The Professional CPA Review School

Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila
 (02) 735 8901 / 735 9031 / 0922 861 0191 /0905-4648851
email add: crc_ace@yahoo.com
Baguio Davao
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nd 3/F GCAM Bldg. Monteverde St. Davao City
 0906-0775156 / 09618683385  0905-4648851/0968-2209016

FINANCIAL ACCOUNTING & REPORTING MAY 2021 BATCH

OPEN PRE-BOARD EXAMINATION DECEMBER 3, 2021

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer
for each item by Shading the corresponding letter of your choice on the answer sheet provided.
STRICTLY NO ERASURES ALLOWED. Use Pencil No. 2 only.

1. On June 30, 2018, Carissa Corporation with a calendar-year accounting period acquired land
from Jordan, Inc. by issuing a 10%,3-year installment note with a maturity value of
P6,000,000, due on June 30, 2021. Under the terms of the loan agreement, Carissa has the
discretion to roll over the obligation for at least twelve months after the balance sheet date. In
Dec, 2020, because of financial difficulties, management feels it cannot meet its last installment
obligation and decides to exercise its discretion to roll over its remaining liability to June 30, 2022.
The agreement to roll-over w-as signed on Jan 18, 2021. The financial statements of 2020 were
authorized for issue on April 5, 2021.

According to the Conceptual Framework, what is (are) the disclosure requirement(s) for this
refinance agreement? will the refinance agreement be disclosed in the general purpose financial
statements (FS)?
A. Disclose only the important provisions of the refinance agreement
B. Disclose the interest liability as current; remaining principal obligation as non-current; no
need to disclose in the notes to FS
C. Disclose the interest liability and remaining principal in the non-current section of the
balance sheet; no need to disclose in the notes to FS
D. Disclose the interest liability as current, remaining principal obligation as non-current;
disclose in the notes to FS important provisions of the refinance -agreement.

2. Which of the following statements on the scope of authority of the PFRSs and the Conceptual
Framework is false?
A. The Conceptual Framework has the highest level of authority in financial accounting and
reporting practice in the Philippines
B. The Philippine Financial Reporting Standards in the Philippines include the PFRSs, the
PASs, and the Philippine Interpretations
C. The Philippine Financial Accounting Standards applies to all reporting enterprises, whether
publicly accountable or small and medium-sized entities
D. The Philippine Interpretations Committee (PIC) assists the FRSC and the public it serves by
addressing newly identified financial reporting or controversial issues in the Philippines not
specifically covered by the PFRSs.

3. Which of the following is an equity claim that arises from a transaction or event that is
NOT profit-directed?
A. Net income for the year
B. Declaration of dividends
C. Prior-period error correction
D. Recognized holding gain on revaluation of property

4. Which of the following entities are required to apply PFRS for Small Entities in Philippine financial
reporting in year 2020?
A. P. HonaDelivery Services P2.5 M and total liabilities of P800,000.
B. EN’s Food House with total assets of P80 M and total liabilities of P28 M
C. Marvin Novelty Store with total assets of P300 M and total liabilities of P90M
D. Provinciano Bank, Surigao del Sur, with total assets of P300 M and total liabilities of P100 M
CRC-ACE/FAR THEORY: FINAL PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 2

5. What is the primary role of the Securities and Exchange Commission in relation to Financial
accounting and reporting in the Philippines?
A. The SEC reviews financial statements for compliance.
B. The SEC coordinates with the FRSC in establishing accounting standards.
C. The SEC requires all companies listed on an exchange to submit their financial statements
to the SEC.
D. The SEC has a mandate to establish accounting standards to be followed by reporting
enterprises under its jurisdiction.

6. Which of the following is NOT a change in economic resources and claims, reflecting financial performance?
A. Dividends
B. Rent income
C. Cost of sales
D. Insurance expense

7. Which of the following basic elements of financial statements is NOT associated with the
statement of comprehensive income?
A. Income
B. Liability
C. Expense
D. Cost of sales

8. Which one of the following is not an essential characteristic of an asset?.

A. It is a result of a past activity
B. It is measurable in terms of money
C. It is acquired at a cost and is exchangeable
D. It provides the entity a right to probable future benefits

9. Which of the following statements about the Statement of Comprehensive Income (SCI) is (are)
false?
I. The Statement of Comprehensive Income shows the performance of an entity in one
reporting period and is a good indicator of the stewardship ability of the management of the
reporting entity.
II. The amount of revaluation surplus reported in the other comprehensive income section of
the SCI must be the same as the amount reported in the Equity section of the balance
sheet.
III. Foreign exchange gains and losses arising from purchase of property and equipment
should be reported under the other comprehensive income section of the SCI.
IV. Unrealized gain or loss on change in value of Investment Property must be reported in the
Income statement section of the SCI.
A. I and II only B. II and III only C. I, II and III only D. II, III and IV

10. According to PAS 1- Presentation of FS which of the following statements is NOT CORRECT?
A. The heading of the performance statement should clearly indicate the period of operation
which the statement covers.
B. The statement of comprehensive income shows as the final amount, the distributable
income to stockholders of the entity in the form of dividends
C. The statement of comprehensive income shows the changes in assets and liabilities
arising from profit directed activities and other increases and decreases in equity other
than transactions of owners as owners
D. The statement of comprehensive income summarizes the transactions of income, expense,
gains and losses, both realized and unrealized, for a period of operation between two
statements of financial position dates.

11. All of the following should be disclosed in the Notes to financial statements EXCEPT
A. Important management changes
B. Details of Selling and General expenses
C. A description of related party transactions
D. Material flood loss occurring after the balance sheet date but before financial
statements are released
CRC-ACE/FAR THEORY: FINAL PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 3

12. Which of the following statements is true?

A. The purpose of notes to financial statements is to provide additional information not required
by GAAP
B. If an item is not properly classified on the body of a financial statement, the misclassification
should be disclosed in notes to the statements
C. Notes explain or describe not only specific items appearing in the body of the statements but
also events or conditions not included in the body
D. The standard of disclosure of information applies only to the information in the notes to
financial statements and not to the information presented in the body of the report

13. Are the statements about the classification of each of the following events after the end of the
reporting period but before the financial statements are authorized for issue true or false,
according to PAS10 Events after the reporting period?
(1) A decline in the market value of investments would normally be classified as an adjusting
event.
(2) The settlement of a long-running court case would normally be classified as a non-
adjusting event.
Statement (1) Statement (2) Statement (1) Statement (2)
A. False False C. True False
B. False True D. True True

14. JIRISAN Company is being sued for illness caused to local residents as a result of negligence on
the company’s part in permitting the local residents to be exposed to highly toxic chemicals from
its plant. JIRISAN’s lawyer states that it is probable that JIRISAN will lose the suit and be found
liable for a judgment costing JIRISAN anywhere from P500,000 to P2,500,000. However, the
lawyer states that the most probable cost is P1,000,000. As a result of the above facts, JIRISAN
should accrue
A. A loss contingency of P500,000 and disclose an additional contingency of up to P2,000,000
B. A loss contingency of P1,000,000 but not disclose any additional contingency
C. No loss contingency but disclose a contingency of P500,000 to P2,500,000
D. A loss contingency of P1,000,000 and disclose an additional contingency of up to
P1,500,000

15. Which of the following assets has the capability of producing cash flows in the normal course of
operations not by itself or individually, but in combination with other resources to produce
goods or provide services?
A. Patents
B. Inventory
C. Accounts receivable
D. Long-term notes receivable

16. Which of the following statements about accounting standard setting and due process network is
(are) false?
I. The exposure draft issued by the accounting standard-setting body before an accounting
standard is approved for implementation gives CPA professionals the opportunity to
participate in the standard-setting process.
II. After the FRSC has approved an accounting standard, it should be automatically
implemented by all reporting enterprises in the Philippines.
III. The Conceptual Framework constitute the accounting laws of the accountancy profession
and violations of its provisions will be meted corresponding sanctions by the regulatory
bodies
A. I and II are false C. II and III are false
B. I and III are false D. All statements are false

17. Which of the following is one of the current issuances of the Philippine Interpretations
Committee
A. Accounting for Insurance Contracts in the Philippines
B. Philippine Financial Reporting Standards for Small Entities
C. Accounting guidelines for Islamic Finance for Philippine Use
D. Accounting guidelines for Cryptographic Assets for the Philippines
CRC-ACE/FAR THEORY: FINAL PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 4

18. In accounting, the concept of “recognition” means

A. journalizing a transaction in the books or original entry and posting it to the ledger
B. journalizing and posting an accountable event and including it in the trial balance totals
C. assigning an amount or value to an accountable event and reporting it in the financial
statements.
D. the process of formally incorporating in the totals of the balance sheet and income statement
an item that meets the “probability” and “measurability” criteria for accountable events
criteria.

19. Which of the following statements about the bases of accounting for income and expense is
false?
A. Total Operating expenses will be the same under pure cash and modified cash basis.
B. Cash basis of accounting does not recognize any adjusting entry at year end.
C. Modified Cash basis will yield the same Gross Profit amount as Accrual basis
D. Income and expenses with cash flows are recognized in cash, modified cash and accrual
bases

20. Which of the following statements about Philippine GAAP is (are) false?
I. There are three Financial Reporting Frameworks that comprise current Philippine GAAP.
II. The Securities and Exchange Commission (SEC) allows micro entities to use cash basis of
accounting.
III. All reporting enterprises in the Philippines including regulated entities are required to follow
full Philippine Financial Reporting Standards (PFRSs) in the preparation of financial
statements.
A. Statement I only
B. Statement III only
C. Statements I and II only
D. Statements II and III only 2

21. All of the following will justify the recognition of an asset by an accounting entity except when
A. It acquires legal control of the asset
B. It acquires legal ownership of the asset
C. It has exclusive knowledge and control of expected benefit flow even without legal right
D. acquires physical possession of the asset with or without legal ownership or legal control

22. Complete the sentence: Adjusting entries

A. Are often prepared after the statement of financial position date, but dated as of the statement
of financial position date.
B. Are necessary to enable the financial statements to conform to International Financial
Reporting Standard (IFRS).
C. Include both accruals and deferrals.
D. Are all of (A), (B) and (C) above

23. Measurement of assets and liabilities will depend heavily on their classification as to whether
they are
A. Current or non-current
B. Financial or non-financial
C. Monetary or non-monetary
D. All of the above

24. Which of the following statements pertaining to monetary and non-monetary items and their
measurement is (are) TRUE ?
I. Monetary items of assets and liabilities are those whose value is fixed despite changing
prices
II. The measurement rule for monetary assets and liabilities are basically the same.
III. Non-monetary assets acquired in exchanges are measured basically at
acquisition price, while those acquired in non-monetary exchanges are
at fair values which becomes the “deemed cost”
IV. Long-term notes receivable and notes payable are measured at their fair value since they
are monetary items
A. Only statements I and II are true
B. Only statements I, II and III are true
C. Only statements I, II and III are true
D. All four statements are true
CRC-ACE/FAR THEORY: FINAL PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 5

25. Which of the following types of assets and measurement bases is (are) property and logically
matched?
Asset Measurement base
1. Bearer trees 1. Fair value
2. Agricultural produce at the point of harvest 2. Fair value
3. Machinery acquired by installment purchase 3. Equivalent cash price
A. I and 3 only
B. 1 and 2 only
C. 2 and 3 only
D. 1, 2 and 3

26. Which of the following statements about the qualitative characteristics is (are) true?
I. Relevance is the capacity of information to make a difference in decision-making by helping
users form predictions about outcome of past, present and future events or confirm /correct
prior expectations
II. The quality of faithful representation assures readers that the financial information is free
from bias faithfully represents what it purports to show, including adequate disclosure of
significant information
III. According to the IASB Conceptual Framework, the attainment of the qualitative objectives
of accounting becomes difficult at times because of cost constraints
A. I and II only C. II and III only
B. I and III only D. I, II and III

27. The financial information qualities of faithful representation, verifiability, and freedom from error
are typically applied in which of the following steps of the accounting cycle?
A. Posting.
B. Closing
C. Adjusting
D. Journalizing

28. Which of the following statements is (are) true?

I. Owner’s equity represent the interest of owners in specific assets of a business
enterprise
II. All increases in assets also increase owners’ equity
III. Changes in owners’ equity cannot be measured separately from changes in assets and
liabilities
A. I only C. I and II only
B. III only D. I, II, III

29. In 2020, INVENTOR Corporation a publicly accountable top-rated manufacturing corporation

incurred research and development costs of P3,000,000 in developing Product YME. On
September 30, management is highly confident that Product YME can be used as a new raw
material for one of its main inventories for sale and has mapped out detailed plans and target
date for its completion no later than 2021.

In its December 31, 2020 statement of financial position, Inventor Corporation should
A. Report an Intangible Asset of P3,000,000 as it has equitable control of the asset
B. Report an Intangible Asset of P750,000 as it has legal ownership of the asset
C. Report an Intangible Asset of P750,000 as it has exclusive knowledge and control of the
development process
D. Report Research and Development Expense of P3,000,000 as Product YME is not yet
complete and therefore, there is low probability of benefit flow to the entity

30. Which of the following statements about financial accounting NOT CORRECT?
I. General purpose financial statements must be prepared by a certified public accountant.
II. Financial accounting is a social science that can be influenced by changes in the legal,
political and business environments.
III. Financial statements to be submitted to SEC by Philippine reporting enterprises can be
expressed in either the national language, English or Spanish languages.
IV. Not all significant information useful to users can be displayed on the face of the basic
financial statements
A. Statement I only C. Statements I and III only
B. Statements II D. Statements III and IV only
CRC-ACE/FAR: OPEN PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 6

31. Under current PFRS, control of an investee requires an investor to possess three essential
elements except for:
A. Power over the investee
B. Significant influence over the investee
C. Exposure, or rights, to variable returns from its involvement with the investee
D. Ability to use its power over the investee to affect the amount of the investor’s returns

32. Financial statements include a statement of financial position, a statement of cash flows, and a
statement of changes in equity. Which of the following are also included as components of basic
financial statements?
A. An income statement and accounting policies
B. A combined statement of income and retained earnings
C. A statement of comprehensive income and accounting policies
D. A statement of cost of goods manufactured and a statement of retained earnings

33. Accountable events must meet three criteria for recognition. Which of the following selected
business documents of SM Corporation that are presented to you by its management in 2021 will
qualify as an accountable event(s)?
1) A fixed price purchase commitment signed on December 28, 2021 for P1,000,000
worth of merchandise inventory to be delivered on April 30, 2022.
2) BBA purchase order for P 500,000 worth of merchandise
3) A salary voucher for P 200,000 for the last five days of the current year.
4) A sales invoice for P400,000 under terms 2/10, n/30
5) An official receipt for P 1,200,000 issued to a lessee for one-year rental of office
space commencing January 1, 2022.
The total peso amount of accountable events that should be recognized in the books of SM
Corporation is
A. P 600,000
B. P1,100,000
C. P1,800,000
D. P 3,300,000

34. Expensing the cost of an inexpensive waste basket which has a useful life of 3 years is
A. violation of the definition of an asset
B. an application of cost / benefit constraint
C. an application of the time period assumption
D. a violation of the expense recognition principle of systematic and rational allocation

35. After closing the books but before the financial statements are authorized for issue,. bookkeeper
discovered an omitted invoice of the company for the purchase of staplers and punchers
amounting to P250. Since the total property and equipment of the entity amount to P 90 Million,
he did not make an entry to record the purchase as he believes that the amount involved is not
material anyway. This is
A. an application of the materiality rule
B. violation of the accounting entity assumption
C. a violation of the principle of recognition and measurement of an element of accounting
D. justifiable by the cost/benefit constraint concept in the recognition of accounting elements

36. Which of the following statements about the concept of measurement or valuation in Accounting
is (are) True?
I. Under current GAAP, as a general rule, the primary basis of measurement of assets upon
acquisition is historical cost.
II. There are some instances when assets are initially measured on the basis of fair value.
III. The final valuation of assets and liabilities in the balance sheet is a mixture of costs and
values
IV.According to IFRS, under no circumstances is price-level accounting acceptable as an
alternative measurement in accounting in present-day GAAP
A. I and II only C. I, II, and III only
B. I, II and IV only D. I, II, III and IV
CRC-ACE/FAR: OPEN PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 7

37. Which of the following statements does not pertain directly to the Going-Concern assumption of
accounting?
A. Conceptually, the Accrual assumption is related to the Going Concern assumption
B. Assets and liabilities should be classified in the statement of financial position as to “current”
or “non-current”
C. Threats to the ability of an entity to operate as a going concern, such as a troubled-debt
restructuring arrangement should be disclosed in the notes to financial statements
D. Income and expenses should be recognized as these events occur, even if cash is not yet
received or paid.

38. Under the revised Conceptual Framework, which of the following are among the enhancing
qualitative objectives of financial accounting?
A. Relevance D. Faithful representation G. Comparability
B. Neutrality E. Verifiability H. Freedom from error
C. Understandability F. Timeliness I. Completeness
A. A, D, and F C. E, G, H
B. C, E, F and G D. D, E and F

39. Which of the following statements pertaining to accounting measurement is (are) true?
I. All monetary assets and liabilities should be measured at fair value
II. Assets acquired in a non-monetary exchange should be measured at fair value as it does
not involve a cost sacrifice
III. Non-monetary items are those whose values are affected by changing prices.
A. Statement I only C. Statements II and III only
B. Statement III only D. Statements I, II and III

40. The International Accounting Standards Board’s conceptual framework includes a cost-benefit
constraint. Which of the following best describes the cost-benefit constraint?
A. Financial information should be free from cost to users of the information.
B. The benefits of the information must be greater than the costs of providing it.
C. Costs of providing financial information are not always evident or measurable, but must be
considered.
D. All of the choices are correct.

41. On January 1, 2021, the statement of financial position of Amelia Company showed total assets of
P6,000,000 total liabilities of P2,500,000 and contributed capital of P2,000,000. During the current year,
Amelia Company issued share capital of P400,000 par value at a premium of P200,000. Dividend of
P300,000 was paid on December 31, 2021. The statement of financial position on December 31, 2021
showed total assets of P9,500,000 and total liabilities of P3,000,000. The net income for the current year is
A. 2,700,000
B. 2,400,000
C. 3,300,000
D. 2,100,000

42. In reconciling the Cash in bank of Bali Company with the bank statement for the month of November
2021, the following data are summarized:
Book debits for November, including October CM

for note collected, P60,000 P 800,000

Book credits for November, including NSF of P20,000

and service charge of P1,000 for October 620,000

Bank credits for November including CM for November

for bank loan of P100,000 and October deposit

in transit for P80,000 580,000

CRC-ACE/FAR: OPEN PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 8

Bank debits for November including October outstanding

Checks of P170,000 and November service charge of P500 600,000

The amount of outstanding checks for November is

A. 169,500
B. 169,000
C. 170,500
D. 189,500

43. On July 1, 2021 Chai Company factors P600,000 of its receivables to Demi Company on a with
recourse basis. The agreement includes a factoring fee of 4% and a 10% holdback both based on the
factored accounts.

Demi Company shall maintain the holdback account at 10% of the uncollected receivables and will
make payments to Chai Company at the end of each month for any excess. Chai Company had
previously established an Allowance for Doubtful Accounts for these receivables of P10,000. The
recourse obligation has a fair value of 8,000.

As of December 31, 2021, Demi Company has collected all the assigned accounts and has likewise sent
the holdback to Chai Company

The loss arising from the factoring of the receivables

A. 14,000
B. 24,000
C. 32,000
D. 22,000

44. On December 31, 2021, Emy Company sold a machine to Flack Company in exchange for a
noninterest bearing note requiring ten annual payments of P120,000. Flack Company made the first
payment on December 31, 2021. The market interest rate for similar notes at date of issuance was 8%.

Interest income to be reported in 2022 is

A. 59,970
B.64,417
C.70,521
D. 74,963

45. On December 31, 2021, Gayle Company enters into a debt-restructuring agreement with Hannah
Resorts which is experiencing financial difficulties. The terms of the restructuring are as follows:
• 60% the unpaid interest for 2020 & 2021 shall be waived, the balance to be paid together with
the principal amount
• Extension of the due date from December 31, 2021 to December 31, 2025;
• Reduction of the interest rate from 10% to 9%

The loss that Gayle Company recognizes as a result of the debt restructuring is

A. 3,541,152
B. 1,141,152
C. 4,633,973
D. 2,866,520
CRC-ACE/FAR: OPEN PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 9

46. On July 1, 2021, Jagger Company obtained a three-year 10% note receivable for services rendered. At
that time, the market rate of interest was 12%. The face amount of the note and the entire amount of
interest are due on June 30, 2024. Interest income included in the P&L for the period ending December
31, 2021 is
A. 5% of the face amount of the note
B. 6% of the face amount of the note
C. 5% of the July 1, 2021 present value of the note due on June 30, 2024
D. 6% of the July 1, 2021 present value of the note due on June 30, 2024

47. On July 1, 2021, Indigo Company obtained a three-year 10% note receivable for services rendered. At
that time, the market rate of interest was 12%. The face amount of the note and the entire amount of
interest are due on June 30, 2024. Interest receivable included in the statement of financial position as
of December 31, 2021 is
A. 5% of the face amount of the note
B. 6% of the face amount of the note
C. 5% of the July 1, 2021 present value of the note due on June 30, 2024
D. 6% of the July 1, 2021 present value of the note due on June 30, 2024

48. Kelly Company included the following items under inventory:

Materials 2,000,000
Advance for materials ordered 350,000
Goods in process 600,000
Unexpired insurance on inventory 50,000
Advertising catalogs and shipping cartons 150,000
Finished goods in factory 2,000,000
Finished goods in entity-owned retail store, including 50% profit on cost 750,000
Finished goods in hands of consignees, including 40% profit on sales 400,000
Finished goods in transit to customers, shipped FOB- destination at cost 250,000
Unsalable finished goods, at cost 100,000
Office supplies 50,000
Materials in transit, shipped FOB-shipping point, excluding freight of P30,000 330,000
Goods held on consignment, at sales price, cost P150,000 200,000

The correct amount of inventory to be reported is

A. 5,950,000
B. 6,300,000
C. 6,050,000
D. 6,400,000

49. Lucy Department Store is currently preparing its interim financial statements and would like to know an
estimate of its ending inventory. You are provided the following data for the third quarter of 2021:
sales, P 14,610,000; transportation-in, P 350,000; inventory, July 1, P 2,800,000; purchase returns, P
140,000; transportation-out, P 850,000; purchases, P 6,790,000; sales returns, P 700,000. The average
rate of gross margin on sales during the last three years is 40%.

The estimated cost of the inventory at September 30, 2021 is

A. P 1,034,000
B. P 1,454,000
C. P 1,534,000
D. P 1,954,000
CRC-ACE/FAR: OPEN PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 10

50. On June 30, 2021, the statement of financial position of Merlyn Company reported the following:
Equipment at cost 5,000,000

Accumulated depreciation 1,500,000

The equipment was measured using the cost model and depreciated on a straight line basis over 10-
years. On December 31, 2021, Merlyn Company decided to change the basis of measuring the
equipment from the cost model to the revaluation model. The equipment was revalued at P4,550,000
with an expected remaining useful life of 5 years.

For the period ending June 30, 2022, the balance of the revaluation surplus account is

A. 1,170,000
B. 1,040,000
C. 945,000
D. 840,000

51. On January 1, 2019, Mildred Company acquired an equipment. The equipment has an estimated useful
life of 10 years and an estimated residual value of P100,000. The depreciation to this equipment was
P320,000 for 2021 computed under the sum of years’ digits method. The acquisition cost of the
equipment is
A. 2,200,000
B. 2,300,000
C. 3,200,000
D. 3,300,000

52. Neri Company purchased equipment for P2,800,000 on January 1, 2018. The equipment had an 8-year
life and residual value of P400,000. Neri depreciated the equipment using the straight line method.

In August 2021, Neri questioned the recoverability of the carrying amount of this equipment. On
August 31, 2021, the undiscounted expected net future cash inflows related to the continued use and
eventual disposal of the equipment amounted to P1,600,000; while the discounted expected net future
cash inflows related to the continued use and eventual disposal of the equipment amounted to
P1,450,000. The equipment’s estimated selling price on August 31, 2021 is P1,650,000 with an estimated
disposal cost of P350,000

After impairment, the carrying amount of the equipment is

A. 1,650,000
B. 1,300,000
C. 1,600,000
D. 1,450,000

53. On September 30, 2021 ORLY Company acquired 200,000 ordinary shares for a total consideration of
P7,900,000. This amount includes P120,000 for legal fees and taxes. The acquisition did not give ORLY
significant influence. ORLY Company classifies the investment as financial instruments measured at fair
CRC-ACE/FAR: OPEN PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 11

value through profit or loss. As of December 31, 2021, the shares were quoted at P43.75. The
estimated cost of disposal was expected to be P150,000.

On June 1, 2022 ORLY Company sells the shares at its quoted price of P49.50. Total expenditures in
relation to the sale of the shares amounted to P130,000.

The gain included in the P&L section of the comprehensive income statement for 2021

A. 970,000
B. 820,000
C. 1,090,000
D. 940,000

54. On June 30, 2021 PATTY Company acquired 50,000 ordinary shares for a total consideration of
P1,175,000. This amount includes P65,000 for legal fees and taxes. The acquisition did not give PATTY
significant influence. PATTY Company classifies the investment as financial instruments measured at
fair value through other comprehensive income. As of December 31, 2021, the shares were quoted at
P28.60. The estimated cost of disposal was expected to be P80,000.

On December 31, 2022 PATTY Company the shares were quoted at P32.60 with the estimated disposal
cost at P90,000

The gain included in the other comprehensive income section of the 2022 statement of comprehensive
income is

A. 200,000
B. 255,000
C. 135,000
D. 110,000

55. Quaid Company, on January 1, 2020 acquired a 30% interest in Remy Company which gave Quaid
Company significant influence. The carrying amount of the assets were the same as their fair values
except for an equipment which was undervalued by P700,000. Remy Company records depreciation
under the straight-line method. The equipment’s remaining useful life was 4 years. As of December
31, 2020, the investment in associate – Remy Company account has a balance of 625,000.

In 2021, Remy Company reported a net loss of P2,050,000.

The investment loss to be reported in the 2021 comprehensive income statement is

A. 562,500
B. 615,000
C. 625,000
D. 667,500
.

56. On January 1, 2018, SYLVIA Company purchased a 10%, 10-year P3,000,000 face value bond which
pays interest every December 31.SYLVIA Company’s total investment cost which includes
commissions and taxes of P84,555 would give SYLVIA Company a yield rate of 12%. The securities
were classified as financial instruments measured at fair value through other comprehensive income
(FVtOCI)
CRC-ACE/FAR: OPEN PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 12

The fair value of the debt instruments at December 31, 2018, 2019 and 2020 were P2,650,305,
P2,705,942 and P2,756,175 respectively.

Interest income reported in the comprehensive income statement for 2019 is

A. 319,318
B. 321,637
C. 265,030
D. 270,594

57. A herd of 150, 2-year old animals was held at January 1, 2021. 20 animals aged 2.5 years were purchased
on July 1, 2021 for P6,200, and 10 animals were born on July 1, 2021. No animals were sold or disposed
of during the period.
Per unit fair values less estimated point-of-sale costs were as follows:
2.0-year old animal at January 1, 2021 6,000
Newborn animal at July 1, 2021 3,000
2.5-year old animal at July 1, 2021 6,500
Newborn animal at December 31, 2021 3,700
0.5-year old animal at December 31, 2021 4,200
2.0-year old animal at December 31, 2021 6,600
2.5 year old animal at December 31, 2021 7,100
3.0-year old animal at December 31, 2021 7,600
The amount to be included in the December 31, 2021 balance sheet under biological assets is
A. 1,334,000
B. 1,060,000
C. 1,169,000
D. 1,368,000

58. Enigma Company is engaged in the retail sale of high-definition televisions (HDTVs). Each HDTV has
a 24-month warranty on parts. If a repair under a warranty is required, a charge for the labor is made.
Management has found that 40% of the HDTVs sold require some work before the warranty expires.
Furthermore, the average cost of replacement parts has been P1,200 per repair.

At the beginning of January, the account for the estimated liability for product warranties had a credit
balance of P286,000. During January, 110 HDTVs were returned under the warranty. The cost of the
parts used in repairing the HDTVs was P175,000,while P185,000 was collected as service revenue for
the labor involved. During January 2021, the month before the Super Bowl, Enigma Company sold 450
new HDTVs.

The balance of the warranty liability as of January 31, 2021 is

A. 327,000
B. 370,000
C. 466,000
D. 509,000

59. Glory Company, a public limited company, has granted 20 share appreciation rights to each of its 500
employees on January 1, 2019. The rights are due to vest on December 31, 2020, with payment being
made on December 31, 2021. Assume that 80% of the awards vest. Share prices are as follows: January
1, 2019, P15; December 31, 2019, P18; December 31, 2020, P21; December 31, 2021, P19.
CRC-ACE/FAR: OPEN PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 13

The amount to be included in the P&L in relation to the settlement of the rights is

A. 0
B. 32,000 loss
C. 8,000 loss
D. 16,000 gain

60. Ions Company owes P2,000,000 plus P180,000 of accrued interest to IP Bank. The debt is a 10-year,
10% note. During 2021, Ions Company’s business deteriorated due to a faltering regional economy. On
December 31, 2021, IP Bank agrees to accept an old machine and cancel the entire debt. The machine
has a cost of P3,900,000, accumulated depreciation of P2,210,000, and a fair market value of
P1,900,000.

The amount of gain included in the P&L as a result of the financial liability’s derecognition is

A. 0
B. 210,000
C. 280,000
D. 490,000

61. On January 2, 2020, Newbie Company originates a 10-year 7% P4,000,000. The loan carries an annual
interest rate of 7% and is repayable at par at the end of year 10 (December 31, 2029). Newbie Company
charges a 1.25% non-refundable loan origination costs. The contract specifies that the borrower has an
option to pre-pay the instrument at approximately equal to instrument’s amortized cost at each exercise
date, and that no penalty will be charged for pre-payment. But at the inception of the contract, Newbie
Company expects the borrower not to prepay, the amortization period is equal to the instrument’s full
term and for that reason the effective yield rate is determined at 6.823%.

The amortized cost of the instrument on December 31, 2020

A. 4,322,705
B. 4,294,416
C. 4,046,477
D. 4,042,568

62. At December 31, 2020, Rusty Company had 450,000 shares of ordinary shares outstanding. On
September 1, 2021, an additional 150,000 shares of ordinary shares were issued. In addition, Rusty had
P10,000,000 of 6% convertible bonds outstanding at December 31, 2020 which are convertible into
300,000 shares or ordinary shares. The carrying value of the bonds as of December 31, 2020 ad based
on a rate of 8% is P9,205,800. No bonds were converted into ordinary shares in 2021. The net income
for the year ended December 31, 2021 was P3,750,000.

With an income tax rate of 32%, the diluted earnings per share for the year ended December 31, 2021
of Rusty Company is

A. 5.20
B. 5.31
C. 5.44
D. 7.50

63. On January 2, 2018, Shiny Company received a grant of P60,000,000 to compensate it for costs it
incurred in planting trees over a period of five years. Shiny Company will incur such cost in this
manner:
Years 2018 2019 2020 2021 2022
CRC-ACE/FAR: OPEN PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 14

Costs P2,000,000 P4,000,000 P6,000,000 P8,000,000 P10,000,000

Actual costs incurred in planting the trees showed P2,000,000 and P4,000,000 in years 2018 and 2019,
respectively. However, in 2020 and up to year 2021, the company has stopped planting trees.

Due to the non-fulfillment of its obligation, the government is demanding an immediate repayment of
the grant in the amount of P50,000,000 which is considered reasonable.
The amount recognized as an expense in relation to the repayment of grant is
A. 0
B. 2,000,000
C. 14,000,000
D. 38,000,000

64. Vixen Company has incurred P200,000 of research expenditure on a project to develop a new type of
fuel and has expensed these costs. On January 2, 2021, Vinyl Company purchases the research project,
including certain patents that have been registered by Vixen Company for P300,000 and recognizes the
costs as an intangible asset. Subsequently, Vinyl Company incurred P400,000 of expenditure on
completing the research phase and decides to develop the product commercially. It incurs a further cost
of P600,000 in bringing the product to a stage where the conditions for recognizing development costs
of an internally generated intangible asset are met. Further costs of P2,000,000 are incurred in bringing
the product into a condition where it is ready for use in the manner the management intend. Initial
marketing costs and losses are incurred of P400,000 before the product was successfully launched.

The total amount should Vinyl Company recognize as an asset related to the above costs is
A. 2,000,000
B. 2,300,000
C. 2,900,000
D. 3,300,000
65. Xenon Corporation, one of the largest mining company, paid P20,000,000 to the local government for
the right explore and extract mineral reserves in an area of interest. The following costs were also
incurred related to the exploration and evaluation activities of the entity: Total exploration costs,
P7,000,000 and evaluation costs of P3,000,000. Results of the study revealed that the total estimated
mineral reserves is 10,000,000 tons. Xenon Company started its commercial production in year 2021.
The company produced 1,200,000 tons in 2021.

The amount of amortization/depletion for the year 2021 is

A. 2,400,000
B. 2,760,000
C. 3,240,000
D. 3,600,000

66. Yawn Company received information from its pension plan trustee concerning the operation of the
company’s defined-benefit pension plan for the year ended December 31, 2021
January 1, 2021 December 31, 2021
Fair value of pension plan assets P4,200,000 P4,500,000
Defined benefit obligation 4,800,000 5,160,000

The service cost component of pension expense for 2021 is P360,000 and the past service cost due to
an increase in benefits is P60,000. The discount rate is 10% while the expected return on plan assets is
8%
CRC-ACE/FAR: OPEN PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 15

The pension expense amount included in P&L for 2021 is

A. 384,000
B. 468,000
C. 486,000
D. 564,000

67. Adverse financial and operating circumstances warrant that Birch Company should undergo a quasi-
reorganization at year-end.
• Inventory with a fair value of P1,000,000 is currently recorded in the accounts at cost of
P1,500,000.
• Plant assets with a fair value of P3,000,000 are currently recorded at P4,000,000 net of
accumulated depreciation.
• Unrecorded accounts payable amount to P300,000.
• Individual shareholders contribute P1,500,000 to create additional paid-in-capital to facilitate
the reorganization. No new shares are issued to the shareholders.
• The par value of the share capital is reduced from P100 to P50.
• Immediately before these events, the entity reported the following shareholders’ equity:
Share capital, P100 par value, 50,000 shares 5,000,000
Share premium 500,000
Retained earnings (deficit) (2,000,000)
After the quasi-reorganization, the total shareholders’ equity is
A. 3,200,000
B. 1,700,000
C. 700,000
D. 3,500,000

68. On July 1, 2021, Enterprise Company purchased the rights to a mine for P20,000,000, of which
P2,000,000 was allocable to the land. Estimated reserves were 1,500,000 tons. The entity expected to
extract and sell 25,000 tons per month.

Enterprise Company purchased mining equipment on July 1, 2021 for P8,000,000. The mining
equipment had a useful life 8 years. However, after all the resource is removed, the equipment will be of
no use and will be sold for P500,000.

The depreciation expense included in the P&L for 2021 is

A. 1,800,000
B. 1,370,000
C. 1,712,500
D. 862,250

69. On January 1, 2021, Graze, Inc. contracted with a City Government to provide custom-built desks for
the city schools. The contract made Graze the city’s sole supplier, and required Graze to supply no less
than 4,000 desks and no more than 5,500 desks per year for 2 years. In turn, the City Government
agreed to pay a fixed price of P110 per desk. During 2021, Graze produced 5,000 desks for the City
Government. At December 31, 2021, 500 of these desks were segregated from the regular inventory
and were accepted and awaiting pickup by the City Government. The City Government paid Graze
P450,000 during 2021.

The amount that Graze Company should recognize as revenue in 2021

A. 550,000
B. 450,000
C. 55,000
D. 0
CRC-ACE/FAR: OPEN PRE-BOARD EXAMS (MAY 2021 BATCH) PAGE 16

70. Haul Company is the main contractor engaged in the construction of a power plant of Helsinki
Company. It has now been determined that there are construction defects to the power plant. The best
estimate for the costs to rectify the defects is P100,000,000. It had previously recognized a prevision for
warranty of P40,000,000 on the project as part of project costs. However, Haul Company believes it can
recover a significant part of the costs from the sub-contractors who performed some of the
constructions works. Negotiations with the sub-contractors are still in progress and based and based on
the latest estimate, only two sub-contractors have admitted liability. The amount of recovery that is
probable is estimated at P10,000,000.

The amount to be disclosed in the statement of financial position in relation to the provision
A. 100,000,000
B. 90,000,000
C. 60,000,000
D. 40,000,000

71. Identity Company began operations on January 1, 2020. The financial statements contained the
following errors:
2020 2021
Ending inventory 800,000 under 400,000 over
Depreciation 150,000 under
Insurance expense 50,000 under 50,000 under
Prepaid insurance 50,000 under

In addition, on December 31, 2021, a fully depreciated equipment was sold for P100,000 cash but the
sale was not recorded until 2022.

Before income tax, what is the total effect of the errors on Identity Company’s working capital on
December 31, 2021
A. 300,000 over
B. 400,000 over
C. 350,000 over
D. 250,000 over