Problem 22-5 (IFRS)

Ingenuous Company acquired a building on January 1, 2019 for P9, 000,000. At that date the building had
a useful life of 30 years.
On December 31, 2019 the fair value of the building was P9, 600,000 and on December 31, 2020, the fair
value is P9, 800,000.
The building was classified as an investment property and accounted for under the cost model.
What amounts should be carried in the statement of financial position and recognized in profit or loss for
2020?
Carrying amount Profit or loss
a. 8,400,000 300,000 expense
b. 9,000,000 No gain, no loss
c. 9,800,000 200,000 gain
d. 8,700,000 300,000 expense

Problem 22-6 (IFRS)

Considerate Company has a single investment property which had an original cost of P5, 800,000 on
January 1, 2017.
On December 31, 2019 the fair value was P6, 000,000 and on December 31, 2020 the fair value was
P5,900,000.
On acquisition, the property had a useful life of 40 years.
What is the expense recognized in profit or loss for 2020 under the fair value model and cost model?
Fair value model Cost model
a. 147,500 145,000
b. 100,000 145,000
c. 145,000 100,000
d. 100,000 147,500

Problem 22-7 (IFRS)

Paradise Company's accounting policy with respect to investment property is fair value model at the end of
each reporting period. One investment property had a fair value of P8, 000,000 on December 31, 2019.
The property had been acquired on January 1, 2019 for a total of P7, 600,000, made up of P6, 900,000 paid
to the vendor P300,000 paid to the local authority as a property transfer; tax and P400,000 paid to
professional advisers. The useful life of the property is 40 years.
What is the gain to be recognized for 2019 in respect of the investment property?
a. 400,000
b. 700,000
c. 800,000
d. 590,000

Problem 22-8 (IFRS)

On January 1, 2019, Scholastic Company acquired a building to be held as investment property in a remote
location for P5, 000,000. After initial recognition, the entity measured the investment property using the
cost model because the fair value cannot be measured reliably.
On December 31, 2019, management assessed the useful life of the building at 20 years from the date of
acquisition and presumed the residual value to be nil because the fair value cannot be determined reliably.
At year-end, the entity declined an unsolicited offer to purchase the building for P6, 500,000. This is a one-
time offer that is unlikely to be repeated in the foreseeable future.
What is the carrying amount of the building on December 31, 2019?
a. 5,000,000
b. 6,500,000
c. 6,175,000
d. 4,750,000

Problem 22-9 (IFRS)

On January 1, 2019, Wee Company acquired property consisting of ten identical freehold detached houses
each with separate legal title including the land on which it is built for P200, 000,000, 20% of which is
attributable to the land. The units have a useful life of 50 years.
The following costs are also incurred on such date:
• Nonrefundable transfer taxes not included
in the purchase price 20,000,000
• Legal cost directly attributable to the acquisition 1,000,000
• Reimbursement to the previous owner for
prepaying nonrefundable property taxes
for the six-month period ending June 30, 2019 100,000
• Advertising campaign 500,000
• Opening function to celebrate new rental business 200,000
On June 30, 2019, the entity paid local property taxes of P200, 000 for the year ending June 30, 2020.
Throughout 2019, the entity incurred repairs and maintenance of P120, 000.
The entity used one of the ten units to accommodate the administration and maintenance staff.
The other nine units are rented out to independent parties under an operating lease.
On December 31, 2019, the fair value of each unit was reliably estimated at P25, 000,000. The fair value
of the units can be measured reliably.
The accounting policy is to use the fair market value model for investment property.
1. What is the initial measurement of the investment property?
a. 198, 900,000
b. 198.000,000
c. 176,800,000
d. 180,000,000
2. What is the initial measurement of the land to be accounted for as property, plant and equipment?
a. 4,400,000
b. 4,420,000
c. 4,000,000
d. 4,430,000
3. What is the initial measurement of the building to be accounted for as property, plant and equipment?
a. 17,690,000
b. 17,600,000
c. 17,680,000
d. 16,000,000
4. What is the gain from the increase in fair value of investment property for the current year?
a. 51,100,000
b. 27,000,000
c. 45,000,000
d. 26,100,000
5. What is the depreciation of the building for the current year?
a. 353,600
b. 320,000
c. 352,000
d. 353,800
Problem 22-10 (IFRS)
Rhino Company, a real estate entity, had a building with a carrying amount of P20, 000,000 on December
31, 2019.
The building was used as offices of the entity's administrative staff.
On December 31, 2019, the entity intended to rent out the building to independent third parties. The staff
will be moved to a new building purchased early in 2019.
On December 31, 2019, the original building had a fair value of P35, 000,000.
On December 31, 2019, the entity also had land that was held for sale in the ordinary course of business.
The land had a carrying amount of P10, 000,000 and fair value of P15, 000,000 on December 31, 2019.
On such date, the entity decided to hold the land for capital appreciation.
The accounting policy is to carry all investment property at fair value.
1. On December 31, 2019, what amount should be recognize in revaluation surplus as a result of transfer
of the building to investment property?
a. 20,000,000
b. 35,000,000
c. 15,000,000
d. o
2. On December 31, 2019, what amount should be recognized in profit or loss as a result of transfer of the
land to investment property?
a. 15,000,000
b. 10,000,000
c. 5,000,000
d. 0
Problem 22-14 (AICPA Adapted)
Marital Company has a P5, 000,000 ordinary life insurance policy on the president. The policy year and
accounting year coincide.
The entity provided the following data for the year ended December 31, 2019:
Cash surrender value, January 1 245,000
Cash surrender value, December 31 270,000
Annual advance premium paid -January 1 100,000
Dividend received-July 1 15,000
The entity is the beneficiary under the life insurance policy. The insured died on January 2, 2020, after the
payment of annual premium of P100, 000 on January 1, 2020.
What is the life insurance expense for 2019?
a. 100,000
b. 85,000
c. 60,000
d. 75,000

Problem 22-15 (AICPA Adapted)

Chain Company has a P5, 000,000 life insurance policy on the president, of which Chain Company is the
beneficiary.
The entity provided the following information regarding the policy for the year ended December 31, 2019:
Cash surrender value, January 1 435,000
Cash surrender value, December 31 540,000
Annual advance premium paid January 1 200,000
During the current year, dividends of P30, 000 were applied to increase the cash surrender value of the
policy.
What amount should be reported as life insurance expense for 2019?
a. 200,000
b. 125,000
c. 65,000
d. 95,000
Problem 23-6 (IAA)
On January 1, 2019, Pasay Company entered into a two-year. P3, 000,000 variable interest rate loan at the
prevailing rate of 12%>
In 2020 the interest rate is equal to the prevailing interest rate at the beginning of the year.
The principal loan is payable on December 31, 2020 and the interest is payable on December 31 of each
year.
On January 1, 2019, Pasay Company entered into a “receive variable, pay fixed” interest swap agreement
with a bank speculator designated as a cash flow hedge.
The prevailing interest rate on January 1, 2020 is 14% and the present value of 1 at 14% for one period is
.877.
1. What amount should be reported as interest rate swap receivable on December 31, 2019?
a. 60,000
b. 52,620
c. 30,000
d. 0
2. What amount should be reported as interest expense for 2020?
a. 300,000
b. 420,000
c. 390,000
d. 323,400

Problem 23-7 (IAA)

On January 1, 2019, Imus Company received a two-yean variable interest rate loan of P5,000.000.
The interest on the loan is payable on December 31 of year and the principal is to be repaid on December
31, 2020.
On January 1, 2019, Imus Company entered into a "receive variable, pay fixed” interest rate swap agreement
with speculator bank designated as a cash flow hedge.
The interest rate for 2019 is the prevailing interest rate of 10% and the rate in 2020 is equal to the prevailing
rate on January 1, 2020.
The market rate of interest on January 1, 2020 is 7% and the present value of 1 at 7% for one period is .935.
1. What amount should be reported as interest rate swap payable on December 31, 2019?
a. 150,000
b. 140,250
c. 100,000
d. 0
2. What amount should be reported as interest expense 2020?
a. 500,000
b. 350,000
c. 150,000
d. 467,500

Problem 23-8 (IAA)

On January 1, 2019. Genial Company borrowed P5, 000,000 from a bank at a variable rate of interest for
4 years. Interest will be paid annually to the bank on December 31 and the principal due on December 31,
2022.
Under the agreement, the market rate of interest every January 1 resets the variable rate for the period and
that amount of interest to be paid on December 31.
In conjunction with the loan, the entity entered into a "receive variable, pay fixed' interest swap agreement
with another bank speculator as a cash flow hedge.
The market rates of interest are 6% on January 1, 2019, 10% on January 1, 2020 and 8% on January 1,
2021.
The present value of an ordinary annuity of 1 at 10% for three periods is 2.49 and the present value of an
ordinary annuity of 1 at 8% for two periods is 1.78.
1. What in the “notional” amount of the interest rate swap?
a. a.5,000,000
b. 2,000,000
c. 2,500,000
d. 0
2. What is the derivative asset or liability on December 31, 2019?
a. 200,000 asset
b. 200,000 liability
c. 498,000 asset
d. 498,000 liability
3. What is the derivative asset or liability on December 31, 2020?
a. 100,000 asset
b. 100,000 liability
c. 178,000 asset
d. 178,000 liability
Problem 23-9 (IAA)
On January 1, 2019, Rachelle Company received a four-year P5, 000,000 loan with interest payment
occurring at the end of each year and the principal to be repaid on December 31, 2020.
The interest for 2019 is the prevailing market rate of 10% on January 1, 2019, and the market interest rate
every January 1 resets the valuable rate of interest for that year. The “underlying" fixed interest rate is 10%.
In conjunction with the loan, the entity entered into a "receive variable, pay fixed" interest rate swap
agreement as cash flow hedge. The interest swap payment will be made on December 31 of each year.
The market rate of interest is 6% on January 1, 2020 and 7% on January 1, 2021. Round off present value
factor to two decimal places.
1. What is the derivative asset or liability on December 31, 2019?
a. 504,000 asset
b. 504,000 liability
c. 534,000 asset
a. 534,000 liability
2. What is the derivative asset or liability on December 31, 2020?
a. 271,500 asset
b. 271,500 liability
c. 261,000 asset
d. 261,000 liability
3. What amount of interest expense should be reported in 2020?
a. 500,000
b. 300,000
c. 400,000
d. 156,000

Problem 23-10 (IAA)

On January 1, 2019, Taal 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 on December 31, 2023.
The interest rate for 2019 is 8% and the rate in each succeeding year is equal to market interest rate on
January 1 of each year.
On January 1, 2019, Taal Company entered into a "receive variable pay fixed” interest rate swap agreement
with a financial institution. The swap payments are made at the end of the year.
This interest rate swap agreement is designated as a cash flow hedge.
On January 1, 2020, the market rate of interest is 9%. The present value of an ordinary annuity of l at 9%
for four periods is 3.24.
On January 1, 2021, the market rate of interest is 12%. The present value of an ordinary annuity of 1 at
12% for three periods is 2.40.

1. On December 31, 2019, what amount should be reported as interest rate swap receivable?
a. 300,000
b. 240,000
c. 194,400
d. 120,000
2. On December 31, 2020, what amount should be reported as interest rate swap receivable?
a. 720,000
b. 777,600
c. 576,000
d. 240,000
3. What is the interest expense for 2020?
a. a.720 000
b. 540,000
c. 480,000
d. 240,000
Problem 25-12 (IAA)
During the year, Storm Company purchased a new machine. A P120, 000 down payment was made and
three monthly installments of P360, 000. The cash price would have been P1, 160,000.
The entity paid no installation charges under the monthly payment but a P20, 000 installation charge would
have been incurred with a cash purchase.
What amount should be capitalized as cost of the machine?
a. 1,220,000
b. 1,200,000
c. 1,180,000
d. 1,160,000

Problem 25-13 (AICPA Adapted)

Grey Company acquired a machine with a cash price of P2, 000,000.
Down payment 400,000
Notes payable in 3 equal annual installments 1,200,000
20,000 shares of Grey Company at fair value 800,000
Prior to use installation cost of P50, 000 was incurred. The machine has a residual value of P100, 000.
What is the initial measurement of the new machine?
a. 2,000,000
b. 2,400,000
c. 2,050,000
d. 2,450,00
Problem 25-14 (IAA)
Corner Company purchased a van with a list price of P3, 000,000. The dealer granted a 15% reduction in
list price and an additional 10% cash-discount on the net price if payment is made in 30 days.
Irrevocable taxes amounted to P40, 000 and the entity paid an extra P30,000 to have a special horn installed.
What amount should be recorded as initial cost of the van?
a. 2,550,000
b. 2,335,000
c. 2,365,000
d. 2,325,000
Problem 25-15 (AICPA Adapted)
On December 31, 2019, Bart Company purchased a machine in exchange for a non interest bearing note
requiring eight payments of P200, 000.
The first payment was made on December 31, 2019 and the others are due annually on December 31.
At date of issuance, the prevailing rate of interest for this type of note was 11%.
PV of an ordinary annuity of 1 at 11% for 8 periods 5.146. PV of an 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 is the discount on note payable on December 31, 2019?
a. 657,600
b. 457,600
c. 570,800
d. 0
3. What is the interest expense for 2020?
a. a.125, 664
b. 103, 664
c. 113, 212
d. 176,000
4. What is the carrying amount of note payable on December 31,2020 ?
a. 942,400
b. 846,064
c. 742,400
d. 742,412

Problem 25-16 (IAA)

At the beginning of current yea, Allison Company purchased a new machine on a deferred payment basis.
A down payment of P200, 000 was made and four annual installment of P600, 000 each are to be made
every year-end. The cash equivalent price of the machine was P2, 300,000.
Due to an employee strike, the entity could not install the machine immediately and thus incurred P30, 000
of storage cost. Cost of installation excluding the storage cost amounted to P80, 000.
What is the initial amount to be capitalized as the cost of the machine?
a. 2,300,000
b. 2,380,000
c. 2,410,000
d. 2,600.000

Problem 25-17 (IAA)

Lax Company recently acquired two items of equipment.
* Acquired a press at an invoice price of P3, 000,000 subject to a 5% cash discount which was taken.
Costs of freight and insurance during shipment were P50, 000 and installation cost amounted to P200, 000.
*Acquired a welding machine at an invoice of P2, 000,000 subject to a 10% cash discount which was not
taken.
Additional welding supplies were acquired at a cost of P100, 000.
What is the total increase of the equipment account as a result of transactions?
a. 4,900,000
b. 5,000,000
c. 5,100,000
d. 5,200,000

Problem 25-18 (AICPA Adapted)

At the beginning of the current year Hallmark Company exchanged an old package machine, which cost
P1, 200,000 and was 50% depreciated, for a used machine and paid a cash difference of P160, 000.
The fair value of the old packaging machine was determined to be P700, 000.
1. What is the cost of the new asset acquired?
a. 700,000
b. 860,000
c. 660,000
d. 600,000
2. What is the gain on exchange?
a. 540,000
b. 100,000
c. 60,000
d. 0
Problem 25-19 (AICPA Adapted)

At the beginning of the current year, Junk Company traded in an old machine having a carrying amount of
P1, 680,000 and paid a cash difference of P600, 000 for a new machine with a cash price of P2,050,000.
1. What is the 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. 230,000
c. 370,000
d. 0

Problem 25-20 (AICPA Adapted)

Amiable Company exchanged a truck with a carrying amount of P1, 200, 000 and a fair value of P2, 000,000
for a truck and P200, 000 cash. The fair value of the truck received was P1, 800,000.
The cash flows from the new truck are not expected to be significantly different from the cash flows of
the old truck.
1. At what amount should the truck received in the exchange be recorded?
a. 2,000,000
b. 1,400,000
c. 1,000,000
d. 1,800,000
2. What is the gain on exchange?
a. 800,000
b. 600,000
c. 200,000
d. 0

Problem 25-21 (AICPA Adapted)

During the current year, Lethal Company paid P100, 000 and exchanged inventory which has a carrying
amount of P2, 000,000 and a fair value of P2,100,000 for other inventory in the same line of business with
fair value of P2,200,000.
1. What is the initial measurement of the new inventory received in exchange?
a. 2,000,000
b. 2,100,000
c. 2,200,000
d. 2,300,000
2. What is the gain on exchange?
a. 100,000
b. 200,000
c. 300,000
d. 0

Problem 25-22 (AICPA Adapted)

Yola Company and Zaro Company are fuel oil distributors. To facilitate the delivery of oil to their
customers, Yola Company and Zaro Company exchanged ownership of 1,200 barrels of oil without
physically moving the oil.
Company paid Zaro Company P300, 000 to compensate for a difference in the grade of oil.
The configuration of cash flows from the asset received is not expected to be significantly different from
the configuration of the cash flows of the asset exchanged.
On the date of exchange, cost and market value of the oil were as follows:

Yola Company Zaro Company

Cost 1,000,000 1,400,000
Market value 1,200,000 1,500,000

1. What is initial measurement of the oil inventory received in exchange by Yola Company?
a. 1,000,000
b. 1,200,000
c. 1,300,000
d. 1,500,000
2. What is the initial measurement of the oil inventory in exchange by Zero Company?
a. 1,400,000
b. 1,500,000
c. 1,100,000
d. 1,200,000