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FINANCIAL ACCOUNTING AND REPORTING

MONTHLY QUIZ NO. 1 – TOPICS 2901 TO 2915 OCTOBER 2020 CPALE

1. Which statement is correct? C. Storage costs may be included in the cost of

A. A member of BOA must be a duly registered inventories.
Certified Public Accountant with at least ten (10) D. Costs of conversion include direct materials.
years of work experience in the practice of public
accountancy.
B. The Financial Reporting Standards Council has the 6. An inventory record card shows the following details
authority to establish the accounting framework to for the month of June:
be used by companies under its jurisdiction. June 1: 50 units in stock at a cost of P40 per unit
C. The Bureau of Internal Revenue is not 7: 100 units purchased at a cost of P45 per unit
represented in the Auditing and Assurance 14: 80 units sold
Standards Council. 21: 50 units purchased at a cost of P50 per unit
D. The Commission of Audit is represented in the 28: 60 units sold
Philippine Interpretations Committee (PIC).
What is the value of inventory at June 30 using the
2. Which statement is incorrect? FIFO method?
A. PFRSs may set out such requirements for A. P2,450 C. P2,950
transactions and events that arise mainly in B. P2,700 D. P3,000
specific industries.
B. The FRSC employs a ‘due process’ system, which
requires that all accountants must receive a copy 7. The closing inventory of Tigreal Corp. amounted to
of PFRSs. P116,400 excluding the following:
C. Comment period for an exposure draft issued by • 400 items which had cost P4 each. All were sold
the FRSC is usually at least 60 days. after the reporting period for P3 each, with
D. As a general rule, there is no need to expose selling expenses of P200 for the batch.
proposed PIC implementation guidance for • 200 different items which had cost P30 each.
comment. These items were found to be defective at the
end of the reporting period. Rectification work
3. Which of the following is represented in the Philippine after the statement of financial position date
Interpretations Committee? amounted to P1,200, after which they were sold
A. Bureau of Internal revenue for P35 each, with selling expenses totaling
B. Commission on Audit P300.
C. Insurance Commission
Which of the following total figures should appear in
D. All of the above
the statement of financial position of Tigreal Corp. for
inventory?
4. Which statement is correct?
A. P122,900 C. P123,400
A. The Bureau of Internal Revenue is represented
B. P123,100 D. P123,600
AASC.
B. The FRSC has the authority to establish the
accounting framework to be used by companies
8. The following figures relate to inventory held at the
under its jurisdiction.
end of the reporting period:
C. The PIC should have a chairman who had been or
presently a senior practitioner in public Cost of materials P100,000
accountancy. Net realizable value of materials 90,000
D. The IFRS Monitoring Board approves and oversees Estimated costs to convert materials
the trustees of the IFRS Foundation. into finished goods 50,000
Estimated selling price of finished goods 160,000
5. Which statement is correct regarding cost of Estimated costs to sell 5,000
inventories? The entity should recognize loss on write-down of
A. Foreign exchange differences arising directly on inventory of materials of
the recent acquisition of inventories invoiced in a A. P15,000 C. P5,000
foreign currency are included in cost of B. P10,000 D. Nil
inventories.
B. Costs of purchase include variable manufacturing
overheads.

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9. Cupcake Co. started 2020 with P94,000 of Aljane’s cost of goods sold for the year ended
merchandise inventory on hand. During 2020, December 31, 2020 is
P400,000 in merchandise was purchased on account A. P8,680,000 C. P7,700,000
with credit terms of 1/15, n/45. All discounts were B. P9,100,000 D. P8,400,000
taken. Purchases were all made f.o.b. shipping point.
Cupcake paid freight charges of P7,500. Merchandise
with an invoice amount of P5,000 was returned for 12. Which statement is incorrect regarding bearer plants,
credit. Cost of goods sold for the year was P380,000. biological assets and agricultural produce?
Cupcake uses a perpetual inventory system. A. Bearer plant is a living plant that has a remote
likelihood of being sold as agricultural produce.
What is ending inventory assuming Cupcake uses the
B. A change in fair value of a biological asset due to
gross method to record purchases?
harvesting is a physical change.
A. P112,490 C. P116,500
C. An entity shall disclose the carrying amounts of
B. P112,550 D. P120,300
mature and immature biological assets by group
since this distinction provide information that may
be helpful in assessing the timing of future cash
10. The physical inventory of Alpha Company as of
flows.
December 26, 2020 totaled P1,965,000. In trying to
D. PAS 41 takes the view that the fair value of
establish the December 31 inventory, the accountant
agricultural produce at the point of harvest can
noted the following transactions from December 27 to
always be measured reliably.
December 31, 2020.
Sales (20% markup on cost) P 600,000 13. According to PAS16 Property, plant and equipment,
Credit memos issued: which of the following items should be capitalized into
For goods returned on: the cost of property, plant and equipment?
December 15 27,000 I. Cost of excess materials resulting from a
December 20 35,000 purchasing error
December 29 36,000 II. Cost of testing whether the asset works
For goods delivered to correctly
customers not in accordance III. Initial operating losses while demand builds up
with specifications 9,500 IV. Cost of preparing the site for installation
Credit memos received:
For goods returned on: A. II and IV only C. II, III and IV only
December 10 17,000 B. I and II only D. I, II, III and IV
December 26 23,000
December 28 8,000 14. The cost of an item of property, plant and equipment
Purchases: is the cash price equivalent at the recognition date. If
Placed in stock 120,000 payment is deferred beyond normal credit terms, the
In transit, FOB shipping point 50,000 difference between the cash price equivalent and the
In transit, FOB destination 33,000 total payment is recognized as
A. Interest expense at the recognition date.
The inventory as of December 31, 2020 is B. Part of the carrying amount of the asset.
A. P1,675,800 C. P1,663,000 C. Either as interest over the period of credit or as
B. P1,657,000 D. P1,668,667 part of the carrying amount of the asset
depending on the entities accounting policy.
D. Interest expense over the period of credit unless
11. Aljane Company uses the average cost retail method such interest is capitalized in accordance with PAS
to estimate its inventory. Data relating to the 23.
inventory at December 31, 2020 are:
Cost Retail 15. Memphis Corp. is a large soft drink bottler that
Inventory, January 1 P2,000,000 P3,000,000 requires new bottling equipment. After negotiating
Purchases 10,600,000 14,000,000 with several suppliers, Memphis decided to accept a
Net markups 1,600,000 special offer from Gasol Corporation. Gasol will
Net markdowns 600,000 deliver the equipment with a list price of P100,000 to
Sales 12,000,000 Memphis on July 1, 2020 with the following payment
Estimated normal terms:
shoplifting losses 400,000 • A deposit of P20,000 is due on June 1, 2020.
Estimated normal • Cash on delivery of P20,000 is due on July 1,
shrinkage is 5% 2020.
of sales

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• Three additional payments are to be made 20. Which statement is incorrect regarding the change in
annually from July 1, 2021 to July 1, 2023 of an asset’s carrying amount as a result of revaluation?
P20,000. A. The increase shall be recognized in other
• Gasol will waive its normal interest charge of 6% comprehensive income and accumulated in equity
per year to facilitate the sale. under the heading of revaluation surplus.
B. The increase shall be recognized in profit or loss
The equipment is expected to last 5 years, with a
to the extent that it reverses a revaluation
residual value of P20,000. Memphis has a December
decrease of the same asset previously recognized
31 year end. What should be the depreciation expense
in profit or loss.
for the year ended 31 December 2020?
C. The decrease shall be recognized in other
A. P7,346 C. P 9,346
comprehensive income.
B. P8,570 D. P14,692
D. The decrease shall be recognized in other
comprehensive income to the extent of any credit
balance existing in the revaluation surplus in
16. Michael Corporation has a machine costing P480,000,
respect of that asset.
with an annual depreciation of P96,000, and has
accumulated depreciation of P240,000 on December
21. The following account balances relating to property,
31, 2019. On April 1, 2020, when the machine has a
plant and equipment of an entity appear on the books
fair value of P192,000, it is exchanged for a similar
on December 31, 2019:
machine with a fair value of P576,000 and the proper
amount of cash is paid. The loss to be recognized on Land P 6,000,000
exchange is Building 45,000,000
A. P48,000 C. P168,000 Accumulated depreciation 11,250,000
B. P24,000 D. P 0 Plant, property and equipment have been carried at
cost since their acquisition. The building was
acquired on January 1, 2010. The straight-line
17. Dallas Company purchased a tooling machine in 2010 method for depreciation is used. On January 1,
for P600,000. The machine was being depreciated on 20120, the company revalued property plant and
the straight-line method over an estimated useful life equipment and on the same date, competent
of 20 years with no salvage value. At the beginning appraisers submitted the following:
of 2020, Dallas paid P120,000 to overhaul the
machine. As a result of this improvement, Dallas Replacement cost
estimated that the useful life of the machine would be Land P 8,000,000
extended an additional 5 years. The depreciation to Building 60,000,000
be recognized in 2020 is What is the revaluation surplus on December 31,
A. P28,000 C. P20,000 2020?
B. P23,000 D. P15,000 A. P10,875,000 C. P13,250,000
B. P12,875,000 D. P16,500,000
18. A non-current asset was purchased on the first day of
an accounting period, 1 January 2018 for P34,000 and
depreciated by 20% per annum using the reducing 22. Which of the following statements best describe
balance method. On 30 June 2020 the asset was sold, ‘owner-occupied property’ under PAS 40, Investment
realizing a loss on disposal of P2,100. What were the Property?
proceeds of sale? I. Property held to earn rentals.
A. P14,900 C. P19,660 II. Property held for administrative purposes.
B. P17,484 D. P21,684 III. Property held for sale in the ordinary course of
business.
IV. Property held for use in the production and
19. An entity’s Equipment has a carrying amount of supply of goods and services.
P67,460. An equipment costing P15,000 had been
sold for P4,000, making a loss on disposal of P1,250. A. I and II. C. II and IV.
No entries had been made for this disposal. B. I and IV. D. III and IV.
What is the correct carrying amount of the entity’s
Equipment?
A. P52,460 C. P64,710
B. P62,210 D. P66,210

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23. An entity operates a bed and breakfast from a 27. Which statement is correct regarding exploration and
building it owns. The entity also provides its guests evaluation assets?
with other services including housekeeping, satellite A. PFRS 6 requires an entity to recognize exploration
television and broadband internet access. The daily and evaluation expenditures as assets to the
room rental is inclusive of these services. extent such expenditures are recoverable in future
Furthermore, upon request, the entity conducts tours periods.
of the surrounding area for its guests. Tour services B. An exploration and evaluation asset shall no
are charged for separately. The entity should account longer be classified as such when the technical
for the building as: feasibility and commercial viability of extracting a
A. Inventory mineral resource are demonstrable.
B. Investment property C. An entity shall classify exploration and evaluation
C. Property, plant and equipment assets as intangible assets.
D. Other non-current asset D. An entity shall treat exploration and evaluation
assets as an addition to property, plant and
24. Which of the following internally generated intangible equipment or intangible assets.
asset can be recognized?
A. Brand 28. In January 2020, an entity purchased a mineral mine
B. Masthead for P3,400,000 with removable ore estimated by
C. Publishing title geological surveys at 2,000,000 tons. The property
D. None of the above has an estimated value of P200,000 after the ore has
been extracted. The company incurred P1,000,000 of
25. Karina Company purchased a patent on January 1, development costs preparing the mine for production.
2017, for P3,570,000. The patent was being During 2020, 500,000 tons were removed and
amortized over its remaining legal life of 15 years. 400,000 tons were sold. What is the amount of
During 2020 Karina determined that the economic depletion that the entity should expense for 2020?
benefits of the patent would not last longer than ten A. P640,000 C. P 840,000
years from the date of acquisition. What amount B. P800,000 D. P1,050,000
should be reported in the statement of financial
position as patent, net of accumulated amortization, 29. Which statement is incorrect regarding impairment of
at December 31, 2020? an intangible asset not yet available for use?
A. P2,618,000 C. P2,448,000 A. An entity shall test such asset for impairment
B. P2,520,000 D. P2,142,000 annually by comparing its carrying amount with
its recoverable amount.
B. The ability of an intangible asset to generate
26. Franco Co. incurred the following costs during 2020: sufficient future economic benefits to recover its
Modification to the formulation of carrying amount is usually subject to greater
a chemical product P360,000 uncertainty before the asset is available for use
Trouble-shooting in connection than after it is available for use.
with breakdowns during 450,000 C. The annual impairment test may be performed at
commercial production any time during an annual period, provided it is
Costs of testing prototype and performed at the same time every year.
design modifications 600,000 D. The annual impairment test is not required if such
Seasonal or other periodic design an intangible asset was initially recognized during
changes to existing products 555,000 the current annual period.
Laboratory research aimed at
discovery of new technology 675,000 30. At the current year-end, Unice Co has undertaken
impairment tests on two machines. The following
In its income statement for the year ended December information is relevant:
31, 2020, Franco should report research and Machine 1 Machine 2
development expense of Cost P450,000 P250,000
A. P2,085,000 C. P1,275,000 Useful life 10 years 15 years
B. P1,635,000 D. P1,035,000 Age 4 years 3 years
Fair value P300,000 P230,000
Costs of disposal P15,000 P35,000
Value in use P260,000 P198,000
At what carrying amount should machinery be
recognized in the accounts of Unice Co?
A. P498,000 C. P468,000
B. P470,000 D. P455,000

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31. An entity has determined that one of its cash-
generating units (CGUs) has sustained an impairment
loss of P50,000. The carrying amounts of the assets
within the CGU are as follows.
Asset 1 P150,000
Asset 2 200,000
Asset 3 50,000
Total P400,000
The estimated fair value less costs of disposal of Asset
2 is P190,000, which is greater than its value in use.
How much is the carrying amount of Asset 1 after
impairment loss is recognized?
A. P135,000 C. P125,625
B. P131,250 D. P120,000
32. Which statement is correct regarding non-current
assets held for sale?
A. An entity shall classify a non-current asset as held
for sale when the noncurrent asset is to be
abandoned.
B. Non-current asset classified as held for sale is
measured at the lower of its cost and fair value
less costs to sell.
C. An impairment loss is recognized in the profit or
loss for any initial and subsequent write-down of
the asset to fair value less costs to sell.
D. If the criteria for an asset to remain as held for
sale no longer apply, the asset should be measured
at the higher of its carrying amount on the basis
that it had never been classified as held for sale and
its recoverable amount
33. Which statement is correct regarding non-current
assets or disposal groups held for sale?
A. An entity shall classify a non-current asset as
‘held for sale’ when the carrying amount of the
asset will be recovered through continuing use.
B. Non-current asset classified as held for sale is
measured at the higher of its carrying amount and
fair value less costs to sell.
C. Classification as ‘asset held-for-sale’ will most
likely result in an immediate charge to profit or
loss for property, plant and equipment measured
under the revaluation model.
D. An entity shall reclassify or re-present amounts
presented for the assets and liabilities of disposal
groups classified as held for sale in the statements
of financial position for prior periods to reflect the
classification in the statement of financial position
for the latest period presented.
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34. An entity shall disclose the fair value of which of the
following assets measured at cost less any
accumulated depreciation and any accumulated
impairment losses?
A. Biological assets
B. Property, plant and equipment
C. Investment property
D. Both A and C.
35. Depreciation and impairment are recognized for which
of the following assets?
A. Biological asset whose fair value cannot be
measured reliably.
B. Property, plant and equipment measured using
the revaluation model.
C. Investment property measured using the fair
value model.
D. Both A and B.
36. Which statement is correct regarding government
grants?
A. Government grants include free technical or
marketing advice.
B. Grants related to income are government grants
whose primary condition is that an entity
qualifying for them should purchase, construct or
otherwise acquire long-term assets.
C. A government grant that becomes receivable as
compensation for expenses or losses incurred in a
previous period shall be recognized in profit or
loss of the period in which it becomes receivable.
D. An entity need not disclosed unfulfilled conditions
and contingencies attaching to recognized grants.
37. Which statement is correct regarding government
grants?
A. All assistance by government are government
grants.
B. Government grants include provision of
guarantees.
C. In relation to government grants related to
depreciable assets, depreciation expense will be
higher if the grant is recorded as deferred income,
but net income will be the same if the grant is
accounted for as an adjustment to the asset.
D. An entity need not disclose unfulfilled conditions
and other contingencies attaching to government
assistance that has been recognized.
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38. In relation to a grant that becomes repayable, which

of the following will result in an amount recognized
immediately in profit or loss?
A. Repayment of a grant related to an asset
accounted for as a deferred income.
B. Repayment of a grant related to income when the
unamortized deferred credit is more than the
amount repayable.
C. Repayment of a grant related to income when the
unamortized deferred credit is less than the
amount repayable.
D. None of these.

39. Naruko Company received a P1,800,000 subsidy from

the government to purchase manufacturing equipment
on January 2, 2020. The equipment has a cost of
P3,000,000, a useful life of five years, and no salvage
value. Naruko depreciates the equipment using sum-
of-the-years’ digits method.
If Naruko chooses to account for the grant as deferred
income, the grant income to be recognized in 2020 is
A. Nil C. P400,000
B. P360,000 D. P600,000

40. Which statement is correct regarding borrowing costs?

A. Borrowing costs include actual or imputed cost of
equity.
B. Borrowing costs exclude exchange differences
arising from foreign currency borrowings to the
extent that they are regarded as an adjustment to
interest costs.
C. Borrowing costs that are directly attributable to
the acquisition, construction or production of a
qualifying asset shall be recognized as expense in
the period incurred.
D. Bearer plant may be considered as a qualifying
asset.

J - end - J

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ANSWER KEY:

1. C
2. B
3. C
4. D
5. C
6. C
7. A
8. D
9. B
10. B
11. B
12. C
13. A
14. D
15. A
16. B
17. A
18. B
19. B
20. C
21. B
22. C
23. C
24. D
25. C
26. B
27. B
28. C
29. D
30. C
31. D
32. C
33. C
34. C
35. D
36. C
37. C
38. C
39. D
40. D

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