INVESTMENT IN EQUITY SECURITIES

1. Nontrading equity instruments can be measured at fair value through other comprehensive income by
a. Irrevocable designation on aggregate basis
b. Irrevocable designation on share to share basis
c. Default
d. Mandate from the board of directors

2. If the company’s business mode; is to profit from fair value changes of the securities. Financial assets shall be
carried at
a. Fair value
b. Amortized cost
c. Historical cost
d. Realizable value

3. Transaction costs on acquisition of FVPL investments are

a. Included in profit or loss
b. Included in the cost of the financial asset
c. Treated as direct deduction to retained earnings
d. Ignored

4.Transaction costs on acquisition of FVOCI investments are

a. Included in profit or loss
b. Included in the cost of the financial asset
c. Treated as direct deduction to retained earnings
d. Ignored

5. Which securities can be classified as FAFVOCI?

a. Equity securities only
b. Debt securities only
c. Equity and debt securities
d. Neither equity nor debt securities

On January 1, 2015, ABC Co. purchased equity securities to be held as financial assets at fair value. On December
31, 2015, the cost and market value were:

Investment in Historical Cost Market Value

DEF- nontrading* 400,000 480,000
MNO- trading 600,000 700,000

On January 30, 2016, ABC sold DEF securities for P500,000. ABC incurred P5,000 in brokerage commission and
taxes.
*irrevocably designated to OCI

Requirements:
6. Gain on sale
7. Reclassification adjustment
8. Amount presented in Retained Earnings
9. On February 28, 2016, ABC sold MNO shares for P660,000. What amount is the gain or loss on sale presented in
P/L?
DEBT INVESTMENTS

10. Financial assets are initially measured at

a. Amortized cost
b. Fair value (plus transaction costs for all assets)
c. Fair value (plus transaction costs for most assets)
d. Fair value less costs to sell

11. On derecognition of a financial asset in its entirety, gain or loss is the difference between consideration received
and:
a. Carrying amount on derecognition date
b. Historical cost
c. Fair value on derecognition date
d. Fair value on acquisition date

12. On derecognition of a financial asset in its entirety, gain or loss is taken to

a. Profit or loss
b. Other comprehensive income
c. Retained earnings
d. Share premium

13. Gain or loss on derecognition of financial asset at amortized cost and is not part of a hedging relationship shall be
recognized in
a. Profit or loss
b. Other comprehensive income
c. Retained earnings
d. Share premium

14. Kale Co. purchased bonds at a discount on the open market as an investment and intends to hold these bonds to
maturity. Kale should account for these bonds at
a. Cost
b. Amortized cost
c. Fair value
d. Lower of cost or market

Smarts Co. purchased bonds with a face value of P5,000,000 on January 1, 2015. The bonds will mature on January
1, 2020 and the nominal rate of interest is 12%. Interest is payable every December 31. The market rate of interest
on January 1, 2015 is 10%. Present values at the end of 2015 and 2016, respectively, are 11% and 11.5%.
The bonds are classified as held for trading

Requirements:
15. Price of the bonds
16. Interest income for 2015
17. Measurement of the investments at December 31, 2015
18. Unrealized holding loss for 2015
19. Interest income for 2016
20. Measurement of the investments at December 31, 2016
21. Unrealized holding loss for 2016
INVESTMENTS IN ASSOCIATE

22. An associate is
a. an entity over which the investor has significant influence
b. an entity over which the investor has joint control
c. an entity over which the investor has significant influence or joint control and that is not a subsidiary
d. an entity over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint
venture

23. Per PAS 28, significant influence is demonstrated by which of the following extent of involvement in the financial
and operating policy decisions of the investee?
a. Power to govern
b. Power to participate
c. Control
d. Joint control

24. Which type of shares generally qualifies as one to acquire significant influence?
a. Ordinary
b. Preference
c. Founders
d. Nonvoting

25. In which of the following situation does “A” exercise significant influence over “B”?
I. A owns 20% of B’s preference shares
II. A owns 10% of B’s ordinary shares, X owns 10% of B’s ordinary shares, A owns 50% of X’s ordinary shares
III. A owns 10% of B’s ordinary shares, and B’s convertible preference shares converted to equal another 10% of B’s
ordinary shares
IV. A owns 10% of B’s ordinary shares, X owns 10% of B’s ordinary shares, X is a wholly-owned subsidiary of A.

a. I and II
b. II and III
c. III and IV
d. I and IV

26. Equity method does not apply in which of the following cases?
a. Interchange of managerial personnel
b. Participation in policy-making processes, including participation in decisions about dividends or other distributions
c. Material transactions between the investor and the investee
d. The investor, in itself, is a subsidiary of another entity

On January 1, 2016, Snowman, Inc. acquired 2,000 of 10,000 ordinary shares outstanding of Furious Inc. for
P100,000. On this date, the fair value of Furious net assets amounted to P600,000, while its book values amounted
to P500,000. Also on this date, these assets were under or overvalued:

Land Undervalued 80,000

Machinery ( 5 years life remaining) Undervalued 50,000
Patent (10 years remaining) Overvalued (30,000)

Requirements:
27. Investment amount at January 1, 2016
28. Income from the acquisition January 1, 2016
29. Total income from investment-2016
30. Investment account on December 31, 2016
INVESTMENT PROPERTY

31. An investment property should be measured initially at

a. Cost
b. Cost less accumulated impairment losses
c. Depreciable cost less accumulated impairment losses
d. Fair value less accumulated impairment losses

32. An entity owns machinery that it leases out to lessees under operating lease. The machinery should be presented
on the entity’s books as
a. Investment property
b. Inventory
c. Property and equipment
d. Noncurrent asset held for sale

33. The applicable PFRS/PAS for a property being constructed or developed for future use as investment property is
a. PAS 2
b. PAS 40
c. PAS 11
d. PAS 16

34. Investment property includes all of the following, except

a. Land held for long-term capital appreciation
b. Land held for currently undetermined use
c. Building owned by the reporting enterprise or held by a finance lessee leased out under one or more operating
lease
d. Property in the process of construction for sale in the ordinary course of business

35. Which of the following is not an investment property?

a. Land which the entity has not determined whether it is to be used as owner-occupied property or to be held for
sale
b. Property that is being constructed and developed as investment property
c. Building that is vacant but is held to be leased out to operating lessee
d. Property being constructed or developed on behalf of third parties

For the purpose of its consolidated financial statements, CAN Group of Companies has the following buildings:
Accumulated cost of building currently constructed for future use as investment property 10,000,000

Accumulated cost of building currently constructed for future use as use as plant site 12,000,000
Building leased to subsidiaries under operating leases 15,000,000
Building leased to subsidiaries under finance leases 2,000,000
Old building that is to be abandoned (fair value is P1,500,000) 2,000,000
Old building that is already abandoned ( fair value is P200,000) 100,000
Old building acquired exclusively with a view to subsequent disposal in the near future 200,000
Quarters rented by rank-and-file employees below market rates 400,000
Quarters rented by managers at prevailing market rates 800,000

Requirements:
36. In the consolidated financial statements, what amount shall be presented as investments property?
37. In separate financial statements of the parent, what amount shall be presented as investment property?
INCOME TAXES

38. The amount of income tax paid or payable for the year as determined by applying the provisions of the enacted
tax law to the taxable income is called
a. Deferred tax expense
b. Income tax expense
c. Current tax expense
d. Income tax benefit

39. The change during the year in an entity’s deferred tax liability and deferred tax asset is called
a. Deferred tax expense
b. Income tax expense
c. Current tax expense
d. Income tax benefit

40. A deferred tax asset results from the following, except

a. Deductible temporary differences
b. Future deductible amounts
c. Tax income higher than book income
d. Tax deduction higher than book expense

41. Which of the following results in a deferred tax liability

a. Operating loss carry-forward(NOLCO)
b. Warranty expense accrued/ estimated in the books
c. Depreciation for tax purposes in excess of depreciation recognized in the book of accounts
d. Advanced receipts for subscriptions to be delivered in the future periods

42. Which of the following results in a deferred tax asset?

a. Tax penalties and surcharges
b. Dividend income received from domestic corporations
c. Rental received in advance
d. Services fees accrued as income in the books for services rendered but not yet collected

For the year ended December 31, 2014, Dolores Corporation reported pretax financial income of P6,000,000. Its
taxable income was P8,000,000. The difference is due to rental received in advance which will reverse in the next
two years. Rental income is taxable when received. The income tax rate is 30% and Dolores made estimated tax
payment of P1,000,000

43. Total income tax expense for 2014

44. Current tax expense for 2014
45. Current tax payable as of December 31, 2014
LEASES

46. It is the earlier of the date of the lease agreement and the date of commitment by the parties to the principal
provisions of the lease.
a. Inception of the lease
b. Commencement of the lease
c. Termination of the lease
d. Expiration of the lease

47. It is the date from which the lessee is entitled to exercise its right to use the leased asset
a. Inception of the lease
b. Commencement of the lease
c. Termination of the lease
d. Expiration of the lease

48. The classification of a lease as either an operating or finance lease is based on

a. The length of the lease
b. The transfer of the risks and rewards of ownership
c. The minimum lease payments being at least 50% of the fair value
d. The economic life of the asset

49. Which of the following situations would prima facie lead to a lease being classified as an operating lease?
a. Transfer of ownership to the lessee at the end of the lease term
b. Option to purchase at a value below the fair value of the asset
c. The lease term is for a major part of the asset’s life
d. The present value of the minimum lease payments is 50% of the fair value of the asset

50. The minimum lease payments include all of the following except
a. Rental payments over the lease term
b. Any amount guaranteed by the lessee or by a party related to the lessee
c. Bargain purchase option
d. Contingent rent

51. The sales revenue recognized at the commencement of the lease by a manufacturer or dealer lessor is the
a. Fair value of the leased asset
b. PV of the minimum lease payments
c. FV of the assets or PV of MLP, whichever is lower
d. FV of the assets or PV of MLP, whichever is higher

On December 31, 2015, Angelo Co. leased machinery from ABC Co. with the following terms:
a. The lease does not provide for transfer of title
b. The lessee has the option to acquire the asset at fair value at the end of the lease term
c. The lease term is 7 years, out of the machine’s 10-year useful life.
d. Annual rental is P105,000 payables every December 31, starting 2015 (inclusive of P5,000 property taxes)
e. Implicit interest rate is 10%. PVAA for 7 years at 10% is 5.3553. PVF for 7 at 10% years is 0.5132
f. Residual value of the machine at the end of term and life is P10,000 guaranteed by the lessee.

Requirements:
52. Leased asset recognized by Angelo
53. Depreciation expense for 2015
54. Correct balance of lease liability at December 31, 2015
55. Correct balance of lease liability at December 31, 2016