EASY ROUND

AVERAGE ROUND

DIFFICULT ROUND

CLINCHER
 Question #1 | Easy
What is the objective of financial reporting according to the
Conceptual Framework?
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End
A: To prepare financial statements in accordance with applicable
Standards and Interpretations
B: To provide information about the financial position, financial
performance and cash flows of an entity
C: To prepare and present relevant information to all users
answer D: To provide financial information about an entity that is useful to
existing and potential investors, lenders and other creditors in
making decisions about providing resources to the entity

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D

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 Question #2 | Easy
Which of the following is not normally an objective of
financial reporting?
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End
A: To provide information about an entity’s assets, claims
against those assets and changes in them
B: To provide information that is useful in assessing an entity’s
sources and uses of cash
answer C: To provide information that is useful in lending and
investing decisions
D: To provide information about an entity’s liquidation value
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D

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 Question #3 | Easy
Which of the following statements best describes the term
financial position?
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End
A: The income, expenses and profit or loss of an entity
B: The assets, liabilities and equity of an entity
C: The financial assets less liabilities of an entity
D: The monetary assets less monetary liabilities
answer

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B

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 Question #4 | Easy

Which of the following must be included in an

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End entity’s statement of financial position?

A: Contingent asset
B: Property, plant and equipment analyze by class
C: Share capital and reserves analyze by class
answer D: Deferred tax liability

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D

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 Question #5 | Easy
A compensating balance

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End A: Must be included in cash and cash equivalent
B: Which is legally restricted and related to a long-term loan
is classified as current asset
C: Which is legally restricted and related to a short-term loan
is classified separately as current asset
answer D: Which is not legally restricted as to withdrawal is classified
separately as current asset

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C

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 Question #6 | Easy
Chrome’s investment property has a historical cost of P 2,400,000.
On December 31, 2015, the fair value of this investment property is
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End P 2,800,000.

If Chrome Company uses the fair value model, to account for the
difference, Chrome Company should

A: Recognize a P 400,000 unrealized gain in the shareholder’s equity.

answer B: Recognize a P 400,000 unrealized gain in the profit or loss.
C: Recognize a revaluation surplus of P 400,000.
D: Not recognize the P 400,000 increase.

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B

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 Question #7 | Easy
The following accounts appear on the adjusted trial balance of Grand
Company on December 31, 2015:
Petty cash fund P10,000

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End Payroll fund
Sinking fund cash
Sinking fund securities
100,000
500,000
1,000,000
Accrued interest receivable – sinking fund receivable 50,000
Plant expansion fund 600,000
Cash surrender value 150,000
Investment property 3,000,000
answer Advances to subsidiary 200,000
Investment in joint venture 2,000,000
What total amount should be reported as noncurrent investments on December 31,
2015?
A: P 7,500,000 C: P 4,500,000
BACK B: P 7,450,000 D: P 2,300,000
A

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 Question #8 | Easy
NESTLE CORPORATION prepared an aging of its accounts receivable at
December 31, 2015 and determined that the net realizable value of the

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End accounts receivable was P2,500,000. Additional information is available as
follows:
Allowance for uncollectible accounts at January 1 P 280,000
Accounts written-off as uncollectible 230,000
Accounts receivable at December 31, 2015 2,800,000

answer Uncollectible accounts recovery 50,000

For the year ended December 31, 2015, what is the uncollectible accounts
expense?

A: 230,000 C: 300,000
BACK B: 150,000 D: 200,000
D

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 Question #9 | Easy
In the December 31, 2015, statement of financial position of UNI
COMPANY, the current receivables consisted of the following:

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End Trade accounts receivable
Allowance for doubtful accounts
P2,000,000
(100,000)
Claim against shipper for goods lost in transit in November 2015 400,000
Selling price of unsold goods sent by Uni on consignment at 150%
of cost (not included in Unilever’s ending inventory) 600,000
Security deposit on lease of warehouse 200,000
Total P3,000,000
answer The December 31, 2015 statement of financial position should show current
receivables of

A: 2,200,000 C: 2,400,000
B: 2,300,000 D: 3,000,000
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B

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 Question #10 | Easy
On January 1, a store had inventory of P55,000. January
purchases were P46,000 and January sales were P105,000. On
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End February 1, a fire destroyed most of the inventory. The rate
of gross profit was 25% of cost. Merchandise with a selling
price of P7,500 remained undamaged after the fire. Compute
the amount of the fire loss, assuming the store had no
insurance coverage.
answer
A: P11,000 C: P9,500
B: P16,625 D: P14,750
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A

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 Question #1| Average
On January 1, 2014, Marcus Company made P 3,697,120 investments in the
Camper Corporation’s 8%, 5-year bonds with face value of P 4,000,000. The

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End effective rate for similar financial asset is 10%. Marcus Company has a
business model of collecting all the contractual cash flows involving the
interests and principal on all debt securities.

What amount should the debt security be valued on the December 31, 2015
statement of financial position?

answer A: P 3,697,120
B: P 3,801,515
C: P 3,746,832
D: P 4,000,000
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B

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 Question #2 | Average
An agreement between two parties to exchange a specified amount
of commodity, security or foreign currency at a specified date in the
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End future with the price or exchange rate being set now is

A: Interest rate swap

B: Forward contract
C: Futures contract
D: Option
answer

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B

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 Question #3 | Average

Transfer from investment property to property, plant and equipment

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are appropriate
End
A: When there is change of use.
B: Based on the entity’s discretion.
C: Only when the entity adopts the fair value model.
D: The entity can never transfer property into another classification
answer once it is classified as investment property.

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A

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 Question #4 | Average
COKE FLOAT Corporation uses the sum-of-the-years’ digits
method to depreciate equipment purchased in January 2013 for
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End P20,000. The estimated residual value of the equipment is P2,000
and the estimated useful life is four years. What should COKE
FLOAT report as the assets carrying amount as of December 31,
2015?

A: P1,800
answer B: P3,800
C: P2,000
D: P4,500

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B

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 Question #5 | Average

Financial liabilities include all of the following,

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End except

A: Notes payable
B: Bonds payable
C: Income taxes payable
answer D: Trade accounts payable

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C

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 Question #6 | Average
On January 1, 2015, GRACE COMPANY received a grant of
P25,000,000 from the American government in order to defray
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End safety and environmental costs within the area where the entity is
located. The safety and environmental costs are expected to be
incurred over 4 years, respectively, P2,000,000; P4,000,000;
P6,000,000 and P8,000,000. What amount of income from the
government grant should be recognized in 2015?
answer A: P25,000,000
B: P2,000,000
C: P2,500,000
D: P6,250,000
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C

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 Question #7 | Average
On January 1, 2015, PURA COMPANY purchased bonds with face
value of P8,000,000 for P7,679,000 as a long-term investment. The
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End stated rate on the bonds is 10% but the bonds are acquired to yield
12%. The bonds mature at the rate of P2,000,000 annually every
December 31 and the interest is payable annually also every
December 31. The entity used the effective interest method of
amortizing discount. What is the carrying amount of the investment
in bonds on December 31, 2015?
answer
A: P5,759, 250
B: P7,759,250
C: P7,800,480
BACK D: P5,800,480
D

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 Question #8 | Average
DIONISIA COMPANY sold machinery to PACMAN
COMPANY on January 1, 2015 for which the cash selling
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End price was P7,582,000. Pacman entered into an installment
sale contract with Dionisia at an interest rate of 10%. The
contract required payments of P2,000,000 a year over 5 years
with the first payment due on December 31, 2015. What
amount of interest income should be reported in 2015?
answer
A: 1,000,000
B: 634,020
C: 758,200
BACK D: 0
C

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 Question #9 | Average
The appropriate valuation of an operating lease in the statement of
financial position of the lessee is
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A: Zero
B: The absolute sum of the lease payments
C: The present value of the sum of the lease payments discounted at
an appropriate rate
D: The market value of the asset at the inception of the lease
answer

BACK
A

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 Question #10 | Average

Rent received in advance by the lessor in an

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End operating lease shall be recognized as revenue

A: When received
B: At the lease inception
C: At the lease expiration
answer D: In the period specified by the lease

BACK
D

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 Question #1 | Difficult

Which of the following describes the risk that an

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End entity will encounter if it has difficulty in meeting
obligations associated with its financial liabilities?

A: Liquidity risk
B: Credit risk
answer C: Financial risk
D: Payment risk

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A

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 Question #2 | Difficult
JAM COMPANY, an investor of JAZZ CORPORATION, owns 10%
of the latter’s ordinary shares throughout the year. JAZZ has no
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End preference shares outstanding. JAM’s interest gives the right to

A: Be paid 10% of JAZZ’ profit in cash each year.

B: Receive dividend equal to 10% of the par value each year.
C: Receive dividends equal to 10% of the total dividend paid by
JAZZ for the year to shareholders.
answer D: Keep JAZZ from issuing any additional shares unless the JAM is
willing to buy 10% of the newly issued shares.

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C

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 Question #3 | Difficult

Bonds payable not designated at fair value through profit or loss

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End shall be measured initially at

A: Fair value
B: Fair value plus bond issue costs
C: Fair value minus bond issue costs
D: Face amount
answer

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C

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 Question #4 | Difficult
The accrual approach in accounting for product warranty cost

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End A: Is required for income tax purposes.
B: Is frequently justified on the basis of expediency when warranty
cost is immaterial.
C: Finds the expense account being charged when the seller
performs in compliance with the warranty.
D: Represents accepted practice and should be used whenever the
answer warranty is an integral and inseparable part of the sale.

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D

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 Question #5 | Difficult
An entity sells appliances that include a three-year warranty. Service calls
under the warranty are performed by an independent mechanic under a

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End contract with the entity. Based on experience, warranty costs are expected
to be incurred for each machine sold. When should the entity recognize
these warranty costs?

A: Evenly over the life of the warranty

B: When the service calls are performed
C: When the machines are sold
answer D: When payments are made to the mechanic

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C

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 Question #6 | Difficult
The following information was included in the bank reconciliation for STAR
COMPANY for October and November 2015:

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End Checks and charges recorded by bank in November, including a November service
charge of P4,000 and NSF check of P20,000 P550,000

Service charge made by bank in October and recorded by depositor in November

2,000

Total credits to cash in all journals during November 620,000

answer Customer’s NSF check returned in October and redeposited in November (no entry
made by depositor in either October or November) 40,000

Outstanding checks on October 31, 2015 that cleared in November

230,000
What is the amount of outstanding checks on November 30, 2015?

BACK A: 282,000 B: 300,000 C: 322,000 C: 302,000

C

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 Question #7 | Difficult
On January 1, 2015,TAM COMPANY received a 5-year variable interest rate loan of
P6,000,000 with interest payment at the end of each year and the principal to be repaid

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on December 31, 2019. The interest rate for 2015 is 8% and the rate in each
End succeeding year is equal to market interest rate on January 1 of each year.

On January 1, 2015,TAM entered into an interest rate swap agreement with a financial
institution to the effect that TAM will receive a swap payment if the interest is less than
8%. The swap payments are made at the end of the year. This interest rate swap
agreement is designated as a cash flow hedge.

answer On January 1, 2016, the market rate of interest is 9%. The present value of an ordinary
annuity of 1 at 9% for four periods is 3.24.

On December 31, 2015, how much should be reported by TAM Company as “interest
rate swap receivable”?
BACK A: 300,000 B: 240,000 C: 194,400 D: 120,000
C

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 Question #8 | Difficult
SUSIE COMPANY issued 5,000 convertible bonds on January 1, 2015. The
bonds have a three-year term and are issued at 110 with a face value of

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End P1,000 per bond. Interest is payable annually in arrears at a nominal 6%
interest rate. Each bond is convertible at anytime up to maturity into 100
ordinary shares with par value of P5. When the bonds are issued, the
prevailing market interest rate for similar debt instrument without
conversion option is 9%.

The present value of 1 at 9% for 3 periods is 0.77 and the present value of
answer an ordinary annuity of 1 at 9% for 3 periods is 2.53.

What is the equity component of the issuance of the convertible bonds on

January 1, 2015?
BACK A: 1,150,000 B: 1,650,000 C: 891,000 D:391,000
C

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 Question #9 | Difficult
GRAY COMPANY had P600,000 convertible 8% bonds payable outstanding on June 30,
2015. Each P1,000 bond was convertible into 10 ordinary shares of P50 par value. On

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July 1, 2015, the interest was paid to bondholders, and the bonds were converted into
End ordinary shares, which had a fair value of P75 per share. The unamortized premium on
these bonds was P12,000 at the date of conversion. No equity component was
recognized when the bonds were originally issued.

What is the increase in the elements of the shareholders’ equity as a result of the bond
conversion?

answer a.
Ordinary Share Capital

300,000
Share Premium

312,000

b. 306,000 306,000

c. 450,000 162,000

BACK d. 600,000 12,000

A

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 Question #10 | Difficult
On January 1, 2015, DING COMPANY entered into a 10-year lease agreements with
WONG COMPANY for industrial equipment. Annual lease payments of P1,000,000 are

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payable at the end of each year. Ding knows that the lessor expects a 10% return on
End the lease which is the implicit rate in the lease. The equipment is expected to have an
estimated useful life of 10 years. In addition, a third party has guaranteed to pay Wong a
residual value of P500,000 at the end of the lease.
Present value of an ordinary annuity of 1 at 10% for 6.14
10 periods
Present value of 1 at 10% for 10 periods 0.39
answer
In DING’s December 31, 2015 statement of financial position, what is the principal
amount of the lease liability?
A: 6,335,000
B: 6,140,00
C: 5,754,000
BACK D: 5,968,500
C

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 Question #1 | Clincher
FRESH Company had the following account balances at December 31, 2015:
Cash in bank

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P2,250,000
End Cash on hand
125,000
Cash legally restricted for additions to plant (expected to be
disbursed in 2016)
1,600,000

Cash in bank includes P600,000 of compensating balances against short-term borrowing

answer arrangements. The compensating balances are not legally restricted as to withdrawal by
FRESH COMPANY. In the current assets, section of December 31, 2015 balance sheet,
total cash should be reported at

A: P1,775,000 C: P2,250,000
B: P2,375,000 D: P3,975,000
BACK
B

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 Question #2 | Clincher
When the investor discontinues the use of the equity
method because significant influence is lost, the investment in
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End associate retained by the investor shall be measured at

A: Fair value
B: Carrying amount
C: Amortized cost
answer D: Net realizable value

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A

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 Question #3 | Clincher

All of the following financial assets shall be

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End measured at fair value through profit or loss,
except

A: Financial assets at amortized costs

B: Financial assets held for trading
answer C: Financial assets designated on initial recognition
as fair value through profit or loss
D: Investments in quoted equity instruments
BACK
A

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 Question #4 | Clincher
If the financial asset is held for trading or if the financial asset is
measured at fair value through profit or loss, transaction costs
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End directly attributable to the acquisition shall be

A: Capitalized as cost of the financial asset

B: Expensed immediately when incurred and to be presented in the
statement of other comprehensive income
C: Deferred and amortized over a reasonable period
answer D: Presented in the profit or loss statement

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D

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 Question #5 | Clincher
On January 1, 2015, CARRIE COMPANY purchased FE COMPANY
9% bonds with a face amount of P4,000,000 for P3,765,000 to yield
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End 10%. The bonds are dated January 1, 2015, mature on December 31,
2024, and pay interest annually on December 31. CARRIE Company
used the interest method of amortizing bond discount. What total
amount should be reported as interest revenue from the bond
investment for 2015?
answer A: P400,000
B: P375,600
C: P360,000
D: P344,400
BACK
B

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 Question #6 | Clincher
Which is incorrect concerning the recognition and
measurement of a defined benefit plan?
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End
A: Actuarial assumptions are required to measure the
obligation and expense and there is a possibility of
actuarial gains and losses.
B:The obligation is measured on a discounted basis.
answer C:The defined benefit plan must be fully funded.
D: The expense recognized for a defined benefit plan is not
necessarily the amount of contribution due for the period.
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C

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 Question #7 | Clincher

Which is the mandated method of determining the

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End present value of the defined benefit obligation?

A: Projected unit credit method

B: Entry age normal method
C: Individual level premium method
answer D: Aggregate method

BACK
A

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 Question #8 | Clincher

Which of the following is not considered a characteristic of a

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End liability?

A: Present obligation
B: Arises from past event
C: Liquidation is reasonably expected to require use of
answer existing resources classified as current assets
D: Results in an outflow of resources

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C

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 Question #9 | Clincher
CANDID COMPANY purchased a machine on December 1, 2014 at an invoice price of
P4,500,000 with terms 2/10, n/30. On December 10, 2014, Candid paid the required

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amount for the machine. On December 1, 2014, Candid paid P80,000 for delivery of
End the machine and on December 31, 2014, it paid P310,000 for installation and testing of
the machine. The machine was ready for use on January 1, 2015. It was estimated that
the machine would have a useful life of 5 years, and a residual value of P800,000.

Engineering estimate indicated that the useful life in productive units was 200,000.
Units actually produced during the first 2 years were 30,000 in 2015 and 48,000 in
2016. Candid Company decided to use the output method of depreciation.
answer
What is the accumulated depreciation of the machine on December 31, 2016?

A: P1,560,000 C: P960,000
B: P1,600,000 D: P600,000
BACK
A

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 Question #10 | Clincher
POE COMPANY’s depreciation policy on machinery is as follows:

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 A full year’s depreciation is taken in the year of an asset’s acquisition.
End  No depreciation is taken in the year of an asset’s disposition.
 The estimated useful life is 5 years.
 The straight line method is used.

On June 30, 2015, Poe sold for P2,300,000 a machine acquired in 2012 for P4,200,000.
The estimated residual value was P600,000.

answer How much gain on the disposal should Poe record in 2015?

A: P140,000
B: P260,000
C: P620,000
D: P980,000
BACK
B

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