You are on page 1of 12



MUTIPLE CHOICE: MARK FULLY with PENCIL No. 2 the letter of your choice on the answer
sheet provided. Make the mark CLEAR but do not use too much pressure. ERASURES ARE

1. Noynoy Company uses the composite method of depreciation based on a composite rate of
25%. At the beginning of 2015, the total cost of Noynoys depreciable assets was
P5,000,000 with a total residual value of P600,000. The accumulated depreciation was
P3,000,000 at that time. At the end of 2015, Noynoy sold an asset with an original cost of
P1,000,000 and a residual value of P200,000 for P350,000. This asset was acquired on
January 1, 2013. What is the gain or loss on sale to be recorded by Noynoy from this
a. 100,000 gain
b. 50,000 loss
c. 150,000 loss
d. 0

2. The following expenditures on its new manufacturing facility were incurred by Villar
Company in 2015:
Option fee for land not acquired 40,000
Option fee for land acquired 60,000
Purchase of land 3,000,000
Payments of tenants of old building for vacating the premises 600,000
Land survey 200,000
Fees for title search and transfer of title for land 100,000
Cost of landfill, grading and leveling 300,000
Fences and signs around the property 150,000
Building permit for construction 50,000
Temporary quarters for construction crew 100,000
Payment to demolition company to raze the old building and clean up 400,000
Excavating basement 800,000
Salvage value of materials from old building 150,000
Costs of construction 15,000,000
Insurance taken during construction 250,000
Cost of paving parking lot adjoining the building 200,000
Cost of shrubs, trees and other landscaping 50,000
What is the total cost to be capitalized as depreciable assets?
a. 16,850,000
b. 16,600,000
c. 20,710,000
d. 16,200,000

3. Gibo Company started construction of a building on January 1, 2015 and completed

construction on December 31 of the same year. Gibo had only two interest-bearing notes
during the year, and both of these notes were outstanding for all 12 months of the year. The
following information is available:

Average accumulated expenditures 3,500,000

Ending balance in construction in progress before capitalization of interest 5,000,000
8 percent one-year note incurred specifically for the project 3,000,000
12 percent long-term note 8,000,000

What is the total cost of the building?

a. 5,300,000
b. 3,800,000
c. 5,660,000
d. 4,160,000
4. Erap Company uses the retail inventory method to value its merchandise inventory. The
following information is available for the current year:

Cost Retail
Beginning inventory P 900,000 P 1,500,000
Purchases 12,700,000 16,700,000
Freight-in 300,000
Purchase allowances 50,000
Purchase returns 350,000 600,000
Net markups 400,000
Net markdowns 800,000
Employee discounts 300,000
Theft and other losses 500,000
Sales 15,000,000
Sales allowance 100,000
Sales returns 400,000

If the ending inventory is to be valued using lower of cost or market, what is the estimated
cost of sales of Erap Company?
a. 12,150,000
b. 12,075,000
c. 11,550,000
d. 11,925,000

5. Jamby Company has three lines of business, each of which was determined to be a
reportable segment. Jamby Company sales in 2015 amounted to P15,000,000. From this
amount, Segment No.2 contributed P6,500,000. Traceable costs of Segment No. 2 for the
period was P2,500,000 out of the total of P5,000,000 for the company as a whole. For
internal reporting, Jamby allocates common costs of P3,000,000 based on the ratio of a
segments income before common costs to the total income before common costs. In its
2015 financial statements, how much should Jamby report as operating profit for Segment
No. 2?
a. 2,700,000
b. 2,500,000
c. 2,800,000
d. 3,000,000

6. On December 31, 2015, the Receivables account of Eddie Company shows a debit
balance of P3,500,000. The allowance for doubtful accounts shows a credit balance of
P150,000. Subsidiary details show the following:

Trade account receivable 1,000,000

Trade notes receivable 500,000
Installments receivable, normally due 1 year to 2 years 700,000
Customers accounts reporting credit balances
arising from sales returns ( 300,000)
Advance payments for purchase of merchandise 200,000
Customers accounts reporting credit balances
arising from advance payments ( 50,000)
Cash advance to subsidiary 700,000
Claim from insurance company 150,000
Subscription receivable due in 4 months 500,000
Accrued interest receivable 100,000

What amount of trade and other receivables should be presented among the current
assets in the December 31, 2015 statement of financial position?
a. 2,300,000
b. 2,450,000
c. 3,000,000
d. 1,800,000
7. Gordon Company has estimated that total depreciation expense for the year ended
December 31, 2015 will amount to P1,300,000, and that the 2015 year-end bonuses to
employees will total P2,000,000, of this amount, Gordon has incurred P400,000 for the first
quarter of the year. In Gordons interim income statement for three months ending on
March 31, 2015, what is the total amount of expense relating to these two items that should
be reported?
a. 325,000
b. 500,000
c. 835,000
d. 725,000

8. On June 30, 2015, Loren Company discounted at the bank a customers P4,000,000, 6-
month, 12% note receivable dated April 30, 2015. The bank discounted the note at a rate of
15%. Loren did not receive the proceeds from this discounted note until July 1, 2015. What
amount of interest income shall be reported in the statement of comprehensive income for
the year ended June 30, 2015?
a. 80,000
b. 240,000
c. 28,000
d. 52,000

9. The following information pertains to Mar Company for the year ended 2015:

Cash sales 1,500,000

Cash collected on accounts receivable 6,500,000
Accounts receivable, January 1 400,000
Accounts receivable, December 31 600,000
Bad debts written off 100,000
Purchases 5,225,000
Inventory, December 31 900,000

Summary of prior year sales:

2014 2013 2012
Sales 7,000,000 6,500,000 5,500,000
Gross profit 1,820,000 1,755,000 1,210,000
The inventory on January 1, 2015 was
a. 1,843,000
b. 1,675,000
c. 1,925,000
d. 1,900,000

10. The following accounts appear in the adjusted trial balance of Edu Company on December
31, 2015:
Payroll fund 200,000
Money market placements 500,000
Bond sinking fund securities 800,000
Preferred redemption fund cash deposits 1,000,000
Dividend and interest receivable from sinking fund investments 50,000
Plant expansion fund 320,000
Trading security investments 300,000
Investment in FA at FVTOCI 600,000
Investment in associates 2,000,000
Cash surrender value 80,000
Investment property 1,200,000
Advances to subsidiary 900,000
Investment in FA at AC 1,500,000
How should be reported as long-term investments on December 31, 2015?
a. 7,800,000
b. 7,850,000
c. 8,300,000
d. 8,450,000
11. Binay Corporation has the following equity accounts:

Par value of share capital 5,000,000

Asset revaluation reserve 1,200,000
Unrealized loss on financial assets at fair value through OCI 1,000,000
Unrealized gain on futures as cash flow hedges 600,000
Actuarial loss - fully recognized 200,000
Share premium 3,000,000
Foreign translation reserve - debit 500,000
Appropriation reserve 2,000,000
Retained earnings 3,000,000

What is total amount of shareholders equity?

a. 13,100,000
b. 13,300,000
c. 16,300,000
d. 14,100,000

12. The following information was included in the bank reconciliation for Bayani Company for
October and November of 2015:

Checks and charges recorded by bank in November, including a November

service charge of P4,000 totaled P550,000.
Service charge made by bank in October and recorded on the books in
November, P2,500.
Total of credits to cash in all journals during November, P620,000.
Customers NSF check returned as a bank charge in November (no entry made
on books), P20,000.
Customers NSF check returned in October and redeposited in November (no
entry made on books in either October or November), P40,000.
Outstanding checks at October 31, 2015 that cleared in November, P230,000.
Deposits in transit at November 30, P300,000.

What were the total outstanding checks on November 30, 2015?

a. 281,500
b. 300,000
c. 321,500
d. 301,500

13. The physical count conducted in the warehouse of Revilla Company on December 31, 2015
revealed merchandise with a total cost of P5,000,000 was on hand on that date. However,
further investigation revealed that the following items were excluded from the count:
* Goods sold to a customer, which are being held for the customer to call for at
the customers convenience with a cost of P200,000.
* A packing case containing a product costing P500,000 was standing in the
shipping room when the physical inventory was taken. It was not included in
the inventory because it was marked hold for shipping instructions. Your
investigation revealed that the customers order was dated December 28,
2015, but that the case was shipped and the customer billed on January 4,
* A special machine costing P250,000, fabricated to order for a customer, was
finished and specifically segregated in the back part of the shipping room on
December 31, 2015. The customer was billed on that date and the machine
excluded from inventory although it was shipped on January 2, 2016.
The correct amount of inventory that should be reported in Revilla Companys statement of
financial position at December 31, 2015 is
a. 5,950,000
b. 5,750,000
c. 5,500,000
d. 5,700,000
14. Lacson Companys allowance for uncollectible accounts was P250,000 at the end of 2015
and P160,000 at the end of 2014. For the year ended December 31, 2015, Lacson reported
doubtful accounts expense of P130,000 in its income statement and recoveries of previously
written off accounts of P20,000. What amount did Lacson debit to the appropriate account
in 2015 to write off actual uncollectible accounts?
a. 40,000
b. 60,000
c. 80,000
d. 50,000

15. Elvie Company produced 50,000 kilos of tobacco during the 2018 season. Elvie sells all of
its tobacco to Emeralds Company, which has agreed to purchase the entire production at
the prevailing market price. Recent legislation assures that the market price will not fall
below P30 per kilo during the next two years. The costs of selling and distributing the
tobacco are immaterial and can be reasonably estimated. Elvie sold and delivered 40,000
kilos at the market price of P30. Elvie sold the remaining 10,000 kilos during 2019 ay the
market price of P40. What amount of revenue should Elvie Company recognize in 2018?
a. 1,200,000
b. 1,500,000
c. 2,000,000
d. 1,600,000

16. Ponce Enrile Company sells merchandise on a consignment basis to dealers. The selling
price of the merchandise averages 25% above cost of the merchandise. The dealer is paid
a 10% commission of the sales price for all sales made. All dealer sales are made on a
cash basis. The following consignment sales activities occurred during 2010:

Manufacturing cost of goods shipped on consignment 8,800,000

Sale price of merchandise sold by dealers 9,600,000
Payments remitted by dealers after deducting commission 6,300,000

How much is the gross profit on sales?

a. 2,400,000
b. 1,920,000
c. 1,700,000
d. 1,220,000

17. On January 1, 2015, Trillanes Company acquired 150,000 ordinary shares of Magdalena
Company for P11,250,000. At the time of purchase, Magdalena Company had outstanding
600,000 shares with a book value of P42 million. For the year ended December 31, 2015,
the following events took place:

* Magdalena reported net income of P5,000,000 for the calendar year

* Trillanes received from Magdalena a dividend of P2.00 per ordinary
share on October 1, 2015 and a 10% share dividend on December 1,
* The market value of Magdalena Company stock was quoted at P80 per

The investment is classified as financial assets at fair value through OCI. What is the
carrying value of the investment on December 31, 2015?
a. 12,000,000
b. 13,200,000
c. 12,200,000
d. 11,250,000
18. On December 31, 2015, Janna Company showed the following information for amounts
capitalized as machinery that it assembled for its own use:
Cost of dismantling old machine 100,000
Raw materials used 1,200,000
Labor in construction 500,000
Cost of installation in factory 50,000
Materials spoiled and labor paid in trial run 50,000
Profit in construction 250,000
Purchase of machine tools 150,000
Cash proceeds from sale of old machine ( 80,000)
An analysis of the details in the account discloses the following:
The old machine, which was removed in the installation of the new one, had been
fully depreciated.
A discount was received on the prompt payment of materials used in construction for
P50,000 and this was reported in the purchase discount account.
The factory overhead account shows a balance of P2,500,000 for the year ended
December 31, 2015. This balance exceeds normal overhead on plant activities by
P200,000 and is attributable machine construction.
The profit was recognized on construction for the difference between total cost
incurred and the price at which the machine could have been bought.
What is the cost of the machinery?
a. 1,550,000
b. 2,050,000
c. 2,100,000
d. 1,950,000
19. On January 1, 2015, Cayetano Company purchased bonds with face value of P5,000,000
for P4,600,000 plus direct transaction cost of P21,000. The business model is to collect
contractual cash flows and it has been determined that contractual cash flows are solely
payments of principal and interest. The bonds are purchased to yield 10% interest. The
nominal interest rate on the bonds is 8% payable annually every December 31. Cayetano
appropriately uses the effective interest method of amortization and the market value of the
bonds on December 31, 2015 is 105. What amount income to be recognized from this
a. 462,100
b. 400,000
c. 368,000
d. 460,000
20. Humble Company had the following gains during 2015 which was considered to be unusual
and infrequent in Humbles line of business:

Gain on debt restructuring 5,000,000

Foreign currency translation gain due to major devaluation 4,200,000
Gain from the expropriation of assets 2,500,000
Revaluation increment on land 2,800,000
Unrealized gain on financial assets through OCI 1,000,000
Unrealized gain on trading securities 1,500,000

What total amount of gains should Humble include as component of comprehensive

a. 13,000,000
b. 9,500,000
c. 9,000,000
d. 10,500,000

21. Arroyo Corporation sold one of its factories on January 1, 2015 for P7,000,000. Arroyo
received a cash down payment of P1,000,000 and a 4-year, 12% note for the balance. The
note is payable in equal annual payments of principal and interest of P1,975,406 payable on
December 31 of each year until the year 2015. What is the carrying amount of the note
receivable on December 31, 2015 in the statement of financial position?
a. 4,500,000
b. 4,744,594
c. 4,624,594
d. 4,025,594

22. The following data are available for purposes of stating the financial position of Remonde
Company on December 31, 2015:

Cash P 1,200,000
Investment securities Trading (includes long-term
investment of P500,000 in ordinary shares of
Ayala Developers) 2,000,000
Inventories (net of amount still due suppliers of P200,000) 800,000
Prepaid expenses (includes a deposit of P40,000 made
on inventories to be delivered in 18 months) 150,000
Property, plant, and equipment (excluding P300,000
of equipment still in use, but fully depreciated) 10,000,000
Goodwill (based on estimate by the president of Remonde) 1,000,000
Total assets P15,150,000

Further analysis of cash shows the following:

Cash in general checking account 600,000
Cash in fund to be used to retire bonds in 2014 500,000
Cash held to pay sales taxes 100,000

How much is the current assets that should be shown in the statement of financial position
as of December 31, 2015?
a. 3,650,000
b. 3,310,000
c. 3,350,000
d. 3,810,000

23. Tamano, Corporations checkbook balance on December 31, 2015 was P1,500,000. In
addition, Tamano held the following items in its safe on December 31.

(1) A check for P200,000 from Larry Corporation received December 1, 2015,
dated January 5, 2016, which was not included in the checkbook balance.
(2) An NSF check from Lorelei Company in the amount of P100,000 that had
been deposited at the bank, but was returned for lack of sufficient funds on
December 29. The check was to be redeposited on January 3, 2016. The
original deposit has been included in the December 31 checkbook balance.
(3) Coin and currency on hand amounted to P350,000.
(4) An unrecorded money order for P500,000.
(5) Company checks that have been written and recorded amounting to
The proper amount to be reported on Tamano's statement of financial position for cash at
December 31, 2015 is
a. 2,250,000
b. 2,450,000
c. 1,650,000
d. 2,850,000
24. On December 31, 2015, Macapagal Bank has a 5-year loan receivable with a face value of
P5,000,000 dated January 1, 2014 from a borrower that is due on December 31, 2015.
Interest on the loan is payable at 9% every December 31. The borrower paid the interest
that was due on December 31, 2014 but informed Macapagal that interest accrued in 2015
will be paid at maturity date while there is a high probability that interest payments in 2016
and 2017 will not be paid because of financial difficulty. After that, the borrower is expected
to resume to pay the interest in the last year of the loan. It was also determined that the
prevailing market rate of interest on December 31, 2015 is 10%. What is the loan
impairment loss to be recognized on December 31, 2015? (Round off present value factors
to three decimal places)
a. 1,019,100
b. 895,200
c. 1,272,800
d. 1,420,000

25. Santiago Company is engage in raising dairy livestock. Information regarding its activities of
its dairy livestock is found below.

Carrying amount at January 1, 2015 5,000,000

Increases due to purchases 2,000,000
Gain arising from changes in fair value less cost to sell
attributable to price change 400,000
Gain arising from changes in fair value less cost to sell
attributable to physical change 600,000
Decreases due to sales 850,000
Decreases due to harvest 200,000

What is the carrying amount of Santiago Companys biological assets on the statement of
financial position on December 31, 2015?
a. 6,950,000
b. 6,000,000
c. 8,000,000
d. 7,150,000

26. On January 1, 2015, Haiti Company received a grant of P10,000,000 from the Philippine
government to compensate for massive losses and damages to its properties incurred
because of a tragic earthquake in its area. The grant requires no fulfillment of certain
conditions. The grant was for the purpose of giving immediate financial support to the entity.
It is estimated that it will take Haiti 2 years to reconstruct its facilities destroyed by the
earthquake and a total of 4 years before its operations normalize. How much income from
the government grant should be recognized by Haiti in 2015?
a. 10,000,000
b. 5,000,000
c. 2,000,000
d. 2,500,000

27. Acosta Company acquired a machine on January 1, 2013 for P10,000,000. The machine
has an 8-year useful life and a P1,000,000 residual value, and was depreciated using the
sum-of-years digits method. Acosta recorded a full years depreciation on the asset in 2013
and 2014. In January of 2015, Acosta estimated that the assets useful life from the date of
acquisition should have been 6 years and its residual value to be P400,000. As a result of
this change in Acostas accounting estimate, what is the accumulated depreciation on
December 31, 2015?
a. 5,212,500
b. 6,090,000
c. 4,400,000
d. 6,250,000

28. Pensacola Company acquired a tract of land containing extractable natural resources.
Pensacola Company is required by the purchase contract to restore the land to a condition
suitable for recreational use upon sale after it has extracted the natural resources.
Geological surveys estimate that the recoverable reserves will be 2,500,000 tons and that
the extraction will be completed in five years. The following information was gathered for
activities related to mining the minerals:
Land purchase price 12,000,000
Machinery, equipments and improvements for extraction 6,000,000
Exploration and development costs 5,000,000
Expected cash flows for restoration costs 2,000,000
Residual value 4,000,000
Credit-adjusted risk free interest rate 10%
PV of 1 at 8% for 6 periods 0.63
The company extracted 500,000 tons of the minerals in 2015 and sold 400,000 tons. What
the amount of depletion to be included in the 2015 statement of comprehensive income?
a. 2,852,000
b. 2,281,600
c. 3,000,000
d. 2,400,000
29. Bronx Company acquired a machine on January 2011 at a cost of P2,500,000. The
estimated residual value of the machinery is P400,000 and has an estimated useful life of 8
years to be depreciated under the straight-line method. In January of 2015, Bronx has
determined that there was a permanent impairment in the value of the machinery, therefore
Bronx recorded an impairment loss of P450,000 and estimated that the remaining useful life
of the machine is two years with no residual value. At what amount should the machinery
be reported in Bronxs December 31 2015 statement of financial position?
a. 750,000
b. 600,000
c. 450,000
d. 500,000

30. The following account balances relating to real properties of Parlays Company appear on
the books on December 31, 2014:
Land 1 3,000,000
Land 2 5,000,000
Land 3 7,000,000
On January 1, 2015, Parlays Company revalued its land to fair value, Parlays does not have
any other assets carried at revalued amount on this date. The fair value on this date of
Land 1, 2 and 3 are P3,500,000, P6,000,000 and P9,000,000, respectively. Buildings and
other facilities located on all three properties are depreciated under the straight-line method
of depreciation using a ten-year useful life. On December 31, 2015, Land 2 and the
structures on the property were sold for a total amount of P10,000,000. What is the amount
revaluation surplus transferred to retained earnings for the year ended December 31, 2015?
a. 1,000,000
b. 1,350,000
c. 1,250,000
d. 350,000

31. De Castro Company acquired 20,000 shares of Mickeys Company on January 1, 2014, at
P150 per share. Mickeys had 80,000 shares outstanding with a book value of P10,400,000.
Three-fourths of the difference between the purchase price of De Castro and book value of
Mickeyss shares on January 1, 2014, is attributable to a broadcast license intangible asset,
while the balance was ascertained as goodwill. Mickeys recorded earnings of P2,000,000
and P2,500,000 for 2014 and 2015, respectively, and paid per-share dividends of P10 in
2014 and P12 in 2015. Mickeys uses a 10-year straight-line amortization policy for the
broadcast license. What shall De Castro Company report in 2015 as its equity in earnings
of Mickeys Company?
a. 585,000
b. 595,000
c. 625,000
d. 240,000

32. Scudder Company adapted the following changes during 2015:

* Appropriately changed to the FIFO cost method from the weighted-average
cost method for financial statement and income tax purposes. The change will
result in a P700,000 decrease in the beginning inventory at January 1, 2015.
* Changed its method of accounting for bad debts from the direct write-off
method to the allowance method. The company's controller determined that an
allowance of P150,000 should be established on that date.
* Due to technological changes, depreciable assets will have lower residual
values than were originally expected. Analysis shows that depreciation in prior
years was understated by P500,000.
Ignoring income tax effect, what is the net adjustment to the 2015 beginning balance of
retained earnings of Scudder Company?
a. 850,000
b. 1,200,000
c. 1,350,000
d. 550,000

33. The audit of Goodness Company for the year ended December 31, 2015 was completed on
March 1, 2016. The financial statements were signed by the managing director on March
15, 2016 and approved by the shareholders on March 31, 2016. The next events have
* On January 15, 2016, a customer owing P900,000 to Goodness filed for bankruptcy.
The financial statements include an allowance for doubtful debts pertaining to this
customer of P100,000
* Specialized equipment costing P525,000 purchased on September 1, 2015 was
destroyed by fire on December 15, 2015. Goodness Company has booked a receivable
of P400,000 from the insurance company. After the insurance company completed its
investigation on February 1, 2016, it was discovered that the fire took place due to the
negligence of the machine operator. As a result, the insurers liability was zero on this
* Goodness Companys issued capital comprised 100,000 equity shares with P100 par
value. The company issued additional 25,000 shares on March 1, 2016.
What amount should Goodness Company should report as net amount of adjusting events
on December 31, 2015?
a. 1,300,000
b. 1,200,000
c. 3,800,000
d. 3,700,000
34. Velarde Company purchases approximately 500,000 bushels of oats each month. On
December 1, 2014, Velarde purchased an option to purchase 500,000 bushels of oats on
March 1, 2015, at a price of P100 per bushel, which is the market price of bushel on that
date. Velarde had to pay P100,000 to purchase this oats call option, which it designated as
a cash flow hedge against price increases for its March 2015 purchase of oats. On
December 31, 2015, the price of oats is P95 per bushel. Because there is still time for the
price of oats to potentially rise above P100 per bushel before the option expires, the option
has a value of P40,000 on December 31, 2014. On March 1, 2015, the price of oats is
P104. What is the gain on the call option to be recorded by Velarde in its 2015 statement of
comprehensive income?
a. 2,000,000
b. 1,900,000
c. 1,960,000
d. 1,940,000

35. The following expenditures were incurred by Puno Company:

Painting partitions in a large room recently divided into four sections 50,000
Labor cost of tearing down a wall to permit extension of
an assembly line 200,000
Replacement of the motor of the machine. This replacement was
anticipated when the machine was purchased. 500,000
Cost of grading land prior to construction 600,000
Dust filters in the interior of the factory were replaced. The new filters
are expected to reduce employee health hazards and thus reduce
wage and fringe benefit costs. 800,000
How much of the expenditures above will be capitalized?
a. 2,150,000
b. 1,950,000
c. 1,900,000
d. 1,400,000

36. The owners of Heart Company are planning to sell the business to new interests. The
cumulative net earnings for the past 3 years was P9,000,000 including expropriation gain of
P1,500,000. The current value of net assets of Heart Company was P9,000,000. Goodwill is
determined by capitalizing average earnings at 25%. What is the amount of goodwill?
a. 1,333,333
b. 5,000,000
c. 1,000,000
d. 2,000,000

37. On January 1, 2015, Villanueva Company classified noncurrent assets as held for sale that
had a carrying amount of P2,500,000. On this date, the assets can be expected to be sold
for P2,300,000. Reasonable and expected disposal cost to be incurred for sale was
expected at P100,000. By December 31, 2015, the asset had not been sold and
management after considering its options decided to place back the noncurrent asset into
operations. On that date, Villanuevas managers estimated the noncurrent asset was now
expected to be selling at P1,800,000 with the disposal cost of P50,000, while depreciation
for 2015 was computed at P500,000 if the noncurrent asset was not classified as held for
sale. How much is the additional loss that shall be reported in the 2015 statement of
comprehensive income on December 31, 2015?
a. 200,000
b. 450,000
c. 250,000
d. 0
38. On June 30, 2015, when the carrying amount of the net assets of a business segment was
P25,000,000, Delos Reyes Company signed a legally binding contract to sell the business
segment. The sale is expected to be completed by March 31, 2016 at a selling price of
P20,000,000. In addition, prior to March 31, 2016, the sale contract obliges Delos Reyes
Company to terminate the employment of certain employees of the business segment
incurring an expected termination cost of P1,000,000, final settlement under this obligation
is on February 1, 2016. The segments revenue and expenses for 2015 were P12,000,000
and P 10,000,000 respectively. Before the close of the year, Delos Reyes sold several
assets of the discontinuing segment recording a loss on sale of P1,500,000. Before income
tax, how much will be reported as loss from the discontinued segment for 2015?
a. 4,000,000
b. 5,500,000
c. 3,000,000
d. 4,500,000

39. On December 1, 2015, Lucy Corporation leased office space for 10 years at a monthly rental
of P100,000. On that date Lucy paid the landlord the following amounts:
Rent deposit P 500,000
First month's rent 100,000
Last month's rent 100,000
Installation of new walls and offices 810,000
Total P1,510,000
The entire amount of P1,510,000 was charged to rent expense in 2015. What amount
should Lucy have charged to expense for the year ended December 31, 2015?
a. 100,000
b. 106,750
c. 206,750
d. 910,000

40. The following calculation refers to an impairment loss suffered by Bran Company on
December 31, 2014:

Goodwill Net assets

Carrying amount 4,500,000 13,500,000
Impairment loss (4,500,000) (3,000,000)
Adjusted carrying amount - 10,500,000

There has been a favorable change in the estimate of the recoverable amount of the net
assets. The recoverable amount is now P12,000,000 on December 31, 2015. The carrying
amount of the net assets on December 31, 2015 would have been P10,800,000 if there was
no impairment loss recognized on December 31, 2014. Assets are depreciated at 20% of
reducing balance. What gain on reversal of impairment loss should be recognized in 2015?
a. 1,500,000
b. 3,600,000
c. 2,400,000
d. 0