FAR-SUMMER-MAJOR

1. What is the relationship between present value and liability?

a. Present value is used to measure certain liabilities.
b. Present value is not used to measure liabilities.
c. Present value is used to measure all liabilities
d. Present value is used to measure current liabilities.
2. When shares are issued for property, the best evidence of fair value may be any of the following,
except
a. The price of the shares quoted on the stock exchange
b. The fair value of the property received
c. The average book value of the outstanding shares
d. The selling price of the shares in a recent transaction

3. On January 1, 2023 Ganda Company was incorporated with the following authorized
capitalization:
Ordinary share capital, no par, P100 stated value 20,000,000
Preference share capital, 10%, P50 par 10,000,000

During 2023, the entity issued 150,000 ordinary shares at P120 per share and 50,000
preference shares at P60 per share. On December 20, 2023, subscriptions for 20,000
preference shares were received at P100 per share. The subscribed shares are to be paid
for on January 20, 2024. Net income for the year 2023 is P5,000,000.
What amount of total shareholder’s equity should Ganda report on December 31, 2023?

a. 28,000,000
b. 23,000,000
c. 26,000,000
d. 21,000,000
4. Which is correct regarding lease capitalization criteria?
a) The lease transfers ownership to the lessor
b) The lease contains a purchase option.
c) The lease term is equal to at least 75% of the economic life of the underlying assets.
d) The lease payments are 90% of fair value of asset.
5. When an entity amends a pension plan, past service cost should be
a) Treated as a prior period adjustment because no future periods are benefited.
b) Amortized over the remaining service period of employees
c) Recorder in other comprehensive income.
d) Reported as an expense in the period the plan is amended
6. On December 31, 2023, Amabie Company cancelled 10,000 shares of P25 par value held in
treasury at an average cost of P130 per share. Before recording the cancellation of the treasury
shares, the entity had the following balances:
Share capital 1,250,000
Share premium – original issue 250,000
Share premium – treasury shares 150,000
Retained earnings 1,800,000
Treasury shares 1,300,000

Which of the following is true?

a. Due to the retirement of treasury shares, total equity is reduced by P1,300,000.
b. Due to the retirement of treasury shares, total equity is increased by P1,300,000.
 c. Retained earnings of P850,000 is debited.
d. Share premium – original issue of P250,000 is debited

7.On January 1, 2016, when the market rate for bond interest was 12%, Victor Corporation issued
P10 million face amount of bonds with interest to be paid semi annually at a 10% annual rate. The
bonds mature on December 31, 2025 and were issued at P1 145 000.
How much is the discount should be amortized by the effective interest method at July 1, 2016?
a) 11 450
b) 31 300
c) 50 000
d) 57 250
8. On January 1, 2023, GEM Company entered into a ten-year lease agreement with another
entity for industrial equipment. Annual lease payments of P1,000,000 are payable every
December 31 of each year. The lessor expected a 10% return on the lease, which is the implicit
rate in the lease. The equipment is expected to have an estimated useful life of 12 years. The
contract contains a purchase option that is reasonably certain to be exercised. The exercise price
of the purchase option is P500,000. The present value of an ordinary annuity of 1 at 10% for 10
periods is 6.14 and the present value of 1 at 10% for 10 periods is 0.39. What amount should be
reported as lease liability on December 31, 2023?

a. 6,335,000
b. 6,140,000
c. 5,754,000
d. 5,968,500

9. Maltitos Corporation’s liability account balances at June 30, 2022 included a 10% note payable
in the amount of P1 800 000. The note is dated October 1, 2021 and is payable in three equal
annual payments of P600 000 plus interest.

In Maltitos’ June 30, 2022 statement of financial position, what amount should be reported as
accrued interest payable for this note?
a) 30 000
b) 45 000
c) 90 000
d) 135 000

10. Reporting is required for

a) All loss contingencies
b) Loss contingencies that are possible and can be reliably measured.
c) Loss contingencies that are probable and can be reliably measured
d) Gain contingencies that are probable and can be reliably measured.

11. An entity leased property for a period of 10 years. Lease payment dates coincide with the end
of the reporting period. How is the lease liability presented in the statement of financial position
at the end of the second year?
a. Partly current liability, partly noncurrent liability
b. Entirely current liability
c. Entirely noncurrent liability
d. Entirely noncurrent asset
12. Equity – settled share-based payment transactions of a small entity are measured at
a. Net asset value
b. Fair value
c. Liquidation value
d. Assessed value
13. On January 2, 2023, GGSS Corp. (lessee) entered into a 5- year lease for drilling equipment.
GGSS recognized a lease liability of P240 000 at the commencement date. This amount includes
the P10 000 exercise price of a purchase option. At the end of the lease, GGSS expects to
exercise the purchase option. GGSS estimates that the equipment’s fair value will be P20 000 at
the end of its 8-year life. GGSS regularly uses straight-line depreciation on similar equipment.
For the year ended December 31, 2023, what amount should GGSS recognize as depreciation
expense on the leased asset?
a) 48 000
b) 46 000
c) 30 000
d) 27 500
14. Net investment in a direct financing lease is equal to
a) Cost of the asset
b) Cost of the asset plus initial direct cost paid by the lessor
c) Cost of the asset minus guaranteed residual value
d) Cost of the asset plus unguaranteed residual value
15. 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
On January 2, 2020, Power Company provides for a lump sum benefit payable upon termination
of service that is equal to 10% of final salary for each year of service. The salary in 2020 is P400
000 and is assumed to increase at 5% compounded each year. The discount rate to be used is
10% per annum.
Power Company believes that the employee will not leave the company before the expected
retirement date of December 31, 2023. Also, Power Company believes that there are no changes
in actuarial assumptions in future years.
16. What is the amount of current services cost Power Company should include in its pension
expense in year 2022?
a) 34 789
b) 38 268
c) 42 095
d) 46 305
17. What is the present value of the defined benefit obligation as of December 31, 2022?
a) 34 789
b) 76 536
c) 126 285
d) 185 220
18. Assume that in 2022, the salary of the employee was increased to P460 000 and its estimated
salary in 2023 is P480 000. What is the amount of remeasurement gain or loss as of 2022 on the
benefit obligation due to change in estimate?
a) None
b) 2 805
c) 4 620
d) 6 780
19. 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

20. As to the lessor, as residual value is guaranteed if it is:

I. Guaranteed by the lessee
II. Guaranteed by a related party to the lessee
III. Guaranteed by a party unrelated to the lessee and lessor
a) I only
b) I and II
c) II only
d) I II and III
21. Statement I: Repayment of government grants are accounted for currently and prospectively.
Statement II: A forgivable loan is not a government grants since it does not result to a flow of
economic benefit
a) True, false
b) False, true
c) False, false
d) True, true
22. Which of the following is only disclosed in accordance with PAS 20?
a) Government grant in relation to bearer plants
b) Government grant in relation to bearer animals
c) Infrastructure as an improvement of general transportation
d) None from the choices
23. Hagrid 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
24. Manghulaka Company granted share options to employees with a fair value of P3,000,000.
The options vest in three years. The Monte Carlo model was used to value the options. On
January 1, 2022, which is the date of grant, the estimate of employees leaving the entity during
the vesting period is 5%. On December 31, 2023, the estimate of employees leaving before
vesting date is revised to 6%.
On December 31, 2024, only 5% of the employees actually left the entity and on such date a total
of 50,000 shares were issued as a result of the exercise of share options. The shares have a
P100 par value and option price of P130.
How much is the compensation expense for the year 2024?
a) P500,000
b) P950,000
c) P930,000
d) P970,000
25. The “if converted” method of computing earning per share assumes conversion of convertible
securities as of the
a) Middle of the earliest period reported regardless of the time issuance
b) Beginning of the earliest period reported or a time of issuance, if later.
c) Beginning of the earliest period reported regardless of time of issuance
d) Ending of the earliest period reported regardless of the time of issuance.
26. 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
27. When computing diluted EPS for a company with a complex capital structure, what is the
denominator in the computation?
a) Number of common shares outstanding at year-end
b) Weighted average number of common shares outstanding
c) Weighted average number of common shares outstanding plus all other potentially
antidilutive securities.
d) Weighted average number of common shares outstanding plus all other potentially dilutive
securities.
28. Dr. Cha 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
29. On January 2023, Bibokid Company had 56 000 ordinary shares outstanding that did not
change during 2023 and 2022. The company granted options to certain executives to purchase 9
000 shares of its ordinary shares at P70 each. The average market price of ordinary share was
P105 per share during 2023.
What is the total number of shares to be used in computing diluted earnings per share for 2023?
a) 56 000
b) 59 000
c) 62 000
d) 65 000
30. Arte Company, a grocery retailer, grants 100 000 points for customers who purchase goods
totaling P10 000 000 for the month of January 2023. The management estimates that each point
can be redeemed of P1.25 equivalent groceries. However, Arte Company expects that only 80
000 points to be redeemed.
From the proceeds of P10 000 000 and the grant of points, what amount should Arte Company
immediately recognize as a revenue from sale?
a) None
b) 9 800 000
 c) 9 900 000
d) 10 000 000
31. At the beginning of current year, Meemaw 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
Governance, Inc. has a bonus plan covering all employees. The total bonus is equal to 10% of
Governance’s preliminary (pre-bonus, pretax) income reduced by the income tax (computed on
the preliminary income less the bonus itself). Governance’s preliminary income for 2023 is P1 000
000 and the income tax rate is 32%.
32. How much is the bonus for 2023?
a) 61 200
b) 68 000
c) 70 248
d) 100 000
33. What amount should Governance Company recognize as a distribution of profit related to their
bonus plan in 2023?
a) None
b) 68 000
c) 70 248
d) 100 000
34. Which of the following is a noncurrent liability?
a) Income tax payable
b) Estimated warranty liability
c) One-year magazine subscription received in advance
d) Unearned interest income related to noninterest-bearing long-term note receivable

35. Dr. Roy 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:

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
Turtle Company is experiencing financial difficulty and is negotiating trouble debt restructuring
with its creditors to relieve its financial stress. Turtle has a P5 000 000 note payable to Metrobank.
The bank is considering acceptance of an equity interest in Turtle Company in the form of 400
000 ordinary shares with a fair value of P12 per share. The par value of the ordinary share is P10
per share.
36. If the issue of equity is treated as a conversion of an existing debt, what is the amount of gain
to be reported to be reported by Turtle in its profit or loss statement as a result of the restructuring?
a) None
b) 200 000
c) 500 000
d) 1 000 000
37. If the issue of equity is treated as an extinguishment of an existing debt instrument, what
amount of gain or loss should Turtle Company report in its profit or loss statement as a result of
the restructuring?
a) None
b) 200 000
c) 500 000
d) 1 000 000
38. Which of the following does not meet the definition of a liability?
a) An obligation that is estimated in amount
b) A note payable with no specified maturity date
c) An obligation to provide goods or services in the future
d) The signing of a three-year employment contract at a fixed annual salary
39. Harry Potter Company reported the following partial income statement after the first year of
operations:

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

40. At the beginning of the current year, McGonagall 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:
 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
41. On May 1, 2023, Jet Company issued P2 000 000, 5-year, 10% bonds for P2 300 000. Each
P1 000 bonds had two detachable warrant eligible for the purchase of one share of Jet’s P100
par ordinary share for P120. Without the warrants the bonds are selling at a prevailing 9% rate of
interest.
The present value factors are the following:
PV of 9% for an ordinary annuity of P1 after 5 periods 3.89
PV of 9% after 5 interest periods .65

What amount should Jet Company recognize as value of the equity instrument?
a) 78 000
b) 222 000
c) 230 000
d) 300 000

42. Which of the following is not considered a characteristic of a liability?

a) Present obligation
b) Arises from past event
c) Results in an outflow of resources
d) Liquidation is reasonably expected to require use of current assets

43. A lessee decreased the carrying amount of a right-of-use asset and recognized a gain in profit
or loss. This is the accounting for which type of lease modification?
a. A lease modification accounted for as a separate lease.
b. A lease modification that decreased the scope of the lease and accounted for as a
separate lease.
c. A lease modification that decreased the scope of the lease and not accounted for as a
separate lease.
d. A lease modification that increased the scope of the lease and not accounted for as a
separate lease.

• The following information relates to the defined benefit pension plan of the Weasley Corp.
for the year ended Dec. 31, 2022:

• At the beginning of year 1, Granger Corp. grants 100 share options to each of its 200
employees. Each grant is conditional upon the employee remaining in service over the next
three years. The entity estimates that the fair value of each option is P21. On the basis of a
 weighted average probability, the entity estimates that 60 employees will leave during the
three-year period and therefore forfeit their rights to the share options.
Suppose that 15 employees leave during year 1. Also suppose that by the end of year 1,
the entity’s share price has dropped, and the entity reprices its share options, and that the
repriced share options vest at the end of year 3. The entity estimates that a further 35
employees will leave during years 2 and 3. During year 2, a further 10 employees leave,
and the entity estimates that a further 10 employees will leave during year 3. During year 3,
a total of 8 employees leave.
The entity estimates that, at the date of repricing, the fair value of each of the original share
options granted (ie before taking into account the repricing) is P10 and that the fair value of
each repriced share option is P13.

• In 2023, before the Entity P’s 2022 financial statements were approved for issue, a class
action lawsuit was filed against the entity. The lawsuit seeks compensation for a community
experiencing health problems allegedly caused by pollution from the entity’s plant. Legal
counsel advised management that there is a 30 per cent chance that the action will be
successful. If successful, the court is likely to award the community compensation of
between P1,000,000 and P2,000,000.

• The accounting profit before tax for the year ended Dec. 31, 2022 for Dumbledore Corp.
amounted to P18,500 and included:

Additional information
a) The entity can claim a deduction of P15,000 (15%) for depreciation on equipment, but
the motor vehicle is fully depreciated for tax purposes.
 b) The equipment sold during the year had been purchased for P30,000 two years before
the date of sale.
c) The entity is subject to 30% tax rate.
44. The prepaid/accrued benefit expense of Weasley Corp. at Dec. 31, 2022 is
a. P2,100,000 c. P1,300,000
b. P2,210,000 d. P1,410,000

45. The amount to be recognized as expense by Granger corp. in year 3 is

a. P400,800 c. P150,750
b. P136,800 d. P145,050

46. In its financial statements for the year ended Dec. 31, 2022, the Entity P should recognize
a liability for the lawsuit of
a. P2,000,000 c. P1,000,000
b. P1,500,000 d. Nil

47. Dumbledore Corp.’s current tax expense for 2022 is

a. P6,030 c. P7,500
b. P6,930 d. P8,040

48. Dumbledore Corp.’s deferred tax expense (benefit) for 2022 is

a. P6,570 c. P(2,430)
b. P(3,270) d. P(1,080)
49. What is the interest rate written on the face of the bond?
a) Coupon rate
b) Nominal rate
c) Stated rate
d) Coupon rate, nominal rate or stated rate

50. Which statement is incorrect concerning a contingent liability?

a) A contingent liability is not recognized.
b) A contingent liability is disclosed only.
c) No disclosure is required for remote contingent liability.
d) A contingent liability is both probable and measurable.