[CONCEPTUAL FRAMEWORK SCORE:

CODE: AC109 ANDACCOUNTING STANDARD]

Name: _____________________________________________ Date: _____________

MIDTERM EXAMINATION
Part I: Theory (1 pt. each)
Instructions: Write your answer of choice on a separate sheet of paper. Avoid any erasures.

1. Technically, offsetting in financial statements is accomplished when

a. The allowance for doubtful accounts is deducted from accounts receivable
b. The accumulated depreciation is deducted from property, plant and equipment
c. The total liabilities are deducted from total assets.
d. Gain or loss from disposal of noncurrent asset is reported by deducting
from the proceeds the carrying amount of the asset and the related
disposal cost.
2. Which statement in relation to financial statement is incorrect?
a. General purpose financial statements do not and cannot provide all the
information that primary users need
b. General purpose financial statement are designed to show the value of the
reporting entity
c. General purpose financial statements are intended to provide common
information to users
d. Financial statements are largely based on estimate and judgement rather than
exact depiction
3. When the classification of items in the financial statements is changed, the entity
a. Must not reclassify the comparative amounts
b. Can choose whether or not to reclassify
c. Must reclassify the comparative amounts unless it is impracticable to do so
d. Must reclassify the current year amounts only.
4. Current and noncurrent presentation of assets and liabilities provides useful information
when the entity
a. Supplies goods or services within a clearly identifiable operating cycle
b. Is a financial institution
c. Is a public utility
d. Is a non-profit organization
5. In presenting a statement of financial position, an entity
a. Must make the current and noncurrent presentation
b. Must present assets and liabilities in order of liquidity
c. Must choose either the current and noncurrent or liquidity presentation
d. Must make the current and noncurrent presentation except when a
presentation based on liquidity provides information that is reliable and
more relevant
6. A financial liability due within twelve months after the reporting period shall be classified
a noncurrent

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a. When it is refinanced on a long-term basis before the issue of financial

statements
b. When the entity has no right to refinance for at least twelve months
c. When it is refinanced on a long term basis after the end of the reporting period
d. When it is refinanced on a long term basis on or before the end of the
reporting period.
7. The minimum disclosures about related party transaction include all of the following,
except
a. The amount of the transaction
b. Amount of outstanding balance
c. Allowance for doubtful accounts related to the outstanding balance
d. Nature of the relationship
8. An entity entered into a related party transaction would be required to disclose all,
except
a. Nature of the relationship between parties
b. Nature of any future transactions planned between the parties and the
terms involved
c. Peso amount of the transaction
d. Amount due from or to related parties
9. Which is not a required related party disclosure?
a. The son of the chief executive officer of the entity
b. The parent of the entity
c. An entity that has a common director with the entity
d. Join venture in which the entity is a venture
10. Financial statements shall include disclosure of material transactions between related
parties, except
a. Nonmonetary exchange by affiliates
b. Sales of inventory by a subsidiary to the parent when consolidated
financial statements are prepared
c. Expense allowance for executives which exceed normal business practice
d. An entity’s agreement to act as surety for a loan to the chief executive officer
11. Which event after the reporting period would require adjustment?
a. Loss of plant as a result of fire
b. Change in the market price of investment
c. Loss on inventory resulting from flood loss
d. Loss on a lawsuit the outcome of which was deemed uncertain at year-end
12. Which event after the end of reporting period would generally require disclosure?
a. Retirement of key management personnel
b. Settlement of litigation when the event that gave rise to the litigation occurred in a
prior period
c. Strike of employees
d. Issue a large amount of ordinary share
13. Non-adjusting events include all except

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a. A major business combination after reporting period

b. Announcing a plan to discontinue an operation
c. Expropriation of major asset after reporting period
d. Destruction of a major production plant by a fire before the end of the
reporting period
14. At the end of the reporting period, and entity carried a receivable from major customer
who declared bankruptcy after the end of the reporting period and before the issuance of
financial statements. What should be reported at the current year-end?
a. Disclose the fact that the customer has declared bankruptcy
b. Make a provision for the event after reporting period in the financial
statements
c. Ignore the event and wait for the outcome of the bankruptcy
d. Reverse the sale pertaining to the receivable in the comparative statement for
the prior period
15. Earnings
a. Include certain gains excluded from comprehensive income
b. Are the same as comprehensive income
c. Exclude certain gains and losses included in comprehensive income
d. Include certain gains and losses excluded from comprehensive income
16. Amount reclassified to profit or loss or retained earnings in the current period but were
recognized OCI in the current or previous periods are known as
a. Correcting entries
b. Prior period adjustments
c. Unusual and irregular items
d. Reclassification adjustments
17. Change in equity from nonowner sources is
a. Comprehensive income
b. Revenue
c. Expense
d. Gain or loss
18. Which of the following is not acceptable option of reporting other comprehensive
income?
a. In a separate statement of comprehensive income
b. In a single statement of comprehensive income
c. In the notes to financial statements
d. In a statement of changes in equity
19. Why is reclassification adjustment used when reporting other comprehensive income?
a. To reclassify an item of comprehensive income as another item of
comprehensive income’
b. To avoid double counting of items
c. To make net income equal comprehensive income
d. To adjust the income tax effect of OCI
20. Unusual and infrequent gain and loss should b reported

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a. Below income from continuing operations

b. As an extraordinary item
c. Line item within income from continuing operations
d. Component of other comprehensive income
21. Capitalization of borrowing cost
a. Shall be suspended during period of temporary delay
b. May be suspended only during extended period of delay in which active
development is delayed
c. Shall never be suspended
d. Shall be suspended only during extended period of delay in which active
development is delayed
22. If the qualifying asset is financed b specific borrowing, the capitalizable borrowing cost is
equal to
a. Actual borrowing cost incurred
b. Actual borrowing cost incurred up to completion of asset
c. Actual borrowing cost incurred up to completion of asset minus any
investment income from the temporary investment of the borrowing
d. Zero
23. Which of the following assets could be treated as qualifying asset for the purpose of
capitalizing borrowing costs?
a. Investment property
b. Investment in financial instrument
c. Inventory that is manufactured or produced in large quantity on a repetitive basis
and takes a substantial period of time to get ready for use or sale
d. Biological asset
24. When computing the amount of interest cost to be capitalized, the concept of avoidable
interest refers to
a. The total interest cost actually incurred
b. A cost of capital
c. The portion of total interest cost which would not have been incurred if
expenditures for asset construction had not been made
d. That portion of average accumulated expenditures on which no interest cost was
incurred
25. Which of the following cost may not be eligible for capitalization of borrowing cost
a. Interest on bonds issued to finance the construction of a qualifying asset
b. Amortization of discount or premium relating to borrowings that qualify for
capitalization
c. Imputed cost of equity
d. Exchange difference arising from foreign currency borrowing regarded as an
adjustment to interest cost pertaining to qualifying asset
26. Government grant shall be recognized when there is a reasonable assurance that
a. The entity will comply with the conditions of the grant
b. The grant will be received

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c. The entity will comply with the conditions of the grant and the grant will be
received
d. The grant must have been received
27. In the case of grant related to income, which of the following accounting treatment is
prescribed?
a. Credit the grant to equity
b. Present the grant in the income statement as other income or as a separate
line item, or deduct it from the related expense
c. Credit the grant to retained earnings
d. Credit the grant to sales revenue
28. The deferred grant income is classified as
a. Separate component of shareholder’s equity
b. Noncurrent liability
c. Other income
d. Partly current and partly noncurrent liability
29. Repayment of grant related to income shall be
a. Recognized as component of other comprehensive income
b. Charged to retained earnings
c. Expensed immediately
d. Applied first against the deferred income and any excess shall be
recognized immediately
30. Which disclosure is not required about government grant?
a. The accounting policy adopted for government grant
b. Unfulfilled condition and other contingency attaching to government assistance
c. The name of the government agency that gave the grant
d. The nature and extent of government grant recognized

Part II: Problem Computation ( 2 pts. each)

Instructions: Write your answer of choice on a separate sheet of paper. Avoid any erasures.

Ram Company provided the following information at the end of the current year

Finished goods in storeroom, at cost, including overhead

of P400,000 or 20% 2,000,000
Finished goods in transit, including freight charge
of P20,000 FOB Shipping point 250,000
Finished goods held by salesmen, at selling price,
cost, P100,000 140,000
Goods in process, at cost of materials and direct labor 720,000
Materials 1,000,000
Materials in transit, FOB destination 50,000
Defective materials returned to suppliers 100,000
Shipping supplies 20,000
Gasoline and oil for testing finished goods 110,000

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Machine lubricants 60,000

1. What amount should be reported as inventory?

a. 4,000,000
b. 4,170,000
c. 4,270,000
d. 4,090,000

Bakun Company began operations late in 2020. For the first quarter ended March 31,
2021, the entity provided the following information:

Total merchandise purchased through March 31, 2021 (recorded at net) 4,900,000
Merchandise inventory on January 01, 2021, at selling price 1,500,000

All merchandise was acquired on credit and no payments have been made since the
inception of the entity.

All merchandise is marked to sell at 50% above invoice cost before time discounts of
2/10, n/30. No sales were made in 2021.

2. What amount of cash is required to eliminate the current balance in accounts

payable?
a. 6,000,000
b. 5,900,000
c. 6,400,000
d. 5,750,000

3. Reverend company conducted a physical count on December 31, 2021 which showed
inventory with a total cost of P5,000,0000

However, further investigation revealed that the following items were excluded from the
count:
 Goods sold to a customer which are being held for the customer to call at the
customer’s convenience with a cost of P200,000
 A packing case containing a product costing P500,000 standing in the shipping
room was not included in the physical count because it was marked “hold fro
shipping instructions”.
 Goods in process costing P300,000 held by an outside processor for further
processing
 A special machine costing P250,000, fabricated to order for customer, was
finished and specifically segregated at the back part of the shipping room on
December 31, 2021

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The customer was billed on that date and the machine was excluded from inventory
although it was shipped on January 2, 2022.

3. What amount should be reported as inventory on December 31, 2021?

a. 6,000,000
b. 6,250,000
c. 6,050,000
d. 5,800,000

Yola company and Zaro Company are fuel oil distributors. To facilitate the delivery of oil
to their customers, Yola and Zaro exchanged ownership of 1,200 barrels of oil without
physically moving the oil. Yola paid Zaro P300,000 to compensate for a difference in the
grade of the oil. It is reliably determined that the exchange lacks commerce substance.
On the date of exchange, cost and fair value of the oil of Yola Company were
P1,000,000 and P1,200,000, respectively.

4. What amount should Yola Company record as cost of oil inventory received in
exchange?
a. 1,000,000
b. 1,200,000
c. 1,300,000
d. 1,500,000

Betz Company exchanged a delivery truck costing P1,000,000 for a parcel of land. The
truck had a carrying amount of P650,000 and a fair value P500,000. The entity gave
P600,000 in cash in addition to the truck as part of this transaction.

It is expected that the cash flows from the asset will be significantly different. The
previous owner of the land had listed the land for sale at P1,200,000

5. At what amount should Bertz record the land?

a. 1,100,000
b. 1,250,000
c. 1,150,000
d. 1,200,000

Precious Company had the following property acquisitions during the current year:

 Acquired a tract of land in exchange for 50,000 shares of Precious Company with
P100 par value that had a market price of P120 per share on the date of
acquisition. The last property tax bill indicated assessed value of P2,400,000 for
the land

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 Received land from a major stockholder as an inducement to locate a plant in the

city. No payment was required but the entity paid P50,000 for legal expenses for
land transfer. The land was fairly valued at P1,200,000

6. What total amount should be recognized as increase in land as a result of the

acquisition?
a. 7,200,000
b. 6,000,000
c. 7,050,000
d. 6,100,000

At the beginning of current year, Exuberant Company received a consolidated grant of

P1,200,000. Three-fourths of the grant will be utilized to purchase a college building fro
students and underdeveloped countries.
The balance of the grant is for subsidizing the tuition costs of those students for four
years from the date of grant.
The building was purchased in early January and is to be depreciated using the straight
line method over 10 years. The tuition costs paid amounted to P600,000 during the
current year.

7. What amount of grant income should be recognized for the current year?
a. 1,200,000
b. 3,000,000
c. 1,650,000
d. 1,050,000

On January 01, 2021, Easy company received a grant of P1,500,000 from the
government to subsidize tuition fees for a period of 5 years.
On January 01, 2023, the entity violated certain conditions attached to the grant, and
therefore had to repay fully such grant to the government

8. What amount should be reported as grant income for 2021?

a. 1,500,000
b. 600,000
c. 300,000
d. 0
9. What amount should be recognized as a loss resulting from the repayment of the
grant in 2023?
a. 1,500,000
b. 900,000
c. 600,000
d. 0

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During 2021, Elysee Company constructed a new facility at a cost of P30,000,000.

The expenditures for the building, which was finished late in 2021, we incurred evenly
during the year.

The entity had the following loans outstanding on December 31, 2021
 10% Note to finance specifically the construction, dated January 1, 2021,
P10,000,000. This note is unpaid on December 31, 2021

Investments were made on the proceeds from this loan and income of P100,000
was realized in 2021

 12% 20-year bonds issued at face amount on April 30, 2020 P30,000,000
 8% 5-year note payable, dated March 01, 2020, P10,000,000

10. What amount of interest should be capitalized as cost of the new building?
a. 1,550,000
b. 1,450,000
c. 1,400,000
d. 1,500,000

“PERSEVERANCE IS THE HARD WORK YOU DO AFTER YOU GET TIRED OF DOING THE
HARD WORK YOU ALREADY DID.” – NEWT GINGRICH

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