CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING SEPT/OCT 2022
FINAL PREBOARD EXAMINATION BATCH 92

1. It is the body authorized by law to promulgate rules and regulations affecting the practice of the accountancy
profession in the Philippines.
a. Board of Accountancy
b. Philippine Institute of Certified Public Accountants
c. Securities and Exchange Commission
d. Financial Reporting Standards Council
2. The International Accounting Standards Board
a. Was the predecessor to the IASC
b. Can overrule the USA GAAP
c. Promotes the use of high quality and understandable global accounting standards
d. Has its headquarters in Geneva
3. IFRIC Interpretations issued by IASB
a. Are considered authoritative and must be followed
b. Cover newly identified financial reporting issues not specifically addressed
c. Cover issues with conflicting interpretations
d. All of the these are true about IFRIC Interpretations
4. Which statement is incorrect in relation to the practice of public accounting?
a. Single practitioners for the practice of public accounting shall be registered CPAs in the Philippines
b. Partners of partnership formed for the practice of public accounting shall be registered CPAs in the
Philippines
c. The SEC can register any corporation organized for the practice of public accounting
d. A certificate of accreditation shall be issued to CPAs who have acquired at least 3 years of public practice
5. Which is not a purpose of the Conceptual Framework?
a. To provide definitions of key terms and concepts
b. To provide specific guidelines for resolving situations not covered by existing accounting standards
c. To assist accountants in selecting among alternative accounting and reporting methods
d. To assist IASB in the standard-setting process
6. Derecognition normally occurs when
a. An item no longer meets the definition of an asset or liability
b. The entity loses control of the asset
c. The entity no longer has a present obligation for the liability
d. Under all of these circumstances
7. Which year-end adjusting entry should be reversed when prepayments are recorded in real accounts?
a. The adjusting entry to record depreciation
b. The adjusting entry to record the portion of service fees received in advance that is earned by year-end
c. The adjusting entry to record supplies used
d. The adjusting entry to record service fees earned by year-end but not billed
8. Technically, the caption “cash and cash equivalents” may not include
a. Foreign currency
b. Money order
c. Restricted cash
d. Undeposited customer check
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9. Aroma Company provided the following account balances and related information on December 31, 2022:

Cash 3,700,000
Accounts receivable 1,500,000
Allowance for doubtful accounts ( 200,000)
Inventory 2,000,000
Cash surrender value 300,000
Total current assets 7,300,000
Analysis of cash
Cash in bank 1,300,000
Bank overdraft in another bank ( 300,000)
Cash set aside for plant addition 2,000,000
Petty cash fund 50,000
Cash withheld from wages 150,000
General cash 500,000
Total cash 3,700,000
The accounts receivable included past due account in the amount of P100,000. The account is deemed
uncollectible and should be written off. The inventory included goods held on consignment amounting to
P150,000 and goods of P200,000 purchased and received on December 31, 2022. Neither of these items have
been recorded as a purchase. What total amount should be reported as current assets on December 31, 2022?
a. 5,150,000
b. 5,450,000
c. 5,250,000
d. 5,300,000

10. Zebra Company had two operating divisions, one manufacturing farm equipment and the other office supplies.
Both divisions are considered separate components. The farm equipment component had been unprofitable
and on September 1, 2022, the entity adopted a plan to sell the assets of the division. The actual sale was
effected on December 15, 2022 at a price of P1,500,000. The carrying amount of the division’s assets was
P2,500,000. The farm equipment division incurred before-tax operating loss of P750,000 from the beginning
of 2022 through December 15, 2022. The entity’s after-tax income from continuing operations is P4,500,000
for 2022 and the income tax rate is 25%. What amount should be reported as net income for 2022?
a. 2,750,000
b. 3,187,500
c. 3,150,000
d. 3,800,000

11. Brown Company reported net income of P7,500,000 for the year 2022. The following account balances are
provided for the year 2022:
January 1 December 31
Accounts receivable 1,200,000 1,600,000
Allowance for doubtful accounts 100,000 200,000
Prepaid rent expense 600,000 400,000
Accounts payable 900,000 1,400,000
Accrued expense 800,000 550,000
Equity investment at FVOCI 1,000,000 1,500,000
What amount should be reported as net cash flow provided by operating activities for the year 2022?
a. 8,250,000
b. 8,150,000
c. 7,150,000
d. 7,650,000
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12. The shareholder’s equity of Atlantic Company was affected by the following transactions during the current
year. At the beginning of the year, there are 200,000 ordinary shares outstanding.
February 1 Sold 42,000 ordinary shares in the market
April 1 Purchased 10,000 ordinary shares to be held in treasury
July 1 Sold 70,000 ordinary shares in the market
July 1 Issued P2,000,000, 5-year, 10% bonds at face amount. Each P1,000 bond is
convertible into 50 ordinary shares
October 1 A 10% bonus issue was declared and issued
December 31 Net income for the year was P8,778,000. The tax rate is 25%.
What amount should be reported as diluted earnings per share?
a. 26.81
b. 30.00
c. 25.47
d. 25.84
13. Mono Company showed the following information for the year 2022:
Income from continuing operations 1,882,500
Loss from discontinued operations ( 270,000)
Net income 1,612,500
Retained earnings – January 1 500,000
Dividends paid on preference shares ( 60,000)
Dividends paid on ordinary shares (350,000)
Retained earnings – December 31 1,702,500
On December 31, 2022, the entity had outstanding 140,000 ordinary shares and 10,000 preference shares with
P100 par value. On April 1, 2022 the entity issued 20,000 ordinary shares. What amount should be reported
as basic earnings per share?
a. 13.50
b. 11.50
c. 13.45
d. 11.52
14. Hazel Company had the following account balances on December 31, 2022:
Petty cash fund 100,000
Cash on hand 1,000,000
Cash in bank – current account 8,000,000
Cash in bank – payroll account 2,400,000
Cash in bank – sinking fund (bonds payable is due on December 31, 2023) 4,000,000
Cash in bank – for plant addition, expected to be disbursed in 2023 3,000,000
Money market placement 2,000,000
The petty cash fund included unreplenished December 2022 petty cash expense vouchers P10,000 and
employee IOU P10,000. The cash on hand included a P200,000 customer check payable to Hazel dated
January 15, 2023. In exchange for a guaranteed line of credit, the entity has agreed to maintain a minimum
balance of P400,000 in the unrestricted current bank account. What total amount should be reported as cash
and cash equivalents on December 31, 2022?
a. 17,280,000
b. 14,880,000
c. 15,280,000
d. 11,280,000
15. When an investor uses the equity method to account for investment in ordinary shares, cash dividends received
by the investor from the investee shall be recorded as
a. Dividend income
b. A deduction from investor’s share of the investee’s profit
c. A deduction from investment account
d. A deduction from shareholder’s equity
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16. Lazer Company provided the following information for October and November:
Checks and charges recorded by bank in November, including a November service 550,000
charge of P5,000 and NSF check of P20,000
Service charge made by bank in October and recorded by depositor in November 10,000
Total credits in cash in all journals during November 620,000
Customer NSF check returned in October and redeposited in November but no entry 40,000
made by depositor in either October nor November
Outstanding checks on October 31 that cleared in November 230,000
What amount was reported as outstanding checks on November 30?
a. 275,000
b. 300,000
c. 315,000
d. 290,000
17. Aura Company adopted the imprest system and established a petty cash fund balance of P50,000. At the end
of the current year, it was discovered that receipts evidencing expenses amounted to P35,000, employee IOU
P5,000 and currency P12,000. The fund was replenished at year-end. What entry should Aura make to
replenish the petty cash fund?
a. Debit expenses P35,000, receivable P5,000 and credit cash P40,000
b. Debit expenses P35,000, cash short or over P3,000 and credit cash P38,000
c. Debit expenses P35,000, receivable P5,000 and credit petty cash P38,000, cash short or over P2,000
d. Debit expenses P35,000, receivable P5,000 and credit cash P38,000, cash short or over P2,000
18. On December 31, 2022, Benquet Company appropriately reported a P200,000 unrealized loss. There was no
change during 2023 in the composition of the portfolio of nontrading equity securities held at fair value
through other comprehensive income. The portfolio has an acquisition cost of P7,400,000 and a fair value of
P6,600,000 on December 31, 2023. What amount of loss in other comprehensive income on these securities
should be included in the statement of comprehensive income for the year 2023?
a. 800,000
b. 600,000
c. 200,000
d. 0
19. On July 1, 2022, Gil Company purchased P1,000,000 face value 8% bonds for P910,000 plus accrued interest
to yield 10%. The bonds mature on January 1, 2027, pay interest annually on December 31 and are classified
as held for trading. On December 31, 2022, the bonds had a market value of P945,000. On March 31, 2023,
the entity sold the bonds for P920,000 excluding accrued interest. What amount of gain or loss on disposal of
trading investment should Gil report for the year 2023?
a. 80,000 loss
b. 25,000 loss
c. 25,000 gain
d. 10,000 gain
20. Marian Company provided the following information pertaining to accounts receivable at year-end:
Days outstanding Amount Probability of collection
0 - 60 1,200,000 95%
61 - 120 900,000 90%
Over 120 1,000,000 80%
During the current year, the entity wrote off P100,000 in accounts receivable and recovered P50,000 that had
been written off in prior years. At the beginning of the current year, the allowance for doubtful accounts was
P150,000. What is the net realizable value of the accounts receivable at year-end?
a. 2,950,000
b. 2,900,000
c. 2,600,000
d. 2,750,000
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21. Camia Company factored without recourse P6,000,000 of accounts receivable with a bank. The finance charge
is 3% and 5% was retained to cover sales discounts, sales returns and sales allowances. What amount of cash
was received on the sale of accounts receivable?
a. 5,820,000
b. 5,700,000
c. 5,520,000
d. 6,000,000
22. Tekken Company purchased P5,000,000 of 8%, 5-year bonds on January 1, 2022 with interest payable on
June 30 and December 31. The bonds were purchased for P5,208,000 at an effective rate of 7%. The business
model for this investment is to collect contractual cash flows. The cash flows are composed of interest and
principal. What is the carrying amount of the bonds on December 31, 2022?
a. 5,000,000
b. 5,208,000
c. 5,171,940
d. 5,172,560
23. During the year 2022, Ginger Company engaged in the following transactions:
Key management personnel compensation 4,000,000
Sales to affiliated entities 6,000,000
What total amount should be included as related party disclosures in Ginger Company’s separate financial
statements for the year 2022?
a. 10,000,000
b. 6,000,000
c. 4,000,000
d. 0
24. Harris Company provided the following inventory data on December 31, 2022:
Cost Net realizable value
Skis 1,100,000 1,250,000
Boots 850,000 750,000
Ski equipment 350,000 400,000
Ski apparel 200,000 250,000
What amount should be reported as inventory on December 31, 2022?
a. 2,500,000
b. 2,650,000
c. 2,400,000
d. 2,600,000
25. In December 2022, Regatta Company had a significant portion of inventory stolen. The entity determined the
cost of inventory not stolen to be P1,000,000.
2022 2021
Purchases 52,000,000 50,000,000
Purchase returns and allowances 2,400,000 2,000,000
Sales 78,800,000 82,000,000
Sales returns and allowances 800,000 2,000,000
Beginning inventory 12,000,000 20,000,000
What amount should be reported as cost of the stolen inventory?
a. 7,000,000
b. 6,000,000
c. 6,440,000
d. 1,440,000
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26. Fox Company made the following expenditures during the current year:
Continuing and frequent repairs 800,000
Repainted the factory building 200,000
Major improvements to the electrical wiring system 600,000
Partial replacement of roof tiles 280,000
What amount should be charged to repair and maintenance expense?
a. 1,920,000
b. 1,640,000
c. 1,280,000
d. 1,080,000
27. On January 1, 2017, Miller Company acquired a building at a cost of P7,600,000 with an estimated useful life
of 40 years. Annual depreciation was computed on the straight line method. The building was renovated on
January 1, 2019 at a cost of P760,000. This was considered as an improvement. On January 1, 2022, the entity
decided to change the total life of the building to 30 years. What amount of depreciation should be reported
for the year 2022?
a. 292,400
b. 266,000
c. 334,400
d. 294,000
28. On January 1, 2022, Elite Company purchased equipment with a cost of P10,000,000, useful life of 5 years
and no residual value. The entity used the straight-line method of depreciation. On December 31, 2022 and
December 31, 2023, the entity determined that impairment indicators are present.
December 31, 2022 December 31, 2023
Fair value less cost of disposal 7,200,000 5,700,000
Value in use 6,500,000 5,500,000
What amount should be recognized as gain on reversal of impairment for 2023?
a. 300,000
b. 100,000
c. 600,000
d. 200,000
29. On January 1, 2022, Nam Company acquired property consisting of ten identical freehold detached houses
each with separate legal title including the land on which it is built for P100,000,000, 20% of which is
attributable to the land. The units have a useful life of 50 years. The following costs were also incurred on
such date:
Nonrefundable transfer taxes not included in the purchase price 10,000,000
Legal cost directly attributable to the acquisition 500,000
Reimbursement to the previous owner for prepaying nonrefundable property 50,000
taxes for the six-month period ending June 30, 2022
Advertising campaign 250,000
Cost of opening function to celebrate new rental business 100,000
On June 30, 2022, the entity paid local property taxes of P100,000 for the year ending June 30, 2023.
Throughout 2022, the entity incurred repairs and maintenance cost of P60,000. The entity used one of the ten
units to accommodate the administration and maintenance staff. The other nine units were rented out to
independent parties under operating leases. The entity elected to use the fair value model to account for
investment property and on December 31, 2022, the fair value of each unit was P12,500,000. What amount
should be reported as gain from change in fair value of the investment property for 2022?
a. 25,550,000
b. 13,500,000
c. 22,500,000
d. 13,050,000
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30. Paradise Company, a real estate entity, had a building with a carrying amount of P40,000,000 on December
31, 2022. The building was used as offices of the entity’s administrative staff. On December 31, 2022, the
entity intended to rent out the building to independent third parties. The staff will be moved to a new building
purchased early in 2022. On December 31, 2022, the original building had a fair value of P70,000,000. The
accounting policy is to carry investment property at fair value. What amount should be recognized as
revaluation surplus as a result of the reclassification to investment property on December 31, 2022?
a. 40,000,000
b. 70,000,000
c. 30,000,000
d. 0
31. The cost of the land typically includes all, except
a. Grading, filling, draining and clearing cost
b. Special assessment for drainage system
c. Private driveway and parking lot
d. Assumption of any lien on the property
32. Royalty Company developed a trademark to distinguish its products from those of the competitors:
Marketing research to study consumer tastes 400,000
Design cost of trademark 1,500,000
Legal fee of registering trademark 150,000
Advertising to establish recognition of trademark 200,000
Registration fee with Intellectual Property Office 50,000
What amount should be capitalized as cost of the trademark?
a. 1,700,000
b. 1,900,000
c. 2,300,000
d. 2,100,000
33. On December 31, 2022, Sabangan Company showed the following intangible assets:
Trademark 3,000,000
Patent 1,500,000
The trademark has 8 years remaining in the legal life. However, it is anticipated that the trademark will be
routinely renewed in the future. The trademark is expected to generate cash flows of P100,000 per year. The
patent has a remaining useful life of five years and expected to generate cash flows of P250,000 per year. The
appropriate discount rate is 10% and the present value of an ordinary annuity of 1 at 10% for five periods is
3.79. What total amount of impairment loss on the intangible assets should be recognized for 2022?
a. 552,500
b. 2,552,500
c. 2,000,000
d. 0
34. On January 1, 2017, Wine Company planted trees on its land. The entity purchased the land in 2015 at a cost
of P1,500,000. The trees were considered bearer plants and had accumulated cost of P750,000 on December
31, 2021. By January 1, 2022, the trees matured and were expected to bear produce for a period of 5 years.
On December 31, 2022, the trees produced fruits with fair value less cost of disposal on such date at P75,000.
There was no harvest during 2022. What is the carrying amount of the biological asset on December 31, 2022?
a. 825,000
b. 675,000
c. 75,000
d. 0
35. On December 31, 2022, Beanery Company harvested coffee beans with a fair value less cost of disposal of
P7,000,000 at the point of harvest. Because of long aging maturation process, the harvested coffee beans were
still on hand on December 31, 2023. On such date, the fair value less cost of disposal is P7,800,000 and the
net realizable value is P6,400,000. What amount should be reported as inventory on December 31, 2023?
a. 7,100,000
b. 7,000,000
c. 6,400,000
d. 7,800,000
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36. On April 1, 2022, Brandy Company had a machine with a cost of P5,000,000 and was 75% depreciated on
such date. On April 1, 2022 the entity classified the machine as held for sale and decided to sell the asset
within one year. On April 1, 2022, the fair value was P500,000, and disposal cost was P50,000. On December
31, 2022, the fair value had increased to P750,000 with disposal cost of P100,000. What amount of gain on
reversal of impairment should be recognized on December 31, 2022?
a. 468,750
b. 368,750
c. 300,000
d. 200,000
37. Interest revenue earned on specific borrowing for qualifying asset
a. Reduces the cost if the qualifying asset
b. Reduces interest expense reported in the income statement
c. Increases equity
d. Must be credited to interest income.
38. Bonds payable not designated at fair value through profit or loss shall be measured initially at
a. Fair value
b. Fair value plus bond issue cost
c. Fair value minus bond issue cost
d. Face amount
39. Under international accounting standard, the valuation method used for bonds payable is
a. Historical cost
b. Discounted cash flow valuation at current yield rate
c. Maturity amount
d. Discounted cash flow valuation at yield rate at issuance
40. On January 1, 2022, Masbate Company issued P5,000,000, 8% serial bonds, to be repaid in the amount of
P1,000,000 every December 31, starting December 31, 2022. Interest is payable annually on December 31
and the bonds were sold to yield 10%. The bond proceeds were P4,757,000 and the entity used the effective
interest method of amortization. What is the carrying amount of the bonds payable on December 31, 2022?
a. 4,832,700
b. 3,832,700
c. 4,805,600
d. 3,805,600
41. Due to extreme financial difficulties, Mene Company had negotiated a restructuring of a 10% P5,000,000
note payable due on December 31, 2022. The unpaid interest on the note on such date was P500,000. The
creditor agreed to reduce the face amount to P4,000,000, forgive the unpaid interest, reduce the interest rate
to 8% and extend the due date three years from December 31, 2022. Mene paid P200,000 to the creditor as
arrangement fee. The prevailing market rate of interest for similar notes is 9%. Below are the PV factors:
10% 9%
Present value of 1 for three periods 0.75 0.77
Present value of an ordinary annuity of 1 for three periods 2.49 2.53
What amount of gain on extinguishment or modification should Mene report for 2022?
a. 1,703,200
b. 1,503,200
c. 1,610,400
d. 1,410,400
42. The nonredemption of gift certificates is called
a. Breakage
b. Forfeiture
c. Rebate
d. Waiver
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43. Giga Company did not record an accrual for a present obligation but disclose the nature of the obligation and
the range of the loss. How likely is the loss?
a. Remote
b. Reasonably possible
c. Probable
d. Certain

44. Jamaica Company operates a customer loyalty program. The entity grants program members loyalty points
when they spend a specified amount on purchases. Program members can redeem the points for further
transactions and the points have no expiry date. During 2022, the customer earned 60,000 points. Management
expects that 100% of these points will be redeemed. The stand-alone selling price of each point is P25. Sales
during 2022 amounted to P8,500,000 based on stand-alone selling price. On December 31, 2022, 28,800
points have been redeemed in exchange for purchases. In 2023, management revised expectations and now
expects 90% of the points to be redeemed. In 2023, the entity redeemed 9,000 points. What amount should be
reported as revenue earned from the loyalty points for 2023?
a. 280,500
b. 892,500
c. 212,500
d. 0
45. Bold Company started business in 2022. It sells computers with a three-year warranty. The entity estimated
its warranty cost as a percentage of peso sales. Based on past experience, it is estimated that 3% will be
repaired during the first year of warranty, 5% will be repaired during the second year of warranty and 10%
will be repaired in the third year. In 2022 and 2023, the entity reported sales of P10,000,000 and P20,000,000
respectively. The entity incurred actual repair cost of P400,000 and P2,000,000 in 2022 and 2023 respectively.
Sales and repairs occur evenly throughout the period. What is the adjusted warranty liability on December 31,
2023 after testing its adequacy?
a. 3,000,000
b. 4,150,000
c. 4,275,000
d. 3,150,000

46. If shares are issued for noncash consideration, the shares issued shall be measured by
a. Fair value of the shares
b. Par value of the shares
c. Fair value of the noncash consideration
d. Carrying amount of the noncash consideration
47. Which is not a component of other comprehensive income?
a. Remeasurement of defined benefit plan
b. Treasury shares at cost
c. Foreign currency translation adjustment
d. Revaluation surplus

48. At the beginning of the current year, Newton Company was organized with an authorization of 1,200,000
ordinary shares with a par value of P6 per share. During the current year, the entity issued 675,000 shares at
P10 per share, purchased 90,000 treasury shares at P11 per share and sold the 90,000 shares held in treasury
at P18 per share. What total amount of share premium should the entity report at year-end?
a. 3,330,000
b. 2,070,000
c. 2,700,000
d. 0
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49. On January 1, 2022, Hanako Company issued 50,000 shares of P10 par value for P100 per share. During 2022,
the entity reacquired 2,000 shares at P150 per share and immediately canceled these 2,000 shares. What
amount of share premium should be reported after the retirement of the shares on December 31, 2022?
a. 4,500,000
b. 4,320,000
c. 4,220,000
d. 4,200,000
50. Honda Company reported the following balances at the beginning of the year:
12% preference share capital – 5,000 shares 500,000
Ordinary share capital – 50,000 shares 2,500,000
Share premium - preference 200,000
Share premium - ordinary 500,000
Retained earnings 2,000,000
The following transactions occurred during the current year in chronological order:
• Issued 20,000 ordinary shares at P50 per share
• Retired 1,000 preference shares at P180 per share
• Purchased 5,000 treasury ordinary shares at P60 per share
• 2-for-1 share split – ordinary shares
• Reissued 3,000 treasury ordinary shares at P40 per share
• Net income for the current year was P1,500,000.
• Declared and paid cash dividend at 12% for preference shares and at P5 per ordinary share
• Appropriated retained earnings equal to the cost of treasury shares
What amount of total shareholder’s equity should Honda report at year-end?
a. 7,037,000
b. 7,227,000
c. 7,127,000
d. 7,142,000
51. At the beginning of the year, Albay Company reported retained earnings amounting to P4,500,000. During
the current year, the entity sold 20,000 ordinary shares at par value of P100 per share. Late in the current year,
it was learned that due to a mathematical error, an overstatement of depreciation expense by P500,000 had
occurred in the prior year. The entity also changed its inventory valuation method, resulting in a cumulative
increase in income of P2,000,000. The entity declared and paid cash dividend of P3,000,000 and reported net
income of P5,000,000 at year-end. The income tax rate is 25%. What amount of retained earnings should be
reported at year-end?
a. 8,375,000
b. 7,625,000
c. 8,875,000
d. 8,750,000
52. Grey Company declared and distributed a 10% share dividend with fair value of P1,500,000 and par value of
P1,000,000, and 25% share dividend with fair value of P4,000,000 and par value of P3,500,000. What total
amount should be debited to retained earnings for the share dividends?
a. 4,500,000
b. 3,500,000
c. 5,000,000
d. 5,500,000
53. On November 1, 2022, Lauretta Company declared a property dividend of equipment payable on March 1,
2023. The carrying amount of the equipment is P6,000,000 and the fair value is P5,000,000 on November 1,
2022. The fair values of the equipment on December 31, 2022 and March 1, 2023 were P4,400,000 and
P4,000,000 respectively. What amount of loss on distribution should be recognized on March 1, 2023?
a. 600,000
b. 400,000
c. 1,000,000
d. 0
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54. Hoyt Company had sustained heavy losses over a period of time and conditions warrant that the entity
should undergo a quasi-reorganization at year-end.

• Inventory is currently recorded at cost of P6,500,000. The market value is P6,000,000.

• Property, plant and equipment were recorded at P12,000,000, net of accumulated depreciation. The
fair value was P8,000,000.
• The par value of the share is to be reduced from P10 to P5.
• Before the quasi-reorganization, the share capital is P7,000,000 consisting of 700,000 shares, the
share premium is P2,300,000 and the deficit in retained earnings is P900,000.
Immediately after the quasi-reorganization, what amount should be reported as total shareholder’s equity?
a. 3,300,000
b. 3,500,000
c. 3,700,000
d. 3,900,000

55. Dix Company reported the following shareholder’s equity at year-end:

Cumulative preference share capital – 12%, P50 par, 20,000 shares 1,000,000
Ordinary share capital, P25 par, 100,000 shares 2,500,000
Share premium 200,000
Retained earnings - unappropriated 400,000
Retained earnings - appropriated 100,000
Revaluation surplus 300,000
Dividends on preference shares have not been paid for three years. The preference share has a liquidating
value of P55 and a call price of P68. What is the book value per preference share?
a. 61.00
b. 73.00
c. 76.00
d. 64.00

56. On January 1, 2022, Nova Company initiated a performance-based employee share option plan. The
performance base for the plan is net sales in 2024. The plan provided for share options to be awarded to the
employees as a group on the following basis:
Level Net sales range Options granted
1 Less than P2,500,000 10,000
2 P2,500,000 – P4,999,999 20,000
3 P5,000,000 – P10,000,000 30,000
4 More than P10,000,000 40,000
The options were exercisable on January 1, 2025 and all options were exercised on December 31, 2025. The
option exercise price is P200 per share and the par value is P100 per share. On January 1, 2022, each option
had a fair value of P90. Sales for 2022, 2023 and 2024 were P4,500,000, P5,500,000 and P7,000,000
respectively. What amount of compensation expense should be recognized for 2024?
a. 1,200,000
b. 1,800,000
c. 600,000
d. 900,000

57. The right of use asset is reported as

a. Noncurrent, as a separate line item

b. Property, plant and equipment
c. Investment property
d. Intangible asset
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58. At the beginning of the current year, Pamana Company leased a building from a lessor with the following
information:
Annual rental payable at the end of each year 2,000,000
Initial direct cost paid 800,000
Lease incentive received 200,000
Leasehold improvements 400,000
Purchase option that is reasonably certain to be exercised 1,000,000
Lease term 5 years
Useful life of building 8 years
Implicit interest rate 10%
PV of an ordinary annuity of 1 for 5 periods at 10% 3.79
PV of 1 for 5 periods at 10% 0.62
What amount should be recognized initially as cost of the right of use asset?
a. 9,000,000
b. 8,800,000
c. 9,400,000
d. 9,200,000
59. Marianas Company is a dealer in machinery. At the beginning of the current year, a machinery was leased to
another entity with the following provisions:
Annual rental payable at the end of each year 4,500,000
Lease term and useful life of the machinery 5 years
Cost of the machinery 12,000,000
Unguaranteed residual value 1,500,000
Implicit rate in the lease 12%
PV of an ordinary annuity for 5 periods at 12% 3.60
PV of 1 for 5 periods at 12% 0.57
At the end of the five-year lease term, the asset will revert back to the entity. The entity incurred initial direct
cost of P450,000 in finalizing the lease agreement. What is the gross profit on the sale?
a. 11,550,000
b. 4,605,000
c. 3,750,000
d. 5,055,000
60. At the beginning of current year, Adora Company sold a machine and immediately leased it back. The
following data pertain to the sale and leaseback transaction:
Sale price 40,000,000
Fair value of the machine 45,000,000
Carrying amount of the machine 36.000,000
Annual rental payable at the end of each year 5,000,000
Lease term 3 years
Remaining life of the machine 10 years
Implicit interest rate 6%
PV of an ordinary annuity of 1 at 6% for 5 periods 2.67
What amount should be reported as gain on right transferred to the buyer-lessor?
a. 9,000,000
b. 7,200,000
c. 5,330,000
d. 5,000,000
61. For segment reporting purposes, which test must be applied to determine if a component is a reportable
segment?
a. Revenue test and asset test
b. Revenue test, asset test and profit or loss test
c. Revenue test, asset test and expense test
d. Revenue test, asset test and cash flow test
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62. Viking Company reported the following partial income statement after the first year of operations:
Income before tax 3,780,000
Income tax expense
Current 1,035,000
Deferred ( 90,000) 945,000
Net income 2,835,000
The entity recognizes bad debt expense when doubtful for financial reporting purposes and deductible only
when written off for tax purposes. The amount charged to bad debt expense per book was P1,200,000. No
other differences existed between book income and taxable income except for bad debts. The income tax rate
is 25%. What amount was deducted for bad debts in the tax return for the current year?
a. 1,560,000
b. 1,200,000
c. 840,000
d. 750,000

63. Lakeshore Company located business in two jurisdictions, Singapore and Malaysia. In both countries, the
entity had the legal right to offset taxes receivable and taxes payable. The following information relate to
deferred tax assets and liabilities:
Classification Amount Taxing jurisdiction
Deferred tax asset 1,600,000 Singapore
Deferred tax liability 600,000 Malaysia
Deferred tax liability 1,200,000 Singapore
How should Lakeshore present deferred tax asset and deferred tax liability at year-end?
a. Deferred tax asset of P1,600,000 and deferred tax liability of P1,800,000
b. No deferred tax asset and deferred tax liability of P2,000,000
c. Deferred tax asset of P400,000 and deferred tax liability of P1,200,000
d. Deferred tax asset of P400,000 and deferred tax liability of P600,000

64. At the beginning of the current year, Jasco Company reported the fair value of plan assets at P12,000,000 and
projected benefit obligation at P16,000,000. During the year, the entity made a lump sum payment to certain
plan participants in exchange for their rights to receive specified postemployment benefits. The lump sum
payment was P1,600,000 and the present value of the defined benefit obligation settled was P2,000,000. In
addition, the following data are gathered during the current year:
Current service cost 1,800,000
Actual return on plan assets 1,600,000
Contribution to the plan 1,400,000
Discount rate 12%
What amount should be reported as employee benefit expense?
a. 2,280,000
b. 3,720,000
c. 1,800,000
d. 1,880,000

65. Everest Company experienced a P800,000 decline in the market value of inventory at the end of the first
quarter. The entity had expected this decline to reverse in the second quarter and in fact, the second quarter
recovery exceeded the previous decline by P100,000. What amount of gain on reversal of market value decline
should the entity report in the second quarter?
a. 800,000
b. 900,000
c. 100,000
d. 0
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66. All are basic financial instruments of an SME, except

a. Cash
b. Accounts receivable
c. A passive interest in nonputtable ordinary shares of another entity
d. An interest in nonputtable ordinary shares where the investee is classified as an associate of the entity
67. A small entity shall apply which accounting policy for property, plant and equipment?
a. Cost model
b. Fair value model
c. Either cost model or fair value model
d. Either cost model or revaluation model
68. At the beginning of the year, an SME acquired 30% of the ordinary shares of an investee for P5,000,000 plus
transaction cost of P200,000. The SME used the cost model to account for the investment in associate. There
is no published price quotation for the investment in associate. The investee recognized a net loss of
P2,000,000 for the current year and paid dividends of P500,000 during the year. The fair value of the
investment is P4,000,000 at year-end and the cost of disposal is estimated at P100,000. What amount should
be reported as impairment loss for the current year?
a. 1,300,000
b. 1,100,000
c. 1,200,000
d. 0
69. An SME provided the following assets on December 31, 2022:
Cash on hand 500,000
Cash in bank 2,000,000
Accounts receivable 1,500,000
Notes receivable 1,000,000
Loan receivable from employee – fixed term 100,000
Loan receivable from associate – on demand 1,800,000
Investment in nonputtable ordinary shares 400,000
Investment in convertible preference shares 600,000
Investment in bonds 1,200,000
Investment in associate 1,400,000
Inventory 1,300,000
Property, plant and equipment 4,000,000
Intangible assets 700,000
Deferred tax asset 300,000
What total amount should be reported as basic financial assets?
a. 7,300,000
b. 9,100,000
c. 8,500,000
d. 9,900,000
70. An SME sold goods with a list price of P2,000,000 to a customer on normal credit terms of 30 days interest-
free credit. Ten days after the sale, the customer paid the entity P1,380,000 in full settlement of a debt that
arose from the sale of the goods. The amount received from the customer included P100,000 value added tax
collected by the entity on behalf of the national government. The settlement is net of P400,000 trade discount,
P200,000 volume rebate and P20,000 prompt settlement discount. What amount should be reported as sales
revenue?
a. 1,600,000
b. 1,280,000
c. 1,400,000
d. 1,380,000

END