FINANCIAL

ACCOUNTING
AND
REPORTING
(FAR, CFAS, IA 1)

QUALIFYING EXAM REVIEW

INTERMEDIATE
ACCOUNTING 1
PAS 38

INTANGIBLE
ASSETS
PAS 38 NATURE

ABOUT ME
PAS 38
PAS 38 MEASUREMENTS:
 PAS 38

SEPARATE ACQUISITION

CAPITALIZABLE COSTS (DIP):

Purchase Price
Import Duties & Non refundable purchase taxes
Directly attributable costs of preparing the asset for the intended use
Employee Benefits
Professional Fees
Cost of Testing whether the asset is functioning properly.
 PAS 38

CASE 1: SEPARATE ACQUISITION

Royal Company purchased a trademark and incurred the following costs:

Purchase price 1,000,000

Nonrefundable value added tax 50,000
Training of personnel on the use of new trademark 70,000
Legal cost incurred to register a trademark 105,000
Research expenditures associated with the purchase of
the new trademark 240,000
Administrative salaries 120,000

What amount should be capitalized as cost of Trademark?

A. 1,000,000 B.1,155,000 C. 1,465,000 D. 1,585,000
 PAS 38

CASE 1: SEPARATE ACQUISITION

Purchase Price 1,000,000
Legal Cost incurred to register the trademark 105,000
Nonrefunfable value added tax 50,000
Total cost of Trademark 1,155,000

* RESERCH EXPENDITURES ARE

EXPENSES UNLESS IT HAS AN
ALTERNATIVE USE.
INTERNALLY GENERATED
CAPITALIZABLE COSTS:

Directly attributable costs:

Materials and services
Employee benefits
Fees to register a legal right
Amortization of patents and licenses used to generate the
Intangible assets.
 PAS 38

CASE 2: INTERNALLY GENERATED

Golden Company developed a new machine for manufacturing baseballs.
Because the machine is considered very valuable, the entity had it patented.

The following expenditures were incurred in developing and patenting the machine:
Special equipment used solely for development 500,000
Research salaries and fringe benefits for engineers 200,000
Cost of testing the prototypes 250,000
Legal cost for filing of patent 150,000
Fees paid to government patent office 50,000
Drawings required with patent application 40,000

What amount should be capitalized as cost of patent?

A. 240,000 B.540,000 C. 740,000 D. 200,000
 PAS 38

CASE 2: INTERNALLY GENERATED

Legal Cost for filing the of patent 150,000

Fees paid to patent office 50,000
Drawings required by patent office 40,000
Total cost of patent 240,000
PAS 38
 PAS 38

CASE 3: DEFINITE LIFE

On January 1, 2006, HELLO Enterprises, Inc. developed a new machine that reduces the time
required to insert the fortunes into their fortune cookies. Because the process is considered
valuable to the fortune cookie industry, HELLO had a machine patented. The following expenses
were incurred in developing and patenting the machine:

Research and development laboratory expenses 250,000

Metal used in construction of the machine 80,000
Blueprint expenses to design the machine 32,000
Legal expense to obtain patent 120,000
Wages and employees work on reserach, development, and building
of the machine; 60% of the time was spent in actual building of the machine 150,000
Expense of drawing required by the patent office to be submitted with
the patent application 17,000
Fees paid to Government patent office to process application 24,500
 PAS 38

CASE 3: DEFINITE LIFE

On January 2, 2007, HELLO Enterprises, Inc. paid P35,200 in legal fees to

successfully defend the patent against an infringement suit by GOOD BYE Company.

What is the carrying value of the patent in December 31, 2007?

A. 142,500 B. 145,350 C. 175,500 D. 178,697
 PAS 38

CASE 3: DEFINITE LIFE

Legal expenses to obtain patent 120,000
Expense of drawing required by Patent Office to be
submitted with patent application 17,000
Fees paid to process patent application 24,500
Total Cost of the Patent 161,500

Legal life of patent= 20 Years *litigation costs

(161,500/ 20 years x 2) 16,150 SUCCESSFUL- EXPENSE
UNSUCCESSFUL- WRITE OFF AS
Cost of Patent 161,500 LOSS
Less: Accumulated Amortization 16,150 - merely maintains the future
Carrying amount of the Patent 145,350 benefits of IA
 PAS 38

GOODWILL
Purchase price of RYUJIN COMPANY, an existing business, is 300,000. ITZY agreed to pay
350,000 for the net asset of business because the latter believes that the business has a
good reputation and will be profitable for the next 5 years.

What amount of goodwill shall be reported by ITZY from the date of

acquisition?
A. 300,000 B. 250,000 C. 75,000 D. 50,000
PAS 38

GOODWILL

PURCHASE PRICE 350,000

LESS: NET ASSETS 300,000
GOODWILL 50,000
 PAS 38

GOODWILL
Purchase price of RYUJIN COMPANY, an existing business, is 300,. ITZY agreed to pay
250,000 for the net asset of business because the latter believes that the business has a
good reputation and will be profitable for the next 5 years.

What amount of goodwill shall be reported by ITZY from the date of

acquisition?
A. (300,000) B. (250,000) C.(75,000) D. (50,000)
PAS 38

GOODWILL

PURCHASE PRICE 250,000

LESS: NET ASSETS 300,000
NEGATIVE GOODWILL (50,000)
 PAS 38

GOODWILL
At the year end, HER Company reported assets of P 5,000,000 and liabilities of P2,000,000.
The Carrying amounts of the assets approximate fair value, except for land of P300,000
greater than the carrying amount. on same date, High company paid P 6,000,000 to acquire
HER company.

What amount of goodwill should be recorded by the acquirer as a result of

purchase?
A. 1,000,000 B. 3,300,000 C.2,700,000 D. 3,000,000
 PAS 38

GOODWILL
NET ASSETS AT CARRYING AMOUNT (5,000,000-2,000,000) 3,000,000
EXCESS FAIR VALUE OF LAND 300,000
NET ASSETS AT FAIR VALUE 3,300,000

ACQUISITION COSTS 6,000,000

NET ASSETS AT FAIR VALUE 3,300,000
GOODWILL 2,700,000
PAS 40

INVESTMENT
PROPERTY
PAS 40 NATURE
PAS 40 MEASUREMENTS:
PAS 40

CAPITALIZABLE COSTS:
Purchase Price
Directly attributable costs (PLPT)
Professional fees
Legal Services
Property Transfer Taxes
Transaction costs
 PAS 40

CASE 1: COST MODEL

Air Company acquired the building on January 1, 2023 for P9,000,000. At that date, the
building had a useful life of 30 years.

On December 31, 2023, the fair value of the building was P 9,600,000 and on December
31, 2024, the fair value was 9,900,000. Further, on December 31, 2025, the property was
sold for a net proceeds of P 8,500,000. The building was classified as an investment
property and accounted for under the Cost model.

1. What is the carrying amount of the investment property on December 31, 2024?
A.8,400,000 B. 9,000,000 C. 9,900,000 D. 9,570,00
2. What amount of gain or loss should be recognized for 2025 regarding the disposal
of the property?
A. 100,000 B. 300,000 C. 400,000 D., 500,000
PAS 40

1. Cost-January 1, 2023 9,000,000

Accumulated Depreciation (9,000,000/30 x 2 years) (600,000)
Carrying Amount- December 31, 2024 8,400,000

2 .Cost-January 1, 2023 9,000,000

Accumulated Depreciation (9,000,000/30 x 3 years) (900,000)
Carrying Amount- December 31, 2025 8,100,000

Sale Price 8,500,000

Carrying amount- December 31,2025 8,100,000
Gain on Disposal of property 400,000
 PAS 40

CASE 2: FAIR VALUE MODEL

Paradise Company's accounting policy with respect to investment property is to measure
the property at fair value at the end of each reporting period. One investment property was
measured at P 8,000,000 on December 31, 2023. The property had been acquired on
January 1, 2023 for a total of P 7,600,000, made up of P6,900,000 paid to the vendor, P
300,000 paid to the local authority as a proper transfer tax and P400,000 paid to
professional advisers. The useful life of the property is 40 years.

What amount should be recognized as gain from change in fair value in respect of the
investment property for 2023?
1. 400,000 B. 700,000 C. 800,000 D. 590,000
PAS 40

CASE 2: FAIR VALUE MODEL

Fair Value 8,000,000

Less: Acquisition Cost (7,600,000)
Gain from Change in Fair Value 400,000
PAS 16

PROPERTY, PLANT
AND EQUIPMENT
PAS 16 NATURE
PAS 40 MEASUREMENTS:
PAS 40

Capitalizable Costs:
Purchase Price (Import duties+Nonrefundale taxes- Trade
discounts and rebates)
Directly attributable costs (TIPSIE):
Testing whether the asset is functioning
properly
Initial Delivery and handling costs
Professional fees
Site Preparation
Installation and assembly costs
Employee Benefits
Estimated dismantling and removing the asset/restoration
of the site.
PAS 16

CASE 1: CASH BASIS

GRACIOUS Co. acquired two items of equipment .
Acquired a press at an invoice price of P 5,000,000 subject to a 5% cash
discount which was taken. Costs of freight and insurance during
shipment were P 50,000 and installation costs amounted to
P200,000.The cost of testing the equipment is P50,000 while the
administration costs is amounted to P 30,000.
Acquired a welding machine at an invoice price of P3,000,000 subject to
a 10% cash discount which was not taken . Additional welding supplies
were acquired at a cost of P 100,000.

What is the total increase in the equipment account as a result of the

transactions?
A. 7,750,000 B. 7,760,000 C. 7,800,000 D. 8,000,000
PAS 16

CASE 1: CASH BASIS

Cash price (5,000,000 x 95%) 4,750,000

Freight and Insurance 50,000
Installation costs 200,000
Cost of testing 50,000
Total costs of Press 5,050,000
Cash Price (3,000,000 x 90%) 2,700,000
Total Increase 7,750,000
PAS 16

CASE 2: INSTALLMENT: CASH PRICE AVAILABLE

AIAH Company purchased a new machine on a deferred payment basis. A down payment of
P100,000 was made and a 4 monthly installments of P 250,000 are to be made at the end
of each month.

The cash equivalent price of the machine was P950,000. The entity incurred and paid installation
costs amounting to P30,000.

1. What amount should be capitalized as the cost of the machine?

A. 950,000 B. 980,000 C. 1,100,000 D. 1,130,000
PAS 16

CASE 2: INSTALLMENT: CASH PRICE AVAILABLE

1. Cash Price 950,000

Installation costs 30,000
Total Cost 980,000
PAS 16

CASE 3: INSTALLMENT: NO CASH PRICE AVAILABLE

On December 31, 2023, Belinda Company purcahsed a machine in exchange for a non interest
bearing note requiring eight payments of P200,000.

The first payment was made on December 31,2023 and the others are due annually on
December 31. At the date of issuance, the prevailing rate of interest for this type of note was
11%.

PV of Ordinary annuity of 1 at 11% for 8 periods 5.146

PV of Ordinary annuity of 1 in advance at 11% for 8 periods 5.712

1. What amount should be recorded as initial cost of the machine?

A. 1,600,000 B. 1,029,200 C. 1,400,000 D. 1,142,400

2. What amount should be reported as interest expense for 2024?

A. 125,664 B. 103,664 C. 113,212 D. 176,000
PAS 16

CASE 3: INSTALLMENT: NO CASH PRICE AVAILABLE

1. Present value of future payments (200,000 x 5.712) 1,142,400

2. Present value 1,142,4000

Less: First Payment on December 31,2023 (200,000)
Present value of the remaining payments 942,400

Interest expense for 2024 (11% x 942,400) 103,664

PAS 16

CASE 4: ISSUANCE OF SHARE CAPITAL

A piece of land was acquired by issuing 20,000 shares with par value of P50. At the time of
acquisition, the fair value of the land is P1,600,000 and the share is quoted at P90 per share.

1. What amount should be recorded as initial cost of the land?

A. 1,600,000 B. 1,029,200 C. 1,400,000 D. 1,142,400

2. Assuming that the fair value of the land is not determinable, what is the initial cost of the
building?
A. 0 B. 1,800,000 C. 1,000,000 D. 1,600,000
PAS 16

CASE 4: ISSUANCE OF SHARE CAPITAL

1. Fair value of the land is given in the problem which is at P 1,600,000. It is the first
consideration in determining the initial cost of the building.

2. Shares issued 20,000

Quoted Price per share 90
Initial cost of the land 1,800,000

*Order of priority :
1. FV of the asset received
2. FV of the share capital
3. PAR value or the stated value of the share capital
PAS 16

CASE 5: ISSUANCE OF BONDS PAYABLE

On January 1, 2019, PASADO Co. acquired building with a fair value of P950,000, by issuing a 3
year , 10% , P1,000,000 bonds. Principal is due on January 1, 2022 but interest is due at each
year end. The prevailing market rate of interest for similar instrument on January 1, 2019 is 12%
.The present value of the future cash flows from bond discount at 12% is P 951,963.

1. What amount should be recorded as initial cost of the Building?

A. 1,000,000 B. 951,963 C. 950,000 D. 900,000

2. Assuming that the fair value of the building and bonds is not determinable, what is the
initial cost of the building?
A. 1,000,000 B. 951,963 C. 950,000 D. 900,000
PAS 16

CASE 5: ISSUANCE OF BONDS PAYABLE

1. Fair value of the bonds payable is given in the problem which is at P 951,963. It is the first
consideration in determining the initial cost of the building.

2. If both FV of bonds payable and building is not determinable, the face amount shall be used
as a initial cost. Thus, 950,000 is the intial cost of the building.

*Order of priority :
1. FV of the Bonds payable
2. FV of the asset received
3. Face amount of the bonds payable
 PAS 16

CASE 6: TRADE IN

At the beginning of the current year, Hallmark Company traded in an old machine having a
carrying amount of P 1,700,000 and paid a cash difefrence of P 600,000 for a new machine with
a cash price of P 2,050,000.

1. What amount should be recorded as cost of the machine acquired in exchange?

A. 1,680,000 B. 2,050,000 C. 1,450,000 D. 1,080,000

2. What amount of loss should be recognized on the exchange?

A. 600,000 B. 250,000 C. 350,000 D. 0
PAS 16

CASE 6: TRADE IN

1. Cash Price 2,050,000

2. Carrying Amount 1,700,000

Cash Payment 600,000
Total 2,300,000
Cash price (2,050,000)
Loss on exchange 250,000
PAS 2

INVENTORIES
PAS 2 NATURE
PAS 2 NATURE

*SHIPPING POINT
- Seller's place represent the
place wher transfer of
ownership occurs.
-Recognized as delivered and
recognized as sales.

*DESTINATION
- Buyer's place represent the
place where transfer of
ownership occurs.
-recognize only as delivered
when buyer received the
merchandise.
PAS 2 MEASUREMENTS:
PAS 2

At year end, Kier company purchased goods costing P500,000 FOB

destination. These goods were received at year-end. The costs incurred in
connection with the sale nd delivery of the goods were:

Packaging for shipment 10,000

Shipping 15,000
Special Handling changes 25,000

What total cost should be included in the inventory?

A. 545,000 B.535,000 C.520,000 D.500,000
PAS 2

Inventory 500,000

*When goods are purchased FOB Destination, the seller is responsible

for costs incurred in transporting the goods to the buyer.
PAS 2

A physical count of merchandise on hand was made by SUMMER Company, On December

30 and 31, 2023, which reflected a balance of 3,873,000. Your review of inventory list
disclosed the following:
Goods costing P 148,000 shipped FOB Shipping point on December 30,2023, by a
supplier to Summer Company was received on January 3, 2024. The purchase was
recorded on December 30, 2023.
Goods costing 195,000 shipped FOB destination by the supplier on December 28 2023,
were recorded and received on January 5, 2024.
Goods purchased in cash for P41,700 were returned to the supplier on December
22,2023. These goods were still included in the inventory schedule and the refund was
received and recorded on January 10,2024.
Goods consigned to Summer company totaling P89,500 were included in the physical
count.

What is the adjusted inventory on December 31,2023?

A. 3,979,300 B. 3,854,200 C. 3,889,800 D.4,084,800
PAS 2

Inventory per count P 3,873,000

Goods in transit, purchased FOB Shiping point 148,000
Goods returned to supplier (41,700)
Goods received on consignment (89,500)
Adjusted inventory 3,889,800
PAS 2

Daylight Company counted and reported the ending inventory on

December 31, 2023 at P 2,000,000.
None of the following items were included when the total amount of
the ending inventory was computed:

Goods located in the entity's warehouse that are on consignment

from another entity. 150,000
Goods sold by the netity and shipped FOB Destination were in
transit on December 31, 2023 and received by customer on January 200,000
2, 2024.
Goods purchased by the entity shipped FOB Seller were in transit on
December 31,2023 and received by the entity on January 2, 2024. 300,000
Goods sold by the entity and shipped FOB Shipping point were in
transit on December 31,2023 and received by the customer on 400,000
January 2, 2024.

What amount should be reported as inventory on December 31,2023?

A. 2,500,000 B.2,350,000 C.2,900,000 D. 2,750,000
PAS 2

Reported Inventory 2,000,000

Goods sold in transit, FOB shipping point 200,000
Goods purchased in transit, FOB seller 300,000
Inventory- December 31,2023 2,500,000

*The term FOB seller is the same as FOB Shipping point.

PAS 2

Mine Company sells a new product. During a move to a new location, the
inventory records for the product were misplaced. The entity has been able to
gather some information from the purchases and sales records. The July
purchases are as follows:
QUANTITY UNIT COST TOTAL COST
July 5 10,000 65 650,000
10 12,000 70 840,000
15 15,000 60 900,000
25 14,000 55 770,000
PAS 2
On July 31, 17,000 units were on hand. The sales for July amount to P6,000,000, or 60,000 units at P100 per unit. Gross
profit on sales for July was P2,400,000. The entity has always used a periodic FIFO inventory costing system.

1. What amount should be reported as cost of the inventory on July 31?

A. 3,600,000
B. 1,670,000
C. 770,000
D. 950,000

2. What amount was reported as cost of inventory on July 1?

A. 1,390,000
B. 2,400,000
C. 950,000
D. 760,000

3. What is the number of units available for sale on July 1?

A. 34,000
B. 26,000
C. 10,000
D. 9,000
TRADE AND OTHER
RECEIVABLES
NATURE

RECEIVABLE An entity's right to consideration that is unconditional.

Receivables arising from sale of goods and other services in

TRADE RECEIVABLES
the ordinary course of business.

Receivables arising from sources other than from sale of

NON TRADE RECEIVABLES
goods or services in the normal course of the business.

Open accounts not supported by formal promises to pay in

ACCOUNTS RECEIVABLES the form of promissory note, which represents the claims of
the company in exchange of goods/services.

Open accounts supported by formal promises to pay in the

NOTES RECEIVABLES form of promissory note, which represents the claims of the
company in exchange of goods/services.

Receivables arising from loans extended by financial

LOANS
institutions.
NATURE
MEASUREMENTS:
 ACCOUNTS RECEIVABLE

Seven company provided the following information during the first year
operations:
Total merchandise purchases for the year 7,000,000
Merchandise inventory on December 31 1,400,000
Collections from customers 4,000,000

All merchandise was marked to sell at 40% above cost. All sales are on
credit basis and all receivables are collectible.

What amount should be reported as accounts receivable on December

31?
A. 1,000,000 B. 3,840,000 C. 5,000,000 D. 5,800,000
 ACCOUNTS RECEIVABLE

Purchases 7,000,000
Inventory (1,400,000)
Cost of Goods sold 5,600,000
Markup on cost (40% x 5,600,000) 2,240,000
Sales (140% x 5,600,000) 7,840,000
Collections from customers (4,000,000)
Account receivable-December 31 3,840,000

Sales ratio- (100% + 40%) =140%

 ACCOUNTS RECEIVABLE
BINI Company reported the following transactions for the year ended:

Credit sales,2/10, 1/20, n/60 P5,000,000

Cash Sales 800,000
Accounts proved to be worthless 50,000
Promissory notes received as payment of accounts 300,000
Sales allowance allowed on credit sales 60,000
Refunds made to cash/paid customers 100,000
Sales return from credit sales 80,000
Cash received from customers paying within 10 days 2,450,000
Cash received from customers paying beyond 10 days 1,485,000
but within 20 days
Cash received from customers paying beyond 20 days 495,000
Recoveries from accounts written off (not yet included
from the cash receipts above) 19,000
Accounts receivable, beg. 650,000

The ending balance of accounts receivable should be?

665,000 B. 660,000 C. 664,000 D. 663,000
 ACCOUNTS RECEIVABLE
MIKHA company provided the following transactions affecting the accounts receivable during
the current year:

Sales- cash and credit 5,900,000

Cash received from credit customers, all of whom took advantage
of the discount feature of credit terms 4/10, n/30 3,024,000
Cash received from cash customers 2,100,000
Accounts Receivable written off as worthless 50,000
Credit memorandum issued to credit customers for sales returns and allowances 250,000
Cash funds given to cash customers for sales returns and allowances 20,000
Recoveries on accounts receivable written off as uncollectible in prior 80,000
periods not included in cash received from customers stated above

Balances on January 1
Accounts Receivable 950,000
Allowance for Doubtful Accounts 100,000
 ACCOUNTS RECEIVABLE

The entity provided for doubtful accounts expense by crediting allowance for doubtful
accounts in the amount of P 70,000 for the current year.

1. What amount should be reported as accounts receivable on December 31?

A. 1,300,000 B. 1,426,000 C. 1,280,000 D. 1,220,000
2. What amount should be reported as allowance for doubtful accounts on December
31?
A. 120,000 B. 200,000 C. 250,000 D. 170,000
 ACCOUNTS RECEIVABLE
1. Accounts Receivable -January 1 950,000
Sales 3,800,000
Total 4,750,000
Cash received from credit customers (3,024,000)
Sales Discounts (126,000)
Accounts receivable written off (50,000)
Sales return and allowances (250,000)
Accounts receivable-December 31 1,300,000

2 .Allowance for doubtful accounts-January 1 100,000

Recovery of accounts written off 80,000
Doubtful accounts expense for current year 70,000
Total 250,000
Accounts written off (50,000)
Allowance for doubtful accounts-December 31 200,000
 ACCOUNTS RECEIVABLE

Total Sales 5,900,000

Cash received from cash customers-cash sales (2,100,000)
Credit Sales 3,800,000

Gross accounts receivable collected 3,150,000

(3,024,000/96%)
Sales Discounts (4% x 3,150,000) (126,000)
Cash Received from credit customers 3,024,000
 NOTES RECEIVABLE
Colet Co. received 10% promissory note on July 2022, with a face amount
of 400,000. The principal amount of the note is due to be collected on
June 30, 2025, while interest on the note is due annually every June 30
starting June 30, 2023. The market rate of interest of this kind of note is
10%.

How much is the interest income for the year ended December 31, 2022?
A.0 B. 10, 000 C. 20,000 D. 20,500

How much is the interest income for the year ended December 31, 2023?
A. 0 B. 20,000 C.20,500 D. 40,000
 NOTES RECEIVABLE

1. Face amount of the note 400,000

Market interest rate 10%
July-December 6/12
Interest income- December 31,2022 20,000

2. Face amount of the note 400,000

Market interest rate 10%
Interest income-December 31, 2023 40,000
 NOTES RECEIVABLE

At the beginning of the 2023, MISTLETOE Company sold its land with
carrying amount of P5,000,000 for a total amount of P 7,000,000 cash of
1,000,000 is received as a down payment while a 3 year non-interest
bearing note was received for the remaining portion of the selling price.
Market data averaged 8% on that date.

If principal is payable in equal annual installment every December 31,

determine the Interest income of 2024 and carrying amount of the note
receivable as of December 31, 2024.
 LOANS RECEIVABLE
Antipolo Bank granted a 10 year loan to Apple Company in the amount of
2,000,000 with a stated interest rate of 10%. Payments are due monthly and are
computed to be P 20,000.

Antipolo Bank incurred P40,000 of direct loan origination cost and 20,000 of
indirect loan origination cost. In addition, Antipolo Bank charged Apple
Company a 4 point non-refundable loan origination fee.

1. What is the initial carrying amount of the loan receivable on the part of
Antipolo Bank?
A. 2,000,000 B. 1,960,000 C. 2,040,000 D. 1,500,000

2. What is the initial carrying amount of the loan payable on the part of the
Apple company?
A. 1,920,000 B.1,960,000 C. 2,040,000 D.2,000,000
 LOANS RECEIVABLE

1. Loan Receivable 2,000,000

Direct origination cost 40,000
Total 2,040,000
Origination fee received from borrower (2,000,000 x 4%) (80,000)
Carrying amount of loan receivable 1,960,000

2. Loan payable 2.000,000

Origination fee charged by the bank (80,000)
Carrying amount of loan payable 1,920,000
 ESTIMATION OF
DOUBTFUL ACCOUNTS
 ESTIMATION OF
DOUBTFUL ACCOUNTS
 ESTIMATION OF
DOUBTFUL ACCOUNTS
At the beginning of current year, Jamin Company had a credit balance of 260,000 in the allowance for
uncollectible accounts. Based on past experience, 2% of credit sales would be uncollectible.

During the current year, the entity wrote off P325,000 of uncollectible accounts. Credit sales for the
year totaled P9,000,000.

1. What amount should be reported as uncollectible accounts expense for the year?
A. 325,000
B. 180,000
C. 440,000
D. 65,000

2. What amount should be reported as allowance for uncollectible accounts at year-end?

A. 115,000
B. 180,000
C. 245,000
D. 440,000
 ESTIMATION OF
DOUBTFUL ACCOUNTS

1. Uncollectible accounts expense (2% x 9,000,000) 180,000

Under the percentage of sales method, the amount computed already represents the uncollectible
accounts expense.

2 .Allowance for uncollectible accounts - January 1 260,000

Uncollectible accounts expense 180,000
Accounts written off (325,000)
Allowance for uncollectible accounts - December 31 115,000
 ESTIMATION OF
DOUBTFUL ACCOUNTS
On January 1, 2023, Tulips company reported a balance in its allowance for bad debts amounting to 100,000. For the current
year, accounts written off and recoveries amounted to P75,000 and P15,000 respectively. In addition, the company reported net
credit sales of P5,000,000 while ending receivables amounted to P2,500,000. Which can be aged as follows:

Age Balance
Less than one month P1,750,000
More than one month but less than a year 500,000
More than a year 250,000
2,500,000

Under each of the following scenarios, compute for the bad debts expense and allowance for bad debts after the adjustments.

1 .Bad debts expense is estimated at 3.50% of credit sales

2 .Allowance for Bad debts is 5% of Accounts Receivable Balance
3. Allowance for Bad debts is based on the estimated percentage per age bracket as follows:

Age Probability of Collection

Less than one month 98%
More than one month but less than a year 90%
More than a year 80%
INVESTMENTS
EQUITY SECURITIES
 EQUITY SECURITIES
On January 1, 2023, Home company purchased 2,500 ordinary shares of Holan
Corporation at P230 per share plus transaction costs of P5,250. These shares are
acquired for trading purposes. On December 31, 2023, the ordinary shares of Hogan
Corporation are quoted at P250 per share. On February 14, 2024, Home Company sold
750 shares of the Holan Corporation ordinary shares at P252 per share. Home
Company incurred transaction cost amounting to P3,000 in relation to the sale.

1 .At what amount shall Home company initially recognize its investment in Holan
Corporation ordinary shares on January 1 2023?
A. 520,000 B. 500,000 C. 519,750 D. 575,000
2 .What amount of unrealized gain (loss) on fair value change shall be reported in
profit or loss for 2023?
A. (60,000) B. (50,000) C. 70,0000 D. 50,000
3. What amount of gain (loss) on sale shall be recognized on February 14, 2024?
A. 1,500 B.(1,500) C. 2,000 D. (2,000)
EQUITY SECURITIES
1 .Ordinary Share purchased 2,500
Price per share 230
Initial cost of Investment 575,000

2. Ordinary Share purchased 2,500

Price per share 250
Investment- December 2023 625,000
Less: Investment- January 2023 575,000
Gain on fair value change 50,000

3.750 shares x 252= 189,000 (proceeds received)

750/2,500 x 625,000= 187,500 + 3,000= 190,500
189,000-190,500= (1,500)
DEBT SECURITIES
 DEBT SECURITIES
On October 1, 2023, Monster company purchased debt investment at value
through profit or loss, P270,000, 15% bonds of Happiness company for 99 plus
accrued interest and broker’s fees. Interest is paid semi-annually on February 1
and August 1. Broker’s fees incident to this purchase amounted to P2,000. How
much was the total cash payment in the acquisition of the debt investment on
October 1?
A. 247,500
B. 248,750
C. 253,333
D. 275,600
 DEBT SECURITIES
Face amount of the Bond Investment 270,000
Multiply: Interest Rate 14%
August to September (2 months) 2/12
Accrued Interest 6,300

Present Value of the Bond Investment (270,000 x99%) 267,300

Accrued Interest 6,300
Broker's fee 2,000
Total cash paid to acquire the debt Investment 275,600
 BANK
RECONCILIATION
Grass Company provided the following information:

Balance per bank statement July 31 1,240,000

Balance per ledger, July 31 750,000
Deposit of July 30 not recorded by bank 280,000
Debit memo - service charges 10,000
Credit memo-collection of note by bank for Grass 300,000
Outstanding checks 550,000

An analysis of the canceled checks returned with the bank statement revealed the following:
Check for purchase of supplies was drawn for P60,000 but was recorded as P90,000.
The manager wrote a check for traveling expenses of P100,000 while out of town. The check was not
recorded.

What amount of cash in bank should be reported on July 31?

A. 970,000
B. 270,000
C. 550,000
D.6 10,000
Balance per ledger 750,000
Debit memo - service charges (10,000)
Credit memo-collection of note 300,000
Book error in recording check (90,000-60,000) 30,000
Unrecorded check for traveling expenses (100,000)
Adjusted book balance 970,000

Balance per bank 1,240,000

Deposit in transit 280,000
Outstanding checks (550,000)
Adjusted bank balance 970,000
Jade Company provided the bank statement for the month of April which included the following information:

Bank service charge for April 15,000

Check deposited by Letty during April was not collectible
and has been marked "NSF" by the bank and returned 40,000

In comparing the bank statement to its own records, the entity found the following:

Deposits made but not yet recorded by bank 130,000

Checks written and mailed but not yet recorded by bank 100,000

All deposits in transit and outstanding checks have been properly recorded in the entity's books.

A customer check for P35,000 payable to Jade Company had not yet been deposited and had not been recorded by the
entity.

The cash in bank account balance per ledger is P920,000.

What amount should be reported as adjusted cash in bank on April 30?

A. 900,000
B. 865,000
C. 930,000
D. 965,000
Balance per ledger 920,000
Unrecorded customer check 35,000
Bank service charge (15,000)
NSF check (40,000)
Adjusted book balance 900,000

The deposits in transit and checks outstanding are ignored because these are bank reconciling items.
CASH AND CASH
EQUIVALENTS
CASH
CASH EQUIVALENTS
Additional Notes:
The entity is the The entity is the Adjustments to be Adjustments to be
PAYEE MAKER made if the entity is made if the entity is the
the PAYEE MAKER

GIVEN to suppliers
RECEIVED from
or creditors for Post
customers for
Description payment of goods or dated
payment of their
services that teh check
accounts
entity availed.

Deducted to arrive
Stale
Added to the cash at cash in bank Shall be added back to
Check
Initial accounting on hand and balance and Shall be excluded both the cash in bank
procedures deducted from deducted from the from cash balance and accounts payable
A/R balance accounts payable Accounts Receivable xx balances.
balance. Cash xx
Cash xx
Accounts Payable xx

“check was
“check written”;
received from Unrelea
“prepared check”;
customers”; check sed
Key words or “check as a payment
received as Check
phrases of accounts
payment of
payable”; “Supplier
accounts
check”
receivable.
Campbell Company had the following account balances on December 31,2023:

Petty cash fund 50,000

Cash on hand 500,000
Cash in bank-current account 4,000,000
Cash in bank-payroll account 1,200,000
Sinking fund for bond payable due June 30, 2024 2,000,000
Cash in bank-restricted for plant addition 1,500,000
Time deposit 1,000,000

The petty cash fund included unreplenished December 2023 petty cash expense vouchers P5,000 and
employee IOU P5,000. The cash on hand included a P100,000 customer check payable to Campbell
Company dated January 15, 2024.

What total amount should be reported as cash and cash equivalents on December 31,2023?
A. 8,640,000
B. 7,440,000
C. 7,640,000
D. 5,640,000
Petty cash fund (50,000-5,000-5,000) 40,000
Cash on hand (500,000-100,000) 1,200,000
Current account 4,000,000
Payroll account 1,200,000
Sinking fund 2,000,000
Time deposit 1,000,000
Total cash and cash equivalents 8,640,000

The sinking fund is included in cash and cash equivalents because related bond payable is already due
within one year from the end of the reporting period.

The cash in bank restricted for plant addition is classified as noncurrent regardless of the expected year
of disbursement.
Ral Company reported the checkbook balance on December 31, 2021 at P5,000,000 and held the following
items on same date:

Check payable to Ral, dated January 2, 2022 in

payment of a sale made in December 2021, not
included in December 31 checkbook balance 2,000,000
Check payable to Ral, deposited December 15
and included in December 31 checkbook
balance, but returned by bank on December 30
stamped "NSF". The check was redeposited on
January 2, 2022 and cleared on January 9, 2022 500,000
Check drawn on Ral's account, payable to a vendor, dated
and recorded in Ral's books on December 31, 2021
but not mailed until January 10, 2022 300,000
Certificate of time deposit 1,000,000
What amount should be reported as eash on December 31, 2021?
A. 4,800,000
B. 5,300,000
C. 6,500,000
D. 5,800,000
Checkbook balance 5,000,000
NSF Customer check (500,000)
Undelivered company check 300,000
Adjusted cash balance 4,800,000

The customer check of P 2,000,000 payable to Ral is properly not included in cash because it is
postdated January 2, 2022.

The NSF customer check of P500,000 should be reverted to accounts receivable on December
31, 2021 because it was redeposited after December 31, 2021.

The check of P300,000 drawn by Ral is undelivered on December 31, 2021. Thus, the
undelivered check is restored to cash by debiting cash and crediting accounts payable.

The certificate of time deposit is technically a cash equivalent.

 BASIC
FINANCIAL ACCOUNTING
AND REPORTING
ADJUSTING
ENTRIES
 ADJUSTMENT FOR
DEFERRALS
A business rents out its building to various tenants. On April 1,
20x1, the business receives one-year rent advance of P120,000
from one of its tenants and it was recorded as a liability. Rent per
month is P10,000.

On December 31, the adjusting entry shall be?

 ADJUSTMENT FOR
DEFERRALS
10k x 9 months (April-December)= 90,000

Entry:
Unerned Rent 90,000
Rent Revenue 90,000
 ADJUSTMENT FOR
DEFERRALS
On January 1, 2023, Mr. R received P50,000 from a customer fro a
service to be rendered for 4 months recorded using revenue
method. At the end of March, how much should be realized if Mr. R
has not yet adjusted the amount of his income earned?
 ADJUSTMENT FOR
DEFERRALS
50,000/ 4 months=12,500
12,500 x 3 months = 37,500

Entry:
Service fees/Revenue Account 37,500
Unearned Revenue 37,500
 ADJUSTMENT FOR
DEFERRALS
Stacey rented a space on January 1, 2023 and paid
P 300,000 for 1 year worth of rent . By June 30, 2023,
how much rent expense should be recognize in
adjusting entry?
ADJUSTMENT FOR
DEFERRALS
300,000/12 month =25,000
25,000 x 6 months= 150,000

Entry:
Rent Expense 150,000
Prepaid Rent 150,000
 ADJUSTMENT FOR
DEFERRALS
Stacey rented a space on January 1, 2023 and paid
P 300,000 for 1 year worth of rent by recording
expense. By June 30, 2023, how much rent expense
should be recognize in adjusting entry?
ADJUSTMENT FOR
DEFERRALS
300,000/12 month =25,000
25,000 x 6 months= 150,000

Entry:
Prepaid Rent 150,000
Rent Expense 150,000
 ADJUSTMENT FOR
ACCRUALS
On May 1, 2023, Ms. Yeji borrowed 210,000 from Metrobank. She
issued a promissory note that carried 20% interest per annum.
Both interest and principal will be payable after 1 year. How
much should she recognize as accrued interest from her liability
at the end of month of May?
 ADJUSTMENT FOR
ACCRUALS
210,000 x 20% x 1/12
210,000 x.2 x 1/12
=3,500

Entry:
Interest Expense 3,500
Interest Payable 3,500
 ADJUSTMENT FOR
ACCRUALS
For the year ended, March 31, 2022, a business that offers
tutoring services received 56,000, which was recorded in
tutoring service fee account. The amount included 6, 400 for
April lessons. Assuming there are no other transactions relating
to tutoring fee, how much is the tutor fee earned for the year
ended March 31, 2022?
 ADJUSTMENT FOR
ACCRUALS
56,000-6,400 =49,600

6,400 should not be recognized as part of March 31, 2020

revenue since the obligation to render service is not yet
satisfied.
Adjusting entries are affect
A. One nominal account and one real account
B. Two nominal accounts
C.Two real accounts
D.No particular combination of nominal and real accounts
Adjusting entries are affect
A. One nominal account and one real account
B. Two nominal accounts
C.Two real accounts
D.No particular combination of nominal and real accounts
An adjusting entry should never include:
A. Debit to revenue and credit to liability
B. A debit to expense and a credit to liability
C. A debit to liability and a credit to asset
D.A debit to asset and a credit to revenue
An adjusting entry should never include:
A. Debit to revenue and credit to liability
B. A debit to expense and a credit to liability
C. A debit to liability and a credit to asset
D.A debit to asset and a credit to revenue
Which of the following is considered is most likely
not considered as a adjusting entry?
A. The accrual of electricity
B. The recognition of depreciation
C. The recognition of the used and unused portion of the
rent
D. The entry to record the collection of interest receivable.
Which of the following is considered is most likely
not considered as a adjusting entry?
A. The accrual of electricity
B. The recognition of depreciation
C. The recognition of the used and unused portion of the
rent
D. The entry to record the collection of interest receivable.
The term "accrual" as used in accounting means
A. to record an income that is already earned but not yet
collected.
B. to record expese that is already incurred but not yet paid.
C. to record the collection of income or payment of the
expense
D. a and b
The term "accrual" as used in accounting means
A. to record an income that is already earned but not yet
collected.
B. to record expese that is already incurred but not yet paid.
C. to record the collection of income or payment of the
expense
D. a and b
The term "deferral" as used in accounting means
A. to split the earned and unearned portion of an advanced
collection.
B. to split the expired and unexpired portion of a
prepayment
C. to record collection of income or payment of the
expense.
D. a and b
The term "deferral" as used in accounting means
A. to split the earned and unearned portion of an advanced
collection.
B. to split the expired and unexpired portion of a
prepayment
C. to record collection of income or payment of the
expense.
D. a and b
These accounts are closed at the end of th accounting
period.
A. Real accounts
B. Mixed accounts
C. Nominal accounts
D Door accounts
These accounts are closed at the end of th accounting
period.
A. Real accounts
B. Mixed accounts
C. Nominal accounts
D Door accounts
If an expense has been incurred but not yet recorded
because it is not yet paid yet adjusting entry involves:
A. An expense and an asset
B. A receivable and an income
C. An asset and a liability
D. An expense and a liability
If an expense has been incurred but not yet recorded
because it is not yet paid yet adjusting entry involves:
A. An expense and an asset
B. A receivable and an income
C. An asset and a liability
D. An expense and a liability
Which of the following maintains the equality of accounting
equation?
A. To record collection of account, cash and accounts
receivables bot increased by P160,000.
B. To record purchase of equipment, equipment increased
by P100,000 and cash decreased by P100,000
C. To record payment of notes, notes payable is decreased
and cash is increased by P70,000.
D .To record payment of rent, rent expense and cash
increased by p 70,000.
Which of the following maintains the equality of accounting
equation?
A. To record collection of account, cash and accounts
receivables bot increased by P160,000.
B. To record purchase of equipment, equipment increased
by P100,000 and cash decreased by P100,000
C. To record payment of notes, notes payable is decreased
and cash is increased by P70,000.
D .To record payment of rent, rent expense and cash
increased by p 70,000.
Which of the following does not directly r indirectly affects
owners capital account?
A. Paying accounts payable
B. Withdrawals by owners
C. Earning revenues
D.Incurring expenses
Which of the following does not directly r indirectly affects
owners capital account?
A. Paying accounts payable
B. Withdrawals by owners
C. Earning revenues
D.Incurring expenses
You paid in advance for the merchandise to be delivered
next year for P260,000. How should you record this
transaction?
Advances to suppliers for 260,000
Cash for 260,000
A customer paid 260,000 for a service which will be
rendered next year. How should you record this transaction?
Cash 260,000
Advances from Customers or Unearned Revenue 260,000
CONCEPTUAL
FRAMEWORK
Which statement is true about the Conceptual Framework
for Financial Reporting?
A.The Conceptual Framework is not a standard.
B.The Conceptual Framework describes the objective of
financial reporting and the concepts for general purpose
financial statements.
C .In cases of conflict, the requirements of the relevant IFRS
prevail over those of the Conceptual Framework.
D. All of these statements are true about the Conceptual
Framework
Which statement is true about the Conceptual Framework
for Financial Reporting?
A.The Conceptual Framework is not a standard.
B.The Conceptual Framework describes the objective of
financial reporting and the concepts for general purpose
financial statements.
C .In cases of conflict, the requirements of the relevant IFRS
prevail over those of the Conceptual Framework.
D. All of these statements are true about the Conceptual
Framework
Which is a purpose of the Conceptual Framework?
A. To assist the IASB to develop IFRS based on conceptual
concepts.
B. To assist the preparers to develop consistent accounting
policy when no standard applies to a particular transaction
or when standard allows choice of accounting policy.
C. To assist all parties to understand and interpret the
Standards.
D. All of these can be considered a purpose of the
Conceptual Framework.
Which is a purpose of the Conceptual Framework?
A. To assist the IASB to develop IFRS based on conceptual
concepts.
B. To assist the preparers to develop consistent accounting
policy when no standard applies to a particular transaction
or when standard allows choice of accounting policy.
C. To assist all parties to understand and interpret the
Standards.
D. All of these can be considered a purpose of the
Conceptual Framework.
What provides "the why" or the goal and purpose of
accounting?
A. Measurement and recognition concept
B. Qualitative characteristics of accounting information
C. Elements of financial statements
D .Objective of financial reporting
What provides "the why" or the goal and purpose of
accounting?
A. Measurement and recognition concept
B. Qualitative characteristics of accounting information
C. Elements of financial statements
D .Objective of financial reporting
The assumption that an entity will not be sold or
liquidated in the near future is known as
A. Economic entity assumption
B. Monetary unit assumption
C. Time period assumption
D. Going concern assumption
The assumption that an entity will not be sold or
liquidated in the near future is known as
A. Economic entity assumption
B. Monetary unit assumption
C. Time period assumption
D. Going concern assumption
In the Conceptual Framework, qualitative characteristics
A. Are considered either fundamental or enhancing.
B.Contribute to the decision-usefulness of financial
reporting information.
C.Distinguish better information from inferior information
for decision- making purposes.
D.All of the choices are correct.
In the Conceptual Framework, qualitative characteristics
A. Are considered either fundamental or enhancing.
B.Contribute to the decision-usefulness of financial
reporting information.
C.Distinguish better information from inferior information
for decision- making purposes.
D.All of the choices are correct.
Fundamental qualitative characteristics of accounting
information are
A. Relevance and comparability
B. Comparability and consistency
C. Faithful representation and relevance
D .Neutrality and verifiability
Fundamental qualitative characteristics of accounting
information are
A. Relevance and comparability
B. Comparability and consistency
C. Faithful representation and relevance
D .Neutrality and verifiability
Enhancing qualitative characteristics of accounting
information include
A. Relevance, faithful representation and materiality
B. Comparability, understandability, timeliness and
reliability
C .Faithful representation and timeliness.
D .Materiality and understandability
Enhancing qualitative characteristics of accounting
information include
A. Relevance, faithful representation and materiality
B. Comparability, understandability, timeliness and
reliability
C .Faithful representation and timeliness.
D .Materiality and understandability
The quality of faithful representation includes:
A .Predictive value and confirmatory value:
B. Completeness, free from error and neutrality
C. Comparability and understandability
D. Timeliness and verifiability
The quality of faithful representation includes:
A .Predictive value and confirmatory value:
B. Completeness, free from error and neutrality
C. Comparability and understandability
D. Timeliness and verifiability
Accounting information is considered relevant when it :
A. be depended on to represent the economic conditions
that are intended to represent.
B. Is capable of making a difference in a decision
C. Is understandable by reasonably informed users of
accounting information.
D .It is verifiable and neutral.
Accounting information is considered relevant when it :
A. be depended on to represent the economic conditions
that are intended to represent.
B. Is capable of making a difference in a decision
C. Is understandable by reasonably informed users of
accounting information.
D .It is verifiable and neutral.
The underlying theme of relevance:
A. Decision usefulness
B. Understandability
C. Reliability
D. Comparability
The underlying theme of relevance:
A. Decision usefulness
B. Understandability
C. Reliability
D. Comparability
The Conceptual Framework includes which constraint?
A. Prudence
B. Conservatism
C. Cost
D .All of the choices are constraint in the Conceptual
Framework
The Conceptual Framework includes which constraint?
A. Prudence
B. Conservatism
C. Cost
D .All of the choices are constraint in the Conceptual
Framework
Which is within the definition of an asset under Revised
Conceptual Framework?
A. An asset is a present economic resource.
B. The economic resource is a right that has a potential
to produce economic benefits
C. The economic resources is controlled by the entity as
aresult of past event
D. All of these are defined as asset.
Which is within the definition of an asset under Revised
Conceptual Framework?
A. An asset is a present economic resource.
B. The economic resource is a right that has a potential
to produce economic benefits
C. The economic resources is controlled by the entity as
aresult of past event
D. All of these are defined as asset.
Under the Revised Conceptual Framework the
measurement based include:
A. Historical cost
B. Current value
C. Assessed Value
D. Historical cost and current value
Under the Revised Conceptual Framework the
measurement based include:
A. Historical cost
B. Current value
C. Assessed Value
D. Historical cost and current value
It is the process of capturing for inclusion in the
statement of financial position or the financial
performance an item that meets the definition of an
elements of financial statements.
A. Recognition
B. Measurement
C. Derecognition
D. Dislosure
It is the process of capturing for inclusion in the
statement of financial position or the financial
performance an item that meets the definition of an
elements of financial statements.
A. Recognition
B. Measurement
C. Derecognition
D. Dislosure
What is meant by comparability?
A.Information has predictive and feedback value
B.Information is reasonably free from error
C.Information is measured and reported in a similar
fashion across entities
D.Information is timely.
What is meant by comparability?
A.Information has predictive and feedback value
B.Information is reasonably free from error
C.Information is measured and reported in a similar
fashion across entities
D.Information is timely.
What is meant by consistency when discussing financial
accounting information?
A.Information is measured and reported in a similar
fashion across entities.
B.Information is timely.
C.Information is measured similarly across the industry.
D. Information is verifiable
What is meant by consistency when discussing financial
accounting information?
A.Information is measured and reported in a similar
fashion across entities.
B.Information is timely.
C.Information is measured similarly across the industry.
D. Information is verifiable
Which statements is true about financial statements of a reporting entity?

A .If the reporting entity comprises bith the parent and its subsidiaries, the financial
statements are referred to as consolidated financial statements.

B.If the reporting entity is the parent alone, the financial statements are referred to as
unconsolidated financial statements.

C.If the reporting entity comprises two or more entities that are not linked by a parent-
subsidiary relationship, the financial statements are referred to as combined financial
statements.

D. All of these statements are true about the financial statements of a reporting
entity.
Which statements is true about financial statements of a reporting entity?

A .If the reporting entity comprises bith the parent and its subsidiaries, the financial
statements are referred to as consolidated financial statements.

B.If the reporting entity is the parent alone, the financial statements are referred to as
unconsolidated financial statements.

C.If the reporting entity comprises two or more entities that are not linked by a parent-
subsidiary relationship, the financial statements are referred to as combined financial
statements.

D. All of these statements are true about the financial statements of a reporting
entity.
FUTURE CPA'S

"NOTHING
WORTH HAVING
COMES EASY."

GOODLUCK ON YOUR
QUALIFYING EXAM!!!!!!
FIGHTINGGG!