FAR: MOCK QUALIFYING QUIZ 1

(CONCEPTUAL FRAMEWORK & FS PRESENTATION) (40 items)

1. What is the objective of financial reporting as indicated in the conceptual framework?

a. Provide information about those investing in the entity.
b. Provide information that is useful to those making investing and credit decisions.
c. Provide information that is useful to management.
d. All of the choices
2. The new Conceptual Framework defines ‘derecognition’ as
a. The process of determining the monetary amounts at which the elements of the financial statements are to be
recognized and carried in the balance sheet and income statement.
b. The removal of all or part of a recognized asset or liability from an entity’s statement of financial position.
c. The sorting of assets, liabilities, equity, income or expenses on the basis of shared characteristics for presentation and
disclosure purposes.
d. The process of incorporating in the balance sheet or income statement an item that meets the definition of an element
and satisfies the criteria for recognition.
3. Consistency is an important factor in comparability within a single entity, although the two are not the same. The
consistency standard of reporting requires that
a. Some costs should be recognized as expenses on the basis of a presumed direct association with specific revenue.
b. Changes in circumstances or in the nature of the underlying transactions should be disclosed.
c. Assets whose prices or utility are increased by external events other than transfers should be retained in the accounting
records at their recorded amounts until they are exchanged.
d. Historical cost should be the primary basis used in measuring inventory; intangible assets and property, plant and
equipment.
4. The objective of general purpose financial reporting as described in the Conceptual Framework is to:
a. Support the entity's tax return
b. Provide financial information about the reporting entity that is useful to existing and potential investors, lenders and
other creditors in making decisions relating to providing resources to the entity
c. Meet the information needs of an entity's stakeholders
d. Provide information to regulators
5. Which of the following helps users make good decisions?
a. A faithful representation of an irrelevant phenomenon. c. Both a and b.
b. An unfaithful representation of a relevant phenomenon. d. Neither a nor b.
6. Which of the following factors is (or are) considered in selecting a measurement basis?
a. The level of measurement uncertainty associated with a particular measurement basis
b. Variability of cash flows of the asset or liability
c. How the asset or liability contributes to future cash flows, which depends in part on the nature of an entity's business
activities
d. All of the above
e. None of the above
7. Which of the following does the Conceptual Framework identify as the primary users of general purpose financial reports?
a. Existing and potential investors, government agencies and the general public
b. Employees, investors and trade union representatives
c. Existing and potential investors, lenders and other creditors
d. Lenders and other creditors and customers
8. Which statement is incorrect regarding ‘materiality’?
a. Information is material if omitting it or misstating it could influence decisions that users make on the basis of financial
information about a specific reporting entity.
b. The IASB does not specify a uniform quantitative threshold for materiality or predetermine what could be material in a
particular situation.
c. Materiality is based on the nature or magnitude, or both, of the items to which the information relates in the context of
an individual entity’s financial report.
d. None of these. All statements are correct.

9. Which is incorrect concerning fair presentation of financial statements?

 a. An enterprise whose financial statements comply with PFRS shall make an explicit and unreserved statement of such
compliance in the notes
b. Financial statements shall present fairly the financial position, performance and cash flows of an enterprise
c. In virtually all circumstances, a fair presentation is achieved by compliance with applicable Philippine Financial
Reporting Standards
d. Inappropriate accounting treatments are rectified either by disclosure of the accounting policies used or by note or
explanatory material.
10. The conceptual framework includes a cost-benefit constraint. Which of the following best describes the cost-benefit
constraint?
a. Costs of providing financial information are not always evident or measurable, but must be considered.
b. The benefits of the information must be greater than the costs of providing it.
c. Financial information should be free from cost to users of the information.
d. All of the choices are correct.
11. What is an entity-specific aspect of relevance?
a. Predictive value c. Timeliness
b. Materiality d. Confirmatory value
12. The underlying assumption(s) in the preparation of financial statements include
a. Accrual basis c. All of the choices
b. Going concern d. None of the choices
13. General purpose financial statements
a. Provide all of the information that financial statements’ users need.
b. Are designed to show the value of a reporting entity since they provide information to help existing and potential
investors, lenders and other creditors to estimate the value of the reporting entity.
c. Are those intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to
their particular information needs.
d. All of the choices
14. Company A issuing its annual financial reports within one month of the end of the year is an example of which enhancing
quality of accounting information?
a. Neutrality c. Comparability
b. Predictive value d. Timeliness
15. Qualitative characteristic that financial information must possess to be useful to the primary users of general purpose
financial reports include
a. Understandability c. Verifiability
b. Timeliness d. Faithful representation
16. The Conceptual Framework defines an asset as:
a. A present economic resource controlled by the entity as a result of past events
b. A right to receive income or reduce expenses in the future
c. A resource controlled by the entity as a result of past events and from which future economic benefits are expected to
flow to the entity
d. None of the choices
17. Which of the following factors is (or are) considered in selecting a measurement basis?
a. How the asset or liability contributes to future cash flows, which depends in part on the nature of an entity's business
activities
b. Variability of cash flows of the asset or liability
c. The level of measurement uncertainty associated with a particular measurement basis
d. All of the choices
e. None of the choices
18. Revisions of the Conceptual Framework
a. Are expected every three to five years.
b. Will automatically lead to changes to the Standards.
c. Are no longer expected after the release of the new Conceptual Framework.
d. Will not automatically lead to changes to the Standards.

19. The ‘primary users’ of financial information include

I. Existing and potential investors
 II. Existing and potential lenders and other creditors
III. User group such as employees, customers, government and their agencies, and the public
a. I only c. I and III
b. I and II only d. I, II and III
20. Fair presentation requires an entity to
a. Present information, including accounting policies, in a manner that provides relevant reliable, comparable, and
understandable information
b. Provide additional disclosures when compliance with the specific requirements of the standards is insufficient to enable
users to understand the impact of particular transactions and other events on the entity’s financial position and financial
performance
c. Select and apply accounting policies in accordance with the standards
d. All of the items
21. The objective of financial statements is to provide financial information about the reporting entity’s assets, liabilities,
equity, income and expenses that is useful to users of financial statements in assessing
a. Management’s stewardship of the entity’s economic resources.
b. The prospects for future net cash inflows to the reporting entity.
c. All of the choices
d. None of the choices
22. For information to be relevant, it has to possess:
a. Only confirmative value c. Both predictive and confirmatory value
b. Only predictive value d. Either predictive or confirmatory value, or both
23. The REFINANCING (rolling over) of a currently maturing long-term debt on a long-term basis of an entity completed after
the balance sheet date requires that such debt be classified as a
a. Current liability, if the entity expects, and has the discretion, to refinance the debt
b. Non-current liability, if the entity expects, and has the discretion, to refinance the debt
c. Non-current liability, if the entity has no discretion or expectation to refinance the debt
d. Current liability, the discretion of the entity to refinance the debt notwithstanding
24. Which of the following financial statements provide information about assets, liabilities, equity, income and expenses of
two or more entities that are not all linked by a parent-subsidiary relationship?
a. Separate financial statements c. Consolidated financial statements
b. Combined financial statements d. Unconsolidated financial statements
25. Financial information is capable of making a difference in decisions
a. If it can be used as an input to processes employed by users to predict future outcomes.
b. If it provides feedback about (confirms or changes) previous evaluations.
c. Both a and b.
d. Neither a nor b.
26. The going concern assumption
a. is always maintained by all entities
b. supports the valuation of assets using historical costs and fair values but do not support valuation in a forced sale
transaction.
c. means the entity will continue to exist forever
d. requires that capital expenditures be immediately recognized as expense
27. Consolidated financial statements provide information about the assets, liabilities, equity, income and expenses of both the
parent and its subsidiaries as:
a. A legal entity c. A partnership
b. Separate reporting entities d. A single reporting entity
28. Current assets include
a. Inventories and trade receivables that are sold, consumed, and realized as part of the normal operating cycle even when
they are not expected to be realized within 12 months from the statement of financial position date
b. Financial assets that are classified as held for trading
c. Both A and B
d. Neither A nor B
29. Which statement is incorrect regarding a reporting entity?
a. A reporting entity should be a legal entity.
b. A reporting entity is an entity that is required, or chooses, to prepare financial statements
 c. A reporting entity does not comprise an arbitrary or incomplete collection of assets, liabilities, equity, income and
expenses.
d. A reporting entity could be a portion of an entity or comprise more than one entity.
30. Which statement relates to comparability?
a. Enables users to identify and understand similarities in, and differences among, items.
b. Financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who
review and analyze the information with diligence.
c. Information is available to decision-makers in time to be capable of influencing their decisions.
d. Different knowledgeable and independent observers could reach consensus, although not necessarily complete
agreement, that a particular depiction is a faithful representation.
31. Which statement is incorrect regarding the going concern assumption?
a. The entity has neither the intention nor the need to enter liquidation or to cease trading
b. If such an intention or need exists, the financial statements may have to be prepared on a different basis and, if so, the
basis used is disclosed.
c. The entity is a going concern and will continue in operation for the foreseeable future.
d. None, all the statements are correct.
32. Medicare Payable: On December 31, 2019, the bookkeeper of Williams Company provided the following information:
Accounts payable (net of P20,000 debit balance in creditor’s account) ₱ 640,000
Note payable (including note payable to bank on December 31, 2019 of
1,500,000
P1,000,000)
Salaries payable 800,000
SSS Payable 30,000
Pag-ibig Payable 5,000
PHIC Payable 15,000
Withholding tax payable 60,000
VAT payable 120,000
Customers’ accounts with credit balances 50,000
Share dividends payable 800,000
Serial bonds (payable in semiannual installments of P1,000,000) 10,000,000
Accrued interest on bonds payable 300,000
Unearned rent income 100,000
In the December 31, 2019 balance sheet, how much current liabilities should be reported?
a. 4,450,000
b. 4,520,000
c. 4,040,000
d. 5,920,000
33. The trial balance of Zambales Company reflected the following liability account balances on December 31, 2019:
Accounts payable ₱ 5,000,000
Bonds payable, due December 30, 2020 10,000,000
Premium on bonds payable 500,000
Deferred tax liability 2,500,000
Dividends payable 4,500,000
Income tax payable 1,500,000
Note payable – bank 4,000,000
The bank note payable matures on June 30, 2017. On March 1, 2020, the entire balance of the bank payable was refinanced on a
long-term basis. Zambales’s financial statements were issued on March 31, 2020. In its December 31, 2019 statement of
financial position, Zambales Company should report current liabilities at
a. 28,000,000
b. 25,500,000
c. 24,000,000
d. 21,500,000
34. Optimus Prime Co.’s trial balance of income statement accounts for the year ended December 31, 2019, included the
following:
Debit Credit
 Sales ₱ 575,000
Cost of sales ₱ 240,000
Administrative expenses 70,000
Loss on sale of equipment 10,000
Sales commissions 50,000
Interest revenue 25,000
Freight out 15,000
Loss on early retirement of long-term debt 20,000
Uncollectible accounts expense 15,000
Totals ₱ 420,000 ₱ 600,000
Other information
Finished goods inventory:
January 1, 2019 ₱ 400,000
December 31, 2019 360,000
What amount should Optimus Prime report as income after before taxes from continuing operations?
a. 126,000
b. 129,500
c. 140,000
d. 147,000
35. JKL Corp.'s trial balance reflected the following account balances at December 31, 2019:
Accounts receivable (net) ₱ 24,000
Trading securities 6,000
Accumulated depreciation on equipment and furniture 15,000
Cash 11,000
Inventory 30,000
Equipment 25,000
Patent 4,000
Prepaid expenses 2,000
Land held for future business site 18,000
In JKL's December 31, 2019 statement of financial position, the current assets total is
a. 77,000
b. 90,000
c. 82,000
d. 73,000
36. GGG Company provided the following information on selected transactions during 2019:
Dividends paid to preferred stockholders ₱ 150,000
Loans made to affiliated corporations 750,000
Proceeds from issuing bonds 900,000
Proceeds from issuing preferred stock 1,050,000
Proceeds from sale of equipment 450,000
Purchases of inventories 1,200,000
Purchase of land by issuing bonds 300,000
Purchases of treasury stock 600,000
The net cash provided (used) by financing activities during 2019 is
a. 750,000
b. (1,650,000)
c. 1,200,000
d. 450,000

37. GGG Company provided the following information on selected transactions during 2019:
Dividends paid to preferred stockholders ₱ 150,000
Loans made to affiliated corporations 750,000
 Proceeds from issuing bonds 900,000
Proceeds from issuing preferred stock 1,050,000
Proceeds from sale of equipment 450,000
Purchases of inventories 1,200,000
Purchase of land by issuing bonds 300,000
Purchases of treasury stock 600,000
The net cash provided (used) by investing activities during 2019 is
a. (300,000)
b. 150,000
c. (600,000)
d. 450,000
38. Fox Company reported the following information for 2019:
Sales revenue ₱ 500,000
Cost of goods sold 350,000
Operating expenses 55,000
Unrealized gain on Financial asset at FVOCI 20,000
Cash dividends received on the securities 2,000
For 2019, Fox would report comprehensive income of
a. 20,000
b. 117,000
c. 115,000
d. 97,000
39. On January 4, 2012, MNO Co. leased a building to Dodd Corp. for a ten-year term at an annual rental of P75,000. At
inception of the lease, Dodd received P300,000 covering the first two years' rent of P150,000 and a security deposit of
P150,000. This deposit will not be returned to Dodd upon expiration of the lease but will be applied to payment of rent for
the last two years of the lease. What portion of the P300,000 should be shown as a current and long-term liability in MNO's
December 31, 2012 statement of financial position?
a. P150,000 ; P75,000
b. P0 ; P300,000
c. P75,000 ; P150,000
d. P150,000 ; P150,000
40. The net income for the year ended December 31, 2019, for HHH Company was P1,200,000. Additional information is as
follows:
Depreciation on plant assets ₱ 600,000
Amortization of leasehold improvements 340,000
Provision for doubtful accounts on short-term receivables 120,000
Provision for doubtful accounts on long-term receivables 100,000
Interest paid on short-term borrowings 80,000
Interest paid on long-term borrowings 60,000
Based solely on the information given above, what should be the net cash provided by operating activities in the statement of
cash flows for the year ended December 31, 2019?
a. 2,360,000
b. 2,500,000
c. 2,340,000
d. 2,260,000
ANSWERS for Mock Qualifying Quiz 1 – CFFR & FS Presentation

1. B
2. B
3. B
4. B
5. D
6. D
7. C
8. D
9. D
10. B
11. B
12. B
13. C
14. D
15. D
16. A
17. D
18. D
19. B
20. D
21. C
22. D
23. D
24. B
25. C
26. B
27. D
28. C
29. A
30. A
31. D
32. C
33. B
34. A
35. D
36. C
37. A
38. B
39. C
40. A
FAR: MOCK QUALIFYING QUIZ 2 (30 items)

(CASH AND CASH EQUIVALENTS & LOANS AND RECEIVABLES)

1. Synthia Corp. factored P750,000 of accounts receivable to Thomas Company on December 3, 2020. Control was
surrendered by Synthia. Thomas accepted the receivables subject to recourse for nonpayment. Thomas assessed a fee of 2%
and retains a holdback equal to 4% of the accounts receivable. In addition, Thomas charged 12% interest computed on
weighted-average time to maturity of the receivables of fifty-one days. the fair value of the recourse obligation is P15,000.
Assuming all receivables are collected. Synthia’s cost of factoring the receivables would be
a. P12,575
b. P42,575
c. P27,575
d. P15,000

2. The checkbook balance of Espiritu Company on December 31, 2020 was P6,000,000. Data about certain cash items follow:
 Customer check amounting to P300,000 dated January 2, 2021 was included in the December 31, 2020 checkbook
balance
 Another customer check for P750,000 deposited on December 22, 2020 was included in its checkbook balance but
returned by bank because it was marked as NSF check. The check was redeposited on December 26, 2020 and cleared
two days later P600,000 check payable to supplier dated and recorded on December 30, 2020 was mailed on January
16, 2021.
 Petty cash fund of P75,000 with the following summary on December 31, 2020
 Currency and coin 7,500
 Petty cash vouchers 64,500
 Return value of 20 cases of soft drinks 3,000
 Check of P64,500 was drawn on December 31, 2020 payable to petty cash.
What is the cash balance on December 31, 2020?

a. 6,307,500
b. 5,622,000
c. 6,372,000
d. 6,300,000
3. Notes receivable discounted with recourse should be
a. Excluded in total receivables without disclosure of contingent liability.
b. Excluded in total receivables with disclosure of contingent liability.
c. Included in total receivables without disclosure of contingent liability.
d. Included in total receivables with disclosure of contingent liability.

4. On January 2, 2020, Play Company sold equipment with a carrying amount of P480,000 in exchange for a P600,000 non-
interest-bearing note due January 2, 2023. There was no established exchange price for the equipment. The prevailing rate
of interest for a note of this type at January 2, 2020 was 10%. The present value of 1 at 10% for three periods is 0.7513.
What is the carrying value of the note receivable as of December 31, 2020 statement of financial position?
a. P450,780
b. P495,858
c. P600,000
d. P545,444
5. Cabugao Company provides for doubtful accounts based 3% of credit sales. The following data are available for 2020.

Credit sales during 2020 P5,250,000

Allowance for doubtful accounts 1/1/20 42,500
Collection of accounts written off in prior years (Customer credit was reestablished) 20,000
Customer accounts written off as uncollectible during 2020 75,000

What is the balance in allowance for doubtful accounts at December 31, 2020?

a. P126,000
b. P157,500
c. P105,000
d. P145,000

6. Which of the following statements is false?

a. An error made by the bank in crediting an amount to a depositor’s account requires a correcting journal entry in the
depositor’s own records.
b. Deposits in transit will cause the balance shown in the depositor’s cash ledger account to be greater than the balance
reported in the bank statement, all other things being equal.
c. Bank service charges not yet entered in the depositor’s accounting records will cause his balance of cash to be higher
than that reported by the bank, all other things being equal.
d. Outstanding checks of a depositor will cause the balance of the cash account in his books to be lower than the balance
reported by the bank, all other things being equal.
7. Which of the accounting principles primarily supports the use of allowance for doubtful accounts?
a. Cost principle
b. Full-disclosure principle
c. Matching principle
d. Continuity principle
8. On April 1, 2020, Mighty Company established an imprest petty cash fund for P10,000 by writing a check drawn against its
general checking account. On April 30, the fund contained the following:
Currency and coins P3,000
Receipts for office supplies 4,000
Receipts for postage (still unused) 2,000
Receipts for transportation 600

On April 25, the company wrote a check to replenish the fund. What is the amount of replenishment under the imprest fund
system?

a. P3,000
b. P10,000
c. P6,600
d. P7,000
9. Grey Company holds an overdue note receivable of P800,000 plus recorded accrued interest of P64,000. The effective
interest rate is 8%. As a result of a court-imposed settlement on December 31, 2020, Grey agreed to the following
restructuring arrangement:
 Reduced the principal obligation to P600,000.
 Forgave the P64,000 of accrued interest.
 Extended the maturity date to December 31, 2022.
 Annual interest of P40,000 is to be paid to Grey on December 31, 2021 and 2022.

On December 31, 2020, Grey would recognize a valuation allowance for impaired loans of

a. P278,266
b. P14,266
c. P0
d. 184,000

10. The following statements relate to the petty cash fund. Which statement is true?
a. Under the imprest petty cash system, it is not necessary to adjust unreplenished petty cash expenses at end of the year.
b. The amount of coins and currency in the petty cash fund is the same before the fund is reimbursed as it is afterwards.
c. At any time, the sum of the cash in the petty cash fund and the total petty cash vouchers should equal the amount for
which the imprest petty cash fund was established.
d. Entries to record the replenishment of the imprest petty cash fund result in debit to various expense accounts and a
credit to the petty cash funds.

11. Brett Company sold a tract of land to Eddie Co. on July 1, 2019, for P4,000,000 under an installment sale contract. Eddie
Co. signed a 4-year 11% note for P2,800,000 on July 1, 2019, in addition to the down payment of P2,400,000. The equal
annual payments of principal and interest on the note will be P902,500 payable on July 1, 2020, 2021, 2022,and 2023. The
land had an established cash price of P4,000,000, and its cost to the company was P3,000,000. The collection of the
installments on this note is reasonably assured. The current portion of the installment note receivable on December 31, 2020
is

a. P902,500
b. P594,500
c. P659,895
d. P700,000
12. The following pertains to Mine Company on December 31, 2020:
 Bank statement balance P5,000,000
Checkbook balance 5,600,000
Deposit in transit 2,000,000
Outstanding checks, including P100,000 certified check 500,000

In Mine’s December 31, 2020 balance sheet, cash should be reported at:

a. P6,500,000
b. P6,600,000
c. P7,200,000
d. P7,100,000
13. Which of the following is true when accounts receivables are factored without recourse?
a. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables.
b. The factor assumes the risk of collectability and absorbs any credit losses in collecting the receivables.
c. The transaction may be accounted for either as secured borrowing or sale.
d. The financing cost should be recognized ratably over the collection period of the receivables.
14. Which is not considered as a cash equivalent?
a. A 90-day treasury bill
b. A three-year treasury note maturing on October 30, 2020 purchased by the entity on September 15, 2020
c. A 60-day money-market placement
d. A three-year treasury note maturing on October 30, 2020 purchased by the entity on June 30, 2020.

15. On January 1, 2020, Amanda Company received from a customer an 8-month, 6,000,000 note bearing an annual interest
rate of 10%. The principal and the interest are payable on September 1, 2020. To obtain cash quickly, Amanda discounted
the note with East-West Bank on March 1, 2020. The bank charged a discount rate of 12%. What is the loss on note
receivable discounting to be recognized by Amanda?
a. 400,000
b. 384,000
c. 100,000
d. 84,000

16. The following accounts were taken from Cervantes Inc.’s balance sheet at December 31, 2020.
Debit Credit
Accounts receivable P8,200,000
Allowance for doubtful accounts 200,000
Net credit sales P15,000,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2020.

a. P450,000
b. P 46,000
c. P246,000
d. P446,000

17. Cure Company’s newly hired assistant prepared the following bank reconciliation on March 31, 2020:
 Book balance P1,405,000
Add: March 31 deposit P 750,000
Collection of note 2,500,000
Interest on note 150,000 3,400,000
Total P4,805,000
Less: Care Company’s deposit to our account P1,100,000
Bank service charge 45,000 1,145,000
Adjusted book balance P3,660,000

Bank balance P5,630,000

Add: Error on check no 123 45,000
Total P5,675,000
Less: Preauthorized payments for light and
P 205,000
water bills
NSF checks 220,000
Outstanding checks 1,650,000 2,075,000
Adjusted bank balance P3,600,000

Check No. 123 was made for the proper amount of P249,000 in payment of account. However, it was entered in the cash
payments journal as P294,000. Cure authorized the bank to automatically pay its light and water bills as submitted directly to
the bank. The correct cash in bank balance is:

a. P3,600,000
b. P2,880,000
c. P3,630,000
d. P3,660,000

18. On December 31, 2020, an entity received two P2,000,000 notes receivable from customers. On both notes, interest is
calculated on the outstanding principal balance at the annual rate of 3% and payable at maturity. The first note, made under
customary trade terms, is due in nine months and the second note is due in five years. The market interest rate for similar
notes on December 31, 2020 was 8%. The PV of 1 at 8% due in nine months is .944, and the PV of 1 at 8% due in 5 years is
.68. On December 31, 2020, what total carrying amount should be reported for the two notes receivable?
a. 3,248,000
b. 3,564,000
c. 3,494,400
d. 3,360,000

19. Initially, loans and receivables are measured at

a. Fair value plus transaction costs that are directly attributable to the acquisition.
b. Fair value
c. Maturity value plus transaction costs that are directly attributable to the acquisition.
d. Maturity value.
20. If a company employs the gross method of recording accounts receivable from customers, the sales discount taken should
be reported as
a. Deduction from sales in the income statement
b. Sales discount forfeited in the cost of goods sold section of the income statement.
c. Deduction from accounts receivable in determining the net realizable value of accounts receivable.
d. Other expense in the income statement
21. Apache Company provides the following information for the purpose of reconciling the cash balance per book with balance
per bank statement on December 31, 2020.
 The bank statement showed a balance of P200,000 on December 31.
 Outstanding checks as of December 31 amounted to P50,000, including a P10,000 certified check.
 Deposit in transit on December 31 was P20,000.
 During December, the bank charged back NSF checks of P15,000, of which P5,000 had been redeposited and
cleared by December 27.
 On December 23, the bank erroneously credited the account of Apache for P30,000 representing proceeds of loan
granted to another company.
 During December, the proceeds from notes collected by the bank for Apache amounted to P75,000, net of service
charge of P2,000.

What is the cash balance per Apache Company’s ledger on December 31, 2020?

a. P180,000
b. P85,000
c. P200,000
d. P150,000
22. Entity K has a loan whose initial carrying amount is P100,000 and whose effective interest rate is 8%. On January 1, 2020,
Entity K determines that the borrower will probably enter into bankruptcy, and expects to collect only P20,000 of remaining
principal and interest cash flows. Entity K expects to recover this amount at the end of 2020. The prevailing interest rate for
similar type of note as of January 1, 2020 is 10% and 9% on December 31, 2020. How much should recognized as loan
impairment loss in 2020?
a. 81, 652
b. 80,000
c. 81, 818
d. 81,482

23. During your review of the records of Maggie Mae Corporation for the year 2020, you noted that Maggie Mae sold a
machine with a carrying amount of P640,000 (cost is P1,600,000) on June 30, 2020. Maggie Mae received an P800,000
non-interest bearing note due in 3 years. There is no established market value for the machine. The prevailing interest rate
for a note of this type is 12%. Maggie Mae recorded the transaction by debiting Note Receivable for P800,000 and crediting
Machinery for P640,000 and Gain on sale of Machine for the difference. Because of this, Maggie Mae’s profit for the year
ended December 31, 2020 had been overstated by
a. P 55,274
b. P196,394
c. P125,834
d. P162,227

24. Megabank granted an 8%, 3-year P6,000,000 loan to Global Company on January 1, 2019. The interest rate on the loan is
payable every December 31. Megabank incurred P520,600 of direct origination cost but an origination fee of P200,000 was
charged against Global Company. The effective rate on the loan as a result of the origination fee and cost is now 6%. What
is the carrying value of the loan on December 31, 2020 in Megabank’s accounting books?
a. P6,320,600
b. P6,219,836
c. P6,000,000
d. P6,113,026

25. Bermal Company had the following account balances on December 31, 2020:

Cash in bank – current account 1,250,000

 Cash in bank – payroll account 250,000
Cash on hand 125,000
Cash in bank – restricted account for building construction expected to be 750,000
disbursed in 2021
Time deposit, purchased December 15, 2020 and due March 15, 2021 500,000

The cash on hand includes a P50,000 check payable to Bermal Company, dated January 15, 2021. What should be reported as
cash and cash equivalents on December 31, 2020?

a. 1,625,000
b. 2,075,000
c. 2,175,000
d. 1,575,000

26. In connection with your audit of Mags Corporation for the year ended, December 31, 2020, you gathered the following:

Current account at Metrobank P2,000,000

Current account at BPI (100,000)
Payroll account 500,000
Foreign bank account – restricted (in equivalent pesos) 1,000,000
Postage stamps 1,000
Employee’s postdated checks 4,000
IOU from controller’s sister 10,000
Credit memo from a vendor for a purchase return 20,000
Traveler’s check 50,000
NSF check 15,000
Money order 30,000
Petty cash fund (P4,000 in currency and expense receipts for P6,000) 10,000
Treasury bills, due 3/3/21 (purchased 12/29/19) 200,000
Treasury bills, due 1/31/21 (purchased 2/1/20) 300,000

Based on the above information and the result of your audit, compute for the cash and cash equivalent that would be reported in
the December 31, 2020 balance sheet.

a. P2,704,000
b. P2,784,000
c. P2,790,000
d. P3,084,000

27. In the course of your audit of DKNY Company’s “Receivables” account as of December 31, 2020, you found out that the
account comprised the following items:

Trade accounts receivable P4,650,000

Trade accounts receivable, assigned (proceeds from assignment amounted to 2,250,000
P1,950,000)
Trade accounts receivable, factored (proceeds from factoring done on a without- 900,000
recourse basis amounted to P750,000)
 12% Trade notes receivable 600,000
20% Trade notes receivable, discounted at 40% upon receipt of the 180-day note on a 900,000
without recourse basis
Trade receivable rendered worthless 150,000
Installment receivable, normally due 1 year or two years 1,800,000
Customers’ accounts reporting credit balances arising from sales returns 180,000
Advance payments for purchase of merchandise 900,000
Customers’ accounts reporting credit balances arising from advance payments 120,000
Cash advances to subsidiary 2,400,000
Claim from insurance company 90,000
Subscription receivable due in 60 days 1,800,000
Accrued interest receivable 60,000
Deposit on contract bids 1,500,000
Advances to stockholders (collectible in 2023) 6,000,000

How much is the amount to be presented as “trade and other receivables” under current assets?

a. 16,050,000
b. 14,550,000
c. 12,150,000
d. 22,050,000

28. Nontrade receivables are classified as current assets only if they are reasonably expected to be realized in cash:
a. Within the normal operating cycle.
b. Within one year or within the normal operating cycle whichever is longer.
c. Within one year, the length of the operating cycle notwithstanding.
d. Within one year or within the normal operating cycle whichever is shorter.
29. The following information pertains to Inuyasha’s accounts receivable:
a) The general ledger balances Inuyasha’s receivable and related accounts were:

Accounts receivable P12,901,200

Allowance for bad debts (676,000)
Amortized cost P12,225,200

b) Inuyasha Inc. estimates its bad debt losses by aging its accounts receivable, the aging schedule of accounts receivable at
December 31, 2020, is presented below:

Age of accounts Amount

Current P6,745,600
1 to 30 days past due 3,688,000
31 to 60 days past due 1,539,200
61 to 90 days past due 613,200
Over 90 days past due 315,200

c) The company normally sells n/30.

 d) Furthermore, the company’s uncollectible accounts experience for the past 5 years are summarized in the schedule that
follows:

Year Current 1-30 days PD 31-60 days PD 61-90 days PD More than 90 days PD
2018 1% 6% 9% 23% 55%
2017 2% 8% 10% 18% 60%
2016 1% 4% 11% 16% 45%
2015 3% 5% 12% 22% 45%
2014 3% 2% 8% 21% 45%

The net realizable value of the company’s accounts receivable on December 31, 2020, should be

a. 12,147,728
b. 12,017,832
c. 11,945,380
d. 11,906,160
30. On January 2, 2019, a tract of land that originally cost P800,000 was sold by Gorgeous Company. The Company received a
P1, 200,000 note as payment. It bears interest rate of 4% and is payable in 3 annual installments of P400,000 plus interest
on the outstanding balance. The prevailing rate of interest for a note of this type is 10%. Round off present value factors to
five decimal places. The present value table shows the following present value factors of 1 at 10%:

Present value factor of 1 for 3 periods 0.75132

Present value factor of 1 for 2 periods 0.82645
Present value factor of 1 for 1 period 0.90909
Present value factor of an ordinary annuity of 1 for 3 periods 2.48685

The carrying amount of note receivable on December 31, 2020 is

a. P378,186
b. P400,000
c. P736,533
d. P363,635
ANSWERS for Mock Qualifying Quiz 2 FAR – CCE & Loans and Receivables
1. C
2. C
3. B
4. B
5. D
6. A
7. C
8. D
9. B
10. C
11. C
12. B
13. B
14. D
15. D
16. D
17. C
18. B
19. A
20. A
21. B
22. D
23. B
24. D
25. B
26. B
27. C
28. C
29. A
30. A
 RFBT: MOCK QUALIFYING QUIZ 3 – Investment in Debt & Equity Securities, Inventories

(30 items)

1. Under PFRS 9, the initial classification of investments in financial assets is generally based on
Select one:
a. whether the financial securities are intended to be held within 1 year or not
b. the entity's business model and the contractual cash flow characteristics of the financial asset
c. All of the above
d. whether the financial securities have active markets or not

2. David, Inc. uses the retail method to estimate its monthly cost of goods sold and month-end inventory. At August 31,
the accounting records indicate the cost of goods available for sale during the month totaled P 120,000. These goods
had been priced for resale at P 300,000. Net sales in August totaled P 180,000.
The estimated inventory at August 31 is:
Select one:
a. Some other amount
b. P 120,000
c. P 72,000
d. P 48,000

3. Starlord Co. sells musical instruments. At December 31, 2017, the balance in Starlord’s Inventory account was P
50,200, and the Allowance for Inventory Writedown had a balance of P 3,200. The relevant inventory cost and market
data at December 31, 2017, are summarized in the schedule below:

Cost Replacement Cost Sales Price Net Realizable value Normal Profit

Guitars P 8,900 P 8,600 P 9,150 P 8,700 P 640

 Xylophones 9,400 9,200 9,300 8,500 744
Trumpets 12,500 13,500 12,900 11,100 1,161
Violins 19,400 11,400 20,500 19,700 2,050
Total P 50,200 P 42,700 P 51,850 P 48,000 P 4,595

What is the proper balance in the Allowance for Inventory Write-down at December 31, 2017?
Select one:
a. P 7,500
b. P 2,500
c. P 2,200
d. P 3,200
Feedback

4. On January 2, 2020, Narvacan Company acquired 100,000 shares of ABC Company common stock for a total
consideration of P6,000,000. On October 1, 2020, Narvacan received from ABC a preferred stock dividend of one
share for every 10 common shares held. On this date, the market price of ABC common is P75 per share and the ABC
preferred, P50 per share. Narvacan Company should report its investment in ABC Company preferred stock at
Select one:
a. 500,000
b. 0
c. 750,000
d. 375,000

5. Julie Trading has the following inventory transactions for the month of July 2016:

- Beginning balance 100 units 100 unit cost

- Purchases 900 units 150 unit cost

- Sale 700 units

- Purchases 500 units 250 unit cost

- Ending balance 800 units

What is the cost of sales under the FIFO method, Weighted Average and Moving Average?
 Select one:
a. P 102,000 ; P 126,000 ; P 100,000
b. P 100,000 ; P 124,500 ; P100,000
c. P 100,000 ; P 126,000 P 101,500
d. P 102,000 ; P 124,500 ; P 101,500

6. Pinatubo Inc. acquired 100,000 ordinary shares of Mayon Company at P120 per share. On February 14, 2018,
Pinatubo Inc. received 100,000 stock rights entitling it to buy one new share at P90 for every two rights held. On
February 14, 2018, the market value of each share is P130 while that of each right is not known. On March 1,
2018, all the stock rights were exercised. If share rights are accounted for separately, what is the total cost of the
new investment in ordinary shares acquired?
Select one:
a. P8,500,000
b. P6,100,000
c. P11,000,000
d. P6,500,000
e. P4,500,000

7. An entity purchased P5,000,000 of 8%, 5-year bonds on January 1, 2020 with interest payable on June 30 and
December 31. The bonds were purchased for P5,100,000 plus transaction cost of P108,000 at an effective interest
rate of 7%. The business model for this investment is to collect contractual cash flows and sell the bonds in the open
market. On December 31, 2020, the bonds were quoted at 106.
What amount should be recognized in OCI in the statement of comprehensive income for 2020?
Select one:
a. P128,060
b. P92,000
c. P300,000
d. P125,440

8. On July 1, 2020, Jamila Company purchased as a long-term investment P1,000,000 face value 8% bonds for
P946,000 including accrued interest of P40,000. The bonds were purchased to yield 10% interest. The bonds pay
interest annually on December 31. The effective interest method of amortization is used. What is the carrying amount
of the investment in bonds on December 31, 2020?
Select one:
a. 960,600
b. 911.300
c. 953,300
d. 916,600
9. The following information is available for Kerr Company for 2017:
Freight-in P 60,000
Selling expenses 300,000
Purchase returns 150,000
Ending inventory 520,000

The cost of goods sold is equal to 300% of selling expenses.

What is the cost of goods available for sale?
Select one:
a. P 1,420,000
b. P 1,480,000
c. P 900,000
d. P 1,330,000

10. Plack Co. has the following transactions during the year 2020:

· On February 14, Plack Co. purchased 5,000 ordinary shares of Ty Corp and 5,000 ordinary shares of SABM Co.

· On March 20, Ty Corp. issued a 2:1 stock split (split-up).

· On April 30, Plack received a share dividend of 2,000 shares from Ty Corp. when the market value per share was
P35.

· On December 15, Ty paid a cash dividend of P2 per share .

· On December 31 , Plack Co. received 2,000 share of SABM Co. in lieu of cash dividend of P10 per share. On this
date, the SABM Company share has a quoted market price of P60 per share.

In its 2020 income statement, what amount should Plack report as dividend income?
Select one:
a. P110,000
b. P144,000
c. P210,000
 d. answer not given

11. Inventories are measured at

Select one:
a. The higher of cost and net realizable value on an item by item basis
b. The lower of cost and net realizable value on an item by item basis
c. The higher of cost and net realizable value on an aggregate basis
d. The lower of cost and net realizable value on an aggregate basis

12. Julie Trading has the following inventory transactions for the month of July 2016:
- Beginning balance 100 units 100 unit cost

- Purchases 900 units 150 unit cost

- Sale 700 units

- Purchases 500 units 250 unit cost

- Ending balance 800 units

What is the cost of ending inventory under the FIFO method, Weighted Average and Moving Average?
Select one:
a. P 170,000 ; P 144,000 ; P 168,500
b. P 168,000 ; P 145,500 ; P 168,500
c. P 168,000 ; P 144,000 ; P 170,000
d. P 170,000 ; P 145,500 ; P 170,000

13.Bonds usually sell at a premium

Select one:
a. In none of these cases
b. When the price of the bonds is less than their face value
c. When the market rate of interest is greater than the stated rate of interest on the bonds
d. When the stated rate of interest on the bonds is greater than the market rate of interest
14.The following transactions relate to Harmony Company during 2017:

-Inventories, in-transit to Harmony, FOB Destination (includes packaging,

shipping, handling costs of P 15,000 to be paid by Harmony) P 100,000

-Inventories, in-transit to Harmony, FOB Shipping point (excludes freight

and handling charges paid by the supplier of P 5,000) 50,000

-Inventories, in-transit to Harmony, FOB Seller (includes insurance

premium of P 1,000) 20,000

-Inventories, in-transit to customer, FOB Buyer (includes freight of P 2,000) 40,000

-Goods out on consignment (excludes transportation cost to consignee

of P 2,000) 30,000

-Inventories in the warehouse, fabricated to the order of a specific

customer (includes cost of product design P 5,000) 50,000

Determine Harmony’s inventories.

Select one:
a. P 230,000
b. P 275,000
c. P 147,000
d. P 145,000

15. On June 1, 2017, Jockey, Inc. sold goods listed at P 10,000 granting trade discounts of 20% and 10%. Credit terms are
2/10, n/30, FOB Destination. Freight of P 800 was paid by the buyer on June 2, when the goods were received. On
June 3, Jockey, Inc. accepted goods (originally listed at P 3,000) returned by the buyer. On June 4, additional goods
(originally billed at P 1,500) were returned.

What amount is presented as net sales?

Select one:
a. P 2,699.20
b. P 3,469.20
 c. P 3,880.80
d. P 3,540.00

16. An entity returned merchandise purchased on account. Under a perpetual inventory system, the account credited to
book the return is
Select one:
a. Accounts payable
b. Purchases
c. Inventory
d. Purchase returns and allowances

17.Which is false regarding the classification of financial assets:

Select one:
a. Only equity securities can be classified as FVOCI
b. Both debt and equity securities can be classified as FVPL
c. All of the above
d. None of the above
e. Only debt securities can be classified as amortized cost

18. The Melon Company has partially-completed inventory located in its factory, to which the following estimates relate:

Production costs incurred to date P 2,900

Production costs to complete 2,000
Transport costs to customer 300
Future selling costs 400
Selling price 2,800

According to IAS 2 Inventories, what is the net realizable value of Melon's inventory?
Select one:
a. P 400
b. P 100
c. P 2,800
d. P 2,100
 19. Purchases and accounts payable of Smarts Inc. registered at P 3,000,000 and P 2,200,000, respectively, on December
31, 2017, before recording the following items:

A. Goods shipped to Smarts FOB Origin on December 22 were lost in transit. The P 40,000 invoice was not recorded
by Smarts. Smarts filed on January 2018 P 40,000 claims against the carrier.
B. On December 27, Smarts was authorized to return goods billed at P 70,000 on December 3. Smarts shipped the
goods on December 28. A P 70,000 credit memo was received and recorded by Smarts on January 2018.
C. On December 28, under FOB Destination, Smarts purchased goods invoiced at P 15,000. The goods were received
on December 29. Packaging and handling charges incurred by Smarts amounted to P 2,500.
D. Goods shipped to Smarts FOB Destination on December 22 and invoiced at P 50,000 were received on January 2018.

What is the correct balance of accounts payable as of December 31, 2016?

Select one:
a. P 2,182,500
b. P 2,195,000
c. P 2,187,500
d. P 2,245,500

20. ABC co. acquired 20,000 shares of DEF Co. on March 1, 2019 for P2,000,000 and acquired additional 30,000
shares of DEF CO. on October 31, 2019 at P120 per share. On February 14, 2020, ABC Co. received 20%
share dividend. On June 1, 2020, DEF Co. declared cash dividend of P5 per share to shareholders of record on June
15, 2020. On June 6, 2020, ABC Co. sold 30,000 shares at P125. How much is the gain on sale of investment
assuming the FIFO method is used?

Select one:
a. P950,000
b. P1,150,000
c. P550,000
d. P1,000,000
e. P150,000

21.The 10% bonds payable of Lucille Company had a net carrying amount of P570,000 on December 31, 2020. The bonds,
which had a face value of P600,000, were issued at a discount to yield 12%. The amortization of the bond discount was
recorded under the effective interest method. Interest was paid on January 1 and July 1 of each year. On July 2, 2021,
several years before their maturity, Lucille retired the bonds at 102. The interest payment on July 1, 2021 was made as
scheduled. What is the loss that Lucille should record on the early retirement of the bonds on July 2, 2021?
Select one:
a. P120,000
b. P37,800
 c. P42,000
d. P33,600

22. When the 2017 ending inventory is overstated, which is incorrect?

Select one:
a. 2017 total assets is overstated
b. 2017 cost of goods sold is understated
c. 2018 net income is understated
d. 2017 net income is understated

23. An investor purchased a bond as investment at amortized cost on January 2. The investor’s carrying value at the end
of the first year would be highest if the bond was purchased at a
Select one:
a. Premium and amortized by the straight-line method
b. Discount and amortized by the straight-line method
c. Discount and amortized by the effective interest method
d. Premium and amortized by the effective interest method

24. The following items were included in Salem’s inventory account at December 31, 2016:

-Merchandise out on consignment, at sales price,

(including 40% markup on cost) P 280,000
-Goods purchased, in transit, shipped FOB Seller
(excluding P3,000 freight and P1,000 insurance 180,000
-Goods held on consignment by Salem 135,000
-Imported inventory acquired on Dec. 15 US$ 2,000
-(Exchange rates: Dec. 15 – US$50; Dec. 31 – US$48) 96,000
Recoverable purchase taxes on imported goods 12,000

At what amount should Salem present its inventory at December 31, 2016?
Select one:
a. P 495,000
b. P 484,0000
c. P 448,000
 d. P 579,000

25.Gains or losses on sale of Investment at FVOCI are recognized

Select one:
a. In profit or loss when debt securities only
b. In profit or loss (i.e. recycling) whether debt or equity securities
c. In profit or loss when equity securities only
d. In other comprehensive income whether debt or equity securities

26. Data regarding Stone Co's portfolio of equity securities accounted for as fair value through other comprehensive income is
as follows:

Aggregate cost as of 12/31/2020 (including transaction cost of 40,000) P340,000

Market value as of 12/31/2020 P296,000

Net realized gains during 2020 P60,000

At December 31, 2019, Stone Co. reported an unrealized loss of P3,000 to reduce investments to market value.
This was the first such adjustment made by Stone Co. on these types of securities. In its 2020 statement of
comprehensive income, what amount of unrealized loss should Stone report

Select one:

a. P60,000

b. P41,000

c. P0

d. P4,000

e. P44,000

27.On January 2, 2020, Holy Company invested in a 4-year 10% bond with a face value of P3,000,000 in which interest is to
be paid every December 31. The bonds has an effective interest rate of 8% and was acquired for P3,198,728. Holy
Company has designated the debt instrument as investment at fair value through OCI. Holy Company sold the bonds at
the prevailing rate of 12%.

What amount of gain or loss should Holy Company recognize on the sale of security?
 Select one:

a. 205,447

b. 109,127

c. 252,158

d. 250,447

e. 154,127

28. On January 1, 2020, Tarlac Company purchased bond with face amount of P2,000,000 for P1,900,500 including
transaction costs of P100,500. Tarlac’s business model for this investment is to collect contractual cash flows which are
interest and principal. Tarlac did not elect the fair value option. The bonds mature on December 31, 2022 and pay interest
of 8% annually every December 31 with a 10% effective yield. On December 31, 2020, Tarlac changed the business model
for this investment to collecting contractual cash flows and selling the asset in the open market. The bonds are quoted at
110 on January 1, 2021 and 120 on December 31, 2021. What amount in OCI is recognized in the statement of changes in
equity for 2021?

Select one:

a. 436,395

b. 166,945

c. 269,450

d. 499,500

29.Before a devastating flood consumed the business of Harold Company, the following records were available:
 

Gross sales P  400,000 Purchases (no beg. Inventory)P  500,000

Sales        10,000 Purchase discounts       40,000

discounts

Net sales P  390,000 Net purchases P  460,000

 
Harold sells all goods at a margin of 20%.  After the flood, the only goods salvaged by Harold were goods that:
a.     Normally sell for P 14,000 but with net realizable value of P 12,000.
b.     Were undamaged and regularly sell for P 30,000.

How much is the estimated loss?

 Select one:
a. P 98,800
b. P 104,000
c. P 98,000
d. P 104,800

30.David Store uses the FIFO retail method of inventory valuation. The following information is available:
   At Cost At Retail
Beginning inventory P   P  
12,00 30,00
0 0
Purchases 60,000 110,000
Net additional markups   10,000
Net markdowns   20,000
Sales (net of employee P 5,000   85,000
discounts)
Sales discounts to regular customers   1,000
 
Estimate the cost of ending inventory.
Select one:
a. P 19,200
b. P 20,800
c. P 20,000
d. P 24,000

ANSWERS for Mock Qualifying Quiz 3 – Investment in Debt & Equity Securities, Inventories

1. B
2. D
3. B
4. A
5. C
6. D
7. A
8. B
9. A
10. B
11. B
12. A
13. D
14. D
15. B
16. C
17. A
18. B
19. A
20. D
21. B
22. D
23. D
24. B
25. A
26. B
27. D
28. A
29. D
30. D
RFBT: MOCK QUALIFYING QUIZ 4- PPE, Intangible Asset and Investment Property
 (50 items)

1. ABC Company and DEF Company are fuel oil distributors. To facilitate the delivery of oil to customers, the two entities
exchanged ownership of barrels of oil without physically moving the oil. ABC paid DEF P1,500,000 to compensate for a
difference in the grade of oil. It was reliably determined that the configuration of the cash flows of the asset received does
not differ from the configuration of the cash flows of the asset transferred. On the date of exchange, the oil inventory of
ABC has a carrying amount of P5,000,000 and fair value of P7,000,000. The oil inventory of DEF has a carrying amount
of P6,000,000 and fair value of P8,500,000.
What amount should ABC record as cost of the oil inventory received in exchange?
a. 7,000,000
b. 6,500,000
c. 8,500,000
d. 4,500,000

2. ABC Company purchased a plot of land for P2,000,000 as a plant site. There was a small office building on the plot with
fair value of P700,000 which the entity will continue to use with some modification and renovation. The entity decided to
construct a factory building and incurred the following costs:

Materials and supplies 3,000,000

Excavation 100,000
Labor on construction 2,500,000
Cost remodeling the small office building 200,000
Legal cost of conveying land 10,000
Imputed interest on money used during construction 120,000
Cash discount on materials purchased 60,000
Supervision by management 70,000
Compensation insurance premium for workers 20,000
Clerical and other expenses related to construction 30,000
Paving of street and sidewalk 40,000
Plans and specifications 140,000
Payment for claim on injuries not covered by insurance 25,000
Legal cost of injury claim 15,000
Saving on construction 200,000

What is the initial cost of office building?

Select one:
a. 850,000
b. 1,050,000
c. 700,000
 d. 900,000

3. On January 1, 2020 ABC Corp. acquired a copyright on a book of photographs from the estate of a world renowned
photographer who died in late December 2019, for a price of P500,000. ABC’s CEO knows that copyrights normally cover
the lifetime of the artist plus 50 years, but she has heard of a recent court case that extended the legal life by an additional 20
years. Other similar books sold by ABC for deceased photographers typically remain popular for only 15 years. The
carrying amount of the copyright at December 31, 2020 should be
a. 466,667
b. 500,000
c. 450,000
d. 490,000

4. ABC Company purchased a tract of land as an investment property. The entity razed an old building on the property.
Purchase price of land and an old building 4,000,000
Fair value of old building 300,000
Demolition of old building 200,000
Proceeds from sale of salvaged material 20,000
Legal fees for purchase contract and recording ownership 150,000
Title guarantee insurance 50,000
Payment of property taxes in arrears on land 100,000
Option paid for an alternative land not acquired 30,000
Special assessment for city improvements 120,000
What is the cost of the land?
a. 4,300,000
b. 4,600,000
c. 4,330,000
d. 4,120,000

5. Borrowing costs are interest and other costs that an entity incurs in connection with the borrowing of funds.
Borrowing cost does not include:
a. Interest expense calculated using the effective interest method as described in PFRS 9.
b. Interest in respect of lease liabilities recognized in accordance with PFRS 16.
c. Actual or imputed cost of equity, including preferred capital not classified as a liability.
d. Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to
interest costs.
 6. ABC Company purchased factory equipment which was installed and put into service on July 1, 2019 at a total cost of
P6,400,000. Residual value was estimated at P400,000. The equipment is being depreciated over eight years by the double
declining balance method. What is the depreciation of the equipment for 2020?
a. 1,125,000
b. 1,600,000
c. 1,200,000
d. 1,400,000

7. ABC purchased all the outstanding ordinary shares of Lemery Travel Corporation. Lemery has one asset whose value
exceeds its book value by P10,000. Lemery's Equity is P80,000. ABC agreed with Lemery that its excess earnings would last
for 10 years and ABC were granted a 10% return on our investment. Lemery's average income for negotiation purposes is
P40,000 and the industry average rate of return is 30% on market value of net assets. Using the "present value of excess
earnings" approach to the calculation of goodwill, what is the goodwill for the acquisition of Lemery?
a. 335,782
b. 169,880
c. 220,000
d. 79,880

8. XYZ Company acquired three patents in January 2020. The patents have different lives as indicated in the following
schedule
  COST REMAINING USEFUL REMAINING LEGAL
LIFE LIFE
Patent A 2,000,000 10 8
Patent B 3,000,000 5 10
Patent C 6,000,000 Indefinite 15

Patent C is believed to be uniquely useful as long as the company retains the right to use it. In June 2020, the company
successfully defended its right to Patent B. Legal fees of P800,000 were incurred in this action. The company’s policy is
to amortize intangible assets by the straight-line method to the nearest half year. The company reports on a calendar-year
basis. The amount of amortization that should be recognized for 2020 is
a. 1,250,000
b. 2,050,000
c. 1,330,000
d. 950,000

9. Leyte Company constructed a building costing P15,000,000 on a mine property. The building has an estimated life of 6
years with no salvage value. After all the resource is removed expectedly over 5 years, the building will be of no use.
The estimated recoverable output from the mine is 1,000,000 tons. During the first year, Leyte produced 200,000 tons but
 there was shut down and no output in the second year. In the third year, Leyte resumed operations and produced 250,000
tons. Leyte Company should record depreciation of the building in the third year at
a. 3,000,000
b. 2,500,000
c. 4,500,000
d. 3,600,000

10. On 1 January 2016 The Pyongyang Company took out a loan of P26 million in order to finance the renovation of a
building. The renovation work started on the same date. The loan carried interest at 10%. Work on the building was
substantially complete on 31 October 2016. The loan was repaid on 31 December 2016 and P180,000 investment income
was earned in the period to 31 October on those parts of the loan not yet used for the renovation.
According to PAS23 Borrowing costs, what is the total amount of borrowing costs to be included in the cost of the
building?
a. 2,420,000
b. 1,986,667
c. 2,600,000
d. 2,166,667

11. ABC Company purchased a plot of land for P2,000,000 as a plant site. There was a small office building on the plot with
fair value of P700,000 which the entity will continue to use with some modification and renovation. The entity decided to
construct a factory building and incurred the following costs:
Materials and supplies 3,000,000
Excavation 100,000
Labor on construction 2,500,000
Cost remodeling the small office building 200,000
Legal cost of conveying land 10,000
Imputed interest on money used during construction  120,000
Cash discount on materials purchased 60,000
Supervision by management 70,000
Compensation insurance premium for workers 20,000
Clerical and other expenses related to construction  30,000
Paving of street and sidewalk 40,000
Plans and specifications 140,000
Payment for claim on injuries not covered by insurance 25,000
Legal cost of injury claim 15,000
Saving on construction 200,000

What is the initial cost of land?

a. 1,300,000
b. 1,310,000
c. 1,350,000
d. 1,410,000
12. ABC Company incurred the following costs in relation to a printing press:
Purchase of collating and stapling attachment 850,000
Installation of attachment 400,000
Replacement parts for overhaul of press 250,000
Labor and overhead in connection with overhaul 150,000

The overhaul did not result in a significant increase in production. Neither the attachment nor the overhaul increased the
estimated useful life of the press. What total amount of the costs should be capitalized?
a. 1,650,000
b. 1,350,000
c. 1,250,000
d. 0

13. Which of the following would be classified as investment property?

I Building held for sale in the ordinary course of business
II. Building held to earn rentals under operating leases.
III. Land held for capital appreciation.
IV. Land held for undetermined future use
V. Equipment held to earn rentals under operating leases.

a. II, III and IV

b. II, III, IV and V
c. I, II, III, IV and V
d. III, IV and V

14. XYZ Corp. acquired a fast food franchise for a P50,000 cash down payment and in addition gave a P150,00, one-year,
noninterest-bearing note payable. The implicit interest rate is 12 percent. XYZ also agreed to pay the franchiser P100,000
per year for the next 10 years for promotional campaigns, accounting, and related services by the franchiser. XYZ should
record the cost of the franchise as:
a. 183,935
b. 950,000
c. 1,183,935
d. 933,935

15. ABC Company purchased equipment on January 1, 2018 for P5,000,000. The equipment had a useful life of 5 years and
residual value of P600,000. The policy is to depreciate 5-year assets using the 200% double declining method for the first
2 years and then switch to straight line. What amount should be reported as accumulated depreciation on December 31,
2020?
a. 3,600,000
b. 3,800,000
c. 3,000,000
d. 3,920,000

16. ABC Company is installing a new equipment and incurred the following costs:
Cost of equipment per supplier invoice 2,500,000
Initial delivery and handling cost 200,000
Cost of site preparation 600,000
 Consultants used for advice on the acquisition of equipment 700,000
Interest charges paid to supplier for deferred credit 200,000
Est. dismantling cost to be incurred as required by contract 300,000
Operating losses before commercial production 400,000

What total amount should be capitalized as cost of the equipment?

a. 4,300,000
b. 4,000,000
c. 4,500,000
d. 4,200,000

17. ABC Company provided the following schedule of machinery:

  Total cost Residual value Useful life
Machine A 5,500,000 500,000 20
Machine B 2,000,000 200,000 15
Machine C 400,000   5

What is the composite life of these assets?

Select one:
a. 19.8
b. 16
c. 13.3
d. 18

18. Bren Inc. received a grant of P90 million to compensate it for costs it incurred in planting trees over a period of five years.
Bren Inc. will incur costs in this manner: Year 1 – P2 million; Year 2 – P4 million; Year 3 – P6 million; Year 4 – P8
million; Year 5 – P10 million. Based on the provisions of PAS 20, how much should be recognized as income from
government grant at the end of year 2?
a. 12 million
b. 4 million
c. 2 million
d. 60 million

19. The XYZ Company's accounting policy with respect to investment properties is to measure them at cost model at the end
of each reporting period. One of its investment properties has fair value of P800,000 on 31 December 2020.

The property had been acquired on 1 January 2020 for a total of P730,000, made up of P690,000 paid to the vendor,
P20,000 paid to the local authority as a property transfer tax and P20,000 paid to professional advisers. Useful life
is 10 years.

In accordance with PAS40 Investment property, the amount to be recognized in profit or loss in the year ended 31
December 2020 in respect of the investment property is
a. 40,000
b. 80,000
c. 70,000
d. 73,000

20. ABC Company incurred the following costs during the current year:
Quality control during commercial production, incl routine testing products P58,000
Laboratory research aimed at discovery of new knowledge 68,000
Testing for evaluation of new products 24,000
Modification of the formulation of a plastic product 26,000
Engineering follow-through in an early phase of commercial production 15,000
Adaptation of an existing capability to a particular requirement or
customer's need as a part of continuing commercial activity 13,000
 Trouble-shooting in connection with breakdowns during commercial production 9,000
Searching for applications of new research findings 19,000

What is the total amount ABC should report as research and development expense?
a. 213,000
b. 198,000
c. 137,000
d. 169,000

ANSWERS for Mock Qualifying Quiz 4 – PPE, Intangible Asset and Investment Property

1) B
2) D
3) A
4) A
5) C
6) D
7) D
8) A
9) A
10) B
11) B
12) C
13) A
14) A
15) A
16) A
17) B
18) A
19) D
20) C