SECOND MONTHLY ASSESSMENT EXAMIINATIONS

1. Determine which of the following statements are true:

I. All FRSC members should be CPAs.
II. A standard should be approved by all members of FRSC.
III. FRSC members are on full-time basis and have a compensation coming from the government.
A. I and II C. All of the statements
B. II and III D. None of the statements

2. The following statements relate to the concept of "revenue." Which statement is not true?
A. Deferred revenue is not synonymous with unrealized revenue.
B. The definition of revenue encompasses both income and gains.
C. Transactions like issuance of capital stock and payment of dividends between the business entity
and its owners cannot give rise to revenue.
D. Income determination is a technical term that refers to the process of identifying, measuring
and relating revenue and expenses during an accounting period.

3. Determine the false statement regarding the Conceptual Framework?

A. The Conceptual Framework is not a reporting standard and does not define standard for any
particular measurement or disclosure issue.
B. Under the Conceptual Framework, the concept of income encompasses both revenue and gains.
C. Users under the Framework that are interested in information about the continuance of an entity
when they have a long-term involvement with or are dependent on the entity pertain to
employees.
D. The Conceptual Framework sets out the concepts that underlie the preparation and presentation
of financial statements for external users only.

4. Which of the following statements is incorrect?

A. Cash which is restricted and not available for use within one year of the reporting period should
be included in noncurrent assets.
B. Cash in a demand deposit account, being held specifically for the retirement of long-term debts
not maturing currently, should be excluded from current assets and shown as a noncurrent
investment.
C. Investments which can be liquidated at once and with little risk of loss of principal may be
classified as cash equivalent and included in the caption "Cash and Cash equivalents"
D. Compensating balances are cash amounts that are not immediately accessible by the owner.
E. Cash and cash equivalents is always presented first in statement of financial position when
presenting current and non-current classifications.

5. All of the following costs should be expensed in the period they are incurred except for
A. manufacturing overhead costs for a product manufactured and sold in the same accounting period.
B costs which will not benefit any future period.
C. depreciation of idle manufacturing capacity resulting from an unexpected plant shutdown.
D. storage costs that are necessary in bringing the asset to its intended condition.

6. Evaluate whether the following statements are true or false:

I. Government grants related to consumable plants are within the scope of PAS 41.
II. ALL living animals are biological assets provided they are related to agricultural activity.
III. Cost to sell are the incremental costs directly attributable to the disposal of an asset, excluding
finance cost and income taxes but including transport costs.
KGAUCP 2017 A. B. C. D.
Statement I False False True True
Statement II False True True True
Statement III True True False True

7. The controller of the FURION INC. is trying to determine the amount of Cash and cash equivalents to
be reported on its December 31, 2014, statement of financial position. The following information is
provided:
1 Balances in the companys accounts at the BPI BANK:
Checking account—P540,000
Savings account— P884,000
2 Undeposited customer checks of P208,000.
3 Currency and coins on hand of P23,200.
4 Savings account at the BDO BANK with a balance of P350,000.This account is being used to
accumulate cash for future plant expansion (in 2016).

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 SECOND MONTHLY ASSESSMENT EXAMIINATIONS

5 P800,000 balance in a checking account at the BDO BANK. In exchange for a line of credit,
FURION has agreed to maintain a minimum balance of P100,000 in this account.
6 Treasury bills; 30-day maturity bills totaling P600,000, and 180-day bills totaling P800,000.
What total amount of "cash and cash equivalents" should be reported in the current asset section of
the 2014 statement of financial position?
A. P3,055,200 C. P2,455,200
B. P2,955,200 D. P2,355,200
SOLUTION:
Balance in BPI BANK checking account P540,000
Balance in BPI BANK savings account 884,000
Undeposited customer checks 208,000
Currency and coins on hand 23,200
Checking account in BDO BANK 800,000
Treasury bills with 30-day maturity 600,000
Total cash and cash equivalents P3,055,200

8. The following information in relation to the receivable balance of ALDOUS CORP. for the year ended
December 31, 2019 is shown for the purpose of computing the proper amount to be reported on the
Statement of Financial Position.
The company is using the aging method in estimating its bad debts expense. The credit period
allowed by ALDOUS to its customers is on the average of 30 days.

Age of Receivables Amount

Under 30 days P2,000,000
31-60 days 1,000,000
61 - 90 days 500,000
91 -120 days 300,000
121 -150 days 200,000
The company based on experience has the following percent of collectability:
Accounts which are overdue for less than 30 days 98 %
Accounts which are overdue 31 - 60 days 95 %
Accounts which are overdue 61 - 90 days 80 %
Accounts which are overdue 91 -120 days 70 %
Accounts which are overdue for over 120 days 20 %
As of December 31, 2019, what amount is to be reported as the net realizable value of ALDOUS
CORP.’s accounts receivable?
A. P3,560,000 C. P3,665,000
B. P3,425,000 D. P3,835,000 KGAUCP 2019

9. On April 1, 2019, GRANGER CORP. sold goods costing P100,000 in exchange for P30,000 cash and
P120,000 worth of promissory note. The terms of the notes are as follows:
• The note bears an interest 8%. On transaction date, the effective interest rate for a similar
transaction is 10%.
• The principal amount is due in 3 equal payments every April 1 of each year, starting next year.
• All of the agreed interests are to be paid at maturity date.
What is the initial measurement of the notes receivable?
A. P121,113 C. P111,793
B. P113,900 D. P105,900
SOLUTION:
Principal (P40,000 x 2.4869) 99,476
Nominal interest (P19,200 x 0.7513) 14,424
Present value of notes receivable P113,900

10. SAUDI ARABIA CORP. submitted an inventory list on December 31, 2014 which showed a total of
P5,000,000.
• Excluded from the inventory was merchandise costing P80,000 because it was transferred to the
delivery department for packaging on December 28, 2014 and for shipping on January 2, 2015.
• The bill of lading and other import documents on a merchandise were delivered by the bank and
the trust receipt accepted by the entity on December 26, 2014. Taxes and duties have been paid
on this shipment but the broker did not deliver the merchandise until January 7, 2015. Cost of
the shipment totaled P800,000. This shipment was not included in the inventory on December
31, 2014.
• A review of the entitys purchase orders showed a commitment to buy P100,000 worth of
merchandise from ARABO CORP. This was not included in the inventory because the goods were
received on January 3, 2015. Suppliers invoice for P300,000 worth of merchandise dated

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 SECOND MONTHLY ASSESSMENT EXAMIINATIONS

December 28, 2014 was received through the mail on December 30, 2014 although the goods
arrived only on January 4, 2015. Shipment terms are FOB shipping point. This item was
included in the December 31, 2014 inventory by the entity.
• Goods valued at P20,000 were received from SAUDO CORP. on December 28, 2014 for approval
by SAUDI ARABIA. The inventory team included this merchandise in the list but did not place
any value on it. On January 4, 2015, the entity informed the supplier by long distance telephone
of the acceptance of the goods and the suppliers invoice was received on January 7, 2015.
• On December 27, 2014, an order for P25,000 worth of merchandise was placed. This was
included in the year-end inventory although it was received only on January 5, 2015. The seller
shipped the goods FOB destination.
What is the correct inventory on December 31, 2014?
A. 5,055,000 C. 5,830,000
B. 5,555,000 D. 5,855,000 FA VALIX 2016
SOLUTION:
Inventory per book 5,000,000
Inventory transferred to delivery department 80,000
Shipment covered by bill of lading 800,000
Goods in transit, purchased FOB destination (25,000)
Correct inventory 5,855,000

Use the following information in answering the next item(s):

On April 1, 2018, TIGREAL CORP., a calendar year corporation, purchased the rights to a mine
amounting to P10,000,000. As of that date, the total estimated reserves were 4,800,000 tons.
TIGREAL was expecting an extraction of 40,000 tons per month. After restoring the site in a suitable
condition, the land’s residual value is expected to be P2,600,000. In addition, the market rate of
interest on that date is 12%.

The following information relates to the company’s results of operation for 3 years and other relevant
information:
2018 2019 2020
Estimated Restoration Cost 3,125,000
Exploration Cost (60% Successful) 1,000,000
Buildings and Houses on mining site 3,600,000
Photocopying Equipment 2,000,000
Extraction Cost 200,000 None 120,000
Mining Labor 300,000 150,000 350,000
Tons Extracted 100,000 None 100,000
Tons Sold 90,000 None 80,000

TIGREAL’s accounting policy is to use successful effort method in accounting its exploration cost.
Buildings and houses constructed on the mining site has a useful life of 12 years with no residual
value while the photocopying equipment has a useful life of 11 years with a residual value of
P350,000. Both items of PPE are available for use as of June 30, 2018. Buildings and houses’
depreciation are fully attributable to the mining operations while the equipment’s depreciation is 60%
attributable to the mining operations. During the period of shutdown, depreciation expense is
expensed outright. (Round off present value factors in 2 decimal places)

11. What is the total amount of expense in relation to the mining operations of TIGREAL CORP. for the
year 2018?
A. P1,246,750.00 C. P1,208,562.50
B. P1,153,750.00 D. P1,276,250.00
SOLUTION:
Inventoriable Costs: (COGS)
Depletion*(187,500 x 90/100) P168,750
Mining Labor (300,000 x 90/100) 270,000
Extraction Costs (200,000 x 90/100) 180,000
Depreciation – Buildings ** (75,000 x 90/100) 67,500
Depreciation – Equipment *** (75,000 x 60% x 90/100) 40,500

Non-inventoriable Costs:
Interest Expense (1,000,000 x 12% x 9/12) 90,000
Exploration – Unsuccessful (1,000,000 x 40%) 400,000
Depreciation – Equipment (75,000 x 40%) 30,000
Total Expense P1,246,750

*
Acquisition Cost P10,000,000

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 SECOND MONTHLY ASSESSMENT EXAMIINATIONS

Exploration Cost (1,000,000 x 60%) 600,000

Restoration Cost (3,125,000 x 0.32) 1,000,000
Total Cost of Wasting Assets 11,600,000
Residual Value 2,600,000
Depletable Amount 9,000,000
Depletion (9,000,000/4,800,000 X 100,000) 187,500

** (3,600,000/4,800,000 x 100,000) 75,000

*** (1,650,000 / 11 x 6/12) 75,000
ENDING INVENTORY 80,750

12. What is the total amount of depreciation for the year 2019?
A. None C. P456,522
B. P150,000 D. P460,391
SOLUTION:
Depreciation – Buildings (3,600,000 – 75,000 / 11.5 yrs.) P306,522
Depreciation – Equipment (1,650,000 / 11 yrs.) 150,000
Total P456,522

13. What is the total amount of expense in relation to the mining operations of TIGREAL CORP. for the
year 2020?
A. P761,300 C. P965,431
B. P812,600 D. P858,431
SOLUTION:
Inventoriable Costs: (COGS)
Depletion * (187,500 x 70/100) 131,250
Mining Labor (350,000 X 70/100) 245,000
Extraction Costs (120,000 x 70/100) 84,000
Depreciation – Buildings ** (68,478 x 70/100) 47,935
Depreciation – Equipment *** (150,000 x 60% x 70/100) 63,000
Ending Inventory of 2018 sold in 2020 80,750

Non-inventoriable Costs:
Interest Expense (Jan. – Mar.)(1,120,000 x 12% x 3/12) 33,600
(Apr. – Dec.) (1,254,400 x 12% x 9/12) 112,896
Depreciation – Equipment (150,000 x 40%) 60,000
Total Expense 858,431

* (9,600,000/4,800,000 x 100,000) 187,500

** (3,600,000 – 75,000 – 306,522 / 4,700,000 x 100,000) 68,478
*** (1,650,000 / 11 yrs.) 150,000

14. In relation to PAS 36, Impairment of Assets, which of the following statements is (are) true?
I. Value in use is the amount of cash or cash equivalents that could currently be obtained by
selling an asset in an orderly disposal
II. Impairment tests are applied to both assets with limited lives and those with unlimited lives.
A. I only C. Both I and II
B. II only D. Neither I nor II

Use the following information in answering the next item(s):

On April 1, 2018, NATALIA CORP. purchased an office equipment with an installment price of
P150,000. The means of payments are as follows:
• P50,000 downpayment.
• Issued 5-year non-interest bearing note for the balance with an annual payment of P20,000. On
this date, the market rate of interest is 10%.

The company also incurred testing and installation cost amounting to 16,200 gross of the proceeds
from samples amounting to 1,200 while the cost of training the employee who will operate the
equipment amounted to P4,000. Installation and testing is necessary to prepare it to its intended
purpose and such was finished on June 30, 2018. (Round off present value factors in 2 decimal
places)

The equipment has a useful life of 10 years with a residual value of P20,800 and depreciated under
straight-line method.

15. What is the amount of expense presented in profit or loss for the year ended 2018?
A. P6,000.00 C. P15,685.00

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 SECOND MONTHLY ASSESSMENT EXAMIINATIONS

B. P10,000.00 D. P14,685.00
SOLUTION:
2018:
Depreciation* (120,000/10 yrs x 6/12) P6,000
Interest Expense (75,800 x 10% x 9/12) 5,685
Employee Training 4,000
Total Expense 15,685

*Purchase Price [(20k x 3.79) + 50k] P125,800

DACs (16,200-1,200) 15,000
Initial Cost 140,800
Residual Value 20,800
Depreciable Amount 120,000

16. What is the amount of expense presented in profit or loss for the year ended 2019?
A. P12,000.00 C. P16,753.50
B. P18,648.50 D. P19,580.00
SOLUTION:
2019:
Depreciation (120,000/10) 12,000
Interest Expense (Jan. – Mar.) (75,800 x 10% x 3/12) 1,895
(Apr. – Dec.) (63,380 x 10% x 9/12) 4,753.50
Total Expense 18,648.50

17. S1: All government assistance are government grants but not all government grants are
government assistance.
S2: Loans forgave by the government are not government grants since there is no transfer of
resources to the entity.
S3: In relation to grant related to asset, using deduction from asset approach will result to a lower
depreciation expense than gross approach but the net amount presented in profit or loss is the
same to both methods.
A. True, false, false D. False, true, false
B. False, false, true E. True, true, false
C. True, true, false

18. Which of the following can be capitalized as an intangible asset?

A. Internally generated customer list.
B. Website development cost used internally and where the customers cannot place an order.
C. Cost of computer software incurred during operating stage.
D. None from the choices.

19. On January 1, 2019, the local government of Mandaluyong granted to HAYABUSA CORP. a non-
interest bearing loan amounting to P300,000 payable on December 31, 2021. The loan requires
annual equal payments. On the date of issuance, the market rate of interest is 12%.
I. Using the gross presentation, the deferred income from government grant as of December 31,
2019 is P59,820
II. Using the net presentation, the income from government grant for the year 2020 is 20,280
A. I only C. Both I and II
B. II only D. Neither I nor II
SOLUTION:
DIGG beg. (Discount on Notes Payable)(300,000 – 240,180) 59,820
IGG = Amortization of discount 2019 (240,180 x 12%) (28,822)
DIGG end. 30,998

IGG = Amortization of discount 2020 (169,002 x 12%) 20,280

Use the following information in answering the next item(s):

On May 1, 2019, PHARSA CORP. purchased land and building for a total price of P10,000,000. On that
date, the fair value of the land and building is P9,000,000 and P3,000,000, respectively. The existing
will be demolished and a new factory building will be constructed. Before the acquisition, PHARSA is
considering on many sites where its new building will be constructed but it chose one. Additional cost
relating to the purchase and construction of new building include the following:
Title guarantee P40,000
Option payments (1/4 was allocated to the purchased land and building) 400,000

Payments to tenants to vacate the land 100,000

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 SECOND MONTHLY ASSESSMENT EXAMIINATIONS

Real estate taxes paid after May 1 60,000

Unpaid encumbrances over the land and building 50,000
Survey before construction of new building 100,000
Cost of razing the old building 50,000
Proceeds from sale of salvaged materials 10,000
Assessment by city for drainage project 70,000
Architects fee for new building 150,000
Insurance premium paid to workers 100,000
Payment of medical bills of employees accidentally injured 40,000
Material, labor and overhead costs 6,000,000
Savings on construction 100,000
Cost of changes to plans due to inefficiencies 50,000
Paving of streets and sidewalks (included in blueprint) 200,000
Excavation costs 30,000
Cost of elevator and escalator (included in blueprint) 150,000
Cost of temporary fences 20,000
Cost of removing temporary fences 5,000
Safety inspection costs 30,000

20. What is the cost of land?

A. P7,897,500 C. P7,710,000
B. P7,990,000 D. P7,600,000

21. What is the cost of new building?

A. P6,465,000 C. P6,725,000
B. P7,000,000 D. P6,370,000

22. What is the total amount expensed in profit or loss?

A. P2,712,500 C. P3,112,500
B. P3,012,500 D. P2,962,500
SOLUTION:
Land Old Building New Building
Purchase Price P7,500,000 P2,500,000
Title Guarantee 40,000
Option 75,000 25,000
Payments to tenants 75,000 25,000
Encumbrance 37,500 12,500
Cost of Survey 100,000
Demolition cost 50,000
Proceeds from demolition (10,000)
Special Assessment 70,000
Architect Fee 150,000
Insurance 100,000
Material, labor & OH 6,000,000
Sidewalks 200,000
Excavation costs 30,000
Elevator and Escalator 150,000
Temporary fences 20,000
Removal cost of fences 5,000
Safety inspection costs 30,000
Total Cost 7,897,500 2,562,500 6,725,000

Amount expensed in P/L:

Option for PPE not acquired P300,000
Real estate taxes 60,000
Medical bills not covered by insurance 40,000
Changes due to inefficiencies 50,000
Old building razed 2,562,500
TOTAL 3,012,500
Note: Savings on construction is not recognized in the books.

23. ALPHA CORP.(a NON-VAT entity) purchased a patent from ARGUS CORP. amounting to P280,000 on
April 1, 2019. ARGUS granted a 2% discount if ALPHA will fully pay the amount within 10 days after
the transaction date. A 12% VAT was also paid and the P280,000 amount is gross of VAT. It was
estimated that the patent’s remaining useful life and legal life are 10 years and 12 years, respectively.

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 SECOND MONTHLY ASSESSMENT EXAMIINATIONS

Also, ALPHA estimated a residual value of P25,000 even though there is no active market for the
patent’s at the end of its useful life. What is amortization expense of the patent for the year 2019?
A. P20,625 C. P18,375
B. P18,750 D. P16,500
SOLUTION:
Amortization Expense (P275,0000* / 10 yrs. X 9/12) = P20,625
* [(280K/1.12)X 98%] + 30K]

24. Regarding Property, Plant, and Equipment, which of the following is true?
I. Land improvements are items of PPE that are non-depreciable and usually includes as its cost,
the cost of paving parkways and sidewalks.
II. Income earned from incidental operations are neither recognized as a deduction from cost of
PPE nor as income in profit or loss.
III. Depreciation ceases when the item of PPE becomes held for sale or derecognized whichever is
earlier.
A. Yes, Yes, No D. No, No, No
B. No, No, Yes E. Yes, No, Yes
C. Yes, No, No

Use the following information in answering the next item(s):

On March 2, 2019, KIMMY CORP. started the construction of its new building. The building was
completed on August 31, 2019. The expenditures on building was made as follows:
March 1 1,500,000 June 30 150,000
May 1 300,000 July 31 300,000
June 1 300,000 August 31 50,000

The following were the borrowings made by the company which are all outstanding during 2019:
Principal Borrowing cost
8% bank loan 1,000,000 80,000
10% short-term note 2,000,000 200,000
11.25% long-term loan 1,600,000 180,000
4,600,000 460,000
The 8% bank loan relates specifically to finance the construction of the building. P12,000 interest
income was earned until June 30, 2019 from temporarily investing the funds to bond investments.

25. What is the borrowing cost to be capitalized as cost of new building using traditional method?
A. P79,500 C. P127,000
B. P75,000 D. P123,000
SOLUTION:
3/1 (1,500,000 x 6/6) 1,500,000
5/1 (300,000 x 4/6) 200,000
6/1 (300,000 x 3/6) 150,000
7/1 (150,000 x 2/6) 50,000
8/1 (300,000 x 1/6) 50,000
8/31 (50,000 x 0/6) 0
W.A. Expenditures 1,950,000
Specific Borrowing 1,000,000
W.A. Expenditures General Borrowing 950,000

Capitalizable Borrowing Costs:

Specific (80,000 x 6/12) – (12,000 x 4/6) P32,000
General:
Actual (380,000 x 6/12) 190,000
Avoidable (950,000 x 10%) 95,000
Total P127,000

26. What is the borrowing cost to be capitalized as cost of new building using contemporary method?
A. P127,000 C. P79,500
B. P123,000 D. P75,000
SOLUTION:
3/1 (500,000 x 6/6) 500,000
5/1 (300,000 x 4/6) 200,000
6/1 (300,000 x 3/6) 150,000
7/1 (150,000 x 2/6) 50,000
8/1 (300,000 x 1/6) 50,000
8/31 (50,000 x 0/6) 0

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 SECOND MONTHLY ASSESSMENT EXAMIINATIONS

W.A. Expenditures General Borrowing 950,000

Capitalizable Borrowing Costs:

Specific (80,000 x 6/12) – (12,000 x 4/6) P32,000
General:
Actual (380,000 x 6/12) 190,000
Avoidable (950,000 x 10%) 95,000
Total P127,000

27. LUNOX COMPANY purchased a factory machinery amounting to P6,000,000 on January 1, 2019. On
the same date, the company received P500,000 government grant from the national government.
LUNOX’s accounting policy is treat the grant as a reduction in the cost of the asset. The purchased
machine shall be depreciated using sum-of-the-years-digit method over 10 years with a residual
value of P500,000. During January, 2022, the government grant became fully repayable due to
LUNOX’s non-compliance on the attached conditions. What is the depreciation expense in 2022?
A. P700,000 C. P356,363
B. P945,455 D. P500,000
SOLUTION:
Cumulative Depreciation Not Recognized (500,000 x 27/55) 245,455
Updated Depreciation 2022 (3,300,000 – 500,000 x 7/28) 700,000
Total Depreciation Expense 945,455

Use the following information in answering the next item(s):

As of December 31, 2018, impairment indicators were present on HARLEY CORP’s cash generating
unit requiring the CGU to be tested for impairment. The recoverable amount of the cash generating
unit is P4,200,000 with the following carrying amounts:
Building P1,500,000
Goodwill 200,000
Equipment 1,000,000
Patent 500,000
Investment property 1,000,000
Land 600,000
Trademark 400,000
Individually, the fair value less cost to sell of the following assets was:
Equipment 900,000
Patent 450,000
Land 600,000

28. What is the impairment loss allocated to building?

A. P240,000 C. P336,207
B. P210,000 D. P224,138

29. What is the impairment loss allocated to Investment property?

A. P250,000 C. P160,000
B. P186,740 D. P224,138
SOLUTION:
Carrying Impairment Recoverable
Amount Loss Amount
Building 1,500,000 336,207 1,163,793
Goodwill 200,000 200,000 0
Equipment 1,000,000 100,000 900,000
Patent 500,000 50,000 450,000
Investment Property 1,000,000 224,138 775,862
Land 600,000 0 600,000
Trademark 400,000 89,655 310,345
5,200,000 1,000,000 4,200,000

Use the following information in answering the next item(s):

During 2019, ZHASK CORP. incurred the following costs in relation to its intangible assets:

At the beginning of January 2019, ZHASK started to develop a computer software product and the
following costs were incurred:
Completion of detailed program design P500,000
Coding costs after establishment of technological feasibility 1,000,000
Costs of producing product masters 500,000

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 SECOND MONTHLY ASSESSMENT EXAMIINATIONS

Duplication of computer software from product masters 300,000

Packaging product 200,000

The capitalized cost of the computer software is to be amortized over a 5 year useful life and takes
full year’s amortization in the first year. Sixty percent of the software produced during the year were
sold.

On April 1, 2019 a franchise was purchased from GORD CORP. for P850,000. In addition, 6% of the
revenue from the franchise must be paid to GORD. Revenue from the franchise for 2006 was
P2,000,000. Carter estimates the useful life of the franchise to be 8 years and takes full year’s
amortization in the year of purchase.

30. What is the total amount expensed in profit or loss during 2019 in relation to the above information?
A. P1,179,687.50 C. P1,206,250.00
B. P1,326,250.00 D. P1,026,250.00
SOLUTION:
Computer Software:
Research and development P500,000
Amortization expense (1,500,000 / 5yrs x 60%) 180,000
Inventoriable cost (500,000 x 60%) 300,000
Franchise:
Amortization (850,000 / 8 yrs) 106,250
CFF (2M x 6%) 120,000
TOTAL EXPENSE 1,206,250

31. What is the carrying amount of the intangible assets to be presented in the statement of financial
position as of December 31, 2019?
A. P2,350,000.00 C. P1,970,312.50
B. P1,875,780.50 D. P1,943,750.00
SOLUTION:
Computer Software (1.5M X 4/5) Franchise (850k x 7/8)

32. GORD CORP. acquired equity securities during the year 2013 and designated as fair value to other
comprehensive income. An analysis of the investments on December 31, 2015 showed the following:
Securities Cost Market
A P 1,500,000 P1,400,000
B 2,200,000 2,000,000
C 3,000,000 2,900,000
D 3,800,000 3,600,000
Total P10,500,000 P9,900,000
If the Companys income tax rate is 35%, what amount of unrealized loss should be reported in
GORDs December 31, 2015 shareholders equity?
A. none C. P390,000
B. P200,000 D. P600,000
SOLUTION:
Aggregate fair market value P 9,900,000
Aggregate cost 10,500,000
Unrealized loss - to be reported in equity (P600,000)
Deferred tax asset (P600,000 x 35%) 210,000
Unrealized loss, net of tax (P390,000)

33. BALANAR CORP. bought 1,000 shares of PLDT shares as equity investments at fair value on January
10, Year 2 at PI50 per share and paid P2,250 as brokerage fee. On December 5, Year 1, a P10
dividend per share of PLDT had been declared to be paid on April 30, Year 2 to shareholders of
January 31, Year 2. There were no other transactions in Year 2 affecting the investment in PLDT:
At what amount should the investment in equity securities be initially recognized on January 10, Year
2?
A. P142,250 C. P152,250
B. P150,000 D. P162,250
SOLUTION:
(1,000 x 150) + 2,250 = 152,250; 152,250 – (1,000 x 10) = 142,250

34. HALIMAW CORP. had the following transactions in the ordinary shares of MUMU INC.:
January 5 Bought 4,000 ordinary shares, P100 par, at
P88.
June 15 Received 10% bonus issue.

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 SECOND MONTHLY ASSESSMENT EXAMIINATIONS

August 31 Received P4 cash dividend for each ordinary

share.
October 10 Received stock rights to buy one new share
at P100 for every 5 shares held. Market
value of stock ex-right, P156.
November 15 Sold all stock rights at P4 per right.
What is the revised cost per share after receipt of the bonus issue?
A. P75 C. P85
B. P80 D. P90
SOLUTION:
88 ÷ 1.10 = 80

35. ALPHA CORP. bought 40% of BETA INC. s outstanding ordinary shares on January 2, 2015, for
P4,000,000. The carrying amount of BETA’s net assets at the purchase date totaled P9,000,000. Fair
values and carrying amounts were the same for all items except for plant and inventories, for which
fair values exceeded their carrying amounts by P900,000 and P100,000, respectively. The plant has
an 18-year life. All inventories were sold during 2015. During 2015, BETA reported profit of
P1,200,000 and paid a P200,000 cash dividend.

What amount should ALPHA report in its statement of comprehensive income from its investment in
BETA for the year ended December 31, 2015?
A. P480,000 C. P360,000
B. P420,000 D. P320,000
SOLUTION:
40% x 1.2M = 480,000; (40% x 900,000) ÷ 18 = 20,000
40% x 100,000 = 40,000; 480,000 – 20,000 – 40,000 = 420,000

36. Under IFRS 9, the cumulative balance of equity as a result of measuring financial assets at fair value
through other comprehensive income.
A. shall be reversed to profit or loss at the date the security is sold.
B. shall be reversed to profit or loss when there is objective evidence of impairment.
C. shall not be reversed to profit or loss but may be transferred to another equity account.
D. shall not be reversed to profit or loss and may not be transferred to another equity account.

37. An investor uses the equity method to account for investment in associate. The purchase price implies
a fair value of the investees depreciable assets in excess of the investees net asset carrying values.
The investees amortization of the excess
A. decreases the investment account.
B. decreases the goodwill account.
C. increases the investment income account.
D. does not affect the carrying value of the investment.

38. I. When potential voting rights exist, the investors share of profit or loss of the investee and of
changes in the investees equity is determined on the basis of "present ownership interest"
II. The loss of significant influence can occur with or without change in the absolute or relative
ownership interest.
A. True, true C. True, false
B. False, false D. False, true

39. For an investment accounted for under the equity method, the investment income recognized in profit
or loss for the year may be computed as
A. cash dividends received or receivable
B. share in the profit or loss of the associate plus amortization of undervaluation of assets
C. share in the profit or loss of the associate minus amortization of undervaluation of assets
D. share in the total comprehensive income of the associate minus amortization of undervaluation
of assets

40. In determining the value in use, which of the following cash flow is excluded from the computation?
I. Income tax receipts or payments.
II. Net cash flows received or paid on the disposal of the asset at the end of its useful life in an
arms length transaction which is after using the asset.
III. Future costs of improving or enhancing the assets performance.
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III

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 SECOND MONTHLY ASSESSMENT EXAMIINATIONS

41. Which of the following is not a dividend income?

I. Cash dividend in lieu of stock dividend
II. Stock dividend on the same class of share
III. Stock dividend in lieu of cash dividend
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III

42. I. Under the "successful effort" method of exploration cost accounting, only the exploration cost
directly related to the discovery of commercially producible natural resource is capitalized as
cost of the resource property.
II. The estimated restoration cost of a wasting asset can be only capitalized if the cost is an
existing present obligation of the entity which is either required by law or contract.
III. Under the wasting asset doctrine, a wasting asset corporation or an entity engaged in the
extraction of a natural resource, can legally return capital to shareholders during the lifetime of
the corporation.
A. True, true, true D. False, false, true
B. False, false, false E. True, true, false
C. True, false, true

43. Which of the following is an external source of that would indicate impairment of an asset?
I. Evidence of obsolescence or physical damage of an asset.
II. Significant decrease or decline in the market value of the asset.
III. The carrying amount of net assets of the entity is more than the "market capitalization".
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III

44. Determine which of the following is within the scope of PAS 16, Property, Plant and Equipment:
I. Agricultural Coconut Trees where the purpose of the company is to harvest coconuts.
II. Equipment being rented to third parties under an operating lease agreement.
III. Imported cattle and calves held for exhibition purposes.
A. I and II D. III only
B. I and II E. I, II and III
C. II and III

45. In relation to Property, Plant and Equipment, determine whether the following statements are true or
false:
I. Initial element of cost of dismantling forms part as cost of a PPE provided the entity is obliged to
restore the PPE at the end of its life. The initial estimate is included by estimating the
undiscounted cash flow at the end of its life.
II. If an item of PPE is acquired through exchange, if its fair value is available at the time of
exchange, then it is initially recorded at fair value of asset received if a cash consideration is
either received or paid to equalize fair values.
III. If a company received an item of PPE through donation, it is debited to asset account at fair
value and credited to donated capital account regardless of the relationship of the company to
the donor.
A. B. C. D.
Statement I True False False True
Statement II False False True True
Statement III True False False True
- END OF EXAMINATION -

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