1. Which statement is incorrect regarding measurement of loans and receivables?

a. An entity shall measure loans and receivables on initial recognition at fair value plus
transaction costs that are directly attributable to the acquisition of the financial asset.
b. The fair value of a long-term loan or receivable that carries no interest can be estimated
as the present value of all future cash receipts discounted using the prevailing market
rate of interest for a similar instrument with a similar credit rating.
c. Short-term receivables with no stated interest rate may be measured at the original
invoice amount if the effect of discounting is immaterial.
d. Loans and receivables are subsequently measured at amortized cost using the straight-
line method.

2. The amortized cost of a financial asset is

a. The amount at which the financial asset is measured at initial recognition minus principal
repayments, plus or minus the cumulative amortization using the effective interest
method of any difference between that initial amount and the maturity amount, and
minus any reduction for impairment or uncollectibility.
b. The price that would be received to sell an asset in an orderly transaction between
market participants at the measurement date.
c. The amount for which an asset could be exchanged between knowledgeable, willing
parties in an arm’s length transaction.
d. The estimated selling price in the ordinary course of business less the estimated costs of
completion and the estimated costs necessary to make the sale.

3. On January 1, 2016, Santayana Company sold a special machine that had a cash price of
P900,000. The buyer paid P100,000 cash and signed a 4-year note. The note specified
that it would be paid off in four equal annual payments of P274,565 each starting on
December 31, 2016. The payments include 14% interest. The carrying amount of the
receivable on December 31, 2016 is
a. P525,435 c. P701,435
b. P637,435 d. P725,435

4. On December 30, 2016, Chang Co. sold a machine to Door Co. in exchange for a
noninterest-bearing note requiring ten annual payments of P10,000. Door made the first
payment on December 30, 2016. The market interest rate for similar notes at date of
issuance was 8%. Information on present value factors is as follows:

Present Value Present Value of

Period of 1 at 8% Ordinary Annuity of 1 at
8%
9 0.50 6.25
10 0.46 6.71

In its December 31, 2016 statement of financial position, what amount should Chang report
as note receivable?
a. P45,000 c. P62,500
b. P46,000 d. P67,100

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Use the following information for the next two questions.

On December 31, 2015, Sadanga Company finished consultation services and accepted in
exchange a promissory note with a face value of P300,000, a due date of December 31, 2018,
and a stated rate of 5%, with interest receivable at the end of each year. The fair value of the
services is not readily determinable and the note is not readily marketable. Under the
circumstances, the note is considered to have an appropriate imputed rate of interest of 10%.

5. The carrying amount of the note receivable as of December 31, 2016 is

a. P300,000 c. P262,694
b. P273,963 d. P247,920
6. The interest income to be recognized in 2016 is
a. P30,000 c. P15,000
b. P26,269 d. P11,269

7. What is effective interest rate?

a. The effective interest rate is the rate that exactly discounts estimated receipts through
the expected life of the financial instrument to the net carrying amount of the financial
asset.
b. The discount rate that, at the inception of the lease, causes the aggregate present value
of (a) the minimum lease payments and (b) the unguaranteed residual value to be equal
to the sum of (i) the fair value of the leased asset and (ii) any initial direct costs of the
lessor.
c. The rate of interest the lessee would have to pay on a similar lease or, if that is not
determinable, the rate that, at the inception of the lease, the lessee would incur to
borrow over a similar term, and with a similar security, the funds necessary to purchase
the asset.
d. Incremental cost that is directly attributable to the acquisition, issue or disposal of a
financial asset or financial liability.

8. Origination fees may include compensation for activities such as:

I. Evaluating the borrower’s financial condition
II. Evaluating and recording guarantees, collateral and other security arrangements
III. Negotiating the terms of the instrument
IV. Preparing and processing documents and closing the transaction

a. I, II, III and IV

b. I, II and III only
c. I and II only
d. II and III only

9. Which statement is incorrect regarding impairment of financial assets measured at

amortized cost in accordance with PAS 39?
a. An entity shall assess at the end of each reporting period whether there is any objective
evidence that a financial asset is impaired.
b. A financial asset is impaired and impairment losses are incurred if, and only if, there is
objective evidence of impairment.
c. Losses expected as a result of future events, if highly likely, are recognized.
d. All the statements are correct

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10. On July 1, 2016, Shaw Co. sold a machine costing P500,000 with accumulated depreciation
of P380,000 on the date of sale. Shaw received as consideration for the sale, a P300,000
noninterest-bearing note, due July 1, 2019. There was no established exchange price for
the equipment and the note had no ready market. The prevailing rate of interest for a note
of this type at July 1, 2016 was 12% and 13% on December 31, 2016. In relation to this
transaction, the total income to be recognized in Shaw’s 2016 profit or loss is
a. P180,000 c. P101,445
b. P119,165 d. P106,352

Use the following information for the next two questions.

On January 1, 2016, Comforter Company sold equipment with a carrying amount of P800,000 to
Cold Company. As payment, Cold gave Comforter Company a P1,200,000 note. The note
bears an interest rate of 5% and is to be repaid in three annual installments of P400,000 (plus
interest on the outstanding balance). The first payment was received on December 31, 2016.
The market price of the equipment is not reliably determinable. The prevailing rate of interest
for notes of this type is 10%.

11. The gain on sale of equipment is

a. P400,000 c. P109,735
b. P297,348 d. P102,652

12. The interest income to be recognized in 2017 is

a. P 40,000 c. P 74,709
b. P 69,587 d. P109,735

13. On December 31, 2016, Merciful Bank entered into a debt restructuring agreement with
Miserable Corp., which was experiencing financial difficulties. A note for P1,000,000 and
one year's accrued interest was due on this date from Miserable. The note receivable from
Miserable was restructured as follows:
 reduced the principal obligation to P700,000.
 forgave the P120,000 of accrued interest for 2016.
 extended the maturity date to December 31, 2019.
 reduced the interest rate to 8%. Interest is payable annually on December 31, beginning
2017.

How much interest income should Merciful Bank report for the year ended December 31,
2017?
a. P75,931 c. P56,000
b. P64,258 d. Nil

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 14. On December 31, 2014, Quite Chubby borrowed from Piggy Bank, signing a 5-year non-
interest-bearing note for P100,000. The note was issued to yield 10% interest.
Unfortunately, during 2016, Chubby began to experience financial difficulty. As a result, at
December 31, 2016, Piggy Bank determined that it was probable that it would receive back
only P75,000 at maturity. The market rate of interest on loans of this nature is now 11%.
How much should be recognized as loan impairment loss in 2016?
a. P11,952 c. P20,292
b. P18,782 d. P 5,743

15. On the night of September 30,2015,a fire destroyed most of the merchandise inventory of
Sonia Company.All goods were completely destroyed except for partial danmaged goods
that normally sell for P100,000 and that had an estimated net realizable value of P25,000
and damaged goods that normally sell for P60,000.

Inventory,January 1 660,000
Net purchases,January 1 through Semptember 30 4,240,000
Net sales,January 1,through Semptember 30 5,600,000

Total 2014 2013 2012

Net sales 9,000,000 5,000,000 3,000,000 1,000,000
Cost of goods sold 6,750,000 3,840,000 2,200,000 710,000
Gross income 2,250,000 1,160,000 800,000 290,000

What is the estimated amount of fire loss on September 30,2015?

a. 700,000
b. 615,000
c. 630,000
d. 580,000

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Use the following information for the next three questions.

Fairy Compny provided the fallowing information:

2015 2016
Net sales 7,500,000
4,500,000
Beginning inventory 1,260,000
2,355,000
Purchases 6,450,000
3,180,000
Freight in 350,000
220,000
Purchase discount 90,000 45,000
Purchase returns 120,000 40,000
Purchace allowances 20,000 15,000
Ending inventory 2,355,000 ?

16. What is the amount of gross profit for 2015?

a.2,025,000
b.2,625,000
c.2,250,000
d.3,000,000

17. What is the gross profit rate for 2015?

a. 30%
b. 27%
c. 35%
d. 40%

18. What is the inventory on December 31,2016?

a. 2,370,000
b. 2,025,000
c. 3,285,000
d. 2,505,000

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Domicile Company had the following amounts all at retail:

Beginning inventory 180,000

Purchases 6,000,000
Purchase return 300,000
Net markup 900,000
Net markdown 140,000
Sales 3,600,000
Sales return 90,000
Employee discounts 80,000
Normal shortage 130,000
Abnormal shortage 200,000

19. What is the ending inventory at retail?

a. 2,720,000
b. 2,800,000
c. 2,880,000
d. 2,920,000

Airbone Company used the average cost retail inventory method. The entity provided the
following information for the current year:
Cost Retail
Beginning inventory 1,650,000 2,200,000
Net purchases 3,725,000 4,950,000
Departmental transfer – credit 200,000 300,000
Net markup 150,000
Inventory shortage – sales price 100,000
Employee discounts 200,000
Sales (including sales of P400, 000 of items which
were marked down from P500, 000) 4,000,000

20.What is the estimated cost of ending inventory?

a. 1,950,000
b. 2,600,000
c. 1,924,000
d. 2,250,000

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Union Company used the FIFO retail method of inventory valuation. The entity provided the
following information for the current year:

Cost Retail
Beginning inventory 600,000 1,500,000
Purchases 3,000,000 5,500,000
Net additional markups 500,000
Net markdowns 1,000,000
Sales revenue 4,500,000

21. What is the estimated cost of ending inventory?

a. 1,200,000
b. 1,040,000
c. 1,000,000
d. 960,000

Forester Company provided the following assets in a forest plantation:

Freestanding trees 5,100,000

Land under trees 600,000
Roads in forests 300,000
Animals related to recreational activities 1,000,000
Bearer plants – rubber trees and grape vines 1,500,000

22. What total amount of the assets should be classified as biological assets?

a. 5,100,000
b. 7,600,000
c. 6,600,000
d. 8,500,000

Joan Company provided the following data:

Value of biological asset at acquisition cost on December 31,2015 600,000

Fair valuation surplus on initial recognition at fair value on December 31,2015 700,000
Change in fair value to December 31,2016 due to growth and price fluctuation 100,000
Decrease in fair value due to harvest in 2016 90,000

23. What is the carrying amount of the biological asset on December 31,2016?
a. 1,400,000
b. 1,310,000
c. 1,300,000
d. 1,490,000

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24. Using item 23, what is the gain from change in fair value of biological asset that should be
reported in the 2016 income statement?
a. 100,000
b. 800,000
c. 710,000
d. 10,000

Salve Company is engaged in raising dairy livestock. The entity provided the following
information during the current year:

Carrying amount on January1 5,000,000

Increase due to purchases 2,000,000
Gain arising from change in fair value less cost of disposal
Attributable to price change 400,000
Gain arising from change in fair value less cost of disposal
Attributable to physical change 600,000
Decrease due to sales 850,000
Decrease due to harvest 200,000

25. What is the carrying amount of the biological asset on December 31?

a. 6,950,000
b. 6,000,000
c. 8,000,000
d. 7,150,000

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Dairy Company provided the following information for the year ended December 31,2015:

Cash 500,000
Trade and other receivables 1,500,000
Inventories 100,000
Dairy livestock – immature 50,000
Dairy livestock – mature 400,000
Property, plant and equipment, net 1,400,000
Trade and other payables 520,000
Note payable – long term 1,500,000
Share capital 1,000,000
Retained earnings – January 1 800,000
Fair value of milk produced 600,000
Gain from change in fair value 50,000
Inventories used 140,000
Staff costs 120,000
Depreciation expense 15,000
Other operating expenses 190,000
Income tax expense 55,000

26. What is net income for 2015?

a. 650,000
b. 600,000
c. 130,000
d. 185,000

27. What is the fair value of biological assets on December 31,2015?

a. 550,000
b. 450,000
c. 500,000
d. 400,000

28. On January 1,2015, ABC Company purchased 40,000 shares at 100 per share to be held
for trading. Brokerage fees amounted to P120,000. A P5 dividend per share had been declared
on December 15, 2014, to be paid on March 31,2015 to shareholders of record on January 31,
2015. No other transactions occurred in 2015 affecting the investment.

What is the initial measurement of the investment?

a. 4,120,000
b. 4,000,000
c. 3,920,000
d. 3,800,000

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29. On January 1, 2015, Adam Company purchased as a long-term investment unlisted 100,000
ordinary shares of Mill Company for P40 a share. On December 28, 2015, Adam Company sold
80,000 shares of Mill Company for P50 a share.

For the year ended December 31, 2015, what amount should be reported as gain on disposal a
long-term investment?
a. 200,000
b. 900,000
c. 800,000
d. 400,000

30. Cobb Company purchased 10,000 shares representing 2% ownership of Roe Company on
February 15,2015. Cobb Company received a stock dividend of 2,000 shares on March 31,
2015, when the carrying amount per share was P350 and the market value per share was P400.
Roe Company paid a cash dividend of P15 per share on September 15,2015.

In the income statement for the year ended October 31,2015, what amount should be reported
as dividend income?
a. 980,000
b. 880,000
c. 180,000
d. 150,000

During 2015, Lawan Company bought the shares of Burwood Company as follows:

June 1 20,000 shares @ P100 2,000,000

December 1 30,000 shares @ P120 3,600,000
5,600,000
Transaction for 2016
January 10 Received cash dividend at P10 per share
January 20 Received 20% stock dividend
December 10 Sold 30,000 shares at P125 per share

31. If the FIFO approach is used, what is the gain on the sales of the shares?
a. 1,150,000
b. 950,000
c. 150,000
d. 550,000

32. If the Average approach is used, what is the gain on the sales of the shares?
a. 1,150,000
b. 950,000
c. 150,000
d. 550,000

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33. An entity reported inventory on December 31, 2017 at P6,000,000 based on physical count
of goods prices at cost and before any necessary year-adjustment relating to the following:

● Included in the physical count were goods billed to a customer FOB shipping point on
December 31, 2017. These goods had a cost of P135,000 and were picked up by the carrier
on January 15, 2018.

● Goods shipped FOB shipping point on December 31, 2017 from a vendor were received on
January 15, 2018. The invoice cost was P300,000.

● Goods sold to a customers on December 3, 2017 which are being held for the customer to call
at the customer’s convenience with a cost of P200,000 were included in the count.

What amount should be reported as inventory on December 31, 2017?

a. 5,875,000
b. 6,100,000
c. 6,175,000
d. 6,300,000

34. On June 1, 2017, an entity sold merchandise with a list price of P5,000,000 to a customer.
The entity allowed trade discounts of 20% and 10%. Credit terms were 5/10, n/30 and the sale
was made FOB shipping point. The entity prepaid P100,000 of delivery cost for the customer as
an accommodation. On June 11, 2017, what is the full remittance from the customer?
a. 3,600,000
b. 3,420,000
c. 3,700,000
d. 3,520,000

35.The following should be included from the inventory, except:

a. Inventory shipped today, f.o.b. shipping point, invoice mailed to customer.
b. Inventory counted in warehouse by the inventory crew.
c. Inventory shipped today, f.o.b. destination, invoice mailed to customer.
d. Inventory in warehouse count, specifically crafted and segregated for shipment to
customer with return privilege.

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