Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

FAR OCAMPO/OCAMPO
FIRST PRE-BOARD EXAMINATION FEBRUARY 25, 2021

Multiple Choice. Select the letter that corresponds to the 6. Which of the following may be classified as current
best answer. This examination consists of 70 items and the assets?
exam is good for three (3) hours. Good luck! A. Biological assets
B. Property, plant and equipment
1. Which statement is correct regarding the Professional C. Investment in associate
Regulatory Board of Accountancy (BOA)? D. Deferred tax assets
A. It is composed of a chairman and six (6) members
appointed by the Professional Regulation 7. Justice Inc. furnishes you with the following list of
Commission. accounts:
B. A member of BOA must be a duly registered Accounts payable P 66,000
Certified Public Accountant with at least ten (10) Accounts receivable 40,000
years of work experience in any scope of practice Accumulated depreciation 44,000
of accountancy. Advances to sales persons 10,000
C. It has the authority to establish the accounting Advertising Expense 72,000
framework to be used by companies under its Allowance for Bad Debts 10,000
jurisdiction. Bonds payable 80,000
D. The BOA has a chairman who had been or Cash 22,000
presently a senior practitioner in public Certificates of deposit 16,000
accountancy. Share capital, (par) 100,000
Deferred income tax liability 46,000
2. The Bureau of Internal Revenue is represented in Equipment 215,500
I. FRSC Inventory 55,000
II. PIC Investment in X Co. shares
III. AASC (20% of outstanding shares owned) 76,500
Investment in Y Co. shares
A. I, II and III (trading securities) 21,000
B. I and II only Share premium 42,500
C. I and III only Premium on Bonds Payable 6,000
D. I only Prepaid Insurance 6,000
Rent revenue 37,000
3. Which statement is correct regarding the Philippine Rent revenue received in advance 12,000
Interpretations Committee (PIC) and its (4 months)
Interpretations (Q&As)? Retained earnings 97,500
A. The consensus in PIC Q&As normally takes effect Taxes payable 10,000
upon approval of the PIC. Tools 52,000
B. PIC Q&As are less authoritative than PFRSs.
C. PIC Q&As are more authoritative than IFRIC The company’s working capital is
Interpretations. A. P72,000 C. P62,000
D. Generally, the draft of PIC Q&As are not circulated B. P66,000 D. P46,000
to the public for comment.
8. The following accounts and their balance are among
4. The accountant of Acceptance Company made the those in the trial balance of an entity:
following adjusting entry on December 31.
Sales P2,000,000
Rent Income P60,000 Inventory, January 1 365,000
Unearned Rent Income P60,000 Purchases 1,555,000
Purchases return and allowances 15,000
If annual rent is received in advance every June 1, the
Salaries 120,000
original transaction entry made included a credit to
Delivery expense 22,000
A. Rent income, P120,000.
Retained earnings, January 1 325,000
B. Rent income, P144,000.
Dividend income 18,000
C. Unearned rent income, P120,000.
Income on sales of fixed asset 7,000
D. Cash, P144,000.
Light and power 80,000
Travel and transportation 18,000
5. Which statement is correct regarding rights that have
Interest and bank charges 35,000
the potential to produce economic benefits?
Miscellaneous operating expenses 6,000
A. All rights are established by contract, legislation or
Bad debts 4,000
similar means.
Depreciation 15,000
B. All of an entity’s rights are assets of that entity.
Income tax 43,500
C. An entity cannot have a right to obtain economic
Dividends declared but not yet paid 85,000
benefits from itself.
Inventory, December 31 325,000
D. Rights that have the potential to produce economic
benefits cannot be uncertain.
The profit for the year is
A. P341,500 C. P101,500
B. P105,500 D. P 71,500

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EXCEL PROFESSIONAL SERVICES, INC.

9. Confidence Company has provided the following 2021 Proceeds of note receivable of
account balances: Enthusiasm Co. collected by bank,
12/10/21, not entered in cash
Jan. 1 Dec. 31
records (Principal, P40,000;
Accounts receivable P1,500,000 P2,800,000
Interest, P400; Collection charge,
Allowance for doubtful 200,000 400,000
P100) 40,300
accounts
Erroneous debit memo of 12/31/21, to
Prepaid insurance 600,000 450,000
charge company’s account with
Accounts payable 900,000 1,200,000
settlement of bank loan, paid by
check no. 9344 on same date 100,000
Confidence’s profit for 2021 was P8,000,000. The net
Deposit of another client on 12/6/21
cash provided by operating activities is
credited in error to Enthusiasm Co. 25,000
A. P9,550,000 C. P7,350,000
B. P8,650,000 D. P7,150,000 The cash balance per books of Enthusiasm Company
on December 31, 2021 is
10. Humility Corporation had the following items listed in A. P1,491,000 C. P961,800
its trial balance at 12/31/21: B. P1,146,700 D. P911,400
Currency and coins P 650
Balance in checking account 2,600 13. A company has prepared its bank reconciliation at
Customer checks waiting to be deposited 1,200 March 31 taking the following information into
Treasury bills, purchased on 11/2/21, account:
mature on 4/30/22 3,000 Deposits in transit P1,500
Marketable equity securities 10,200 Outstanding checks 2,800
Commercial paper, purchased on 11/2/21, Bank charges shown in the bank
mature on 1/30/22 5,000 statement but not recorded in
the cash book 125
What amount will Humility include in its year-end
statement of financial position as cash and cash The adjusted cash book balance per the bank
equivalents? reconciliation was a debit balance of P2,060
a. P9,450 c. P12,450
What was the balance as shown on the bank statement
b. P7,450 d. P19,650
at March 31?
a. P760 c. P3,360
11. The cash account of Idealism Corp. on December 31,
b. P885 d. P3,485
2021 has a balance of P127,600 and it consists of the
following:
14. Assertiveness Corp. provided the following information
Bills and coins on hand P52,780 regarding its right to recover products from a customer
Petty cash including petty cash vouchers on settling a refund liability:
of P650 1,000
Former carrying amount P100,000
Balance in savings account with a bank
Expected costs to recover 5,000
closed by the BSP 36,000
Potential decreases in value 3,000
Customer’s check dated Jan. 15, 2022 8,000
Estimated fair value 112,000
Credit memo from suppliers for
Estimated costs to resell 10,000
purchases returns 6,500
Net realizable value 110,000
Postage stamps 120
Money order 800
How much should the entity recognize as an asset in
IOU of an employee 400
relation to this right?
Checking account balance in S. Bank 22,000
A. P92,000 C. P102,000
The correct cash balance on December 31, 2021 of B. P95,000 D. P110,000
Idealism Corp. is
A. P76,580 C. P75,930 15. The following information is available for Forgiveness
B. P76,330 D. P75,130 Company relative to 2021 operations:
Accounts receivable, January 1, 2021 P40,000
12. You obtained the bank statement, paid checks, and Accounts receivable collected during 2021 84,000
other memoranda relating to Enthusiasm Company’s
Cash sales during 2021 20,000
bank account for December 2021. In reconciling the
Inventory, January 1, 2021 48,000
bank balance at December 31, 2021, you observed the
following facts: Inventory, December 31, 2021 44,000
Balance per bank statement, 12/31/21 P1,465,800 Purchases of inventory during 2021 80,000
Outstanding checks, 12/31/21 624,750 Gross margin on sales 42,000
Receipts of 12/31/21,
deposited 1/2/22 95,550 What is Forgiveness Company’s accounts receivable
Proceeds of bank loan, 12/15/21, balance at December 31, 2021?
discounted for 90 days at 10% per A. P20,000 C. P 82,000
year, omitted from records 195,000 B. P62,000 D. P146,000
Deposit of 12/23/21, omitted from
bank statement 53,000
Check 733 of Enthusiast, charged by
the bank in error to Enthusiasm 82,100

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EXCEL PROFESSIONAL SERVICES, INC.
16. The balance sheet of Integrity Products Co, shows the
accounts receivable balance at December 31, 2020 as
follows:
Accounts receivable – trade P45,000
Less allowance for doubtful accounts 900
P44,100
During 2021, transactions relating to the accounts
were as follows:
• Sales on account, P480,000.
• Cash received from collections of current
receivables totaled P392,000, after discounts of
P8,000 were allowed for prompt payment.
• Customer's accounts of P2,000 were ascertained
to be worthless and were written off.
• Bad accounts previously written off prior to 2020
amounting to P500 were recovered.
• The company provided P2,300 for doubtful
accounts by a journal entry at the end of the
year.
• Accounts receivable of P70,000 have been
pledged to a local bank on a loan of P40,000.
Collections of P15,000 were made on these
receivables (not included in the collections
previously given) and applied as partial payment
to the loan.
The amortized cost of accounts receivable at December
31, 2021 is
A. P106,800 C. P105,800
B. P106,300 D. P 81,300
17. On January 1, 2016, Generosity Company sold a
machine with a carrying amount of P300,000 and
accepted in exchange a promissory note with a face
value of P500,000, a due date of December 31, 2025,
and a stated rate of 4%, with interest receivable at the
end of each year. The fair value of the machine 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 8%.
The interest income to be recognized in 2021 is
A. P20,000 C. P32,604
B. P29,264 D. P33,612
18. Caring Bank granted a loan to a borrower on Jan. 1,
2021. The interest rate on the loan is 10% payable
annually starting Dec. 31, 2021. The loan matures in
five years. The data related to the loan are:
Principal amount P4,000,000
Direct loan origination cost 61,520
Indirect loan origination cost 26,400
Origination fees received from borrower 350,000
Fees received from borrower for
servicing the loan 15,000
How much is the net amount to be recognized in
Caring Bank’s 2021 profit or loss related to this loan?
A. P445,382 C. P428,600
B. P433,982 D. P418,982
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19. Graciousness Company provides financing to other
companies by purchasing their accounts receivable on
a nonrecourse basis. Graciousness charges its clients
a commission of 15% on all receivable factored. In
addition, Graciousness withholds 10% of receivables
factored as protection against sales returns or other
adjustments. Experience has led Graciousness to
establish an allowance for bad debts of 4% of all
receivables purchased.
On January 15, Graciousness purchased receivables
from Respect Company totaling P1,500,000. Respect
had previously an allowance for bad debts for these
receivables at P35,000. By January 31, Graciousness
had collected P1,200,000 on these receivables. What
is the loss on factoring to be recognized by Respect
Company?
A. P190,000 C. P375,000
B. P225,000 D. P 0
20. On Jan. 1, 2021, an entity purchased a debt
instrument at its face value of P1,000,000. The
contractual term is ten years with an annual coupon of
6%. On Dec. 31, 2020, the fair value of the
instrument decreases to P955,000. 12-month expected
credit losses as determined under the impairment
model are P25,000.
Which statement is correct?
A. If the debt instrument is classified as FA at FVTPL,
net amount to be recognized in 2021 profit or loss
is P35,000.
B. If the debt instrument is classified as FA at
FVTOCI, the amount to be recognized in 2021
other comprehensive income is P45,000.
C. If the debt instrument is classified as FA at AC, the
amount to be reported on the entity’s Dec. 31,
2021 statement of financial position is P975,000.
D. None of these.
21. When is the difference (‘day 1’ gain or loss) between
the fair value measured by the entity and the
transaction price deferred as an adjustment to the
carrying amount of the financial instrument?
A. If the fair value is measured by a quoted price in
an active market.
B. If the fair value is based on a valuation technique
that uses only data from observable markets.
C. If the fair value is not measured in either A or B.
D. If the fair value is measured in either A or B.
22. On December 28, 2021, Ethical Company commits
itself to purchase a financial asset to be classified as
FA at AC for P1,000,000, its fair value on commitment
(trade) date. This security has a fair value of
P1,002,000 and P1,005,000 on December 31, 2021
(Joanna's financial year-end), and January 5, 2022
(settlement date), respectively. If Ethical applies the
settlement date accounting method to account for
regular-way purchases of its securities, the financial
asset should be recognized on January 5, 2022 at
A. P1,000,000 C. P1,005,000
B. P1,002,000 D. P 0
23. Which of the following is recognized in profit or loss if
the equity investment is designated as a financial asset
at fair value through other comprehensive income?
A. Changes in fair value
B. Impairment loss
C. Transaction costs to sell
D. None of these
FAR.1stPB5.21
EXCEL PROFESSIONAL SERVICES, INC.

Use the following information for the next two questions. 28. Are there any circumstances when a contract that is
not a financial instrument would be accounted for as a
Both Rian Inc. and Bryan Corp. have 100,000 shares of
financial instrument under PFRS 9?
no-par ordinary shares outstanding. Friendliness Inc.
A. No. Only financial instruments are accounted for as
acquired 10,000 shares of Rian for P6 per share and
financial instruments.
25,000 shares of Bryan for P10 per share on January 1,
B. Yes. Gold, silver, and other precious metals that
2020. Changes in retained earnings for Rian and Bryan for
are readily convertible to cash are accounted for as
2020 and 2021 are as follows:
financial instruments.
Bryan C. Yes. A contract for the future purchase or delivery
Rian Inc. Corp. of a commodity or other non-financial item (e.g.,
Retained earnings, (deficit), gold, electricity, or gas) generally is accounted for
Jan. 1, 2020 P200,000 P(35,000) as a financial instrument if the contract can be
Cash dividends, 2020 (25,000) - settled net.
D. Yes. An entity may designate any nonfinancial
P175,000 P(35,000)
asset that can be readily convertible to cash as a
Net income, 2020 40,000 65,000 financial instrument.
Retained earnings,
Dec. 31, 2020 P215,000 P30,000 29. Compassion Company reported inventories valued at
Cash dividends, 2021 (30,000) (10,000) P8,800,000 on Dec. 31. The following items were
Net income, 2021 60,000 25,000 included in this amount:
Retained earnings, • Cryptocurrencies for investment purposes,
Dec. 31, 2021 P245,000 P 45,000 P860,000.
Fair value of shares: • Lubricants that are consumed by the entity’s
December 31, 2020 P 7.00 P 12.00 machinery in producing goods, P90,000.
• Materials in transit shipped FOB shipping point,
December 31, 2021 7.50 11.00
P120,000.
• Finished goods in transit shipped FOB shipping
24. The total amount to be recognized by Friendliness Inc.
point, P150,000.
in its 2021 profit or loss related to these investments is
• Advertising catalogs and shipping boxes, P30,000.
A. P 9,250 C. P14,250
• Items of property, plant and equipment previously
B. P12,450 D. P24,250
held for rental to others that are now held for sale
in the ordinary course of business, P240,000.
25. The carrying amount of Investment in Bryan Corp. as
of December 31, 2021 is
The adjusted inventories of Compassion Company at
A. P275,000 C. P261,250
Dec. 31 should be
B. P270,000 D. P253,750
A. P7,430,000 C. P7,760,000
B. P7,520,000 D. P7,910,000
26. Imaginative Corp. established a savings account for
building construction by making annual deposits of
30. Courage Corp. uses the perpetual inventory system.
P800,000 at the beginning of each of six years to a
The entity’s inventory transactions for the month of
savings account paying 8%. At the end of the sixth
August were as follows:
year, the account balance was transferred to a bank
Total
paying 10%, and annual deposits of P800,000 were
No. Unit cost cost
made at the end of each year from the seventh
01 Aug. Beg. inventory 20 P4.00 P80.00
through the tenth years. What was the account
07 Aug. Purchases 10 4.20 42.00
balance at the end of the tenth year?
10 Aug. Purchases 20 4.30 86.00
A. P12,992,617 C. P12,228,056
12 Aug. Sales 15 ? ?
B. P12,305,193 D. P11,589,274
16 Aug. Purchases 20 4.60 92
20 Aug. Sales 40 ? ?
27. During 2021, Joyfulness Co. pays an insurance
28 Aug. Sales returns 3 ? ?
premium of P31,800 on a P900,000 life insurance
policy covering the president. The cash surrender
Assuming that the entity uses the weighted average
value of the policy will increase from P165,000 to
cost flow method, the 12 August sales should be
P175,200 during 2021. The entity received dividends
costed at what unit cost?
of P3,300 from the insurance company during 2021.
A. P4.16 C. P4.07
The president died half-way through 2021. The policy
B. P4.30 D. P4.60
indicates that the cash surrender value is P170,100 at
that date and 50% of the premium is refunded. The
31. The following figures relate to inventory held at the
life insurance expense for the year 2021 is
end of the reporting period:
A. P18,300 C. P5,700
B. P 7,500 D. P2,400 Cost of materials P100,000
Net realizable value of materials 85,000
Estimated costs to convert materials
into finished goods 50,000
Estimated selling price of finished goods 160,000
Estimated costs to sell 15,000
The entity should recognize loss on write-down of
inventory of materials of
A. P15,000 C. P5,000
B. P10,000 D. Nil

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EXCEL PROFESSIONAL SERVICES, INC.

32. On August 15, 2021, a typhoon damaged a warehouse

The carrying amount of the biological assets of
of Contentment Merchandise Company. The entire
Determination Corp. on Jan. 1, 2021 is
inventory and many accounting records stored in the
a. P1,000,000 c. P1,500,000
warehouse were completely destroyed. Although the
b. P1,400,000 d. P3,500,000
inventory was not insured, a portion could be sold for
scrap. Through the use of the remaining records, the
37. Items such as spare parts, stand-by equipment and
following data are assembled:
servicing equipment that do not meet the definition of
Inventory, January 1 P 375,000 property, plant and equipment are classified as
Purchases, January 1-August 15 1,385,000 A. Investment property
Cash sales, January 1-August 15 225,000 B. Intangible assets
Collection of accounts, Jan. 1-Aug. 15 2,115,000 C. Inventory
Accounts Receivable, January 1 175,000 D. Noncurrent assets held for sale
Accounts Receivable, August 15 265,000
Salvage value of inventory 5,000 38. When assessing whether an item of property, plant
Gross profit percentage on sales 32% and equipment is functioning properly, an entity
Compute the inventory loss as a result of the typhoon. assesses
A. P107,600 C. P102,600 A. The technical and physical performance of the
B. P104,200 D. P255,600 asset.
B. The financial performance of the asset.
33. Cooperation Corp. values its inventory by using the C. Both A and B.
retail method (FIFO basis, lower of cost or NRV). The D. Neither A nor B.
following information is available for the year just
ended: 39. Beauty Corp. exchanged delivery trucks with Beast,
Inc. Beauty’s truck originally cost P2,300,000, its
Cost Retail accumulated depreciation was P2,000,000, and its fair
Beginning inventory P 80,000 P140,000 value was P500,000. Beast’s truck originally cost
Purchases 297,000 420,000 P2,350,000, its accumulated depreciation was
Freight-in 4,000 - P1,990,000, and its fair value was P570,000. Beauty
Breakage 8,000 also paid Beast P70,000 in cash as part of the
Markups (net) 10,000 transaction. The transaction lacks commercial
Markdowns (net) 2,000 substance. What amount is the new book value for the
Sales 400,000 truck Beauty received?
At what amount would Cooperation report its ending A. P570,000 C. P370,000
inventory? B. P500,000 D. P300,000
A. P112,000 C. P117,600
B. P113,400 D. P119,000 40. Which statement is incorrect regarding the useful life
of an asset in accordance with PAS 16?
34. Which of the following activities involving living A. The useful life of an asset is defined in terms of the
animals or plants are agricultural activities? asset’s expected utility to the entity.
I. Harvesting from unmanaged sources B. The useful life of an asset cannot be shorter than
II. Managing recreational activities its economic life.
III. Development of organisms for research purposes C. The estimation of the useful life of the asset is a
matter of judgement based on the experience of
A. I, II and III the entity with similar assets.
B. II and III only D. None of these.
C. III only
D. None of these 41. Gentleness Company takes a full year’s depreciation in
the year of an assets acquisition, and no depreciation
35. The following pertains to Creativity Company’s in the year of disposition. Data relating to one
biological assets: depreciable asset acquired in 2019, with residual value
of P900,000 and estimated useful life of 8 years, at
Fair value of the asset based on quoted
December 31, 2020 are:
price in the principal market P18,000
Fair value of the asset based on quoted Cost P9,900,000
price in a different market 19,000 Accumulated depreciation 4,331,250
Selling price in a binding contract to sell 20,000
Using the same depreciation method in 2019 and
Estimated commissions to brokers 1,800
2020, how much depreciation should Gentleness
Estimated transport and other costs
record in 2021 for this asset?
necessary to get asset to the market 1,200
A. P1,392,188 C. P1,856,250
The entity’s biological assets should be valued at B. P1,500,000 D. P2,475,000
A. P17,200 C. P16,000
B. P16,200 D. P15,000 42. As of Jan. 1, 2021, Dignity Corp. decided to change
the method of computing depreciation on its sole piece
36. Determination Corp. is engaged in raising dairy of equipment from the sum-of-the-years' digits
livestock. Data provided in 2021 follows: method to the straight-line method. The equipment,
acquired in January 2018 for P520,000, had an
Carrying amount on Dec. 31, P2,500,000; Increase
estimated life of five years and a residual value of
due to purchases, P1,000,000; Gain arising from
P20,000.
change in fair value less costs to sell attributable to
price change, P200,000; Gain arising from change in The amount of the depreciation expense for 2021 is
fair value less costs to sell attributable to physical A. P100,000 C. P50,000
change, P300,000; Decrease due to sales, P400,000; B. P 60,000 D. P42,000
Decrease due to harvest, P100,000.

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EXCEL PROFESSIONAL SERVICES, INC.
43. An entity has the following items of Machinery at Dec.
31, 2020:
Machine No. Cost Acc. Dep.
1 P100,000 P95,000
2 200,000 160,000
3 300,000 210,000
4 400,000 240,000
Additional information:
• All items – useful is 10 years and the fair value is
higher than the carrying amount at Dec. 31, 2021
• Machine No. 2 - idle during 2021
• Machine No. 3 - retired from active use on June 1,
2021 but not yet derecognized at Dec. 31, 2021
• Machine No. 4 - classified as held for sale in
accordance with PFRS 5 on July 1, 2021 but still
unsold at Dec. 31, 2021
The total depreciation for the year 2021 is
A. P95,000 C. P75,000
B. P80,000 D. P57,500
44. Which statement is correct regarding the revaluation
model for property, plant and equipment?
A. Appraisal should be made by recognized specialists
independent of the entity which owns the property.
B. Annual revaluation is required regardless of the
change in fair value of the assets.
C. Revalued amount is the fair value at the end of the
reporting period less any subsequent accumulated
depreciation and subsequent accumulated
impairment losses.
D. Depreciated replacement cost can be used to
measure the fair value of an item of property,
plant and equipment only when the entry price
equals a current exit price.
45. In the 30 June 2021 annual report of Harmonious
Corp., the equipment was reported as follows:
Equipment (at cost) P5,000,000
Accumulated depreciation 1,500,000
P3,500,000
The equipment consisted of two machines, machine A
and machine B. Machine A had cost P3,000,000 and
had a carrying amount of P1,800,000 at 30 June 2020,
while machine B had cost P2,000,000 and was carried
at P1,700,000. Both machines are measured using the
cost model, and depreciated on a straight-line basis
over a ten-year period.
On 31 December 2021, the directors of Harmonious
Corp. decided to change the basis of measuring the
equipment from the cost model to the revaluation
model. Machine A was revalued to P1,800,000 with an
expected useful life of six years, and machine B was
revalued to P1,550,000 with an expected useful life of
five years.
The amount to be recognized in profit or loss as a
result of the revaluation of assets on December 31,
2021 is
A. P150,000 C. (P150,000)
B. P100,000 D. (P 50,000)
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46. Honesty Corporation’s properties included the following
items:
- Land held as potential plant site, P5,000,000.
- A vacant building to be leased out under an
operating lease, P20,000,000.
- Property held for sale in the ordinary course of its
business, P30,000,000.
- Property acquired exclusively with a view to
subsequent disposal in the near future,
P4,000,000.
- Property occupied by employees paying market rent,
P3,000,000
- Property occupied by employees paying below
market rent, P1,000,000
- Property held for administrative purposes,
P10,000,000.
- A hotel owned and managed, P50,000,000.
- A building being leased out to a subsidiary,
P8,000,000.
- A building, which cannot be sold or leased out
separately, used in the production of goods and
around 2% of the area being leased out to canteen
operators, P2,000,000.
- Property that is being constructed for use as an
investment property, P7,000,000.
How much should be reported as investment
properties in Honesty Corporation’s separate financial
statements?
A. P43,000,000 C. P38,000,000
B. P40,000,000 D. P35,000,000
47. Can an item of property, plant and equipment (PPE)
be accounted for using the investment property fair
value model?
A. No.
B. Yes, if all other items of PPE are accounted for in
the same way.
C. Yes, if all other items of PPE are accounted for
using the revaluation model.
D. Yes, if the item is included in an entity-operated
investment fund that provides investors with
benefits determined by units in the fund.
48. An entity which applies the fair value model in PAS 40
Investment Property has elected to change its
valuation technique consistent with the income
approach to one consistent with the market approach
due to a change in market conditions as permitted by
PFRS 13 Fair Value Measurement. This is considered as
A. A change in accounting estimate
B. A change in accounting policy
C. A correction of an error
D. Any of these
49. Authenticity Corp. acquired a patent from Honesty
Research Corporation on Jan. 1, 2021 for P4 million.
The patent will be used for five years, even though its
legal life is 20 years. Integrity Corp. has made a
commitment to purchase the patent from Authenticity
for P200,000 at the end of five years. Compute
Authenticity's patent amortization for 2021, assuming
the straight-line method is used.
A. P380,000 C. P760,000
B. P400,000 D. P800,000
FAR.1stPB5.21
EXCEL PROFESSIONAL SERVICES, INC.

50. Which of the following is always recognized in profit or Fairness Inc.’s 2021 income statement will report
loss as incurred? amortization expense for the patent of
I. Subsequent expenditure on externally acquired A. P188,333 C. P282,500
brands. B. P232,000 D. P595,000
II. Subsequent expenditure on externally acquired
customer lists. 55. Encouragement Corp. acquired an asset on July 1,
III. Subsequent expenditure on internally generated 2018 for P250,000. Management estimates that the
mastheads. useful life is 5 years. At Jan. 1, 2019, impairment
indicators are present and management decides to
A. I, II and III write down the asset to an estimated recoverable
B. II and III only amount of P75,000. Depreciation will be taken over 3
C. II only years from that point. On Jan. 1, 2021, the entity
D. None of these adopts the revaluation model to measure the asset.
The asset now has a fair value of P300,000.
51. Which of the following expenditures would never Furthermore, the estimated remaining useful life is
qualify as an exploration and evaluation asset? now believed to be 5 years.
A. Expenditure for acquisition of rights to explore
How much can be recognized as gain on impairment
B. Expenditure for exploratory drilling
recovery in 2021 profit or loss?
C. Expenditure for activities in relation to evaluating
A. P275,000 C. P150,000
the technical feasibility and commercial visibility of
B. P175,000 D. P100,000
extracting a mineral resources
D. Expenditures related to the development of
56. An entity is planning to dispose of a collection of
mineral resources
assets. The entity designates these assets as a
disposal group. The carrying amount of these assets
52. On January 2, 2020, Honor Corporation purchased land
immediately before classification as held for sale was
with valuable natural ore deposits for P10 million. The
P20 million. Upon being classified as held for sale, the
estimated residual value of the land was P2 million. At
assets were revalued to P18 million. The entity feels
the time of purchase, a geological survey estimated 2
that it would cost P1 million to sell the disposal group.
million tons of removable ore were under the ground.
How would the reduction in the value of the assets on
Early in 2020, roads were constructed on the land to
classification as held for sale be treated in the financial
aid in the extraction and transportation of the mined
statements?
ore at a cost of P750,000. In 2020, 50,000 tons were
A. The entity recognizes a loss of P2 million
mined. In 2021, Honor fired its mining engineer and
immediately before classification as held for sale
hired a new expert. A new survey made at the end of
and them recognizes an impairment loss of P1
2021 estimated 3 million tons of ore were available for
million.
mining. In 2021, 150,000 tons were mined. All the
B. The entity recognizes an impairment loss of P3
ore mined was sold. Compute the amount of depletion
million.
for 2021.
C. The entity recognizes an impairment loss of P2
A. P372,000 C. P426,000
million.
B. P433,500 D. P406,500
D. The entity recognizes a loss of P3 million
immediately before classifying the disposal group
53. On January 1, 2017, the Excellence Corporation
as held for sale.
purchased machinery for P650,000 which it installed in
a rented factory. It is depreciating the machinery over
57. An entity issued a financial liability designated at
12 years by the straight-line method to a residual
FVTPL for P1 million. At the end of the reporting
value of P50,000. Late in 2021, because of increasing
period, the fair value of the financial liability decreased
competition in the industry, the company believes that
by P100,000 attributable to:
its asset may be impaired and will have a remaining
useful life of 5 years, over which it estimates the asset Credit risk P30,000
will produce total cash inflows of P1,000,000 and will Interest rate risk 60,000
incur total cash outflows of P825,000. The cash flows Other price risk 10,000
are independent of the company's other activities and
The decrease in fair value of the financial liability to be
will occur evenly each year. The company is not able
recognized in profit or loss is
to determine the fair value based on a current selling
A. P100,000 C. P70,000
price of the machinery. The company's discount rate is
B. P 90,000 D. Nil
10%.
58. The Generous Corporation’s president has a profit-
The impairment loss to be recognized by Excellence
sharing agreement with the company. The agreement
Corporation in its 2021 profit or loss is
states that the president is to receive a bonus
A. P317,322 C. P246,490
consisting of a basic amount equivalent to 10% of the
B. P267,322 D. P217,322
company’s net income before deduction of bonus but
after deduction of income tax. In addition, the basic
54. On January 1, 2019, Fairness Inc. purchased a patent
bonus shall be increased by the company’s tax savings
with a cost P1,160,000, a useful life of 5 years. The
on bonus because the total amount of bonus is
company uses straight-line depreciation. At December
deductible in computing the company’s taxable
31, 2020, the company determines that impairment
income. The company registered a net income of
indicators are present. The fair value less costs of
P5,000,000 before deduction of the president’s bonus
disposal of the patent is estimated to be P540,000.
and income tax. The company is subject to corporate
The patent's value-in-use is estimated to be P565,000.
income tax of 30%. The total bonus due to the
The asset's remaining useful life is estimated to be 2
president is
years.
a. P522,388 c. P339,806
b. P360,825 d. P263,158

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EXCEL PROFESSIONAL SERVICES, INC.

59. An entity issued a P100,000 debenture to a local bank. 64. An entity borrowed P10 million on Jan. 1, 2020
The debenture contract requires the entity, on the specifically to finance the construction of a building
sixth anniversary of the loan, to pay the local bank (Building A). This building was completed on July 1,
P134,010 to redeem the debenture (ie P100,000 2021. Also, the entity has another building (Building
repayment of capital and P34,010 premium). The B) still under construction at Dec. 31, 2021. How
debenture has a coupon of zero (ie it is ‘interest-free’). should the entity account for the P10 million loan in
the year ended Dec. 31, 2021?
The interest expense to be recognized by the entity in A. Treat P10 million as specific borrowing for Building
the second year of the loan is A from Jan. 1 to June 30 and specific borrowing for
A. P6,700 C. P5,250 Building B from July 1 to Dec. 31.
B. P6,365 D. Nil B. Treat P10 million as specific borrowing for Building
A from Jan. 1 to June 30 and general borrowing for
60. On December 31, 2020, Merciful Bank entered into a Building B from July 1 to Dec. 31.
debt restructuring agreement with Gratitude Corp., C. Treat P10 million as specific borrowing for Building
which was experiencing financial difficulties. A note for A from Jan. 1 to June 30 and excluded from
P1,000,000 and one year's accrued interest was due borrowings for Building B.
on this date from Gratitude. The note receivable from D. Treat P10 million as general borrowing from Jan. 1
Gratitude was restructured as follows: to Dec. 31.
• reduced the principal obligation to P700,000.
• forgave the P120,000 of accrued interest for 2020. 65. Flexibility Corp. had the following loans outstanding in
• extended the maturity date to December 31, 2023. 2021: Specific construction loan, 8% interest,
• reduced the interest rate to 8%. P1,000,000; General purpose loan, 10% interest,
P20,000,000. The entity began the self-construction of
Interest is payable annually on December 31,
a building on January 1, 2021 and the building was
beginning 2021. In accordance with the agreement,
completed on December 31, 2021. The following
Gratitude made payment to Merciful Bank on
expenditures were made during the year: January 1,
December 31, 2021.
P3,000,000; July 1, P6,000,000; November 1,
How much interest expense should Gratitude report for P9,000,000.
the year ended December 31, 2021?
A. P75,931 C. P56,000 The total cost of Flexibility’s new building is
B. P64,258 D. P 0 A. P18,830,000 C. P18,730,000
B. P18,750,000 D. P18,620,000
61. In order to finance the entity’s planned expansion, a
12% P10,000,000 face value bonds were issued for 66. A company does not keep full accounting records. The
P10,800,000, including accrued interest of P200,000 following details relate to transactions with credit
on December 1, 2018. Interest is payable every customers and suppliers for the year ended December
October 1 and April 1. By the end of the year 2020, 31, 2021:
the carrying amount of the bonds was reported at
Trade receivables, 1/1 P130,000
P10,300,000. The entity uses the straight-line method
Trade payables, 1/1 60,000
to amortize premium and discount. On September 1,
Cash received from customers 686,400
2021, the entity decided to reacquire the bonds at face
Cash paid to suppliers 302,800
value plus accrued interest.
Discounts allowed 1,400
What amount should the entity record as gain on early Discounts received 2,960
extinguishment of debt? Bad debts 4,160
A. P204,000 C. P140,000 Contra between payables and
B. P192,000 D. P120,000 receivables ledger 2,000
Trade receivables, 12/31 181,000
62. Cleanliness Company issued at 103, two hundred of its Trade payables, 12/31 84,000
9%, P1,000 bonds. Attached to each bond was one
detachable share warrant entitling the holder to What figure should appear for purchases in the
purchase 10 shares of Cleanliness’ ordinary shares. company’s statement of profit or loss for the year
On the date of issuance, the fair value of the bonds, ended December 31, 2021?
without the share warrants, was 95, and the fair value A. P329,760 C. P331,760
of each share warrant was P50. This transaction B. P330,200 D. P744,960
increased the entity’s equity by
A. P16,000 C. P10,000 67. Government assistance to entities with no conditions
B. P10,300 D. Nil specifically relating to the operating activities of the
entity other than the requirement to operate in certain
63. Commitment Corp. was organized on Jan. 1, 2020. On regions or industry sector is accounted for as
that date it issued 500,000, P10 par value, ordinary A. Government grant
shares at P15 per share. During the period Jan. 1, B. Other forms of government assistance
2020 through Dec. 31, 2021, Commitment reported C. A credit directly to equity
profit of P3,000,000 and paid cash dividends of D. Income on a straight-line basis
P500,000. On Jan. 5, 2021, Commitment purchased
50,000 ordinary shares at P20 per share. On Dec. 31,
2021, 45,000 treasury shares were sold at P30 per
share and retired the remaining treasury shares. What
is the total shareholders’ equity on Dec. 31, 2021?
A. P10,850,000 C. P10,350,000
B. P10,500,000 D. P10,250,000

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EXCEL PROFESSIONAL SERVICES, INC.

68. Which statement is incorrect regarding recognition of

government subsidies related to the coronavirus
pandemic?
A. Government grants can be recognized only when it
is confirmed that an entity is eligible to receive the
subsidy and that any conditions attaching to these
subsidies are met.
B. In cases where subsidies are given to entities
without any specified conditions, an asset can be
recognized at the time when it is reasonably
certain that the grants will be received.
C. The receipt of a grant provides conclusive evidence
that the conditions attaching to the grant have
been, or will be, fulfilled.
D. None of these.

69. On 1 January 2021 Faith Corp. purchased a plating

machine with a 5-year useful life for P135,000. The
entity received a grant of P13,500 towards the capital
cost. Faith’s policy is to treat the grant as a reduction in
the cost of the asset. Faith uses straight-line method of
depreciation.

Faith Corp. will recognize depreciation expense for the

year ended 31 December 2021 of
A. P27,000 C. P21,600
B. P24,300 D. P19,440

70. Which of the following will understate net income for

the period?
A. Beginning inventory is overstated.
B. Purchases are understated.
C. Ending inventory is overstated.
D. None of these.

End of Examination

Thank you for participating in Team PRTC

Nationwide Online First Pre-Board Examination.

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