NFJPIA REGION 11

REGIONAL ACADEMIC FESTIVAL 2017

(CUP 1 – FAR)

EASY
1. Which statement is correct?
a. The Bureau of Internal Revenue is represented in the AASC.
b. The Insurance Commission is represented in the Philippine Interpretations Committee.
c. The chairman of the FRSC should have been or presently a senior practitioner in public accountancy.
d. Bicol is a PICPA Geographical Area.

2. Which of the following statements about the financial statements of entities is incorrect according to Philippine
Financial Reporting Standards?
a. In preparing a statement of cash flows, either the direct or the indirect method may be used. Both lead to the
same figure for net cash from operating activities.
b. Loan notes can be classified as current or non-current liabilities.
c. Financial statements must disclose an entity’s total expense for depreciation, if material.
d. An entity must disclose by note details of all adjusting events allowed for in the financial statements.

3. Which of the following is not a primary information need for the ‘investor’ user group of financial statements?
a. Assessment of repayment ability of an entity
b. Measuring performance, risk and return
c. Taking decisions regarding holding investments
d. Taking buy / sell decisions

4. According to the Conceptual Framework, which of the following, is the underlying assumption relating to financial
statements?
a. The accounts have been prepared on an accruals basis
b. Users are assumed to have sufficient knowledge to be able to understand the financial statements
c. The business is expected to continue in operation for the foreseeable future
d. The information is free from material error or bias

5. Which of the following is true regarding intangible assets?

a. An intangible asset must be amortized.
b. An intangible asset cannot be revalued.
c. Internally generated goodwill can be recognized in the financial statements by reference to the amount of
purchased goodwill of a similar company.
d. Only certain intangible assets must be reviewed for impairment annually.

6. During the year ended 30 September 2017, the entity recorded the following cash transactions:
 Payment of an annual insurance premium of P12,000. This covered the period to 31 December 2017.
 Receipt of P6,000 in respect of rent from a tenant covering the three month period to 30 November 2017.

What is the impact on the profit of making the year end adjustments for prepaid expenditure and unearned income
at 30 September 2017?
a. P1,000 increase c. P7,000 increase
b. P1,000 decrease d. P7,000 decrease

Page 1 of 8 www.prtc.com.ph
PROFESSIONAL REVIEW and TRAINING CENTER, INC.

7. In the year ended 31 May 2017, Hanne Co purchased non-current assets with a cost of P140,000, financing them
partly with a new loan of P120,000. Hanne Co also disposed of non-current assets with a carrying value of P50,000
making a loss of P3,000. Cash of P18,000 was received from the disposal of investments during the year. What
should be Hanne Co’s net cash flow from investing activities according to PAS 7 Statement of cash flows?
a. P45,000 c. P69,000
b. P75,000 d. P48,000

8. As of January 1, 2016, Seniors decided to change the method of computing depreciation on its sole piece of
equipment from the sum-of-the-years' digits method to the straight-line method. The equipment, acquired in
January 2013 for P520,000, had an estimated life of five years and a salvage value of P20,000. The amount of the
depreciation expense for 2016 is
a. P100,000 c. P50,000
b. P 60,000 d. P42,000

9. The Junior Company leased a freehold building for 20 years with effect from 1 January 2016. The useful life of the
building is 40 years. As part of the negotiations for the lease the lessor granted Junior a rent-free period. Annual
rentals of P1.6 million are payable in advance on 1 January, commencing in 2018.
What expense should Junior recognize in profit or loss in the year ended 31 December 2016?
a. P1.6 million c. P1.52 million
b. Nil d. P1.44 million

10. The current liabilities of an entity include fines and penalties for environmental damage. The fines and penalties are
stated at P10 million. The fines and penalties are not deductible for tax purposes. What is the tax base of the fines
and penalties?
a. P10 million c. P13 million
b. P 3 million d. P 0

Page 2 of 8 www.prtc.com.ph
PROFESSIONAL REVIEW and TRAINING CENTER, INC.

AVERAGE

1. How IFRS standards bring transparency?

a. By enhancing the international comparability and quality of financial information, enabling investors and other
market participants to make informed economic decisions.
b. By reducing the information gap between the providers of capital and the people to whom they have entrusted
their money.
c. By helping investors to identify opportunities and risks across the world, thus improving capital allocation.
d. All of the above.

2. PAS 40 requires all entities to

a. Use the fair value model.
b. Use the cost model.
c. Measure the fair value of investment property.
d. Measure the fair value of investment property on the basis of a valuation by an independent valuer who holds a
recognized and relevant professional qualification.

3. An entity provides security services to local businesses. The security services take the form of the physical presence
of guard dogs and their handlers, who are employees of the entity, at the clients’ premises. Which statement is
correct?
a. The dogs are biological assets (living animals) and are accounted for in accordance with PAS 41.
b. The dogs are inventories and are accounted for in accordance with PAS 2.
c. The dogs are investment properties and are accounted for in accordance with PAS 40.
d. The salary payable to the dog handlers as they perform services for the entity constitutes employee benefits.

4. If revenues from transactions with a single external customer amount to 10 per cent or more of an entity’s revenues,
the entity shall disclose
a. The total amount of revenues from each ‘major customer’.
b. The identity of the ‘major customer’.
c. The amount of revenues that each segment reports from a ‘major customer’.
d. All of the above.

5. Classification as ‘asset held-for-sale’ will most likely result in an immediate charge to profit or loss for which of the
following non-current assets?
a. Biological assets
b. Intangible assets
c. Investment property measured using the cost model
d. Property, plant and equipment using the revaluation model

6. The closing inventory at cost of a company at 31 December 2016 amounted to P284,700. The following items were
included at cost in the total:
 400 coats, which had cost P80 each and normally sold for P150 each. Owing to a defect in manufacture, they
were all sold after the reporting date at 50% of their normal price. Selling expenses amounted to 5% of the
proceeds.
 800 skirts, which had cost P20 each. These too were found to be defective. Remedial work in February 2017
cost P5 per skirt, and selling expenses for the batch totaled P800. They were sold for P28 each.
What should the inventory value be according to PAS 2 Inventories after considering the above items?
a. P281,200 c. P282,800
b. P282,100 d. P329,200

Page 3 of 8 www.prtc.com.ph
PROFESSIONAL REVIEW and TRAINING CENTER, INC.

7. Company A had a machine with a carrying amount of P450,000. Company B had a delivery vehicle with a carrying
amount of P300,000. Companies A and B exchanged the machine and vehicle, and Company B paid an additional
P90,000 cash as part of the exchange. Assume that the fair value of the delivery vehicle is P420,000. The exchange
has commercial substance.

How much gain or loss should be recorded by Company A?

a. P30,000 loss c. P120,000 loss
b. P60,000 gain d. P120,000 gain

8. Zomboss Corporation constructed a nuclear power plant at a cost of P110 million and started operating it on 1
January 2006. The plant has a useful life of 40 years. Zomboss is required to decommission the plant at the end of
its useful life at an estimated amount of P80 million. The risk-adjusted rate is 5 per cent. The entity’s financial year
ends on 31 December.
On 31 December 2015, the discount rate has not changed. However, Zomboss estimates that, as a result of
technological advances, the net present value of the decommissioning liability has decreased by P8 million.
The depreciation amount to be reported for the year ended December 31, 2016 is
a. P4.483 million c. P2.767 million
b. P2.834 million d. P2.750 million

9. Autobots Bottling purchased for P800,000 a trademark for a very successful soft drink it markets under the name
OK!. The trademark was determined to have an indefinite life. A competitor recently introduced a product that is in
direct competition with the OK! product, thus suggesting the need for an impairment test. Data gathered by
Autobots suggests that the useful life of the trademark is still indefinite, but the cash flows expected to be generated
by the trademark have been reduced either to P30,000 per year (with a probability of 80%) or to P60,000 per year
(with 20% probability). The appropriate risk-free interest rate is 5%. The appropriate risk-adjusted interest rate is
10%.
The loss on impairment of trademark is
a. P440,000 c. P200,000
b. P320,000 d. P 80,000

10. The Delap Company accounts for non-current assets using the cost model. On 25 April 2016 Delap classified a non-
current asset as held for sale in accordance with PFRS5. At that date the asset's carrying amount was P32,000, its fair
value was estimated at P22,000 and the costs to sell at P3,200. On 15 May 2016 the asset was sold for net proceeds of
P17,400.

What amount should be included as loss on disposal in Delap's statement of comprehensive income for the year ended
30 June 2016?

a. P14,600 c. P4,600
b. P13,200 d. P1,400

Page 4 of 8 www.prtc.com.ph
PROFESSIONAL REVIEW and TRAINING CENTER, INC.

DIFFICULT
1. The new requirements of PFRS 16 Leases will affect key ratios that are used to analyze a company’s financial
leverage and performance. The following will most likely increase, except
a. Leverage c. EBIT
b. Asset turnover d. EBITDA

2. The following are amendments to the PFRS for SMEs, except

a. Alignment with changes made to PAS 1 on other comprehensive income components.
b. Requirement that if the useful life of goodwill or another intangible asset cannot be established reliably,
management’s best estimate is used, but must not exceed 10 years.
c. Requirement that investment property measured at cost less accumulated depreciation and impairment is
presented separately on the face of the statement of financial position.
d. Removal of the option to use the recognition and measurement requirements of PAS 39 to account for all of its
financial instruments.

3. Which of the following statements is true?

a. If a lease qualifies as a finance lease for the lessor, it will also always qualify as a finance lease for the lessee.
b. It is possible for neither the lessor nor lessee to depreciate the asset under lease.
c. A lessee's debt equity ratio is not increased if the lease is a finance lease, whereas, it would be if the asset were
purchases outright.
d. There is always "accounting symmetry" for recording and reporting leases between the lessor and lessee.

4. Which of the following are bearer plants?

a. Trees grown for use as lumber.
b. Trees that are cultivated both for their fruit and their lumber.
c. Maize and wheat.
d. None of the above.

5. Which of the following is incorrect regarding expected credit losses on financial assets in accordance with PFRS 9?
a. Expected credit losses are a probability-weighted estimate of credit losses over the expected life of the financial
instrument.
b. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract
and the cash flows that the entity expects to receive.
c. Expected credit losses consider the amount and timing of payments.
d. A credit loss cannot arise if the entity expects to be paid in full even if later than when contractually due.

6. Pak Company owns 50% of Ganern Company’s cumulative preference shares and 30% of its ordinary shares.
Ganern’s shares outstanding at December 31, 2016 include P10,000,000 of 10% cumulative preference shares and
P40,000,000 of ordinary shares.
Ganern reported profit of P8,000,000 for the year ended December 31, 2016. Ganern declared and paid
P1,500,000 preference share dividends during 2016. Ganern paid no preference share dividends during 2015. On
January 31, 2017, prior to the date that the financial statements are authorized for issue, Ganern distributed 10%
ordinary share dividend.
How much is the total amount to be recognized by Pak Company in its 2016 profit or loss related to these
investments?
a. P2,450,000 c. P2,700,000
b. P2,600,000 d. P2,850,000

Page 5 of 8 www.prtc.com.ph
PROFESSIONAL REVIEW and TRAINING CENTER, INC.

7. Open Sesame Company undertakes an IPO for the listing and issuance of 700,000 new shares and 300,000 existing
shares. In relation to this, the company incurred the following costs:
Documentary stamp tax P 25,000
Fairness opinion and valuation report 125,000
Tax opinion 75,000
Newspaper publication 200,000
Listing fee 300,000
Other joint costs 275,000
P1,0000,000
How much should be recognized immediately in profit or loss?
a. P300,000 c. P525,000
b. P442,500 d. P557,500

8. Cute Corporation owns the following properties at 1 January 2016:

Property A
An office building used by Cute for administrative purposes with a depreciated historical cost of P2 million. At 1
January 2016 it had a remaining life of 20 years. After a re-organization on 1 July 2016, the property was leased to
a third party and reclassified as an investment property applying Cute’s policy of the fair value model. An
independent valuer assessed the property to have a fair value of P2.3 million at 1 July 2016, which had risen to
P2.34 million at 31 December 2016.

Property B
Another office building sub-leased to a subsidiary of Cute. At 1 January 2016, it had a fair value of P1.5 million
which had risen to P1.65 million at 31 December 2016. At 1 January 2016 it had a remaining life of 15 years.

Determine the amounts that should be recognized by the entity in its separate financial statements in respect of
these properties for the year ended December 31, 2016 for the following:
Net amount in profit or loss
a. P540,000 c. P190,000
b. P490,000 d. P140,000

9. On January 1, 2014, Alaska Corporation purchased P1,000,000 10% bonds for P1,051,510 (including broker’s
commission of P20,000). Interest is payable annually every December 31. The bonds mature on December 31,
2016. The prevailing market rate for the bonds is 9% at December 31, 2014. (Round off present value factors to
four decimal places)
If the bonds are classified as held for trading, the amount to be recognized as fair value adjustment loss in its 2014
profit or loss?
a. P33,900 c. P13,900
b. P26,180 d. P 6,180

10. On January 1, Lessor Company signed a 1-year rental with quarterly payments of P100,000 due at the end of each
quarter. In addition, the lessee must pay contingent rent of 5% of all sales in excess of P10,000,000. The
contingent rent is paid in one payment on December 31. The same lessee has used the building for the past 5 years,
and in each of those years the lessee reached the contingent rent threshold of P10,000,000 in sales. Sales of the
lessee for the first two quarters are as follows:
Quarter ended Amount
March 31 P3,200,000
June 30 3,000,000

What amount of rent expense should be reflected in Lessee’s quarterly income statement for the three months ended
June 30?
a. P100,000 c. P130,000
b. P125,000 d. P160,000

Page 6 of 8 www.prtc.com.ph
PROFESSIONAL REVIEW and TRAINING CENTER, INC.

TIE BREAKER
1. The Norwalk Agreement
a. Sets forth fundamental objectives and concepts used in developing future standards of financial reporting.
b. Formalized the FASB’s and IASB’s commitment to convergence of U.S. GAAP and international standards.
c. Facilitates cross-border cooperation, reduces global systemic risk, protects investors, and ensures fair and
efficient markets.
d. All of the choices are correct regarding the Norwalk Agreement.

2. A competitor has sued an entity for unauthorized use of its patented technology. The amount that the entity may be
required to pay to the competitor if the competitor succeeds in the lawsuit is determinable with reliability, and
according to the legal counsel it is less than probable (but more than remote) that an outflow of the resources would
be needed to meet the obligation. The entity that was sued should at year-ended:
a. Recognize a provision for this possible obligation.
b. Make a disclosure of the possible obligation in footnotes to the financial statements.
c. Make no provision or disclosure and wait until the lawsuit is finally decided and then expense the amount paid on
settlement, if any.
d. Set aside, as an appropriation, a contingency reserve, an amount based on the best estimate of the possible
liability.

3. Once the related asset has reached the end of its useful life, all subsequent changes in the decommissioning liability
shall be recognized in
a. Profit or loss as they occur if the entity applies the cost model.
b. Other comprehensive income as they occur if the entity applies the revaluation model.
c. Profit or loss as they occur regardless of the measurement model used by the entity.
d. Other comprehensive income as they occur regardless of the measurement model used by the entity.

4. Which of the following statements is true?

a. If a lease qualifies as a finance lease for the lessor, it will also always qualify as a finance lease for the lessee.
b. It is possible for neither the lessor nor lessee to depreciate the asset under lease.
c. A lessee's debt equity ratio is not increased if the lease is a finance lease, whereas, it would be if the asset were
purchases outright.
d. There is always "accounting symmetry" for recording and reporting leases between the lessor and lessee.

5. The Maddy Company is preparing interim financial statements for the six months to 30 June 2016 in accordance with the
minimum requirements of PAS34. Its accounting year ends on 31 December each year. Which of the following
comparative statement is not appropriate?
a. Statement of financial position at 30 June 2015
b. Statement of profit or loss and other comprehensive income for the half year to 30 June 2015
c. Statement of changes in equity for the half year to 30 June 2015
d. Statement of cash flows for the half year to 30 June 2015

6. Which of the following are bearer plants?

a. Trees grown for use as lumber.
b. Trees that are cultivated both for their fruit and their lumber.
c. Maize and wheat.
d. None of the above.

7. Which of the following is incorrect regarding expected credit losses on financial assets in accordance with PFRS 9?
a. Expected credit losses are a probability-weighted estimate of credit losses over the expected life of the financial
instrument.
b. A cash shortfall is the difference between the cash flows that are due to an entity in accordance with the contract
and the cash flows that the entity expects to receive.
c. Expected credit losses consider the amount and timing of payments.
d. A credit loss cannot arise if the entity expects to be paid in full even if later than when contractually due.

Page 7 of 8 www.prtc.com.ph
PROFESSIONAL REVIEW and TRAINING CENTER, INC.

8. An entity prepares quarterly interim financial reports in accordance with PAS 34. The entity sells electrical goods,
and normally 5% of customers claim on their warranty. The provision in the first quarter was calculated as 5% of
sales to date, which was P20,000,000. However, in the second quarter, a design fault was found and warranty
claims were expected to be 10% for the whole year. Sales in the second quarter were P30,000,000. What would be
the provision charged in the second quarter’s interim income statement?
a. P3,000,000 c. P2,250,000
b. P4,000,000 d. P5,000,000

9. Under the accrual basis, rental income of Macho Company for the current calendar year is P60,000. Additional
information regarding rental income are:
Accrued rental income, Dec. 31 P4,000
Accrued rental income, Jan. 1 3,000
Unearned rental income, Dec. 31 7,500
Unearned rental income, Jan. 1 5,000
How much actual cash rental was received by Macho Company in the current year?
a. P58,500 c. P62,500
b. P61,500 d. P65,500

10. Class Corp. maintains its accounting records on the cash basis but restates its financial statements to the accrual
method of accounting. Class had P60,000 in cash-basis pretax income for 2015. The following information pertains
to Class's operations for the years ended December 31, 2015 and 2014 :
2015 2014
Accounts receivable P40,000 P20,000
Accounts payable 15,000 30,000
Under the accrual method, what amount of income before taxes should Class report in its 2015 income statement?
a. P25,000 c. P65,000
b. P55,000 d. P95,000

- end -

Page 8 of 8 www.prtc.com.ph