profit is the profit for a period, determined in accordance with the rules established by the
taxation authorities, upon which income taxes are payable.
IV. Tax losses are created when taxable income exceeds allowable deductions.
A. I, II, and III

B. I, III, and IV
C. II, III, and IV
D. I, II, and IV
114. Recognition of tax benefits in the loss year due to a loss carryforward requires the establishment of
A. deferred tax asset equal to the loss carryforward times the tax rate.
B. deferred tax asset to the extent realizable.
C. deferred tax liability equal to the loss carryforward times the tax rate.
D. current income tax asset to the extent realizable.
115. When tax rates are changed subsequent to the creation of a deferred tax asset or liability, PAS No. 12
requires that
A. all deferred tax accounts be adjusted to reflect the new tax rates
B. the beginning deferred tax accounts are left unchanged
C. only the current deferred tax accounts are adjusted to reflect the new tax rates
D. only the noncurrent deferred tax accounts are adjusted to reflect the new tax rates
116. A company issued rights to its existing shareholders to purchase ordinary shares. When the rights are
exercised, share premium would be credited if the purchase price
A. exceeded the par value.
B. was the same as the par value.
C. was the same as the par value, but less than the market value at the date of exercise.
D. was less than the par value.
117. Select the statement that is incorrect concerning the appropriations of retained earnings.
A. Appropriations of retained earnings do not change the total amount of shareholders' equity.
B. Appropriations of retained earnings reflect funds set aside for a designated purpose, such as plant
expansion.
C. Appropriations of retained earnings can be made as a result of contractual requirements.
D. Appropriations of retained earnings can be made at the discretion of the board of directors.
118. Noncumulative preferred dividends in arrears

A. are not paid or disclosed.
B. must be paid before any other cash dividends can be distributed.
C. are disclosed as a liability until paid.
D. are paid to preferred stockholders if sufficient funds remain after payment of the current preferred
dividend.
119. Gains and losses on purchase and resale of treasury shares is reflected in
A. paid in capital account only.
B. paid in capital and retained earnings accounts.
C. profit or loss, paid in capital and retained earnings accounts.
D. profit or loss and paid in capital accounts.
120. Fully participating preference share means that

A. the ordinary shareholders receive a dividend rate per share equal to the preference and all excess
dividends are given to the ordinary shareholders.
B. the ordinary shareholders receive a dividend rate per share equal to the preference and all excess
dividends go to the preference shareholders.
C. the ordinary shareholders receive a dividend rate per share equal to the preference and all excess
dividends are shared proportionately between the two classes.
D. the preference shareholders receive their full dividend and any excess dividends on the ordinary
shareholders.
121. Which of the following best describes a possible result of treasury stock transactions by a corporation?
A. May increase but not decrease retained earnings.
B. May increase net income if the cost method is used.
C. May decrease but not increase retained earnings.
D. May decrease but not increase net income.
122. How would the Share Dividends Distributable account balance be presented in the statement of
financial position?
A. As deduction from retained earnings
B. As part of current liabilities
C. As addition to share capital
D. As addition to retained earnings
123. Retained earnings balance is not affected by

A. understatement of profit of prior period.
B. unrealized gain on equity investments at fair value through profit or loss.
C. unrealized gain on equity investments at fair value through other comprehensive income.
D. realized revaluation surplus on building.
124. When a company grants a bonus issue, which of the following would be affected?
A. Earnings per share
B. Total assets
C. Total liabilities
D. Total shareholders’ equity
125. In a corporate form of business organization, legal capital is best defined as

A. the amount of capital the corporation law allows the company to accumulate over its existence.
B. the par value of all capital stock issued.
C. the amount of capital the local government allows a corporation to generate.
D. the total capital raised by a corporation within the limits set by the Securities and Exchange
Commission.
126. For transactions with employees and other providing similar services, the fair value of the equity
instrument granted is measured on
A. exercise date
B. grant date
C. end of the reporting period
D. beginning of the year of grant
127. Non-market based performance conditions include vesting based on achieving all of the following
except
A. achieving a specific growth in revenue
B. achieving a specific growth in net profit
C. achieving a specific increase in earnings per share
D. achieving a specified target share price in the market
128. Share options granted by a corporation are recorded as expense based on the number of options that
A. are initially granted
B. are vested
C. are eventually exercised
D. are expected to be exercised
129. For cash settled share-based payment transactions (e.g. share appreciation rights), an entity shall
measure the goods and services received and the liability incurred at the
A. fair value of the goods and services received
B. fair value of the liability
C. either the fair value of the goods and services received or the fair value of the liability
D. neither the fair value of the goods and services received nor the fair value of the liability
130. Which of the following transactions involving the issuance of shares does not come within the definition
of a “share-based” payment under PFRS 2?
A. Employee share purchase plans
B. Employee share option plans
C. Share-based payment relating to an acquisition of a subsidiary
D. Share appreciation rights
131. What is the objective of financial statements?

A. To prepare financial statements in accordance with all applicable Standards and Interpretations.
B. To prepare comparable, relevant, reliable and understandable information to investors and
creditors.
C. To prepare a statement of financial position, an income statement, a statement of cash flows and
a statement of changes in equity.
D. To provide information about the financial position, performance and changes in financial position
of an entity that is useful to a wide range of users in making economic decisions.
132. Which of the following reports is not a component of the financial statements according to PAS 1?
A. Director's report
B. Statement of changes in equity
C. Notes to the financial statements
D. Statement of financial position
133. Which of the following is not true about the presentation of financial statements?
A. Presentation of extraordinary items is required.
B. Impairment losses may be reversed in future periods.
C. The LIFO cost flow assumption is not allowed for inventories.
D. A separate statement of comprehensive income and separate statement of changes in equity are
required.
134. Under PAS 1, Presentation of Financial Statements, which of the following is not required to be presented
on the face of the statement of comprehensive income?
A. Finance costs
B. Profit or loss
C. Income from ordinary activities
D. Tax expense
135. Which of the following characteristics may result in the classification of a liability as current?
A. Violation of provisions of a debt agreement.
B. Short-term obligations refinanced with long-term debt at the end of reporting period
C. Obligations for advance collections that involve long-term deferment of the delivery of goods
D. Debts to be liquidated from funds that have been accumulated and are reported as noncurrent
136. If the classification of expenses by function method is used for the presentation of an income statement,
additional information on the following items must be disclosed.
A. Revenue
B. Gains on disposal of assets
C. Gains on revaluation of assets
D. Depreciation and amortization expense
137. Which of the following would not be reflected in the statement of comprehensive income?
A. Revenues
B. Correction of prior period errors
C. Income tax from continuing operations
D. Loss on disposal of a business segment
138. According to PFRSs, when a complete set of financial statements is presented, how are other
comprehensive income (OCI) and its components reported?
A. Must be reported in a separate statement.
B. May be reported in a single statement of comprehensive income or on disclosed in a statement of
changes in equity.
C. Must be reported in a separate statement or in a single statement of comprehensive income
reporting all items of income and expense for the period.
D. They are not required to be reported under IFRSs.
139. An objective of the statement of cash flows is to

A. disclose the change in working capital during the period.
B. disclose changes during the period in all asset and all equity accounts.
C. provide information about a company's operating, investing, and financing activities.
D. None of these answer choices are correct.
140. An entity shall report separately cash flows arising from investing and financing activities using
A. direct method.
B. indirect method.
C. either direct method or indirect method.
D. neither direct method nor indirect method.
141. Under the indirect method, which of the following items must be deducted from reported net income to
determine the net cash flow from operating activities?
A. amortization of bond discount.
B. decreases in current liabilities.
C. decreases in current assets.
D. depreciation of plant assets.
142. Which of the following items should be presented under Cash flows from investing activities?
A. Employee costs.
B. Property revaluation.
C. Redemption of debentures.
D. Development costs capitalized in the period.
143. 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.
144. Noncash investing and financing transactions include all of the following except
A. the conversion of debt to equity.
B. the acquisition of an entity by means of an equity issue.
C. noncash items such as depreciation, amortization and deferred taxes.
D. the acquisition of asset either by assuming directly related liability or by a means of a finance lease.
145. Related-party disclosure is essential in financial reporting because

A. a high number of corporate collapses are cause by related party transactions.
B. related parties cannot be trusted.
C. related parties have the potential to affect an entity’s profit or loss and financial position that
might not otherwise occur.
D. there are certain limits imposed on entities in regards to how many related party transactions they
could have.
146. Which of the following concepts is false under PAS 24 Related Party Disclosures?
A. Share options and share appreciation rights are examples of key management personnel
compensation.
B. Two entities who have common key management personnel are not necessarily considered as
related parties.
C. Related-party transaction refers to a transfer of resources or obligations between related parties
when a price is charged.
D. Relationships between parents and subsidiaries shall be disclosed regardless of whether there
have been transactions between those related parties.
147. Disclosure of related-party transactions is required by PFRS because

A. they do not commonly occur in the normal course of business
B. they cannot be presumed to be carried out on an arms-length basis and thus, the enterprise’s
financial statements are not complete and reliable without such disclosures
C. they usually have a greater material effect on financial statements than transactions between
unrelated parties
D. they usually involve irregularities
148. PAS 24 clarifies the meaning of “next most senior parent” — it refers to the
A. parent company that was registered earliest among the related parties.
B. parent company that registered the highest net income in the group.
C. first parent in the group above the immediate parent that produces consolidated financial
statements available for public use.
D. All these statements refer to the next most senior parent.
149. The minimum disclosures prescribed under PAS 24 are to be made separately for certain categories of
related parties. Which of the following is not among the list of categories specified under the Standard
for the purposes of separate disclosure?
A. Entities with joint control or significant influence over the entity.
B. The parent company of the entity.
C. An entity that has a common director with the entity.
D. Joint ventures in which the entity is a venturer.
150. If a business entity entered into a certain related party transaction, it would be required to disclose all of
the following information, except
A. Nature of the relationship between the parties to the transactions.
B. Nature of any future transactions planned between the parties and the terms involved.
C. Peso amount of the transactions.
D. Amounts due from or to related parties at the end of reporting period.
151. PAS 10 covers adjusting and non-adjusting events after the reporting period up to
A. Date of financial statements publication.
B. Date of authorization to issue the financial statements.
C. Date when financial statements are filed with the regulator.
D. Date when financial statements are approved by shareholders.
152. Part of those notes to financial statements are events after the reporting period which pertain to those
events both favorable and unfavorable that occur
A. After balance sheet date.
B. After issuance of the statements.
C. After the balance sheet date prior to issuance of financial statements.
D. Between the balance sheet date and the date when the financial statements are authorized for
issue.
153. The preparation of the financial statements of Aquilino Corp. for the accounting period ended December
31, 2021, was completed by the management on March 15, 2022. The draft financial statements were
considered at the meeting of the board of directors held on March 20, 2022, on which date the board
approved them and authorized them for issuance. The annual general meeting (AGM) was held on April
10, 2022, after allowing for printing and the requisite notice period mandated by the corporate statute. At
the AGM, the shareholders approved the financial statements. The approved financial statements were
filed by the corporation with the Securities and Exchange Commission on April 20, 2022.
A. March 15, 2022
B. March 20, 2022
C. April 10, 2022
D. April 20, 2022
154. Which one of the following events taking place after the year end but before the financial
statements were authorized for issue would require adjustments in accordance with PAS 10
Events After the Reporting Period?
A. Three lines of inventory held at the year-end were destroyed by flooding in the warehouse.
B. The directors announced a major restructuring.
C. Two lines of inventory held at the year-end were discovered to have faults rendering them
unsaleable.
D. The value of the company’s investments fell sharply.
155. PETER Ltd. decided to operate a new amusement park that will cost P1 million to build in the year 2021.
Its financial year-end is December 31, 2021. PETER Ltd. has applied for a letter of guarantee for P700, 000.
The letter of guarantee was issued on March 31, 2022. The audited financial statements have been made
authorized to be issued on April 18, 2022. The adjustment required to be made to the financial statement
for the year ended December 31, 2021, should be
A. Booking a P700, 000 long-term payable.
B. Disclosing P700, 000 as a contingent liability in 2021 financial statements.
C. Increasing the contingency reserve by P700, 000.
D. Do nothing.
156. In which of the following situations can an entity that does not have public accountability claim
compliance with the PFRS for SMEs standard in its financial statement?
A. The entity prepares its financial statements in accordance requirements that are substantially the
same as the PFRS for SMEs Standard.
B. The entity prepares its financial statements in accordance with local tax requirements that are,
except in name, word for word the same as the PFRS for SMEs Standard.
C. The entity prepares its financial statements in accordance with local tax requirements that are,
except in name, word for word the same as full IFRS Standards.
D. In both cases (b) and (c) above.
157. In 2022, after an SME entity's 2021 financial statements were approved for issue, the entity discovered an
error in the calculation of depreciation expense. The error occurred during 2020. The entity presents one
year's comparative figures. The effect of the correction of the error in the entity’s 2022 financial statements
will
A. recognized in the entity's profit or loss for the year ended 31 December 2022.
B. recognized in the entity's profit or loss for the year ended 31 December 2021.
C. recognized outside of total comprehensive income, in the statement of changes in equity as an
adjustment to retained earnings at 1 January 2021.
D. average number of shares outstanding last year.
158. Under PFRS for SMEs, which of the following gains and losses are recognized in other comprehensive
income?
A. Gains and losses from discontinued operations.
B. Gains and losses arising on translating an intercompany balance that arises from trading, and is
not part of the entity’s net investment in the foreign operation.
C. Changes in revaluation surplus on the revaluation of property, plant and equipment.
D. Gains and losses that management considers extraordinary items
159. Which of the following items in an entity’s statement of financial position is a financial asset
or financial liability within the scope of Section 11, Basic Financial Instruments under PFRS for SMEs?
A. a liability for an amount due to a supplier for a past receipt of goods.
B. an asset for a prepayment made to a supplier for the rent of a machine for two months.
C. a liability for a fine for the late payment of income tax by the entity.
D. all of the above.
160. Entity A owns 30% of the ordinary shares that carry voting rights at a general meeting of the
shareholders of Entity C. In accordance with PFRS for SMEs, Entity A, in the absence of any evidence to
the contrary:
A. has no significant influence over Entity C and is accounted for as an equity instrument within the
scope of Section 11 Basic Financial Instruments.
B. has significant influence over Entity C, provided it does not have joint control over Entity C.
C. has significant influence over Entity C, provided it does not have control over Entity C.
D. has significant influence over Entity C, provided it does not have control or joint control over Entity
C.
161. Entity A, an SME, operates a bed and breakfast business from a building it owns. The entity also provides
its guests with other services including housekeeping, satellite television and broadband internet access.
The daily room rental is inclusive of these services. Furthermore, upon request, the entity conducts tours of
the surrounding area for its guests. Tour services are charged for separately. The entity should account for
the building as:
A. Inventory.
B. Investment property.
C. Property, plant and equipment.
D. Intangible asset.
162. A building is held by a subsidiary to earn rentals under an operating lease to its parent. The parent
manufactures its products in the rented building. The fair value of the building can be measured reliably
without undue cost or effort on an ongoing basis. Under PFRS for SMEs, the building is:
A. accounted for as property, plant and equipment by the subsidiary and investment property by
the group.
B. accounted for as property, plant and equipment by both the subsidiary and the group.
C. accounted for as investment property by both the subsidiary and the group.
D. accounted for as an investment property by the subsidiary and as an item of property, plant and
equipment by the group.
163. Under PFRS for SMEs, how often should the useful life of an intangible asset be reviewed?
A. at least at each financial year-end.
B. every 10 years.
C. at management’s discretion.
D. when factors such as a change in how an intangible asset is used and technical advancement
are present.
164. Under PFRS for SMEs, which model is required for the subsequent measurement of intangible assets?
A. the revaluation model.
B. the cost model (cost less any accumulated amortization and any accumulated impairment losses).
C. either (a) or (b).
D. the revaluation model for intangible assets whose fair value can be measured reliably without
undue cost or effort; and the cost model for all other intangible assets.
165. Under PFRS for SMEs, which of the following statement is NOT true in relation to operating leases?
A. the leased asset is not presented as an asset in the lessor’s financial statements.
B. lease payments is generally recognized on straight-line basis.
C. the leased asset is not presented as an asset in the lessee’s financial statements.
D. the leased asset is presented as an asset in the lessor’s financial statements.
166. An entity measures a provision at the best estimate of the amount required to settle the obligation at the
reporting date using the PFRS for SMEs. When the provision involves a large population of items, the
estimate of the amount:
A. reflects the weighting of all possible outcomes by their associated probabilities.
B. is determined as the individual most likely outcome.
C. may be the individual most likely outcome. However, the entity should also consider the other
possible outcomes.
D. None of the foregoing.
167. Under PFRS for SMEs, an entity shall measure all government grants:
A. at the amount of cash or cash equivalents received.
B. at the amount of cash or cash equivalents received or receivable.
C. at the fair value of the asset received or receivable.
D. applying any of the above.
168. Under PFRS for SMEs, an entity must recognize a government grant that imposes specified future
performance conditions upon that entity:
A. in income when the grant proceeds are receivable.
B. in income over the periods necessary to match it with the related costs for which it is
intended to compensate, on a systematic basis.
C. in income only when the performance conditions are met.
D. none of the above.
169. An SME entity that buys exotic birds for immediate resale in its pet trade outlets accounts for its birds:
A. in accordance with Section 13 Inventories.
B. in accordance with Section 17 Property, Plant and Equipment.
C. in accordance with Section 34 Specialized Activities.
D. either as property, plant and equipment in accordance with Section 17 or as biological assets in
agricultural activity in accordance with Section 34. Management must use its judgment, in the light
of all facts and circumstances, to determine which classification best reflects the activities of the
entity.
170. An entity’s date of transition to the IFRS for SMEs Standard is:
A. The beginning of the latest period for which the entity presents full comparative information in
accordance with the IFRS for SMEs Standard in its first financial statements that conform to the IFRS
for SMEs Standard.
B. The beginning of the earliest period for which the entity presents partial comparative information
in accordance with the IFRS for SMEs Standard in its first financial statements that conform to the
IFRS for SMEs Standard.
C. The beginning of the earliest period for which the entity presents full comparative information in
accordance with the IFRS for SMEs Standard in its first financial statements that conform to the IFRS
for SMEs Standard.
D. The beginning of the earliest period for which the entity presents full comparative information in
accordance with the IFRS for SMEs Standard in its latest financial statements that conform to the
IFRS for SMEs Standard.
171. Small Entities cannot engage in which of the following business activities?
A. Retail Business
B. Manufacturing of textile
C. Agricultural and livestock
D. Banking and Financing
172. What is the floor for assets and liabilities for small entities under SEC Memorandum Circular No. 05?
A. 3,000,000
B. 1,000,000
C. 100,000,000
D. There is no floor but only a threshold ceiling
173. A small entity shall present its expenses in the profit or loss statement using which method of classification?
A. An analysis by nature of expense
B. An analysis by function of expense
C. An analysis of expenses using a classification based on either the nature of expenses of the function
of expenses within the entity, whichever provides information that is reliable and more relevant.
D. An analysis of expenses using a classification based on either the nature of expenses of the function
of expenses within the entity, depending on the line of business of the entity.
174. Bank overdrafts are normally considered financing activities similar to borrowings for small entities.
However, if they are repayable on demand and form an integral part of the entity’s cash management,
the overdraft shall be classified as:
A. A liability
B. Financing activities
C. Borrowing activities
D. Component of cash and cash equivalents
175. What is the treatment of corrections of prior period errors for small entities?
A. Included in the profit or loss in the period when the error was discovered.
B. As an adjustment in the period when the error is occurred.
C. Adjustment to the opening balance of retained earnings of the current period with no restatement
made to comparative information.
D. Applied retrospectively from the earliest period presented as if the error had never occurred.
176. Investments in non-puttable ordinary shares are basic financial instruments of a small entity. Non-puttable
ordinary shares are:
A. Share that can be converted into preference shares.
B. Shares that can be converted into bonds payable.
C. Shares that can be sold back to the entity at the option of the holder.
D. Shares that cannot be sold back to the entity at the option of the holder.
177. At the end of each reporting period, a small entity shall assess whether there is objective evidence of
impairment of any financial assets that are measured at cost or amortized cost. If there is objective
evidence of impairment, the entity shall recognize an impairment loss
A. In profit or loss
B. As other comprehensive income (OCI)
C. As an adjustment to retained earnings
D. In profit or loss if it is a debt instrument and in OCI if it is an equity instrument
178. A small entity shall measure inventories at

A. Cost
B. Lower of cost or net realizable value
C. Lower of cost or market value
D. Lower of cost or replacement cost
179. A small entity shall account for an investment in associate in which the investor can exercise significant
influence using which method(s)?
A. Cost model only
B. Equity Method and Fair Value Method
C. Cost model and Equity Method
D. Cost model, Equity Method and Fair Value Method
180. A small entity shall measure property plant and equipment subsequent to initial recognition under which
of the following models?
A. Cost model, meaning cost less accumulated depreciation.
B. Revaluation model, meaning revalued amount less subsequent accumulated depreciation and
accumulated impairment losses.
C. Fair value model, meaning at fair value with changes in fair value in other comprehensive income.
D. Fair value model, meaning at fair value with changes in fair value in profit or loss.

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FINANCIAL ACCOUNTING AND REPORTING (PROBLEMS)

Information relevant to four different companies follows:

Cash in Bank 6,272.60

The following information pertains to three different companies:

Information relevant to four different companies follows:

Checks and charges recorded by bank in September, including a

9. How much is the correct amount of inventory to be reported by Simon Company?

Information relevant to four different companies as follows:

Data gathered from the two different companies follows:

No. of shares Price per

The pertinent information below is provided by four different companies:

Data gathered from the two different companies follows:

Dec. 31, 2020 Dec. 31, 2021

February 1 20,000 ordinary shares were sold in the market

Data gathered from the three different companies follows:

Pretax accounting income P 1,500,000

The following are information provided by three companies:

Data for three different companies are provided as follows:

42. What is the gain on life insurance settlement of Dante Corporation?

43. Compute the amount of sales to be recognized by Jack Company in 2021?

Information provided relative to four different companies follows:

Level of sales Equivalent shares granted

Year Sales Share Price

 Wolfgang Company factored P5,000,000 of accounts receivable. Control was surrendered to

*the 10-day discount period has alreadylapsed as of December 31

Carrying amount 1,250,000 – (250,000 x 1.5 years) 875,000

New carrying value, January 1, 2021 750,000

Total proceeds 500,000

From 2020 sales (5.0M x 40% x ½) + (5.0M x 60% x ½) 2,500,000

**Journal Entry: Inventory (Dr.) 100,000

Number of shares for basic earnings per share 138,687

Diluted earnings per share

Gain on sale - NONE (assuming Entity A classified securities at FVOCI) - (35) A

All the costs should be charged to expense, except the computer

Rent revenue per year (3,783,000/3) 1,261,000

Cost of good sold (10,000 units x P100 per unit) 1,000,000

Compensation expense for 2020

Historical cost of chocolates 5,200,000

The following are relevant data of four different companies:

Annual interest expense (2,000,000 x 11%) P220,000

Interest income for 2021 (400,000 x 0.75 x 10% x 6/12) P15,000

Carrying value, December 31, 2020 P2,083,000

Data gathered with three companies are as follows:

Interest revenue for 2021 (829,500 (see table) x 9/12) P622,125

Interest revenue for 2022 (see table)

Date Nominal Interest Effective Interest Amortization Carrying Value

Operating profit of discontinued operations (4.5M – 4.08M) P420,000

Pre-tax profit (491,400/70%) = 702,000

Pre-tax profit P 702,000

The following are data gathered from four different companies:

Total rental payments

Total payments for 5 months (15,000 x 2) + (12,000 x 3) P66,000

Basic earnings per share (2,930,000 – (100,000x20x 10%) / 1,092,000 P2.50

Retained earnings, January 1, 2021 P3,000,000

The following are relevant data of four different companies:

Accounts receivable, January 1 P325,000

Carrying amount (cost model) 270,000 x 14/15 P252,000

Amortization of patents for 2021

The following are data about four unrelated entities.