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FINANCIAL ACCOUNTING AND REPORTING

COMPREHENSIVE QUIZ NO. 1 – TOPICS 2901 TO 2926

1. The consensus in PIC Q&As normally takes effect upon Employees’ income tax withheld 4,000
A. Publication Bonds payable 250,000
B. Approval by the PIC Share dividends payable 15,000
C. Approval by the FRSC Income tax payable 28,000
D. Approval by the PRC/BOA
Analysis of the above accounts disclosed the following:
• Bank overdraft of P13,000 was deducted from cash
2. Which of the following is the least authoritative?
balance.
A. IFRIC Interpretations
• Trade accounts receivable was net of customers’
B. SIC Interpretations
deposit of P7,000.
C. PIC Q&As
• Merchandise worth P15,000 received December 30,
D. None of these, all are equally authoritative
2020 was included in the inventory but was not
recorded as a purchase.
3. Which of the following is not likely an accounting
• Accounts payable was net of accounts with debit
implication of COVID-19 pandemic?
balance of P12,000.
A. The impact of reduced economic activity and
• A bank loan of P30,000 due December 31, 2022 was
lower revenues are likely to affect almost any
included in the notes payable balance.
entity and might also indicate impairment.
• Bonds payable which was issued in 2020 will mature
B. A lessor and a lessee might renegotiate the terms
in five annual installments beginning June 1, 2021.
of a lease as a result of COVID-19 or a lessor
• Investment in shares consists of 10,000 ordinary
might grant a lessee a concession of some sort in
shares with published price quotation at December
connection with lease payments.
31, 2020 of P9 per share. These shares are
C. Management should consider the impact of
designated as FVTOCI and the entity expects to sell
measures taken by governments and local banks
these in 2021.
in its assessment of going concern.
D. Depreciation may not be recognized because the 6. The total current assets at December 31, 2020 is
assets are idle. A. P590,000 C. P605,000
B. P598,000 D. P587,000
4. Lakers Company received P12,000 from a tenant on
December 1 for four months' rent of an office. This 7. The total current liabilities at December 31, 2020 is
rent was for December, January, February, and A. P272,000 C. P324,000
March. If Lakers debited Cash and credited Rental B. P289,000 D. P339,000
Income for P12,000 on December 1, the necessary
adjustment December 31 would include
A. A debit to Rental Income of P3,000 8. Luarez Co.'s income statement for the year ended
B. A credit to Rental Income of P3,000 December 31, 2020, as prepared by Luarez'
C. A debit to Unearned Rental Income of P9,000 controller, reported income before taxes of P125,000.
D. A credit to Unearned Rental Income of P9,000 The auditor questioned the following amounts that
had been included in income before taxes:
5. The Supplies on Hand account balance at the Unrealized gain on available-for-sale
beginning of the period was P6,600. Supplies totaling investment P40,000
P12,825 were purchased during the period and Equity in earnings of Mike Co. 20,000
debited to Supplies on Hand. A physical count shows Dividends received from Mike 8,000
P3,825 of Supplies on Hand at the end of the period. Loss from an unusual and
The proper journal entry at the end of the period infrequent typhoon (30,000)
A. debits Supplies on Hand and credits Supplies Adjustments to profits of prior years for
Expense for P9,000. arithmetical errors in depreciation (35,000)
B. debits Supplies Expense and credits Supplies
Luarez owns 40% of Mike's ordinary shares. Luarez's
on Hand for P12,825.
December 31, 2020 income statement should report
C. debits Supplies on Hand and credits Supplies
income before taxes of
Expense for P15,600.
A. P 85,000 C. P112,000
D. debits Supplies Expense and credits Supplies
B. P117,000 D. P152,000
on Hand for P15,600.

9. Crown Prince Corp. had the following cash flows

Use the following information for the next two questions.
during the reporting period:
The accounts below were taken from the unadjusted trial • Purchase of intangibles - P30,000
balance of VECO Co. as at December 31, 2020: • Proceeds from sale of plant - P28,000
Cash P124,000 • Receipts from customers - P832,000
Investment in shares, at cost 87,000 • Payments to suppliers - P593,000
Notes receivable 92,000 • Interest received - P17,600
Trade accounts receivable 122,000 • Income taxes paid - P45,500
Allowance for doubtful accounts 6,000 The net cash connected to operating activities was:
Merchandise inventory 136,000 A. P269,100 C. P239,100
Notes payable 150,000 B. P256,600 D. P211,100
Trade accounts payable 75,000

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10. The Helcurt Company's ledger showed a balance in its 14. The August 31 bank statement of Orlando Inc.
cash account at December 31, 2020 of P68,225 which showed a balance of P113,000. Deducted in arriving
was determined to consist of the following: at this amount was a customer's NSF check for P2,400
Petty cash fund P 360 that had been returned. Orlando had received no
Cash in Metro bank, per bank statement, prior notice concerning this check. In addition to the
with a check for P600 still outstanding 33,675 bank statement, other records showed there were
Notes receivable in the possession of a deposits in transit totaling P17,200 and that
collecting agency 2,500 outstanding checks totaled P10,800. What is the cash
Undeposited receipts, including a balance per books at August 31 (prior to
postdated check for P 1,050 and a adjustments)?
traveler's check for P1,000 17,800 A. P121,800 C. P119,400
Bond sinking fund - cash 12,750 B. P115,400 D. P117,000
IOUs signed by employees 495
Paid vouchers, not yet recorded 645 15. The books of Roger’s Service, Inc. disclosed a cash
Total P68,225 balance of P68,757 on June 30. The bank statement
as of June 30 showed a balance of P54,780. Additional
At what amount should "Cash on hand and in bank" information that might be useful in reconciling the two
be reported on Helcurt's statement of financial balances follows:
position? • Check number 748 for P3,000 was originally
A. P50,185 C. P53,475 recorded on the books as P4,500.
B. P62,935 D. P66,225 • A customer's note dated March 25 was
discounted on April 12. The note was dishonored
11. The cash account of Hanabi Corp. on December 31, on June 29 (maturity date). The bank charged
2020 has a balance of P127,600 and it consists of the Roger’s account for P14,265, including a protest
following: fee of P42.
Bills and coins on hand P52,780 • The deposit of June 24 was recorded on the
Petty cash including petty cash vouchers of books as P2,895, but it was actually a deposit of
P650 1,000 P2,700.
Balance in savings account with a bank • Outstanding checks totaled P9,885 as of June
closed by the BSP 36,000 30.
Customer’s check dated January 15, 2021 8,000 • There were bank service charges for June of
Credit memo from suppliers for purchases 6,500 P210 not yet recorded on the books.
returns • Roger’s account had been charged on June 26
Postage stamps 120 for a customer's NSF check for P1,296.
Money order 800 • Roger properly deposited P600 on June 3 that
IOU of an employee 400 was not recorded by the bank.
Checking account balance in Bank of P.I. 22,000 • Receipts of June 30 for P13,425 were recorded
by the bank on July 2.
The correct cash balance on December 31, 2020 of • A bank memo stated that a customer's note for
Hanabi Corp. is P4,500 and interest of P165 had been collected
A. P76,580 C. P75,130 on June 27, and the bank charged a P36
B. P76,330 D. P75,930 collection fee.

12. A journal entry to record expenses out of the petty What is the correct cash balance at June 30?
cash fund shall be done: A. P58,920 C. P57,720
A. Upon disbursement B. P58,320 D. P57,420
B. Upon replenishment
C. At the end of the period 16. If an entity reported a contract liability in its
D. Whenever the entity wishes statement of financial position, it means that
A. The entity has no receivables.
13. An entity had the following transactions in its first B. Neither the entity nor the customer has
year of operations: performed.
C. The entity’s performance is more than the
Sales (90 percent collected
customer’s payment.
in the first year) P1,350,000
D. The entity’s performance is less than the
Disbursements for costs and
customer’s payment.
expenses 1,080,000
Purchases of equipment for cash 360,000
17. The balance sheet of Goblin Products Co, shows the
Proceeds from issuance of share
accounts receivable balance at December 31, 2019 as
capital 450,000
follows:
Payments on short-term borrowings 45,000
Proceeds from short-term borrowings 90,000 Accounts receivable – trade P45,000
Depreciation on equipment 72,000 Less allowance for doubtful accounts 900
Disbursements for income taxes 81,000 P44,100
Bad debt write-offs 54,000 During 2020, transactions relating to the accounts
What is the cash balance at December 31 of the first were as follows:
year? • Sales on account, P480,000.
A. P252,000 C. P153,000 • Cash received from collections of current
B. P189,000 D. P135,000 receivables totaled P392,000, after discounts of
P8,000 were allowed for prompt payment.
• Customer's accounts of P2,000 were ascertained
to be worthless and were written off.

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• Bad accounts previously written off prior to 2020 21. Which of the following risk is most relevant to notes
amounting to P500 were recovered. receivable?
• The company provided P2,300 for doubtful A. The risk that one party to a financial instrument
accounts by a journal entry at the end of the will cause a financial loss for the other party by
year. failing to discharge an obligation.
• Accounts receivable of P70,000 have been B. The risk that the fair value or future cash flows of
pledged to a local bank on a loan of P40,000. a financial instrument will fluctuate because of
Collections of P15,000 were made on these changes in market prices.
receivables (not included in the collections C. The risk that an entity will encounter difficulty in
previously given) and applied as partial payment meeting obligations associated with financial
to the loan. liabilities that are settled by delivering cash or
another financial asset.
The amortized cost of accounts receivable at
D. All of the above.
December 31, 2020 is
A. P106,800 C. P106,300
22. XYZ Ltd (XYZ) sells a financial asset to ABC Ltd (ABC)
B. P105,800 D. P 81,300
for P350,000. The carrying amount of the financial
asset is P300,000, and its fair value is not expected to
18. Excel Company is a leading educational institution
change materially in the next three months. At the
with student population of more than 50,000. Excel
same time, XYZ enters a repurchase agreement with
continuously maintains good quality education and a
ABC, whereby XYZ agrees to repurchase the financial
roster of qualified professors. As a result, Excel
asset in three months for P365,000. In applying PFRS
continuously produces top graduates in several fields.
9 principles for the derecognition of financial assets,
As at December 31, Excel has an outstanding
which of the following is correct?
receivable balance of P23,250,000 broken down into:
A. XYZ is no longer exposed to substantially all the
0-60 days outstanding, P9,000,000; 61-120 days
risks and rewards of ownership of the transferred
outstanding, P6,750,000; and over 120 days
asset.
outstanding, P7,500,000. Estimated percent
B. XYZ will record a P50,000 gain on sale of the
uncollectible of these accounts is 1%, 2% and 6%,
financial asset.
respectively. Excel wrote off P525,000 of its accounts
C. XYZ will record a P15,000 interest expense when
receivable and recovered P50,000 from accounts
it repays the loan in three months.
previously written of in prior year. As at January 1,
D. XYZ will continue to recognize its continuing
Excel has an allowance for uncollectible accounts of
involvement in the transferred asset.
P650,000. Based on the aging analysis, Excel should
report doubtful accounts expense for the year at
23. Which of the following is one of the two steps of the
A. P675,000 C. P550,000
2-step test for derecognition of receivables stated in
B. P500,000 D. P475,000
PFRS 9?
A. The transferred assets have been isolated from
19. On January 1, 2017, Kaye Company sold equipment
the transferor such that the transferor and its
with a carrying amount of P700,000 to Kyla Company.
creditors cannot access the assets.
As payment, Kyla gave Kaye Company a P1,000,000
B. The transferee has the right to pledge or
note. The note bears an interest rate of 5% and is to
exchange the transferred assets.
be repaid in five annual installments of P200,000
C. If the receivable transfer does not involve the
(plus interest on the outstanding balance). The first
transfer of substantially all the risks and rewards
payment was received on December 31, 2017. The
of ownership, then test to determine if the
market price of the equipment is not reliably
transferor maintains effective control over the
determinable. The prevailing rate of interest for notes
assets through either an agreement to repurchase
of this type is 10%.
the assets before their maturity, or by the ability
The interest income to be recognized in 2020 is to cause the transferee to return specific assets.
A. P20,000 C. P37,355 D. Determine whether the receivable transfer
B. P19,088 D. P54,866 involves a transfer of substantially all the risks
and rewards of ownership of the receivable and, if
20. On January 1, 2019, the lending company made a so, account for the transfer as a sale of the
P200,000, 8% loan. The interest is receivable at the receivable.
end of each year, with the principal amount to be
received at the end of 5 years. As of December 31, 24. Uranus Inc. factors P2,000,000 of its accounts
2019, the interest for the current year has not yet receivables without guarantee (recourse) for a finance
been received nor recorded because the borrower is charge of 5%. The finance company retains an
experiencing financial difficulties. The lending amount equal to 10% of the accounts receivable for
company negotiated a restructuring of the loan. The possible adjustments. What would be recorded as a
payment of all of the interest based on the original gain (loss) on the transfer of receivables?
principal will be delayed until the end the 5-year loan A. Loss of P100,000 C. Loss of P300,000
term. In addition, the amount of principal repayment B. Gain of P100,000 D. Loss of P200,000
will be dropped from P200,000 to P100,000. The
prevailing interest rate for similar type of loan as of
December 31, 2019 is 10%. The carrying amount of Use the following information for the next three questions.
the loan as of December 31, 2020 is
An entity acquired a P10M debt instrument on 1 January
A. P 67,700 C. P135,234
2020. Interest rate is 5% a year. The entity will receive
B. P132,300 D. P142,884
P11M at the end of the three-year term, on 31 December
2022. The prevailing market rate for this instrument is
8.32% at December 31, 2020.

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25. If the debt instrument is FA at FVTPL, the amount to During 2018, 2019, and 2020 the following occurred:
be reported on the entity’s 31 December 2020 Judi Dividends Paid by
statement of financial position is Net Income Judi to JR
A. P10,000,000 C. P10,305,570 2018 P350,000 P15,000
B. P10,064,065 D. P10,351,825 2019 400,000 20,000
26. If the debt instrument is FA at AC, the amount to be 2020 550,000 70,000
reported on the entity’s 31 December 2020 statement
of financial position is Which statement is correct in accordance with PIC
A. P10,000,000 C. P10,305,570 Q&A 2019-06?
B. P10,064,065 D. P10,351,825 A. If the entity used the ‘fair value as deemed cost
approach’, the carrying amount of the investment
27. If the debt instrument is FA at FVTOCI, the amount to in Judi Corp. as of December 31, 2020 is
be recognized in 2020 OCI is P2,173,125.
A. P351,825 C. P64,065 B. If the entity used the ‘accumulated cost
B. P241,505 D. P46,255 approach’, the entity will recognize adjustment to
cost of equity investment of P25,000 in retained
28. Which of the following is recognized in profit or loss if earnings.
the equity investment is designated as a financial C. Regardless of the approach used, the entity
asset at fair value through other comprehensive should not subsequently transfer the amount
income? previously recognized in OCI on the previously
A. Impairment gains and losses held equity interest to profit or loss.
B. Transaction costs to purchase D. Regardless of the approach used, the entity
C. Transaction costs to sell should transfer the amount previously recognized
D. None of these in OCI on the previously held equity interest to
retained earnings.
29. On December 28, 2020, Eric Company commits itself
to purchase a financial asset to be classified as held 32. Which of the following is normally reported as a
for trading for P500,000, its fair value on commitment noncurrent investment?
(trade) date. This security has a fair value of A. Plan assets as defined in PAS 19
P505,000 and P510,000 on December 31, 2020 (Eric's B. Plant expansion fund
financial year-end), and January 5, 2021 (settlement C. Dividend cash fund
date), respectively. D. All of these
If Eric applies the settlement date accounting method
to account for regular-way purchases of its securities, 33. Saver Corp. established a savings account for building
how much should be recognized as fair value construction by making annual deposits of P800,000
adjustment gain in its 2020 profit or loss? at the beginning of each of six years to a savings
A. P15,000 C. P5,000 account paying 8%. At the end of the sixth year, the
B. P10,000 D. Nil account balance was transferred to a bank paying
10%, and annual deposits of P800,000 were made at
30. The existence and effect of potential voting rights that the end of each year from the seventh through the
are currently exercisable or convertible are considered tenth years. What was the account balance at the
when assessing whether an entity has significant end of the tenth year?
influence. In assessing whether potential voting A. P12,992,617 C. P12,228,056
rights contribute to significant influence, the entity B. P12,305,193 D. P11,589,274
examines all facts and circumstances that affect
potential rights, including 34. During 2020, Jude Co. pays an insurance premium of
A. The terms of exercise of the potential voting P31,800 on a P900,000 life insurance policy covering
rights and any other contractual arrangements. the president. The cash surrender value of the policy
B. The intentions of management. will increase from P165,000 to P175,200 during 2020.
C. The financial ability to exercise or convert those The entity received dividends of P3,300 from the
potential rights. insurance company during 2020. The president died
D. All of the above. half-way through 2020. The policy indicates that the
cash surrender value is P170,100 at that date and
31. On January 3, 2018, JR Company purchased for 50% of the premium is refunded. The life insurance
P500,000 cash a 10% interest in Judi Corp. On that expense for the year 2020 is
date the net assets of Judi had a book value of A. P18,300 C. P5,700
P3,750,000. The excess of cost over the underlying B. P 7,500 D. P2,400
equity in net assets is attributable to undervalued
depreciable assets having a remaining life of 10 years 35. Which statement is correct regarding accounting for
from the date of JR's purchase. The investment in derivatives?
Judi Corp. was designated as FVTOCI. A. Derivative assets can be classified as financial
assets at fair value through OCI.
The fair value of JR's investment in Judi securities is B. An entity may reclassify derivatives out of fair
as follows: December 31, 2018, P570,000; December value through profit or loss when, and only when,
31, 2019, P525,000; December 31, 2020, it changes its business model for managing
P2,200,000. financial assets.
C. An entity shall apply the general approach in
On January 2, 2020, JR purchased an additional 30% computing loss allowance on derivative assets.
of Judi's stock for P1,575,000 cash when the book D. A forward contract for the future purchase or
value of Judi's net assets was P4,150,000. The delivery of a commodity or other non-financial
excess was attributable to depreciable assets having a item (e.g., gold, electricity, or gas) generally is
remaining life of 8 years. accounted for as a derivative if the contract can
be settled net.

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36. Which of the following freight cost is included in the A. P19,054.55 C. P19,433.06
cost of inventory? B. P22,901.22 D. P19,455.60
A. Shipment to consignee
B. Shipment to customer 41. In calculating the cost-to-retail percentage for the
C. Both A and B retail method, the retail column will include:
D. Neither A nor B A. Purchase returns
B. Purchase allowances
37. Because of COVID-19, it might be necessary to write- C. Purchase discounts
down inventories to net realizable value. These write- D. Freight-in
downs could be due to
I. Reduced movement in inventory 42. A physical inventory taken on December 31, 2020
II. Lower commodity prices resulted in an ending inventory of P1,440,000. Sun
III.Inventory obsolescence due to lower than Company suspects some inventory may have been
expected sales. taken by employees. To estimate the cost of missing
inventory, the following were gathered:
A. I, II and III C. I and III only
B. I and III only D. III only Inventory, Dec. 31, 2019 P1,280,000
Purchases during 2020 5,640,000
38. A company with an accounting date of 30 June carried Cash sales during 2020 1,400,000
out a physical check inventory on 4 July 2020, leading Shipment received on December 26,
to an inventory value at cost at this date of P483,700. 2020, included in physical inventory,
but not recorded as purchases 40,000
Between 1 July 2020 and 4 July 2020 the following Deposits made with suppliers, entered
transactions took place: as purchases. Goods were not
• Goods costing P38,400 were received from received in 2020 80,000
suppliers. Collections on accounts receivable,
• Goods that had cost P14,800 were sold for 2020 7,200,000
P20,000. Accounts receivable, January 1, 2020 1,000,000
• A customer returned, in good condition, some Accounts receivable, Dec. 31, 2020 1,200,000
goods which had been sold to him in June for Gross profit percentage on sales 40%
P600 and which had cost P400.
• The company returned goods that had cost P1,800 At December 31, 2020 what is the estimated cost of
in June to the supplier, and received a credit note missing inventory?
for them. A. P200,000 C. P240,000
B. P160,000 D. P320,000
What figure should appear in the company’s financial
statements at 30 June 2020 for closing inventory, 43. Which statement is correct regarding accounting for
based on this information? biological assets and agricultural produce?
A. P458,700 C. P505,900 A. PAS 41 takes the view that the fair value of
B. P461,500 D. P508,700 biological assets can always be measured reliably.
B. An entity shall provide a description of each group
39. At 30 June 2020 the closing inventory of a company of biological assets.
amounted to P386,400. C. An entity that has previously measured a
The following items were included in this total at cost: biological asset at its fair value less costs to sell
• 1,000 items which had cost P18 each. These items may measure the biological asset at its cost less
were all sold in July 2020 for P15 each, with any accumulated depreciation and any
selling expenses of P800. accumulated impairment losses.
• Five items which had been in inventory since D. Contract prices are usually relevant in measuring
2015, when they were purchased for P100 each, fair value of a biological asset or agricultural
sold in July 2020 for P1,000 each, net of selling produce.
expenses.
Use the following information for the next two questions.
What figure should appear in the company’s
statement of financial position at 30 June 2020 for Karina Corp. is engage in agricultural activity. Its trial
inventory? balance at December 31 presents the following assets
A. P382,600 C. P387,100 related to its farmland:
B. P384,200 D. P400,600 • Two tractors (P500,000 each)
• Four computers (P25,000 each)
• Computer software (P50,000)
40. The following information relates to the inventory on • Fruit-bearing trees (estimated value, P20 million of
hand at 30 June 2020 held by Catania Ltd: which P3 million is attributed to the fruits attached to
the trees).
Cost of • Harvested fruits (estimated value, P2 million)
Cost Est. Completion • Trees grown for use as lumber (estimated value, P10
Quan per Cost to selling and million)
Item tity unit replace price disposal • Trees that are cultivated both for their fruit and their
P 600 P2.30 P2.41 P3.75 P0.49 lumber (estimated value, P8 million)
R 815 3.40 3.26 3.50 0.55 • Maize and wheat (estimated value, P4 million)
T 749 7.34 7.35 10.00 0.95
C 98 1.23 1.14 1.00 0.12 44. How much should be accounted for as biological
O 156 3.56 3.56 5.70 0.67 assets?
K 1,492 6.12 6.15 7.66 0.36 A. P25 million C. P7 million
B. P17 million D. P3 million
Calculate the value of inventory on hand at 30 June in
accordance with the requirements of PAS 2.

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45. How much should be accounted for as property, plant 50. Bubblegum Company takes a full year’s depreciation
and equipment? in the year of an assets acquisition, and no
A. P17.525 million C. P26.100 million depreciation in the year of disposition. Data relating
B. P18.100 million D. P30.100 million to one depreciable asset acquired in 2018, with
residual value of P400,000 and estimated useful life of
46. In January, Jomarc Corporation entered into a 8 years, at December 31, 2019 are:
contract to acquire a new machine for its factory. The Cost P5,400,000
machine, which had a cash price of P300,000, was Accumulated depreciation 2,362,500
paid for as follows:
Using the same depreciation method in 2018 and
Down payment P 30,000
2019, how much depreciation should Bubblegum
Note payable in 10 equal monthly 240,000
record in 2020 for this asset?
installments
A. P625,000 C. P659,375
1,000 ordinary shares of Jomarc with
B. P703,125 D. P759,375
an agreed value of P50 per share 50,000
Total P320,000
51. In the 30 June 2020 annual report of Johnston Ltd,
the equipment was reported as follows:
Prior to the machine's use, installation costs of P8,000
were incurred. The machine has an estimated useful Equipment (at cost) P5,000,000
life of ten years and an estimated salvage value of Accumulated depreciation 1,500,000
P10,000. What should Jomarc record as depreciation P3,500,000
expense for the first year under the straight-line
The equipment consisted of two machines, machine A
method?
and machine B. Machine A had cost P3,000,000 and
A. P31,800 C. P30,000
had a carrying amount of P1,800,000 at 30 June
B. P31,000 D. P29,800
2020, while machine B had cost P2,000,000 and was
carried at P1,700,000. Both machines are measured
47. Sunflower Company acquired some new equipment.
using the cost model, and depreciated on a straight-
The following data have been made available to you:
line basis over a ten-year period.
List price of the equipment P14,000
On 31 December 2020, the directors of Johnston Ltd
Cash discount available but not taken on
decided to change the basis of measuring the
purchase 200
equipment from the cost model to the revaluation
Freight paid on the new equipment 250
model. Machine A was revalued to P1,800,000 with
Cost of removing the old equipment 170
Installation costs of the new equipment 430 an expected useful life of six years, and machine B
was revalued to P1,550,000 with an expected useful
Testing costs before the equipment was
life of five years.
put to regular operation (including
P120 in wages of the regular The amount to be recognized in profit or loss as a
equipment operator) 295 result of the revaluation of assets on December 31,
Loss on premature retirement of the old 2020 is
equipment 120 A. P150,000 C. (P150,000)
Estimated cost of manufacturing similar B. P100,000 D. (P 50,000)
equipment in the company's own plant,
including overhead 13,800 52. Which of the following land and building need not be
accounted for separately?
What amount should Sunflower capitalize as the cost
A. Land and building classified as property, plant and
of the new equipment?
equipment under revaluation model
A. P14,525 C. P14,775
B. P14,695 D. P14,945 B. Land and building classified as investment
property under cost model
48. A piece of machinery has a marked price of P550,000. C. Land and building classified as investment
property under fair value model
It was purchased under the term, 15%, 10%, and 5%
D. None of these
discounts. The cost of freight and installation after
deducting the P8,000 sales proceeds of the old
53. Aldous Corporation’s properties included the following
machinery which was replaced is P12,000.
items:
The new machinery shall be recorded at a cost of - Land held as potential plant site, P5,000,000.
A. P411,712 C. P419,712 - A vacant building to be leased out under an
B. P405,000 D. P397,000 operating lease, P20,000,000.
- Property held for sale in the ordinary course of its
49. A factory equipment with an estimated useful life of business, P30,000,000.
10 years was purchased by Jaymoore Co. on - Property acquired exclusively with a view to
December 30, 2016. The equipment was expected to subsequent disposal in the near future,
have a residual value of P5,000 at the end of its P4,000,000.
service life. The sum of the years’ digit method was - Property occupied by employees paying market
used in computing depreciation. For the year ended rent, P3,000,000
December 31, 2020, the depreciation applicable to - Property occupied by employees paying below
this equipment was P42,000. The cost of the factory market rent, P1,000,000
equipment purchased on December 30, 2016 was - Property held for administrative purposes,
A. P325,000 C. P335,000 P10,000,000.
B. P293,750 D. P330,000 - A hotel owned and managed, P50,000,000.
- A building being leased out to a subsidiary,
P8,000,000.

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- A building, which cannot be sold or leased out 58. Which of the following is subject to impairment in
separately, used in the production of goods and accordance with PAS 36?
around 2% of the area being leased out to A. Biological assets
canteen operators, P2,000,000. B. Investment property carried at fair value
- Property that is being constructed for use as an C. Investment in associate
investment property, P7,000,000. D. Investment in debt instruments
How much should be reported as investment
59. Four years ago on January 2, Randall Co. purchased a
properties in Aldous Corporation’s separate financial
long-lived asset. The purchase price of the asset was
statements?
P2,500,000, with no salvage value. The estimated
A. P43,000,000 C. P38,000,000
useful life of the asset was 10 years. Randall used the
B. P40,000,000 D. P35,000,000
straight-line method to calculate depreciation
expense. An impairment loss on the asset of P300,000
54. In January of 2017, Eleanor Rigby Corporation
was recognized on December 31 of the current year.
purchased a patent at a cost of P200,000. Legal and
The estimated useful life of the asset at December 31
filing fees of P50,000 were paid to acquire the patent.
of the current year did not change. What amount
The company estimated a 10-year useful life for the
should Randall report as depreciation expense in its
patent and uses the straight-line amortization method
income statement for the next year?
for all intangible assets. In 2020, Eleanor Rigby spent
A. P200,000 C. P250,000
P40,000 in legal fees for an unsuccessful defense of
B. P220,000 D. P300,000
the patent. The amount charged to income (expense
and loss) in 2020 related to the patent should be:
60. Miraleste Corp. accounts for non-current assets using
A. P60,000 C. P180,000
the cost model. On 30 October 2020 the entity
B. P65,000 D. P215,000
classified a non-current asset as held for sale in
accordance with PFRS5. At that date the asset's
55. Gamaliel has just acquired the net assets of Complete
carrying amount was P15,000,000, its fair value was
for P100,000. In acquiring Complete, the owners of
estimated at P11,000,000 and the costs to sell at
Gamaliel felt that Complete had unrecorded goodwill.
P1,500,000. On 20 November 2020 the asset was sold
They decided to capitalize the estimated annual
for net proceeds of P9,200,000.
superior earnings of Complete at 20% to determine
the amount of goodwill. The computation resulted in In accordance with PFRS5, what amount should be
an estimated goodwill of P10,000. A rate of 10% on included as a loss on disposal in Miraleste Corp.’s
net assets before recognition of goodwill was used to statement of comprehensive income for the year ended
determine normal annual earnings of Complete, 31 December 2020?
because it is the rate that is earned on net assets in A. Nil C. P5,500,000
the industry in which Complete operates. All other B. P300,000 D. P5,800,000
assets of Complete were properly recorded. The
estimated annual earnings of Complete is 61. An entity is required to disclose a reconciliation of the
A. P10,000 C. P 2,000 carrying amount at the beginning and end of the
B. P 9,000 D. P11,000 period of which of the following?
I. Inventories
II. Biological assets
Use the following information for the next two questions. III. Investment properties
IV. Intangible assets
On May 31, 2020, the Portland Co. acquired the rights to
a coal mine containing an estimated reserves of
A. I, II, III and IV
1,000,000 tons of coal. The company estimated that
B. II, III and IV only
12,500 tons of coal would be extracted and sold each
C. III and IV only
month. Cost allocable to coal was P3,500,000.
D. II and III only
Also on May 31, 2020, the company purchased an
62. Naruko Company received a P1,800,000 subsidy from
equipment to be used in the production, costing P95,000
the government to purchase manufacturing equipment
which has an estimated useful life of 10 years. The
on January 2, 2020. The equipment has a cost of
equipment was expected to become obsolete after all the
P3,000,000, a useful life of five years, and no salvage
coal deposits had been extracted from the mine and only
value. Naruko depreciates the equipment using sum-
P5,000 selling price of the equipment could be expected.
of-the-years’ digits method.
Production was in full blast since June 1, 2020.
If Naruko chooses to account for the grant as deferred
56. What would be the depletion expense for the year income, the grant income to be recognized in 2020 is
ended December 31, 2020? A. Nil C. P400,000
A. P525,000 C. P153,125 B. P360,000 D. P600,000
B. P262,500 D. P306,250
63. Which statement is correct regarding capitalization of
57. What would be the depreciation expense on the new borrowing costs?
equipment for the year ended December 31, 2020? A. Capitalization of borrowings costs on the
A. P9,000 C. P7,875 construction of an industrial plant involving
B. P4,500 D. P8,313 several processes which are carried out in
sequence at different parts of the plant within the
same site ceases When the entity completes
substantially all the activities necessary to prepare
each part.

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B. Borrowing cost includes exchange differences 68. Julia Corp.’s equity as of December 31, 2019 is
arising from foreign currency borrowings to the P534,000. The Julia’s shares have a par value of P10
extent that they are regarded as an adjustment to per share. The following transactions occurred in
interest costs. 2020: February 15: Dividends of P10,000 are paid;
C. Building that is ready for its intended use when March 14: 10,000 shares are sold for P14 per share;
acquired can be considered as a qualifying asset. June 6: 2,000 shares are repurchased for P16 per
D. Continued routine administrative work indicates share; October 8: 2,000 shares previously
that substantially all of the activities are not yet repurchased are resold for P18 per share. Profit for
complete. 2020 is P103,000. On December 31, 2020, Julia
should report equity of
64. An entity shall present in profit or loss all fair value A. P771,000 C. P664,000
gains and losses on the following, except B. P781,000 D. P767,000
A. Loan commitments and financial guarantee
contracts that are designated as at fair value 69. Presented below are changes in all the account
through profit or loss. balances of Marigold Company for 2018, except for
B. Financial liabilities held for trading. retained earnings:
C. Derivatives that are liabilities. Increase
D. Financial liability designated at fair value through (Decrease)
profit or loss with respect to change in fair value Cash P 790,000
that is attributable to changes in credit risk of that Accounts receivable (net) 240,000
liability. Inventory 1,270,000
Investments ( 470,000)
65. Kimmy, Inc. is preparing its financial statements for Accounts payable ( 380,000)
the year ended December 31, 2020. Accounts Bonds payable 820,000
payable amounted to P200,000 before any necessary Share capital 1,250,000
year-end adjustment related to the following: Share premium 130,000
• At December 31, 2020, Kimmy has a P50,000
debit balance in its accounts payable to Twist, a What amount should net income for 2018 be,
supplier, resulting from a P50,000 advance assuming that there were no entries in the retained
payment for goods to be manufactured to earnings account except for net income and a
Kimmy's specifications. dividend declaration of P190,000 which was paid in
• Checks in the amount of P25,000 were written to the current year?
vendors and recorded on December 29, 2020. A. P 10,000 C. P 200,000
The checks were dated January 5, 2021. B. P1,140,000 D. P1,080,000

What amount should Kimmy report as accounts 70. The draft financial statements of Mary Ann Corporation
payable in its December 31, 2020 statement of for the year ended 31 December 2020 have been
financial position? prepared. A final review of the draft reveals an
A. P275,000 C. P200,000 overvaluation of the closing inventory of P200,000 at 31
B. P250,000 D. P125,000 December 2019. Further investigation shows that
there was an overvaluation at 31 December 2018 of
66. Depressed Company has negotiated a restructuring of P120,000.
its P5,000,000 note payable to Benevolent Bank.
Benevolent Bank has agreed to reduce the face value According to PAS8 Accounting policies, changes in
of the note to P4,000,000 and extend the due date accounting estimates and errors, what adjustment
three years from the date of restructuring. However should be made to the profit for the year ended 31
the interest rate was increased from 15% to 21%. December 2019 presented as the comparative figure in
The restructuring will occur on December 31, 2020. the 2020 financial statements?
There is no unpaid interest on the restructured loan at A. P120,000 decrease C. P 80,000 decrease
this time. The tax rate is 30%. In accordance with B. No change D. P200,000 decrease
PFRS 9, how much gain should be recognized on
modification of terms? (Round off present value
factors to four decimal places) - end -
A. P1,000,000 C. P452,112 J GOOD LUCK, YOU CAN MAKE IT! J
B. P 547,888 D. Nil

67. A court case decided on 21 December 2020 awarded

damages against Layla Corp. The judge has
announced that the amount of damages will be set at
a future date, expected to be in March 2021. Layla
has received advice from its lawyers that the amount
of the damages could be anything between P20,000
and P7,000,000. As of December 31, 2020, how
much should be recognized in the statement of
financial position regarding this court case?
A. P7,000,000 C. P20,000
B. P3,510,000 D. Nil

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ANSWER KEY:

1. C 11. D 21. A 31. C 41. A 51. D 61. B

2. D 12. B 22. C 32. B 42. B 52. C 62. D
3. D 13. B 23. D 33. A 43. B 53. B 63. B
4. D 14. A 24. A 34. B 44. A 54. D 64. D
5. D 15. A 25. D 35. D 45. B 55. D 65. A
6. A 16. D 26. C 36. B 46. D 56. D 66. C
7. C 17. C 27. D 37. A 47. C 57. C 67. D
8. C 18. B 28. C 38. B 48. C 58. C 68. A
9. D 19. C 29. C 39. A 49. C 59. A 69. C
10. A 20. D 30. A 40. A 50. D 60. B 70. C

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