Far Weeks1 7

FAR.
01 The environment of financial accounting and reporting
Question 1
Which statement is correct?
Response: The Insurance Commission is represented in the Philippine Interpretations
Committee.
Correct answer: The Insurance Commission is represented in the Philippine Interpretations
Committee.
Score: 1 out of 1 Yes
Question 2
Which statement is correct regarding Philippine Financial Reporting Standards (PFRSs)?
Response: PFRSs apply from a date specified in the document.
Correct answer: PFRSs apply from a date specified in the document.
Question 3
The process of establishing financial accounting standards
Response: Is a social process which incorporates political actions of various interested user
groups as well as professional research and logic.
Correct answer: Is a social process which incorporates political actions of various interested
user groups as well as professional research and logic.
Question 4
The Financial Reporting and Standards Council (FRSC)
Response: Establishes generally accepted accounting principles in the Philippines.
Correct answer: Establishes generally accepted accounting principles in the Philippines.
Question 5
Response: The Insurance Commission is not represented in the FRSC.
Correct answer: The Insurance Commission is not represented in the FRSC.
Question 6
The role of the PIC is principally to issue implementation guidance on PFRSs.
Interpretations of PFRSs are intended to give authoritative guidance on issues that are likely to
receive divergent or unacceptable treatment, in the absence of such guidance.
Response: True, True
Correct answer: True, True
Question 7
Which of the following statements reflects one of the benefits of adoption of IFRS standards by
different countries?
Response: Cost of capital is lower for firms.
Correct answer: Cost of capital is lower for firms.
Question 8
Which of the following statements is/are true?
I. The IFRS Interpretations Committee is a forum for the IASB to consult with the outside world.
II. The IFRS Foundation produces IFRSs. The IFRS Foundation is overseen by the IASB.
III. One of the objectives of the IFRS Foundation is to bring about convergence of national
accounting standards and IFRSs.
Response: III only
Correct answer: III only
Question 9
Due process for projects of FRSC normally includes the following, except
Response: Issuing for comment an exposure draft approved by at least eight members of the
Council; comment period will be at least sixty days.
Correct answer: Approval of a standard or an interpretation by all of the Council members.
Score: 0 out of 1 No
Question 10
The pronouncements of FRSC provide the highest authoritative pronouncements on accounting
principles. The authority of these pronouncements rests upon
Response: Their general acceptability
Correct answer: Their general acceptability
Score: 1 out of 1
FAR.02 Inventories
Question 1
In its statement of financial position, Mary I Mfg. Co. has an inventory in the amount of P176,000
which consists of:
Direct materials P55,000
Direct materials purchases in transit, FOB destination 12,000
Direct materials purchases in transit, FOB shipping point 9,000
Prepaid insurance on inventory 2,000
Work-in-process 38,000
Finished goods 45,000
Goods shipped on consignment, at selling price with 20% profit on sales 15,000
Mary I Mfg. Co. should report inventory in its statement of financial position at
Response: P159,000
Feedback:
Direct materials 55,000
Direct materials purchases in transit, FOB shipping point 9,000
Finished goods 45,000
Goods shipped on consignment (P15,000 x .8) 12,000
Total inventories 159,000

Correct answer: P159,000
Question 2
If a material amount of inventory has been ordered through a formal purchase contract at the
statement of financial position date for future delivery at firm prices,
Response: This fact must be disclosed.

Correct answer: This fact must be disclosed.
Question 3
Miller Inc. is a wholesaler of office supplies. The activity for Model III calculators during August is
shown below:

Balance/
Date Transaction Units Cost
Aug. 1 Inventory 2,000 P36.00
7 Purchase 3,000 37.20
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
29 Purchase 1,600 38.60

If Miller Inc. uses a weighted average cost periodic inventory system, the ending inventory of Model
III calculators at August 31 is reported as
Response: P150,080
Feedback:
Units Unit cost Total Cost
Inventory,

72,000
Aug. 1 2,000 36.00
Purchases,

111,600
Aug. 7 3,000 37.20
Purchases,

182,400
Aug. 21 4,800 38.00
Purchases,
61,760
Aug. 29 1,600 38.60

TGAS 427,760
11,400
WAUC (P427,760/11,400) 37.52
Cost of inventory, Aug. 31 - periodic average

150,080
(4,000 x P37.52)
Question 4
A company decided to change its inventory valuation method from FIFO to LIFO in a period of rising
prices. What was the result of the change on ending inventory and net income in the year of the
change?
Ending inventory Net income
Response: Decrease Decrease
Correct answer: Decrease Decrease
Question 5
Yontabal Company started operations in 2018. The following data are abstracted from the company’s
production and sales records:
2018 2019 2020
Number of units
produced 240,000 232,500 202,500
Number of units
sold 150,000 217,500 195,000
Unit production
cost 4.50 5.20 5.80
Sales revenue 1,200,000 1,800,000 1,950,000
Using the FIFO cost flow assumption, the gross profit for the year ended December 31, 2020 is
Response: P882,000
Feedback:
Units UC
Units produced - 2018 240,000 4.50
Units sold - 2018 (150,000)
Units on hand, 12/31/18 90,000 4.50
Units produced - 2019 232,500
Units sold - 2019 (217,500)
Units on hand, 12/31/19 105,000 5.20
Units produced - 2020 202,500
Units sold - 2020 (195,000)
Units on hand, 12/31/20 112,500 5.80
Sales 1,950,000
Less cost of goods sold:
Inventory, 1/1/20 (105,000 x P5.20) 546,000
Production - 2020 (202,500 x P5.80) 1,174,500
Inventory, 12/31/20 (112,500 x P5.80) (652,500) 1,068,000
Gross profit 882,000
Question 6
PAS 2 does not apply to the measurement of inventories held by
Response: Both a and b.
Correct answer: Both a and b.
Question 7
PAS 2 (Inventories) applies to all inventories, except
Response: Both a and b
Correct answer: Both a and b
Question 8
Miller Inc. is a wholesaler of office supplies. The activity for Model III calculators during August is
shown below:

Balance/
Date Transaction Units Cost
Aug. 1 Inventory 2,000 P36.00
7 Purchase 3,000 37.20
12 Sales 3,600
21 Purchase 4,800 38.00
22 Sales 3,800
29 Purchase 1,600 38.60

If Miller Inc. uses a FIFO perpetual inventory system, the ending inventory of Model III calculators at
August 31 is reported as
Response: P152,960
Feedback:
Inventory, Aug. 1 2,000
Purchases (3,000 + 4,800 + 1,600) 9,400
TGAS 11,400

Sales (3,600 + 3,800)
(7,400)
Inventory, Aug. 31 4,000
Cost of inventory, Aug. 31 (FIFO):
From Aug. 29 (1,600 x P38.60) 61,760
From Aug. 21 [(4,000 - 1,600) x P38] 91,200
152,960
Question 9
When an inventory costing formula is changed, the change is required to be applied:
Response: Retrospectively and the adjustment taken through the opening balance of accumulated
profits.
Correct answer: Retrospectively and the adjustment taken through the opening balance of
accumulated profits.
Question 10
The amount of inventories recognized as an expense during the period, which is often referred to as
cost of sales, consists of
Response: All of the above.

Correct answer: All of the above.
Question 11
Skyfall Co. records purchases at net amounts. On May 5 Skyfall purchased merchandise on account,
P32,000, terms 2/10, n/30. Skyfall returned P2,000 of the May 5 purchase and received credit on
account. At May 31 the balance had not been paid.
By how much should the account payable be adjusted on May 31?
Response: P600
Feedback:
Purchase discount lost
600
[(P32,000 - P2,000) x .02]
Adjusting entry:
Purchase discount lost 600
Accounts payable 600
Correct answer: P600
Question 12
Which statement is incorrect regarding recognition of inventories as expense?
Response: Inventories allocated to another asset (example, self-constructed PPE) are recognized as

an expense at the end of the useful life of that asset.
Correct answer: Inventories allocated to another asset (example, self-constructed PPE) are

recognized as an expense at the end of the useful life of that asset.
Question 13
The Alcala Company counted its ending inventory on December 31. None of the following items were
included when the total amount of the company’s ending inventory was computed:
· P150,000 in goods located in Alcala’s warehouse that are on consignment from another company.
· P200,000 in goods that were sold by Alcala and shipped on December 30 and were in transit on
December 31; the goods were received by the customer on January 2. Terms were FOB Destination.
· P300,000 in goods were purchased by Alcala and shipped on December 30 and were in transit on
December 31; the goods were received by Alcala on January 2. Terms were FOB shipping point.
· P400,000 in goods were sold by Alcala and shipped on December 30 and were in transit on
December 31; the goods were received by the customer on January 2. Terms were FOB shipping
point.
The company’s reported inventory (before any corrections) was P2,000,000. What is the correct
amount of the company’s inventory on December 31?
Response: P2,500,000
Feedback:
Unadjusted inventory 2,000,000

Bullet point 1 -
Bullet point 2 200,000
Bullet point 3 300,000
Bullet point 4 -
Adjusted inventory 2,500,000
Correct answer: P2,500,000
Question 14
At the beginning of the year, Anda Realty embarked on a real estate development project involving
single family dwellings. Anda realty purchased a track of land for P60,000,000. Anda incurred
additional cost of P10,000,000 in preparing the land for sale. Details of the project follow:
Sales
Subdivision Phas
price per
e Number of lots
lot
1 100 400,000
2 200 300,000
3 400 250,000
What amount of cost should be allocated Phase 1 lots?
Question 15
The following information was available from the inventory records of Breakaway Company for
January:
Units Unit Cost

Balance at January 1 3,000 P9.77
Purchases:
January 6 2,000 10.30
January 26 2,700 10.71
Sales:
January 7 2,500
January 31 3,200
Assuming that Breakaway maintains perpetual inventory records, what should be the inventory at
January 31, using the moving-average inventory method, rounded to the nearest peso?
Response: P20,725
Feedback:
Date Description Units Unit cost Total cost
Jan. 1 Balance 3,000 9.77 29,310
Jan. 6 Purchases 2,000 10.30 20,600
Balance 5,000 9.98 49,910
Jan. 7 Sales (2,500) 9.98 (24,950)
Balance 2,500 9.98 24,960
Jan. 26 Purchases 2,700 10.71 28,917
Balance 5,200 10.36 53,877
Jan. 31 Sales (3,200) 10.36 (33,152)
Balance 2,000 10.36 20,725

Score: 1 out of 1
FAR.03 Estimating inventories

Gross profit on selling price will always be
Response: Less than the related percentage based on cost.

Correct answer: Less than the related percentage based on cost.
Question 2
Aljane Company uses the average cost retail method to estimate its inventory. Data relating to the
inventory at December 31, 2020 are:
Cost Retail
Inventory, January 1 P2,000,000 P3,000,000
Purchases 10,600,000 14,000,000
Net markups 1,600,000
Net markdowns 600,000
Sales 12,000,000
Estimated normal shoplifting losses 400,000
Estimated normal shrinkage is 5% of sales
Aljane’s cost of goods sold for the year ended December 31, 2020 is
Feedback:
Cost Retail
Inventory, January 1 2,000,000 3,000,000
Purchases 10,600,000 14,000,000

Net markups 1,600,000
Net markdowns (600,000)
Goods available for sale 12,600,000 18,000,000
Cost ratio 70%
Goods available for sale 18,000,000
Sales (12,000,000)
Estimated normal shoplifting losses (400,000)
Estimated normal shrinkage (P12,000,000

(600,000)
x .05)
Ending inventory at retail 5,000,000
Goods available for sale at cost 12,600,000
Less inventory 12/31 at cost (P5M x .7) 3,500,000
Cost of goods sold 9,100,000
Question 3
The retail inventory method is widely used
Response: In all of these.

Correct answer: In all of these.
Question 4
The records of Cloy Corp. report the following data for the month of January:

Beginning inventory at cost P 440,000
Beginning inventory at sales price 800,000
Purchases at cost 4,500,000
Initial markup on purchases 2,900,000
Purchase returns at cost 240,000
Purchase returns at sales price 350,000
Freight on purchases 100,000
Additional mark up 250,000
Mark up cancellations 100,000
Mark down 600,000
Mark down cancellations 100,000
Sales 5,300,000
Sales allowances 300,000
Sales returns 400,000
Employee discounts 200,000
Theft and other losses 100,000
Using the average retail inventory method, Cloy Corp.’s ending inventory at cost is
Feedback:
Cost Retail
Beginning inventory 440,000 800,000

Purchases 4,500,000 7,400,000
Purchase returns (240,000) (350,000)
Freight on purchases 100,000
Additional mark up 250,000
Mark up cancellations (100,000)
Mark down (600,000)
Mark down cancellations 100,000
Goods available for sale 4,800,000 7,500,000
Cost ratio (P4,800,000/P7,500,000) 0.64
Goods available for sale (GAS) at retail 7,500,000
Less net decrease in GAS at retail:
Sales 5,300,000
Sales returns (400,000)
Employee discounts 200,000
Theft and other losses 100,000 5,200,000
Ending inventory at retail 2,300,000
x Cost ratio 0.64
Ending inventory at cost 1,472,000
Question 5
An advantage of using gross profit method is
Response: It is useful if inventory is destroyed by fire or other catastrophe.
Correct answer: It is useful if inventory is destroyed by fire or other catastrophe.
Question 6
The physical inventory of Alpha Company as of December 26, 2020 totaled P1,965,000. In trying to
establish the December 31 inventory, the accountant noted the following transactions from December
27 to December 31, 2020.
Sales (20% markup on cost) P 600,000
Credit memos issued:
For goods returned on:
December 15 27,000
December 20 35,000
December 29 36,000
For goods delivered to customers not in

accordance with specifications 9,500
Credit memos received:
For goods returned on:
December 10 17,000
December 26 23,000
December 28 8,000
Purchases:
Placed in stock 120,000
In transit, FOB shipping point 50,000
In transit, FOB destination 33,000

The inventory as of December 31, 2020 is
Feedback:
Inventory, 12/26 1,965,000
Add net purchases:
Purchases - placed in stock 120,000
Purchases - FOB shipping point 50,000
Purchase return on 12/28 (8,000) 162,000
Total goods available for sale 2,127,000
Deduct cost of sales:
Sales 600,000
Sales return on 12/29 (36,000)
Net sales 564,000
Divide by 1.2 470,000
Inventory, 12/31 1,657,000
Question 7
Ring Company’s accounting records indicated the following for the current year:
Inventory, January 1 P6,000,000

Purchases 20,000,000
Sales 30,000,000
A physical inventory taken on December 31 resulted in an ending inventory of P4,500,000. The gross
profit on sales remained constant at 30% in recent years. Ring suspects some inventory may have
been taken by a new employee. At December 31, what is the estimated cost of missing inventory?
Response: P500,000
Feedback:
Inventory, 1/1 6,000,000
Purchases 20,000,000
TGAS 26,000,000
Cost of sales (P30M x .7) (21,000,000)
Estimated inventory, 12/31 5,000,000
Actual inventory, 12/31 (4,500,000)
Shortage 500,000
Question 8
Compute for the cost of inventory lost in fire using the data below:
Inventory, Jan. 1 P 51,600
Purchases 368,000
Sales 583,000
Purchase returns 11,200
Purchase discounts taken 5,800
Freight in 3,800
Sales returns 8,600

A fire destroyed the entire inventory except for purchases in transit, FOB shipping point, of P2,000 and
goods having selling price of P4,900 that were salvaged from the fire. The average gross profit rate
on net sales is 40%.
Response: P56,820
Feedback:
Inventory, 1/1 51,600
Purchases 368,000
Purchase returns (11,200)
Purchase discounts taken (5,800)
Freight in 3,800
TGAS 406,400
Cost of sales [(P583,000 - P8,600) x .6] (344,640)
Estimated inventory, date of fire 61,760
Goods in transit (2,000)
Goods salvaged, at cost (P4,900 x .6) (2,940)
Fire loss 56,820
Question 9
On December 24, a fire destroyed totally the raw materials bodega of Bautista Manufacturing Co.
There was no purchase of raw materials from the time of the fire until December 31.
Inventories 01/01 12/31
Raw materials P 90,000 ?
Factory supplies 6,000 P 5,000
Goods in process 185,000 210,000

Finished goods 220,000 225,000
The accounting records show the following data:
Sales P1,200,000
Purchases of raw materials 400,000
Purchases of factory supplies 30,000
Freight-in, raw materials 15,000
Direct labor 220,000
Manufacturing overhead 75% of direct labor
Gross profit rate 35% of sales
The cost of the raw materials destroyed by the fire was
Response: P 80,000
Feedback:
a Raw materials, 1/1 90,000
b Purchases 400,000
c Freight-in 15,000
d Raw materials available for use 505,000
e Less raw materials, 12/31 (d - f) 80,000
f Raw materials used (i - g - f) 425,000
g Direct labor 220,000

h Factory overhead (P220,000 x .75) 165,000
i Total manufacturing cost (k - j) 810,000
j Good in process, 1/1 185,000
k Total cost placed in process (m + l) 995,000
l Less goods in process, 12/31 210,000
m Cost of goods manufactured (o - n) 785,000
n Finished goods, 1/1 220,000
o Total goods available for sale (q+p) 1,005,000
p Less finished goods, 12/31 225,000
q Cost of goods sold (P1,200,000 x .65) 780,000
Notes:
1. Work back from cost of goods sold
2. Factory supplies used is included in manufacturing overhead
Correct answer: P 80,000

Question 10
On January 1 a store had inventory of P55,000. January purchases were P46,000 and January sales
were P105,000. On February 1 a fire destroyed most of the inventory. The rate of gross profit was
25% of cost. Merchandise with a selling price of P7,500 remained undamaged after the fire. Compute
the amount of the fire loss, assuming the store had no insurance coverage.
Response: P11,000
Feedback:
Inventory, 1/1 55,000
Purchases 46,000

TGAS 101,000
Cost of sales (P105,000/1.25) (84,000)
Estimated inventory, 2/1 17,000
Undamaged goods, at cost (P7,500/1.25) (6,000)
Fire loss 11,000
Score: 1 out of 1
FAR.04 Accounting for agricultural activity

Question 1
Which statement is incorrect regarding measurement of the fair value of biological assets?
Response: An entity that has previously measured a biological asset at its fair value less costs to sell
may measure the biological asset at its cost less any accumulated depreciation and any accumulated
impairment losses.
Correct answer: An entity that has previously measured a biological asset at its fair value less costs
to sell may measure the biological asset at its cost less any accumulated depreciation and any
accumulated impairment losses.
Question 2
A public limited company, Cromwell Dairy Products, produces milk on its farms. As of January 1,
Cromwell has a stock of 1,050 cows (average age, 2 years old) and 150 heifers (average age, 1 year
old). Cromwell purchased 375 heifers, average age 1 year old, on July 1. No animals were born or
sold during the year. The unit fair values less estimated costs to sell were
1 - year old animal at December 31 P3,200
2 - year old animal at December 31 4,500
1.5 - year old animal at December 31 3,600
1 - year old animal at Jan. 1 and July 1 3,000
2 - year old animal at January 1 4,000

The increase in value of biological assets in the current period due to price changes is
Response: P555,000
Feedback:
Cows [1,050 x (P4,500-P4,000)] 525,000
Heifers, 1/1 [150 x (P3,200-P3,000)] 30,000
Heifers, 7/1 [375 x (P3,200-P3,000)] 75,000
Increase in FV-CTS of biological assets due to price changes 630,000
Question 3
Produce growing on bearer plants is
Response: Biological asset
Correct answer: Biological asset
Question 4
An entity cultivates cattle for the beef industry. At 31 December 2020 the entity’s herds included 500
18-month-old cattle.
At 31 December 2020 the quoted price for live cattle delivered to the local slaughterhouse to which
the entity delivers its livestock is P300 per 18-month-old animal.
The slaughterhouse is located 25 miles from the entity’s farmland where the cattle are raised.
Carriers providing cattle transport services to the entity charge P65 per trip from the entity’s farm to
the slaughterhouse using a 10-cow carrier. No incremental selling costs arise on the sale to the
slaughterhouse.

At 31 December 2020 the fair value less costs to sell of the herd of cattle (biological assets) is
Response: P146,750
Feedback:
Quoted price in the 'market' (500 x P300) 150,000

Transport costs to bring asset to market [(500/10) x P65)
(3,250)
Fair value 146,750
Question 5
In accordance with PFRS 13, which of the following is not relevant when measuring fair value?
Response: The entity’s intention to hold an asset or to settle or otherwise fulfill a liability.

Correct answer: The entity’s intention to hold an asset or to settle or otherwise fulfill a liability.
Question 6
Which of the following is not an agricultural activity?
Response: Ocean fishing
Correct answer: Ocean fishing
Question 7

The carrying amount of the biological assets as of December 31 is
Feedback:
Cows (1,050 x P5,000) 5,250,000
Heifers, 1/1 (150 x P4,500) 675,000
Heifers, 7/1 (375 x P3,600) 1,350,000
Carrying amount, 12/31 7,275,000
Question 8
Which of the following provides the least reliable evidence of fair value?
Response: Unobservable inputs for the asset.

Correct answer: Unobservable inputs for the asset.
Question 9
Which statement is incorrect when an entity enters into a contract to sell its biological assets or
agricultural produce at a future date?
Response: None of these.
Correct answer: None of these.
Question 10
The increase in value of biological assets in the current period due to physical changes is
Response: P870,000
Feedback:
Cows [1,050 x (P5,000-P4,500)] 525,000
Heifers, 1/1 [150 x (P4,500-P3,200)] 195,000
Heifers, 7/1 [375 x (P3,600-P3,200)] 150,000
Increase in FV-CTS of biological assets due to price changes 870,000
Question 11
PAS 41 applies to
Response: Produce growing on bearer plants related to agricultural activity.

Correct answer: Produce growing on bearer plants related to agricultural activity.
Question 12
XYZ Dairy Ltd is engaged in milk production for supply to various customers. The Company produced
milk with a fair value of P550,000 (that is determined at the time of milking) in the current year ended
December 31.
The Company also estimated the following costs:
Commissions to brokers and dealers 20,000
Levies by regulatory agencies and commodity exchanges 55,000
Transfer taxes and duties 20,000
Transport and other costs necessary to get assets to a market. 10,000
The milk should be valued at
Response: P455,000
Feedback:
Fair value 550,000
Less costs to sell:
Commissions to brokers and dealers 20,000
Levies by regulatory agencies and commodity

55,000
exchanges
Transfer taxes and duties 20,000 95,000
Measurement of milk (agricultural produce) 455,000
Note: Costs to sell do not include transport and other costs necessary to get assets to a
market because those were considered already in determining fair value.
Question 13
Value of biological assets at cost, 12/31/19 P1,200,000
Fair valuation surplus on initial recognition at fair value, 12/31/19 1,400,000
Change in fair value to 12/31/20 due to growth and price fluctuations 200,000
Decrease in fair value due to harvest 180,000
How much should be recognized in the income statement for the year ended December 31, 2020
related to these biological assets?
Response: P 20,000
Feedback:
Change in fair value due to growth and price fluctuations 200,000
Decrease in fair value due to harvest (180,000)
Net amount in profit or loss 20,000

Question 14
An entity cultivates cattle as livestock for meat and sells the cattle to slaughterhouses. At 31
December 2019 the fair value less costs to sell of the entity’s livestock is P1,000,000. In 2020 eight
calves were born and the entity sold ten heifers for P20,000 each, incurring costs of sale of P1,000 per
heifer. The fair value less costs to sell of the herd at 31 December 2020 is P1,400,000.
The net amount to be recognized in 2020 profit or loss related to these biological assets is
Response: P590,000
Feedback:
Carrying amount (FV-CTS), 12/31/20 1,400,000
Disposal [(P20,000 - P1,000) x 10] 190,000

Carrying amount (FV-CTS), 12/31/19 (1,000,000)
Net amount in profit or loss 590,000
Question 15
Value of biological assets at cost, 12/31/19 P1,200,000
Fair valuation surplus on initial recognition at fair value, 12/31/19 1,400,000
Change in fair value to 12/31/20 due to growth and price fluctuations 200,000
Decrease in fair value due to harvest 180,000
How much should be recognized in the statement of financial position as of December 31, 2020
related to these biological assets?
Feedback:
Biological assets at cost, 12/31/19 1,200,000
Fair value adjustment 1,400,000
Biological assets at fair value, 12/31/19 2,600,000
Change in fair value due to growth and price fluctuations 200,000
Decrease in fair value due to harvest (180,000)
Biological assets at fair value, 12/31/20 2,620,000
Score: 1 out of 1
FAR.05 PPE - acquisition and subsequent expenditures

Question 1
PAS 16 does not apply to
Response: Recognition and measurement of exploration and evaluation assets.

Correct answer: Recognition and measurement of exploration and evaluation assets.
Question 2
Ron Corporation issued 10,000 shares of its P25 par treasury ordinary shares for a parcel of land
intended as a future plant site. The treasury shares were acquired by Ron at a cost of P30 per share.
Ron's ordinary share had a fair value of P40 per share on the date of acquisition. Ron received
P50,000 from the sale of scrap when an existing structure on the site was razed. At what amount
should the land be carried?
Response: P350,000
Feedback:
Fair value of shares issued (10,000 x P40) 400,000
Proceeds from sale of scrap from existing structures (50,000)
Cost of land 350,000
Journal entries:
Land 400,000
Treasury shares (10,000 x P30) 300,000
Share premium - TS 100,000
Cash 50,000
Land 50,000
Question 3
Cleveland Ltd acquired real estate for the construction of a building and other facilities. Operating
equipment was also purchased and installed. The company's accountant, who was not sure how to
record some of the transactions, opened a Property ledger account and recorded debits and (credits)
to this account as follows.
Cost of land purchased as a building site P170,000
Architect's fee for design of new building 23,000
Paid for the demolition of an old building on the building site purchased above 28,000
Paid land tax on the real estate purchased as a building site 1,700
Paid excavation costs for the new building 15,000
Made the first payment to the building contractor 250,000
Paid for equipment to be installed in the new building 148,000
Received from sale of salvaged materials from demolishing the old building (6,800)
Made final payment to the building contractor 350,000
Paid interest on building loan during construction 22,000
Paid freight on equipment purchased 1,900
Paid installation costs of equipment 4,200
Paid for repair of equipment damaged during installation 2,700
Property ledger account balance P1,009,700
Land
Response: P192,900
Feedback:
Purchase price 170,000
Demolition cost 28,000 *

Real property tax in arrears 1,700
Proceeds from sale of salvaged materials (6,800) *
Cost of land 192,900
*Note: In accordance with PIC Q&A 2012-02, the answer should be P171,700.
Question 4
Cleveland Ltd acquired real estate for the construction of a building and other facilities. Operating
equipment was also purchased and installed. The company's accountant, who was not sure how to
record some of the transactions, opened a Property ledger account and recorded debits and (credits)
to this account as follows.
Cost of land purchased as a building site P170,000
Architect's fee for design of new building 23,000
Paid for the demolition of an old building on the building site purchased above 28,000
Paid land tax on the real estate purchased as a building site 1,700
Paid excavation costs for the new building 15,000
Made the first payment to the building contractor 250,000
Paid for equipment to be installed in the new building 148,000
Received from sale of salvaged materials from demolishing the old building (6,800)
Made final payment to the building contractor 350,000
Paid interest on building loan during construction 22,000
Paid freight on equipment purchased 1,900
Paid installation costs of equipment 4,200

Paid for repair of equipment damaged during installation 2,700
Property ledger account balance P1,009,700
Building
Response: P660,000
Feedback:
Architect's fee 23,000
Excavation costs 15,000
First payment to the building contractor 250,000
Final payment to the building contractor 350,000
Interest on building loan during construction 22,000
Cost of building 660,000
*Note: In accordance with PIC Q&A 2012-02, the answer should be P681,200.
Question 5
Parr Company traded in a used delivery truck with a carrying amount of P54,000 for a new delivery
truck having a list price of P160,000 and paid a cash difference to the dealer of P75,000. The used
truck has a fair value of P60,000 on the date of the exchange. At what amount should the new truck
be recorded on Parr's books?
Response: P135,000
Feedback:
Fair value of used truck 60,000
Cash paid 75,000
Cost of new truck 135,000

Question 6
Newcastle Ltd uses many kinds of machines in its operations. It constructs some of these machines
itself and acquires others from the manufacturers. The following information relates to machine A that
it has recorded during the current year.
Cash paid for equipment, including VAT of P9,600 P89,600
Costs of transporting machine - insurance and transport 3,000
Labor costs of installation by expert fitter 5,000
Labor costs of testing equipment 4,000
Insurance costs for current year 1,500
Costs of training for personnel who will use the machine 2,500
Costs of safety rails and platforms surrounding machine 6,000
Costs of water devices to keep machine cool 8,000
Costs of adjustments to machine to make it operate more efficiently 7,500
Determine the amount at which machine A should be recorded in the records of Newcastle Ltd.
Response: P113,500
Feedback:
Purchase price (P89,600 - P9,600) 80,000
Costs of transporting machine 3,000
Labor costs of installation 5,000
Labor costs of testing 4,000
Costs of safety rails and platforms surrounding machine 6,000

Costs of water devices to keep machine cool 8,000
Costs of adjustments to machine 7,500
Total cost 113,500
Notes:
1. Insurance cost is expense
2. Cost of training is expense
Question 7
Winn Company exchanged an old machine having a carrying amount of P16,800, and paid a cash
difference of P6,000 for a new machine having a total cash price of P20,500. The cash flows from the
new machine are expected to be significantly different than the cash flows from the old machine.
What amount of loss should Winn recognize on this exchange?
Response: P2,300
Feedback:
Fair value of asset given up (P20,500 - P6,000) 14,500
Carrying amount of asset given up (16,800)
Gain (loss) on exchange (2,300)
Question 8
Under PAS16 Property, plant and equipment, which two of the following costs relating to non-current
assets should be capitalized?
I. Replacement of a building's roof every 15 years

II. Maintenance of an asset on a three-monthly basis
III. Installation and assembly costs
IV. Replacement of small spare parts annually
Response: I and III

Correct answer: I and III
Question 9
Cabiao Company purchased a new printing machine on December 1 at an invoice price of P4,000,000
with terms 2/10, n/30. On December 15, Cabiao paid the required amount for the machine. The
installation costs were P50,000 and the employees received training on how to use the machine, at a
cost of P20,000. Before using the machine to print customers’ orders, a test was undertaken and the
paper and ink cost P5,000. What amount should be capitalized as cost of the machine?
Feedback:
Purchase price (P4M x .98) 3,920,000
Installation cost 50,000
Testing costs 5,000
Cost of machine 3,975,000
Notes:
1. The discount not availed treated as other expense
2. Cost of training is expense
Question 10
PAS 16 applies to
Response: Property, plant and equipment used to develop or maintain biological assets and mineral
rights and mineral resources
Correct answer: Property, plant and equipment used to develop or maintain biological assets and
mineral rights and mineral resources
Score: 1 out of 1
FAR.06 PPE - depreciation and derecognition

Question 1
On January 2, 2017, Union Co. purchased a machine for P264,000 and depreciated it by the straight-
line method using an estimated useful life of eight years with no salvage value. On January 2, 2020,
Union determined that the machine had a useful life of six years from the date of acquisition and will
have a salvage value of P24,000. An accounting change was made in 2020 to reflect the additional
data. The accumulated depreciation for this machine should have a balance at December 31, 2020, of
Response: P146,000
Feedback:
Accumulated depreciation, 1/1/20 (P264,000 x 3/8) 99,000
Depreciation - 2020 [(P264,000 - P99,000 - P24,000)/3] 47,000
Accumulated depreciation, 12/31/20 146,000
Question 2
Jaen Advertising Inc. reported the following on its December 31, 2020, balance sheet:
Equipment P500,000
Accumulated depreciation—equipment P135,000
In a footnote, Jaen indicates that it uses straight-line depreciation over 10 years and estimates
salvage value as 10% of cost. What is the average age of the equipment owned by Jaen?
Response: 3 years
Feedback:
Accumulated depreciation 135,000
/ Annual depreciation [(P500,000 x .9)/10] 45,000
Average age 3 years
Correct answer: 3 years

Question 3
Natividad Company purchased a tooling machine in 2010 for P3,000,000. The machine was being
depreciated on the straight-line method over an estimated useful life of twenty years, with no salvage
value. At the beginning of 2020, when the machine had been in use for ten years, the company paid
P600,000 to overhaul the machine. As a result of this improvement, the company estimated that the
useful life of the machine would be extended an additional five years. What should be the
depreciation expense recorded for the machine in 2020?
Response: P140,000
Feedback:
Carrying amount, 1/1/20 (P3,000,000 x 10/20) 1,500,000
Cost of overhaul 600,000
New depreciable amount 2,100,000
/ Revised remaining life (20-10+5) 15
Depreciation - 2020 140,000
Question 4
On January 2, 2020, Lem Corp. bought machinery under a contract that required a down payment of
P10,000 plus twenty-four monthly payments of P5,000 each, for total payments of P130,000. The
cash equivalent price of the machinery was P110,000. The machinery has an estimated; useful life of
ten years and estimated residual value of P5,000. Lem uses straight-line depreciation. In its 2020
income statement, what amount should Lem report as depreciation for this machinery?
Response: P10,500
Feedback:
2020 depreciation [(P110,000 - P5,000)/10] 10,500
Question 5
On July 1, 2020, New Orleans Corporation purchased equipment at a cost of P340,000. The
equipment has an estimated salvage value of P30,000 and is being depreciated over an estimated life
of 8 years under the double-declining-balance method of depreciation. The depreciation to be
recognized in 2020 is
Response: P42,500
Feedback:
DR = 1/8 x 2
DR = .25
Depreciation - 2020 (P340,000 x .25 x 6/12) 42,500
Question 6
Laur Company uses the composite method of depreciation and has a composite rate of 25%. During
2020, it sold assets with an original cost of P100,000 and residual value of P20,000 for P80,000 and
acquired P60,000 worth of new assets with residual value of P10,000. The original group of assets
had the following characteristics:
Total cost P250,000

Total residual value 30,000
The above original group includes the assets sold in 2020 but not the assets purchased in 2020. What
was the depreciation in 2020?
Response: P52,500
Feedback:
Original cost 250,000
Disposals (100,000)
Acquisitions 60,000
Cost at the end of the period 210,000
x depreciation rate 0.25
Depreciation - current period 52,500
Question 7
On January 1, 2018, Famy Company signed an eight-year lease for office space. Famy has the option
to renew the lease for an additional six-year period on or before January 1, 2024. During January
2020, Famy incurred the following costs.
General improvements to the leased premises with useful life of 10 years P5,400,000
Office furniture and equipment with useful life of 8 years 2,400,000
Moveable assembly line equipment with useful life of 5 years 1,800,000
At December 31, 2020, Famy’s intention as to the exercise of the renewal option is uncertain. A full
year depreciation of leasehold improvement is taken for year 2020. In Famy’s December 31, 2020
balance sheet, accumulated depreciation of leasehold improvement should be
Response: P 900,000
Feedback:
Acc. dep., 12/31/20 (P5,400,000 x 1/6) 900,000
Notes:
1. Office furniture and equipment and moveable assembly line equipment are not leasehold improvements but separate ite
PPE.
2. The remaining lease term of 6 years (8 years - 2 years) is shorter than the useful life of 10 years.

Question 8
On the first day of its current fiscal year, Lupao Corporation purchased equipment costing P400,000
with a salvage value of P80,000. Depreciation expense for the year was P160,000. If Lupao uses the
double-declining-balance method of depreciation, what is the estimated useful life of the asset?
Response: 5 years
Feedback:
Depreciation = Cost x DR
DR = Depreciation/Cost
DR = P160,000/P400,000
DR = .4
DR = (1/life) x 2
.4 = (1/life) x 2
.4 = 2/life
.4life = 2
life = 2/.4
life = 5 years
Correct answer: 5 years

Question 9
On March 31, 2020, Shooter Corp. retired a machine used in manufacturing designer parts. The
machine was acquired May 1, 2017. Straight-line depreciation method was used. The asset had an
estimated residual value of P20,000 and a five-year life. On December 31, 2019, the balance in the
accumulated depreciation is P330,000. The machine was scrapped and the company did not receive a
single consideration. The loss on retirement is
Response: P277,841
Feedback:
Accumulated depreciation, 12/31/19 330,000
/ Number of months 5/1/17 - 12/31/19 32
Monthly depreciation 10,313
Depreciable amount (P10,313 x 12 x 5) 618,780
Residual value 20,000
Cost 638,780
Accumulated depreciation, 3/31/20
[P330,000 + (P10,313 x 3)] (360,939)
Carrying amount, 3/31/20 (loss on retirement) 277,841

Question 10
OKC Manufacturing Co., a calendar-year company, purchased a machine for P650,000 on January 1,
2018. At the date of purchase, OKC incurred the following additional costs:
Loss on sale of old machinery P15,000
Freight cost 5,000
Testing costs prior to regular operation 4,000
The estimated salvage value of the machine was P50,000, and OKC estimated that the machine would
have a useful life of 20 years, with depreciation being computed using the straight-line method. In
January 2020, accessories costing P48,600 were added to the machine to reduce its operating costs.
These accessories neither prolonged the machine's life nor did they provide any additional salvage
value. The depreciation to be recognized in 2020 is
Response: P34,150
Feedback:
Purchase price 650,000
Freight cost 5,000
Testing costs 4,000
Total cost 679,000
Accumulated depreciation, 1/1/20 [(P679,000 -

P50,000) x 2/20] (62,900)
Carrying amount, 1/1/20 616,100
Cost of accessories 48,600

Carrying amount including accessories 664,700
Residual value (50,000)
Remaining depreciable amount 614,700
/ Remaining life (20-2) 18
Depreciation - 2020 34,150
Score: 1 out of 1
FAR.07 PPE - revaluation

Question 1
XYZ Inc. owns a fleet of over 100 cars and 20 ships. It operates in a capital-intensive industry and
thus has significant other property, plant, and equipment that it carries in its books. It decided to
revalue its property, plant, and equipment. The company's accountant has suggested the alternatives
that follow. Which one of the options should XYZ Inc. select in order to be in line with the provisions of
PAS 16?
Response: Revalue an entire class of property, plant, and equipment.

Correct answer: Revalue an entire class of property, plant, and equipment.
Question 2
The following figures have been extracted from the accounting records of the Twitch Corporation on
December 31, 2019:

Accumulated Depreciation
Cost
25-year leasehold P50,000,00

P10,000,000
factory 0
15-year leasehold
30,000,000 10,000,000
factory
On January 1, 2020 Twitch had its two leasehold factories revalued (for the first time) by an
independent surveyor as follows:


15-year leasehold 18,000,000
Twitch depreciates its leaseholds on a straight-line basis over the life of the lease.

The directors of Twitch are disappointed in the value placed on the 15-year leasehold. The surveyor
has said that the fall in its value is due mainly to its unfavorable location, but in time the surveyor
expects its value to increase. The directors are committed to incorporating the revalued amount of
the 25-year leasehold into the financial statements, but wish to retain the historical cost basis for the
15-year leasehold.

The revaluation surplus as of December 31, 2020 should be
Response: P 9,500,000
Feedback:
25-year LF 15-year LF
Fair value, 1/1/20 52,000,000 18,000,000
Carrying amount, 1/1/20
25-year LF (P50M - P10M) 40,000,000
15-year LF (P30M - P10M) 20,000,000
Revaluation increase (decrease) 12,000,000 (2,000,000)
OCI - RS P/L - RL
Revaluation surplus - 25-year LF (P52M - P40M) 12,000,000
Realized in 2020 (P12M/20) (600,000)
Revaluation surplus, 12/31/20 11,400,000
Question 3
The following figures have been extracted from the accounting records of the Twitch Corporation on
December 31, 2019:

Accumulated Depreciation
Cost

P10,000,000
factory 0
15-year leasehold
30,000,000 10,000,000
factory
On January 1, 2020 Twitch had its two leasehold factories revalued (for the first time) by an
independent surveyor as follows:

15-year leasehold 18,000,000
Twitch depreciates its leaseholds on a straight-line basis over the life of the lease.

The directors of Twitch are disappointed in the value placed on the 15-year leasehold. The surveyor
has said that the fall in its value is due mainly to its unfavorable location, but in time the surveyor
expects its value to increase. The directors are committed to incorporating the revalued amount of
the 25-year leasehold into the financial statements, but wish to retain the historical cost basis for the
15-year leasehold.

The carrying amount of the leasehold factories as of December 31, 2020 should be
Feedback:
25-year LF 15-year LF Total
Carrying amount, 1/1/20 (at fair value) 52,000,000 18,000,000 70,000,000
Depreciation - 2020:
25-year LF (P52M/20) (2,600,000)
15-year LF (P18M/10) (1,800,000)

Carrying amount, 12/31/20 49,400,000 16,200,000 65,600,000
Age of leasehold factory (LF) as of 12/31/19:
25-year LF [P10M/(P50M/25)] 5
15-year LF [P10M/(P30M/15)] 5
Remaining life of leasehold factory (LF) as of 12/31/19:
25-year LF (25 - 5) 20
15-year LF (15 - 5) 10
Question 4
On January 1, 2020, the historical balances of the land and building of Twang Company are:
Accumulated depreciatio

n
Cost
P
Land P 0
50,000,000
Buildin
300,000,000 90,000,000
g

The land and building were appraised on same date and the revaluation revealed the following:
Fair value
Land P 80,000,000
Building 350,000,000

There were no additions or disposals during 2020. Depreciation is computed on the straight line. The
estimated life of the building is 20 years. The depreciation of the building for the year ended
December 31, 2020 should be
Feedback:
Condition of building, 1/1/20 (P90M/P300M) 30% depreciated
Remaining life of building, 1/1/20 (20 years x .7) 14 years
Depreciation - 2020 (P350M/14) 25,000,000
Question 5
PRTC Ltd. uses the revaluation model for its head office building, which was acquired on January 1,
2019. At the end of 2019, the fair value of the building was lower than its carrying value by
P500,000.

At the end of 2020, fair value had increased such that its fair value was only P100,000 less than its
carrying value.

Which of the following is true regarding the use of the revaluation model by PRTC for its building?
Response: Depreciation would be taken annually prior to any revaluation by PRTC.

Correct answer: Depreciation would be taken annually prior to any revaluation by PRTC.
Question 6
If a reporting entity chooses to switch from the cost model to the revaluation model for property,
plant and equipment, the periodic depreciation charge usually will
Response: Increase.
Correct answer: Increase.
Question 7
Booster Co purchased a building on 1 January 2010 for P1,250,000. At acquisition, the useful life of
the building was 50 years. Depreciation is calculated on the straight-line basis. On 1 January 2020,
the building was revalued to P1,600,000. Booster Co has a policy of transferring the excess
depreciation on revaluation from the revaluation surplus to retained earnings.

Assuming no further revaluations take place, what is the balance on the revaluation surplus at 31
December 2020?
Response: P585,000
Feedback:
Revalued amount, 1/1/20 1,600,000
Carrying amount, 1/1/20 (P1,250,000 x 40/50) (1,000,000)
Revaluation surplus, 1/1/20 600,000
Realized revaluation surplus - 2020 (P600,000/40) (15,000)
Question 8
The initial application of a policy to revalue assets in accordance with PAS 16, Property, Plant &
Equipment
Response: Must not be accounted for as a change in accounting policy.

Correct answer: Must not be accounted for as a change in accounting policy.
Question 9
When an entity chooses the revaluation model as its accounting policy for measuring property, plant
and equipment, which of the following statements is correct?
Response: When an asset is revalued, the entire class of property, plant and equipment to which that
asset belongs must be revalued.
Correct answer: When an asset is revalued, the entire class of property, plant and equipment to
which that asset belongs must be revalued.

Question 10
At 1 January 2020, the revaluation surplus of Bloxden was P1,257,000. This was in respect of the
company’s head office. During the year to 31 December 2020, the value of the head office increased
by a further P82,000. In the same period, the company’s factory suffered an impairment of P90,000.
What is the value of the revaluation surplus at 31 December 2020?
Feedback:
Revaluation surplus, 1/1 (Head Office) 1,257,000
Increase in value of head office 82,000
Revaluation surplus, 12/31 1,339,000
The impairment on factory is recognized profit or loss as there is no credit in the revaluation surplus for this asset.
Score: 1 out of 1
FAR.08 Investment property

Question 1
Transfer from investment property to property, plant, and equipment is appropriate
Response: When there is change in use
Correct answer: When there is change in use
Question 2
Aglipay, Inc. completed the construction of a shopping mall at the end of 2018 for a total cost of P100
million. The mall has an estimated economic life of 25 years. The mall was constructed for the
purpose of earning rentals by letting out space in the shopping mall to tenants. The company opted
to use the fair value model to measure the shopping mall. An independent valuation expert was used
by the company to fair value the shopping mall on an annual basis. According to the fair valuation
expert the fair values of the shopping mall at the end of 2019 and 2020 were P120 million and P115
million, respectively.

How much should be recognized in profit or loss in 2020 as a result of the fair value changes?
Feedback:
Fair value, 12/31/20 115,000,000
Fair value, 12/31/19 120,000,000
FV adjustment gain (loss) (5,000,000)
Question 3
Han, Inc. owns a building purchased on January 1, 2016 for P100 million. The building was used as
the company’s head office. The building has an estimated useful life of 25 years. In 2020, the
company transferred its head office and decided to lease out the old building. Tenants began
occupying the old building by the end of 2020. On December 31, 2020, the company reclassified the
building as investment property to be carried at fair value. The fair value on the date of
reclassification was P70 million. How much should be recognized in the 2020 profit or loss as a result
of the transfer from owner-occupied to investment property?
Feedback:
Fair value, 12/31/20 70,000,000
CA, 12/31/20 (P100M x 20/25) 80,000,000
Revaluation increase (decrease) (10,000,000)
Question 4
Which of the following is not an investment property?
Response: An owner-managed hotel.
Correct answer: An owner-managed hotel.
Question 5
In accordance with PAS 40, depreciation on investment property, if applicable, is recognized under:
Cost model? Fair value model?
Response: Yes, No
Correct answer: Yes, No
Question 6
Aglipay, Inc. completed the construction of a shopping mall at the end of 2018 for a total cost of P100
million. The mall has an estimated economic life of 25 years. The mall was constructed for the
purpose of earning rentals by letting out space in the shopping mall to tenants. The company opted
to use the fair value model to measure the shopping mall. An independent valuation expert was used
by the company to fair value the shopping mall on an annual basis. According to the fair valuation
expert the fair values of the shopping mall at the end of 2019 and 2020 were P120 million and P115
million, respectively.

How much is the carrying amount of the shopping mall on December 31, 2020 if Aglipay used the cost
model?
Feedback:
CA, 12/31/20 (P100M x 23/25) 92,000,000
Question 7
Which of the following would be classified as investment property?
I Building held for sale in the ordinary course of business
II. Building held to earn rentals under operating leases.
III. Land held for capital appreciation.
IV. Land held for undetermined future use
V. Equipment held to earn rentals under operating leases.
Response: II, III and IV

Correct answer: II, III and IV
Question 8
The Buckethead Company has a single investment property which had originally cost P580,000 on 1
January 2017. At 31 December 2019 its fair value was P600,000 and at 31 December 2020 it had a fair
value of P590,000. On acquisition, the property had a useful life of 40 years.

What should be the expense recognized in Buckethead's profit or loss for the year ended 31 December
2020 under each of the fair value model and the cost model?
Response: P10,000, P14,500
Feedback:
Fair value model (FV adjustment)
(P600,000 - P590,000) 10,000
Cost model (Depreciation)
(P580,000/40) 14,500
Correct answer: P10,000, P14,500

Question 9
The following will most likely result to reclassification, except
Response: Redevelopment of an existing investment property.
Correct answer: Redevelopment of an existing investment property.
Question 10
The Niagara Company owns three properties which are classified as investment properties according to
PAS40 Investment property. Details of the properties are given below (amounts in thousands):
Fair value
Initial cos Fair value at at

t 31 Dec 2019 31 Dec
2020
Property
270 320 350
(1)
Property
345 305 285
(2)
Property
330 385 360
(3)
Each property was acquired in 2016 with a useful life of 50 years. The company's accounting policy
is to use the fair value model for investment properties.

What is the gain or loss to be recognized in Niagara's profit or loss for the year ending 31
December 2020?
Response: P15,000 loss
Feedback:
Property 1 (P350,000 - P320,000) 30,000
Property 2 (P285,000 - P305,000) (20,000)
Property 3 (P360,000 - P385,000) (25,000)
Net FV adjustment gain (loss) (15,000)
Correct answer: P15,000 loss

Score: 1 out of 1
FAR.09 Intangible assets

Question 1
Laguna Company incurred P900,000 of research and development cost to develop a product for which
a patent was granted on January 2, 2020. Legal fees and other costs associated with the registration
of the patent totaled P200,000. On July 31, 2020, Laguna paid P400,000 for legal fees in a successful
defense of the patent. The total amount capitalized for this patent through July 31, 2020 should be
Response: P 200,000
Feedback:
Capitalize the legal fees and other costs associated with the registration.
Cost of successful defense recognize as expense.

Question 2
Which of the following items qualify as an intangible asset under PAS 38?
Response: Legal costs paid to intellectual property lawyers to register a patent
Correct answer: Legal costs paid to intellectual property lawyers to register a patent
Question 3
Computer software for a computer-controlled machine tool that cannot operate without that specific
software is treated as
Response: Property, plant and equipment.

Correct answer: Property, plant and equipment.
Question 4
Toni Company purchases Pauleen Company for P13,985,000 cash on January 1, 2020. The book value
of Pauleen Company’s net assets reported on its December 31, 2019 statement of financial position
was P12,620,000. Toni's December 31, 2019 analysis indicated that the fair value of Pauleen's
tangible assets exceeded the book value by P560,000, and the fair value of identifiable intangible
assets exceeded book value by P245,000.

How much goodwill should be recognized by Toni Company when recording the purchase of Pauleen?
Response: P560,000
Feedback:
Purchase price 13,985,000
Fair value of net assets acquired
(P12,620,000 + P560,000 + P245,000) (13,425,000)
Goodwill 560,000
Question 5
Kuh Lafuh Company purchased a customer list and an ongoing research project for a total of
P400,000. Kuh uses the expected cash flow approach for estimating the fair value of these two
intangibles. The appropriate interest rate is 7%. The potential future cash flows from the two
intangibles, and their associated probabilities, are as follows:

Customer List
Outcome 1 - 20% probability of cash flows of P50,000 at the end of each year for 5 years.

Ongoing Research Project
Outcome 3 - 80% probability of cash flows of P100 at the end of each year for 3 years.

How much should be recognized as customer list?
Response: P 77,025
Feedback:
Cash flow PVF@7% PV of CF Probability Estimated FV
Customer list
Outcome 1 50,000 4.1002 205,010 0.20 41,002
Outcome 2 30,000 3.3872 101,616 0.30 30,485
Outcome 3 10,000 2.6243 26,243 0.50 13,122
84,609
Ongoing research project
Outcome 1 500,000 7.0236 3,511,800 0.10 351,180
Outcome 2 10,000 3.3872 33,872 0.10 3,387
Outcome 3 100 2.6243 262 0.80 210
354,777
Grand total (Customer list and Ongoing research project) 439,386
Allocated to customer list [P400,000 x (84,608/439,385)] 77,025

Question 6
PAS 38 applies to
Response: Intangible assets that are not within the scope of another Standard.
Correct answer: Intangible assets that are not within the scope of another Standard.
Question 7
Which of the following costs would be capitalized?
Response: Engineering costs incurred to advance the product to the full production stage.
Correct answer: Engineering costs incurred to advance the product to the full production stage.
Question 8
On January 1, 2020, Calamba Company signed an agreement to operate as a franchisee of Bay
Company for an initial franchise fee of P30,000,000. Of this amount, P10,000,000 was paid when the
agreement was signed and the balance is payable in equal annual payment of P5,000,000 beginning
December 31, 2020. The agreement provides that the down payment is not refundable and no future
services are required of the franchisor. Calamba’s credit rating indicates that it can borrow money at
12% for a loan of this type.

How much is the cost of franchise?
Feedback:
Initial payment 10,000,000
PV of remaining payments (P5M x 3.0373) 15,186,500
Cost of franchise 25,186,500
Question 9
According to PAS 38 Intangible assets, which of the following statements about research and
development expenditure is incorrect?
Response: Development expenditure recognized as an asset must be amortized over a period not

exceeding 5 years.
Correct answer: Development expenditure recognized as an asset must be amortized over a period

not exceeding 5 years.
Question 10
Alaminos Company acquired three patents in January 2020. The patents have different lives as
indicated in the following schedule:

Remaining usef Remaining leg
Paten ul life al life
Cost
t
P2,000,00
A 10 8
0

B 5 10
3,000,000

C Indefinite 15
6,000,000

Patent C is believed to be uniquely useful as long as the company retains the right to use it. In
June 2020, the company successfully defended its right to Patent B. Legal fees of P800,000 were
incurred in this action. The company’s policy is to amortize intangible assets by the straight-line
method to the nearest half year. The company reports on a calendar-year basis. The amount of
amortization that should be recognized for 2020 is
Feedback:
Patent A (P2,000,000/8) 250,000
Patent B (P3,000,000/5) 600,000
Patent C (6,000,000/15) 400,000
Total amortization 1,250,000
Question 11
Which statement is incorrect concerning internally generated intangible asset?
Response: Internally generated goodwill may be recognized as an intangible asset.
Correct answer: Internally generated goodwill may be recognized as an intangible asset.
Question 12
PAS 38 applies to
Response: Computer software used in extractive industries.
Correct answer: Computer software used in extractive industries.
Question 13
Balete Company is negotiating to acquire Drive Company. Balete manufactures and sells wood burning
stoves and Drive Company produces parts that are required to manufacture stoves. Drive enjoys an
exceptional reputation and Balete management believes it can continue Drive’s level of income and
satisfy its own need for parts. The recorded amounts and current values of the assets and liabilities of
Drive are:

Assets Liabilities
Recorded amounts P20,000,000 P8,000,000
Current values 25,000,000 5,000,000
Drive’s earnings for the past 5 years averaged P5,000,000. This is believed to be a reasonable
estimate of future income. The level of income normally experienced by enterprises similar to
Drive is 15%. Balete and Drive agreed to capitalize average excess earnings at 25% in estimating
the value of goodwill. How much should Balete pay in acquiring Drive?
Feedback:
Average net income 5,000,000
Normal return [(P25M - P5M) x .15] (3,000,000)
Excess earnings 2,000,000
/ Capitalization rate 0.25
Goodwill 8,000,000
Fair value of net assets acquired (P25M - P5M) 20,000,000
Question 14
Biñan Company incurred the following costs during 2020:

Design of tools, jigs, molds and dies involving new technology P2,500,000
Modification of the formulation of a process 3,200,000
Trouble shooting in connection of breakdowns during commercial

production 2,000,000
Adaptation of an existing capability to a particular customer’s

need as part of a continuing commercial activity 2,200,000
In its 2020 income statement, Biñan should report research and development expense of
Feedback:
Design of tools, jigs, molds and dies 2,500,000
Modification of the formulation of a process 3,200,000
R&D expense 5,700,000
Question 15
Which of the following disclosures does PAS 38 not require?
Response: Fair value of similar intangible assets used by its competitors.
Correct answer: Fair value of similar intangible assets used by its competitors.
Score: 1 out of 1
FAR.10 Wasting assets

Question 1
On July 1, 2020, Iba Mining Company, a calendar-year corporation, purchased the rights to a copper
mine. Of the total purchase price, P2,800,000 was appropriately allocable to copper. Estimated
reserves were 800,000 tons of copper. Iba expects to extract and sell 10,000 tons of copper per
month. Production began immediately. The selling price is P2,500 per ton. If sales and production
conform to expectations, what is Iba’s depletion expense on this mine for financial accounting
purposes for the calendar year 2020?
Response: P210,000
Feedback:
Amount subject to depletion 2,800,000
Divide by estimated reserves 800,000
Depletion rate 3.50
Depletion - 2020 (10,000 x P3.50 x 6) 210,000

Question 2
During 2020, Bolton Corporation acquired a mineral mine for P1,500,000 of which P200,000 was
ascribed to land value after the mineral has been removed. Geological surveys have indicated that 10
million units of the mineral could be extracted. During 2020, 2,000,000 units were extracted and
1,600,000 units were sold. What is the amount of depletion expensed for 2020?
Response: P208,000
Feedback:
Acquisition cost 1,500,000
Residual value (Land) (200,000)
Divide by estimated reserves 10,000,000
Depletion rate 0.13
Depletion expensed/Depletion in cost of sales
(1,600,000 x P.13) 208,000
Question 3
Is an entity ever required or permitted to change its accounting policy for exploration and evaluation
expenditures?
Response: Yes, but only if the change makes the financial statements more relevant to the economic
decision-making needs of users and no less relevant to those needs.
Correct answer: Yes, but only if the change makes the financial statements more relevant to the
economic decision-making needs of users and no less relevant to those needs.
Question 4
Which statement is incorrect regarding accounting for development expenditures in the oil and gas
industry?
Response: Most development expenditures do not result in asset recognition.

Correct answer: Most development expenditures do not result in asset recognition.
Question 5
On July 1, 2020 Cabangan Company purchased rights to a mine. The total purchase price was
P50,000,000 of which P5,000,000 was allocated to the land. Estimated reserves were 6,000,000.
Cabangan expects to extract and sell 100,000 tons per month. Cabangan Company purchased new
equipment on July 1, 2020 for P21,000,000 with estimated life of 8 years. However, after all the
resource is removed, the equipment will be of no use and will be sold for P3,000,000. What is the
depreciation of the equipment for 2020?
Feedback:
Life of equipment 8 years
Life of wasting asset [6,000,000/(100,000 x 12)] 5 years
Use output method
Output - 2020 (100,000 x 6) 600,000
x depletion rate [(P21,000,000 - P3,000,000)/6,000,000] 3.00
Depreciation - 2020 1,800,000
Question 6
An oil company using the successful-efforts method drilled two wells. The first, a dry hole, cost
P50,000. The second cost P100,000 and had estimated recoverable reserves of 25,000 barrels, of
which 10,000 were sold this year. What will be the total expense for the year related to the
exploration and production from these two wells?
Response: P90,000
Feedback:
Cost of successful exploration 100,000
Divide by estimated reserves 25,000
Depletion rate 4.00
Depletion in cost of sales (10,000 x P4) 40,000
Cost of unsuccessful exploration 50,000
Total expense 90,000
Question 7
PFRS6 Exploration for and evaluation of mineral resources applies to expenditures incurred in
Response: Neither a nor b
Correct answer: Neither a nor b
Question 8
Yakal Exploration Co. purchased in 2018 a property that contained mineral deposit for P4,500,000.
Estimated recovery was 1,000,000 metric tons of deposits. Development costs of P150,000 were also
incurred in the same year. The mining property was expected to be worth P600,000 after the mineral
deposits had all be removed. During 2019, the company extracted and sold 100,000 metric tons of
minerals. Further development costs of P75,000 were incurred in 2020, and the estimate of total
recoverable deposits (including the amount extracted in 2019) was revised to 925,000 metric tons.
During 2020, the company recovered 150,000 metric tons.

The depletion for the year 2020 is
Response: P676,500
Feedback:
Development cost - 2019 150,000
Total 4,650,000
Depletion - 2019 (100,000 x P4.05*) (405,000)
Remaining amount subject to depletion, 1/1/20 3,645,000
Development cost - 2020 75,000
Revised amount subject to depletion 3,720,000
Divide by revised remaining estimated reserves, 1/1/20 (925,000 -

825,000
100,000)
Depletion rate for 2020 4.51
* (P4,050,000/1,000,000)
Depletion - 2020 (150,000 tons x P4.51) 676,500
Question 9
PFRS6 Exploration for and evaluation of mineral resources applies to expenditures incurred
Response: Neither a nor b
Correct answer: Neither a nor b
Question 10
What is an entity required to consider in developing accounting policies for exploration and evaluation
activities?
Response: Whether the accounting policy results in information that is relevant and reliable
Correct answer: Whether the accounting policy results in information that is relevant and reliable
Score: 1 out of 1
FAR.11 Impairment of non-financial assets
Question 1
On July 1, 2020, Hansel, Inc. acquired Grettel Company in a business combination. As a result of the
combination, the following amounts of goodwill were recorded for each of the three reporting units of
the acquired company:
Retailing P300,000
Service 200,000
Financing 400,000

Near the end of 2020 a new major competitor entered the company’s market and Hansel was
concerned that this might cause a significant decrease in the value of goodwill. Accordingly, Hansel
computed the implied value of the goodwill for the three major reporting units at December 31, 2020
as follows:
Retailing P250,000
Service 100,000
Financing 600,000

Determine the amount of goodwill impairment that should be recorded by Hansel at December 31,
2020.
Response: P150,000
Feedback:
Retailing (P300,000 - P250,000) 50,000
Service (P200,000 - P100,000) 100,000

Financing -
Impairment loss 150,000
Question 2
On January 1, 2019, Bianca Inc. purchased a patent with a cost P1,160,000, a useful life of 5 years.
The company uses straight-line depreciation. At December 31, 2020, the company determines that
impairment indicators are present. The fair value less costs of disposal of the patent is estimated to
be P540,000. The patent's value-in-use is estimated to be P565,000. The asset's remaining useful
life is estimated to be 2 years.

Bianca's 2020 income statement will report Loss on Impairment of
Response: P131,000
Feedback:
Carrying amount, 12/31/20 (P1,160,000 x 3/5) 696,000
Recoverable amount (value-in-use) (565,000)
Question 3
If the fair value less costs of disposal cannot be determined
Response: The recoverable amount is the value-in-use
Correct answer: The recoverable amount is the value-in-use
Question 4
An entity computes the recoverable amount of which of the following assets only if there is an
indication the asset may be impaired?
Response: Property, plant and equipment not yet available for use

Correct answer: Property, plant and equipment not yet available for use
Question 5
Tweed Inc. reported an impairment loss of P150,000 on its income statement for the year ended
December 31, 2019. This loss was related to an item of equipment which Tweed intended to use in its
operations. On the company's December 31, 2019 statement of financial position, Tweed reported
this equipment at P920,000 and, as of December 31, 2019, Tweed estimated that this equipment
would be used for another five years. On December 31, 2020, Tweed determined that the recoverable
amount of its impaired equipment had increased by P25,000 over its recoverable amount at December
31, 2019. The increase in recoverable amount is due to the unwinding of discount. On the company's
December 31, 2020 statement of financial position, what amount should be reported as the carrying
amount for this equipment?
Response: P736,000
Feedback:
CA, 12/31/19 920,000
Depreciation - 2020 (P920,000/5) (184,000)
CA, 12/31/20 736,000
An asset’s value in use may become greater than the asset’s carrying amount simply
because the
present value of future cash inflows increases as they become closer.
However, the service potential of the asset has not increased.
Therefore, an impairment loss is not reversed just because of the passage of time
(sometimes called
the ‘unwinding’ of the discount), even if the recoverable amount of the asset
becomes
higher than its carrying amount. (PAS 36, par. 116)
Question 6
Tusk Company purchased an equipment on Jan. 1, 2018 at a cost of P10,000,000. This equipment
was depreciated over its useful life of ten years with a residual value of 10%. On Dec. 31, 2019, Tusk
determined that the recoverable amount of the equipment was only P5,000,000 with no residual value
and appropriately recognized an impairment loss. On Dec. 31, 2020, the recoverable amount had
increased to P7,000,000 and the management of Tusk deemed to reverse the impairment that was
previously recorded. What is the gain on reversal of impairment loss to be recognized in 2020 profit
or loss?
Feedback:
Cost 10,000,000
Acc. dep., 12/31/19 (P10,000,000 x .9 x 2/10) (1,800,000)
CA, 12/31/19 (P360,000 x 3.5/6) 8,200,000
Recoverable amount 5,000,000
Impairment loss - 2019 3,200,000
Recoverable amount 7,000,000
CA, 12/31/20 before reversal (P5,000,000 x 7/8) 4,375,000
Reversal of impairment loss 2,625,000
Cost 10,000,000
Acc. dep., 12/31/20 (P10,000,000 x .9 x 3/10) (2,700,000)
CA, 12/31/20 without impairment 7,300,000
CA, 12/31/20 before reversal (P5,000,000 x 7/8) 4,375,000
Limit on reversal of impairment loss 2,925,000
Question 7
Dakong Company purchased a machine on January 2, 2017, for P500,000. The machine has an
estimated useful life of eight years and a salvage value of P50,000. Depreciation was computed by
the 200% declining-balance method. During December 2020, Dakong determined that there had
been a significant decrease in market value of its machine. At December 31, 2020, Dakong compiled
the following information regarding the machine
Expected undiscounted net future cash inflows from the

continued use and eventual disposal
P160,000
Expected discounted net future cash inflows from the

continued use and eventual disposal 120,000
Fair value less costs of disposal 130,000

What is the impairment loss that should be recognized in 2020 profit or loss?
Response: P28,203
Feedback:
Carrying amount (P500,000 x .75 x .75 x.75 x .75) 158,203
Recoverable amount (Fair value less costs of disposal) 130,000
Question 8
PAS 36 applies to assets
Response: Carried at revalued amount.
Correct answer: Carried at revalued amount.
Question 9
Reversal of impairment loss is allowed if
Response: Either a or b.
Correct answer: Neither a or b.
Question 10
On July 1, 2017, Tussle Corp. purchased computer equipment at a cost of P360,000. This equipment
was estimated to have a 6-year life with no residual value and was depreciation by the straight-line
method. On Dec. 31, 2019, Tussle determined that this equipment could no longer process data
efficiently, its value had been permanently impaired, and P70,000 could be recovered over the
remaining useful life of the equipment. What carrying amount should Tussle report on its December
31, 2020 statement of financial position for this equipment?
Response: P50,000
Feedback:
CA, 12/31/19 (P360,000 x 3.5/6) 210,000
Recoverable amount 70,000
Impairment loss - 2019 140,000
CA, 12/31/19 (after impairment) 70,000
Depreciation - 2020 (P70,000/3.5) (20,000)
CA, 12/31/20 50,000
Score: 1 out of 1
FAR.12 Non-current assets held for sale

Question 1
Sentosa Corporation plans to dispose of some assets together as a group. Details of the disposal
group at December 31, 2020 are given below:
Carrying Value as
amount at remeasured
12/31/20 immediately
before before
classification classification
as held as held
for sale for sale
Goodwill P 3,900,000 P 3,900,000
PPE (carried at revalued amounts) 11,960,000 10,400,000
PPE (carried at cost) 14,820,000 14,820,000
FA@FVTOCI 6,240,000 5,720,000
Inventories 4,680,000 3,900,000

Total P41,600,000 P38,740,000

The fair value less costs to sell of the disposal group is P33,800,000 while the value in use is
P34,600,000.

In the books of accounts, the carrying amount of the ledger account PPE (carried at cost) after
allocation of impairment loss is

Response: P14.209 million
Feedback:
CA of disposal group 38,740,000
FV-CTS of disposal group (33,800,000)
Impairment loss 4,940,000
Allocated to goodwill (3,900,000)
Balance 1,040,000
Allocated to:
PPE at revalued amounts (10,400/25,220) 428,866
PPE at cost (14,820/25,220) 611,134
1,040,000
PPE at cost before impairment 14,820,000
Allocated impairment loss (611,134)
PPE at cost after impairment 14,208,866
Notes:
1. The value in use is irrelevant since this is a disposal group.

2. Financial assets at FVTOCI are not included in the allocation since
those are measured already at FV.
3. Inventories are not included in the allocation since those are measured
already at NRV.
Correct answer: P14.209 million

Question 2
The Phoenix Company accounts for non-current assets using the revaluation model. On 30 June 2020
Phoenix classified a non-current asset as held for sale in accordance with PFRS 5. At that date the
property's carrying amount was P300,000 and the balance on the revaluation reserve was P30,000. Fair
value was estimated at P280,000 and the costs to sell at P20,000. The value in use is not
determinable. The asset is still unsold at 31 December 2020. What amount should be included in the
entity's statement of profit or loss for the year ended 31 December 2020?
Response: P20,000
Feedback:
Fair
280,000
value
Carrying amount before revaluation 300,000
Revaluation increase (decrease) (20,000)
The revaluation decrease is recognized as expense in OCI (decrease in RS).
Carrying amount after revaluation 280,000
Fair value less costs to sell (P280,000 - P20,000) 260,000
Impairment loss in P/L 20,000
Question 3
The measurement provisions of PFRS 5 apply to which of the following assets?
Response: Property, plant and equipment that are accounted for in accordance with the revaluation
model.
Correct answer: Property, plant and equipment that are accounted for in accordance with the
revaluation model.
Question 4
An entity acquires a subsidiary exclusively with a view to selling it. The subsidiary meets the criteria
to be classified as held for sale. At the balance sheet date, the subsidiary has not yet been sold, and
six months have passed since acquisition. How will the subsidiary be valued in the balance sheet at
the date of the first financial statements after acquisition?
Response: At the lower of its cost and fair value less cost to sell
Correct answer: At the lower of its cost and fair value less cost to sell
Question 5
The Angelbert Company accounts for non-current assets using the revaluation model. On 30 June 2019
Angelbert classified a freehold property as held for sale in accordance with PFRS5. At that date the
property's carrying amount was P290,000 and the balance on the revaluation reserve was P20,000. At
that date its fair value was estimated at P330,000 and the costs to sell at P20,000. At 31 December
2019 the property's fair value was estimated at P325,000 and the costs to sell at P25,000.

If the asset was sold for a net proceeds of P285,000 in 2020, what amount should be included as loss
on disposal in the entity's statement of comprehensive income for the year ended 31 December 2020?
Response: P15,000
Feedback:
Fair value 330,000
Carrying amount before revaluation 290,000
Revaluation increase (decrease) 40,000
The revaluation increase is recognized as income in OCI (increase in RS).
Carrying amount after revaluation 330,000
Impairment loss in P/L (initial writedown to FV-CTS) 20,000

Fair value less costs to sell, 6/30/19 310,000
Fair value less costs to sell, 12/31/19

300,000
(P325,000 - P25,000)
Impairment loss in P/L

10,000
(subsequent writedown to FV-CTS)
Net disposal proceeds 285,000
CA (Fair value less costs to sell), 12/31/19 300,000
Gain (loss) on disposal (15,000)
Question 6
On January 1, 2020, CDO Corporation determined to sell a group of assets within its shoe
manufacturing division, as it believed it was cheaper to buy the parts from China. The assets that it
wanted to sell had the following carrying amounts:
Factory P22,000,000
(12,000,000
Accumulated depreciation
)
Raw materials 3,800,000
Spare parts 2,200,000

The management of CDO calculated the fair value less costs to sell of the disposal group to be
P14,400,000. The assets were sold on February 15, 2020 for P15,400,000, with selling costs
amounting to P700,000.

Before income taxes, how much should be recognized as gain (loss) on sale of the disposal group?

Response: P300,000
Feedback:
Carrying amount
(P22M-P12M+P3.8M+P2.2M) 16,000,000
Fair value less costs to sell 14,400,000
Impairment loss in P/L 1,600,000
Net disposal proceeds (P15.4M - P.7M) 14,700,000
CA (Fair value less costs to sell) 14,400,000
Gain on disposal 300,000
Question 7
Which statement is incorrect when an entity, in the course of its ordinary activities, routinely sells
items of property, plant and equipment that it has held for rental to others?
Response: The difference between the net disposal proceeds and the carrying amount of the item is
recognized as other income in profit or loss.
Correct answer: The difference between the net disposal proceeds and the carrying amount of the
item is recognized as other income in profit or loss.
Question 8
On April 1, 2020, Brandoni Company has a piece of machinery with a cost of P1,000,000 and
accumulated depreciation of P750,000. On April 1, Brandoni decided to sell the machine within 1
year. As of April 1, 2020, the machine had an estimated fair value of P100,000 and a remaining
useful life of 2 years. It is estimated that selling costs associated with the disposal of the machine will
be P10,000. On December 31, 2020, the estimated selling price of the machine had increased to
P150,000, with estimated selling costs increasing to P16,000. The gain on reversal of impairment loss
on December 31, 2020 is
Response: P 44,000
Feedback:
Date of classification as held for sale:
Carrying amount (P1M - P750,000) 250,000
Fair value less costs to sell (P100,000 - P10,000) (90,000)

At December 31, 2020:
Carrying amount before remeasurement (90,000)
Gain on reversal of impairment loss 44,000

Question 9
PFRS 5 states that a non-current asset that is to be abandoned should not be classified as held for
sale, the reason for this is because
Response: Its carrying amount will be recovered principally through continuing use

Correct answer: Its carrying amount will be recovered principally through continuing use
Question 10
Which statement is incorrect regarding ‘held-for-sale’ classification in accordance with PFRS 5?
Response: Operations that are expected to be wound down or abandoned may meet the definition of
‘held-for-sale’.
Correct answer: Operations that are expected to be wound down or abandoned may meet the
definition of ‘held-for-sale’.
Score: 1 out of 1
FAR.13 Government grants

Question 1
The account Deferred Grant Income is classified as
Response: A non-current liability.
Correct answer: A non-current liability.
Question 2
Government assistance include
Response: Neither a nor b.
Correct answer: Neither a nor b.
Question 3
Which statement is incorrect regarding government assistance for purposes of PAS 20?
Response: Government assistance include benefits provided only indirectly through action affecting
general trading conditions, such as the provision of infrastructure in development areas or the
imposition of trading constraints on competitors.
Correct answer: Government assistance include benefits provided only indirectly through action
affecting general trading conditions, such as the provision of infrastructure in development areas or
the imposition of trading constraints on competitors.
Question 4
On July 1, 2019, Corregidor Company is granted a large tract of land in the Cordillera region by the
Philippine government. The fair value of the land is P10 million. Corregidor Company is required by
the grant to construct chemical research facility and employ only personnel residing in the Cordillera
region. The estimated cost of the facility is P50 million with useful life of 20 years. The facility was
completed in early 2020. Corregidor Company should recognize in 2020 an income from government
grant at
Response: P500,000
Feedback:
Income from government grant - 2020
(P10M/20) 500,000
Question 5
Which of these disclosures is not required by PAS 20?
Response: The names of the government agencies that gave the grants along with the dates of
sanction of the grants by these government agencies and the dates when cash was received in the
case of monetary grants.
Correct answer: The names of the government agencies that gave the grants along with the dates
of sanction of the grants by these government agencies and the dates when cash was received in the
case of monetary grants.

Question 6
Bataan Inc. was granted a parcel of land by a local government authority. The condition attached to
this grant was that Bataan Inc. should clean up this land and lay roads by employing laborers from the
village in which the land is located. The entire operation will take three years and is estimated to cost
P100 million. This amount will be spent in this way: P20 million each in the first and second years and
P60 million in the third year. The fair value of this land is currently P120 million. How much should
be recognized as income from government grant at the end of the first year?
Feedback:
Income from government grant - first year
(P120M x 20/100) 24,000,000
Question 7
On January 1, 2019, Amman Company received a grant of P50 million from a foreign government for
the construction of a laboratory and research facility with an estimated cost of P60 million and useful
life of 25 years. The facility was completed in early 2020. Company policy is to treat the grant as a
reduction in the cost of the asset. What should be the depreciation expense in respect of this facility for
the year ended 31 December 2020, assuming that depreciation is calculated on a straight line basis?
Response: P400,000
Feedback:
Depreciation - 2020
[(P60M - P50M)/25] 400,000
Question 8
On January 1, 2020, Carmona Company received a grant of P50 million from the British government
in order to defray safety and environmental costs within the area where the enterprise is located. The
safety and environmental costs are expected to be incurred over four years, respectively, P4 million,
P8 million, P12 million and P16 million. How much income from the government grant should be
recognized in 2020?
Feedback:
Income from government grant - 2020

(P50M x 4/40) 5,000,000
Question 9
PAS 20 applies to
I. Accounting for government grants.

II. Disclosure of government grants.
III. Disclosure of other forms of government assistance.
Response: I, II and III

Correct answer: I, II and III
Question 10
PAS 20 applies to
Response: Biological asset measured at its cost less any accumulated depreciation and any
Correct answer: Biological asset measured at its cost less any accumulated depreciation and any
Score: 1 out of 1
FAR.14 Borrowing costs

Question 1
Brin Company started construction of a new office building on January 1, 2020, and moved into the
finished building on July 1, 2021. Of the building's P5,000,000 total cost, P4,000,000 was incurred in
2020 evenly throughout the year. Brin's incremental borrowing rate was 12 percent throughout 2020,
and the total amount of interest incurred by Brin during 2020 was P204,000. What amount should
Brin report as capitalized interest at December 31, 2020?
Response: P240,000
Feedback:
Actual borrowing cost of P204,000 is lower than the interest based on average expenditures of P240,000
(i.e. P4M/2 x .12)
Question 2
Which of the following may be considered as a “qualifying asset” under PAS 23?
Response: Investment property
Correct answer: Investment property
Question 3
PAS 23 applies to
I. Actual or imputed cost of equity.

II. Borrowing costs directly attributable to the acquisition, construction or production of a
qualifying asset measured at fair value.
III. Borrowing costs directly attributable to the acquisition, construction or production of
inventories that are manufactured, or otherwise produced, in large quantities on a repetitive
basis.
Response: None of these
Correct answer: None of these
Question 4
Which of the following borrowing costs qualify for capitalization?
Response: Borrowing costs incurred while land is under development during the period in which
activities related to the development are being undertaken.
Correct answer: Borrowing costs incurred while land is under development during the period in
which activities related to the development are being undertaken.
Question 5
A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its
intended use or sale. Which of the following may not be considered as a “qualifying asset” under PAS
23?
Response: An expensive private jet that can be purchased from a local vendor
Correct answer: An expensive private jet that can be purchased from a local vendor
Question 6
Which of the following statements is true regarding capitalization of interest?
Response: The amount of interest cost capitalized during the period should not exceed the actual
interest cost incurred.
Correct answer: The amount of interest cost capitalized during the period should not exceed the
actual interest cost incurred.
Question 7
Page Company borrowed P400,000 on a 10 percent note payable to finance a new warehouse Page is
constructing for its own use. The only other debt on Page's books is a P600,000, 12 percent mortgage
payable on an office building. At the end of the current year, average accumulated expenditures on
the new warehouse totaled P475,000. Page should capitalize interest for the current year in the
amount of
Response: P49,000
Feedback:
Average accumulated expenditures 475,000
Specific borrowing (400,000)
Attributed to general borrowing 75,000
General borrowing rate 0.12
Capitalizable borrowing cost - general

9,000
[(P475,000-P400,000) x .12]
Capitalizable borrowing cost - specific (P400,000 x .1) 40,000
Total 49,000
Question 8
On January 1, 2020, Richmond, Inc. signed a fixed-price contract to have Builders Associates
construct a major plant facility at a cost of P4,000,000. It was estimated that it would take three
years to complete the project. Also on January 1, 2020, to finance the construction cost, Richmond
borrowed P4,000,000 payable in 10 annual installment of P400,000, plus interest at the rate of 11%.
During 2020 Richmond made deposit and progress payments totaling P1,500,000 under the contract.
The excess borrowed funds were invested in short-term securities, from which Richmond realized
investment income of P250,000. What amount should Richmond report as capitalized interest at
December 31, 2020?
Response: P190,000
Feedback:
Actual borrowing cost (P4M x .11) 440,000

Investment income (250,000)
Capitalizable borrowing cost 190,000
Question 9
Aries Company started construction on a building on January 1 of this year and completed
construction on December 31 of the same year. Aries had only two interest notes outstanding during
the year, and both of these notes were outstanding for all 12 months of the year. The following
information is available:

Average accumulated expenditures P250,000
Ending balance in construction in progress before capitalization of interest 360,000
6 percent note incurred specifically for the project 150,000
9 percent long-term note 500,000

What amount of interest should Aries capitalize for the current year?

Response: P18,000
Feedback:
Specific borrowing (P150,000 x .06) 9,000
General borrowing [(P250,000 - P150,000) x .09] 9,000
Total capitalizable borrowing costs 18,000
Question 10
On 1 January 2020 The Pyongyang Company took out a loan of P26 million in order to finance the
renovation of a building. The renovation work started on the same date. The loan carried interest at
10%. Work on the building was substantially complete on 31 October 2020. The loan was repaid on 31
December 2020 and P180,000 investment income was earned in the period to 31 October on those parts
of the loan not yet used for the renovation.

According to PAS23 Borrowing costs, what is the total amount of borrowing costs to be included in the
cost of the building?
Feedback:
Interest expense up to 10/31 (P26M x .1 x 10/12) 2,166,667
Investment income (180,000)
Capitalizable borrowing cost 1,986,667
Score: 1 out of 1
Summative Drill No. 1

Question 1
Which of the following is not represented in PIC?
Response: Commission on Audit
Correct answer: Commission on Audit
Question 2
On 1 January 2015, Miya Co. purchased a property for P400,000. The property had a useful life of 20
years and was depreciated on a straight-line basis. On 1 January 2020, the property was revalued to
P420,000. The company’s policy is to make the allowed transfer of excess depreciation between the
revaluation surplus and retained earnings.

The balance of Miya Co.’s revaluation surplus at 31 December 2020 is
Response: P112,000
Feedback:
Fair value, 1/1/20 420,000
CA, 1/1/20 (P400,000 x 15/20) (300,000)

Realized in 2020 (P120,000/15) (8,000)
Question 3
Which of the following distinguishes investment property from owner occupied-property?
Response: Investment property generates cash flows largely independently of the other assets held
by an entity.
Correct answer: Investment property generates cash flows largely independently of the other assets
held by an entity.
Question 4
The following figures relate to Myra Corp.’s inventory held at 31 March 2020:

Product A
Product B
Units held 2,000
5,000
Cost per unit P14
P16
Selling price P17
P20

Modifications costing P5 per unit would need to be made to product A to achieve the
selling price of P17.

What is the value of Myra Corp.’s inventory held at 31 March 2020 in accordance
with PAS 2 Inventories?
Response: P104,000
Feedback:
Cost NRV LCN Units Total
Product A 12 2,000 24,000

14 12

Product B 16 5,000 80,000
16 20
104,000

Question 5
Which is true about the revaluation model for valuing plant, property, and equipment?
Response: There is no rule for the frequency or date of revaluation.
Correct answer: There is no rule for the frequency or date of revaluation.
Question 6
Which of the following is an agricultural activity?
Response: Fish farming
Correct answer: Fish farming
Question 7
Indifferent Corp. has an office building used for administrative purposes with a depreciated historical
cost of P5 million. At 1 January 2020 it had a remaining life of 20 years. After a re-organization on 1
July 2020, the property was leased to a third party and reclassified as an investment property
applying the entity’s policy of the fair value model. An independent valuer assessed the property to
have a fair value of P4.8 million at 1 July 2020, which had risen to P4.95 million at 31 December
2020.

The net amount to be recognized in 2020 profit or loss in relation to Indifferent Corp.’s building is
Response: P( 50,000)
Feedback:
Depreciation [(P5M/20) x 6/12] (125,000)
FV adjustment, 7/1 (Revaluation loss)
FV, 7/1/19 4,800,000

CA, 7/1 (P5M - P.125M) 4,875,000 (75,000)
FV adjustment, 12/31
FV, 12/31 4,950,000
FV, 7/1 4,800,000 150,000
Net amount in P/L (50,000)
Correct answer: P( 50,000)

Question 8
Which of the following are bearer plants?
Question 9
When assessing the recoverable amount of assets that have previously been subject to an
impairment loss, which of the following indicators assist in providing external evidence that an
impairment loss has reversed?
Response: Market interest rates have decreased during the period.

Correct answer: Market interest rates have decreased during the period.
Question 10
On January 1, 2020, Golden State Corporation purchased a patent for P330,000 cash. The 20-year
legal life of the patent begins from January 1, 2015 (date of registration). Golden State initially
intends to use the patent throughout its remaining useful life. But on December 31, 2020, Golden
State estimated that the total useful life of the patent would probably be 15 years from date of
registration with no residual value.

At the end of the current accounting year, December 31, 2020, Golden State should patent
amortization expense of:
Response: P33,000
Feedback:
Patent amortization - 2020 (P330,000/10) 33,000
Question 11
An asset that meets the criteria for classification as held for sale should be measured in the statement of
financial position at
Response: The lower of a and b.

Correct answer: The lower of a and b.
Question 12
Costs to sell include
Response: Transfer taxes and duties.
Correct answer: Transfer taxes and duties.
Question 13
Which statement is correct regarding PFRSs?
Response: PFRSs may set out such requirements for transactions and events that arise mainly in
specific industries.
Correct answer: PFRSs may set out such requirements for transactions and events that arise
mainly in specific industries.
Question 14
The Moskov Company accounts for non-current assets using the revaluation model. On 30 June 2020,
Moskov classified a freehold property as held for sale in accordance with PFRS5. At that date the
property's carrying amount was P290,000 and the balance on the revaluation reserve was P20,000. At
that date its fair value was estimated at P330,000 and the costs to sell at P20,000. At 31 December
2020 the property's fair value was estimated at P325,000 and the costs to sell at P25,000.

The balance of Moskov’s revaluation reserve as of December 31, 2020 is
Response: P60,000
Feedback:
Balance of revaluation reserve before revaluation 20,000

Revaluation increase on 6/30/20 (P330,000 - P290,000) 40,000
Balance of revaluation reserve after revaluation 60,000
Question 15
PFRS 6 applies to expenditures incurred
Response: When the legal rights to explore a specific are have been obtained, but the technical
feasibility and commercial viability of extracting a mineral resources are not yet demonstrable
Correct answer: When the legal rights to explore a specific are have been obtained, but the
technical feasibility and commercial viability of extracting a mineral resources are not yet
demonstrable
Question 16
How should the assets and liabilities of a disposal group classified as held for sale be shown in the
statement of financial position?
Response: The assets of the disposal group should be shown separately from other assets in the
balance sheet, and the liabilities of the disposal group should be shown separately from other liabilities
in the balance sheet.
Correct answer: The assets of the disposal group should be shown separately from other assets in
the balance sheet, and the liabilities of the disposal group should be shown separately from other
liabilities in the balance sheet.
Question 17
During 2020, Mars Corp. had the following transactions:
 On January 2, purchased the net assets of another entity for P360,000. The fair value of the
other entity's identifiable net assets was P172,000, the entity believes that the life of the
resulting goodwill is unlimited.
 On February 1, purchased a franchise to operate a ferry service from the government for
P60,000 and an annual fee of 1% of ferry revenues. The franchise expires after five years. The
entity received P20,000 of ferry revenues in 2020.
 On April 5, was granted a patent that had been applied for by the entity. During 2020, the
entity incurred legal costs of P51,000 to register the patent and an additional P85,000 to
successfully prosecute a patent infringement suit against a competitor. The entity estimates
the patent's economic life to be ten years.

The entity has determined that it is appropriate to amortize these intangibles on the straight-line
basis over the maximum period permitted by generally accepted accounting principles, taking a
full year's amortization in the year of acquisition.

Calculate the total expense to be recognized in Mars Corp.’s 2020 income statement in relation to
its intangible assets.
Response: P102,300
Feedback:
Goodwill -
Franchise
Amortization (P60,000/5) 12,000
Annual fee (P20,000 x .01) 200 12,200
Patent
Amortization (P51,000/10) 5,100
Legal costs 85,000 90,100
Total expenses 102,300
Question 18
Clint Company acquired a machine for P6,400,000 on August 31, 2017. The machine has a 5-year
life, a P1,000,000 salvage value, and was depreciated using the straight line method. On May 31,
2020, a test for recoverability reveals that the expected net future discounted cash inflows related to
the continued use and eventual disposal of the machine total P2,500,000. The machine’s fair value
less costs of disposal on May 31, 2020 is P2,700,000 with no residual value.

Assuming a loss on impairment is recognized on May 31, 2020, what is Clint’s depreciation for June
2020?
Response: P100,000
Feedback:
Cost 6,400,000
Acc. Dep., 5/31/20 [(P6.4M - P1M) x 33/60] (2,970,000)

CA, 5/31/20 3,430,000
RA (Fair value less costs of disposal) 2,700,000
Depreciation - June 2020 (P2.7M/27*) 100,000
Original life (5 x 12) 60
8/31/17 to 5/31/20 (33)
Remaining life, 5/31/20 27*
Question 19
Orang Dampuan Co. wholesales bicycles. It uses the perpetual inventory system.
The company's reporting date is December 31. At December 1, inventory on hand
consisted of 350 bicycles at P820 each and 43 bicycles at P850 each. During the
month of December, the following inventory transactions took place (all purchase
and sales transactions are on credit):

Dec. 02 Sold 300 bicycles for P1,200 each.
Five bicycles were returned by a customer. They had originally cost P820
03
each and were sold for P1,200 each.
09 Purchased 55 bicycles at P910 each.
15 Sold 86 bicycles for P1,350 each.
Returned one damaged bicycles to the supplier. This bicycle had been
16
purchased on 9 December.
22 Sold 60 bicycles for P1,250 each.

Two bicycles, sold on 22 December, were returned by a customer. The

29 bicycles were badly damaged so it was decided to write them off. They
had originally cost P910 each.

The cost of goods sold for the month of December using moving average method
is (Round unit costs to the nearest peso)
Response: P372,725
Feedback:
Alternative computation:
Inventory, 12/1 (see schedule) 323,550
Purchases, net:
Dec. 9 50,050
Dec. 13 72,960
Dec. 16 (910)
Dec. 26 70,560 192,660
TGAS 516,210
Inventory, 12/31 (see schedule) (143,485)
Cost of goods sold 372,725

Question 20
On November 20, 2020, Hylos Corporation entered into a non-cancellable contract to purchase
P100,000 of inventory on January 15, 2021. The value of the inventory on December 31, 2020,
Hylos’ year end, was P90,000. What amount should be reported on the statement of financial
position at December 31 related to this purchase commitment?
Response: P10,000 estimated liability on purchase commitment
Correct answer: P10,000 estimated liability on purchase commitment
Question 21
Which of the following is a not possible implication of COVID-19 in accounting for property, plant and
equipment (PPE)?
Response: Depreciation may not be recognized because the assets are idle.

Correct answer: Depreciation may not be recognized because the assets are idle.
Question 22
The following pertains to the biological assets owned by ABC Farms, Inc.:
Carrying amount at January 1 P459,570
Purchases 26,250
Gain arising from changes in fair value

less costs to sell attributable to
physical changes 15,350
Gain arising from changes in fair value

less costs to sell attributable to
price changes 24,580
Sales 100,700

The carrying amount of ABC Farms, Inc.’s biological assets on December 31 is
Response: P425,050
Feedback:
Carrying amount at January 1 459,570
Purchases 26,250
Gain - physical changes 15,350
Gain - price changes 24,580
Sales (100,700)
Carrying amount at December 31 425,050
Question 23
The following account balances relating to property, plant and equipment of an entity appear on the
books on December 31, 2019:
Land P 6,000,000
Building 45,000,000
Accumulated depreciation 11,250,000
Plant, property and equipment have been carried at cost since their acquisition. The building was
acquired on January 1, 2010. The straight-line method for depreciation is used. On January 1,
20120, the company revalued property plant and equipment and on the same date, competent
appraisers submitted the following:

Replacement cost
Land P 8,000,000
Building 60,000,000

If the entity transfers realized revaluation surplus to retained earnings, what is the balance of
revaluation surplus at Dec. 31, 2020?
Feedback:
Revaluation surplus - land (P8M - P6M) 2,000,000
Revaluation surplus - building [(P60M x .75) - P33.75M) 11,250,000
Realized in 2020 (P11.25M/30) (375,000)
Notes:
- The building is 25% depreciated as of 12/31/19 (P11,250,00/P45,000,000)
- The useful life of building is 40 years (10/.25)
Question 24
Which of the following building is subject to depreciation?
Response: Building classified as property, plant and equipment. The entity uses the revaluation
model.
Correct answer: Building classified as property, plant and equipment. The entity uses the
revaluation model.
Question 25
The Mirror Company classified a non-current asset accounted for under the cost model as held for sale
on 31 December 2019. Because no offers were received at an acceptable price, Mirror decided on 1 July
2020 not to sell the asset, but to continue to use it.

The asset should be measured on 1 July 2020 at
Response: The lower of its carrying amount on the basis that it had never been classified as held for sale
and its recoverable amount
Correct answer: The lower of its carrying amount on the basis that it had never been classified as held
for sale and its recoverable amount
Question 26
Which of the following properties fall under the definition of investment property and therefore within
the scope of PAS 40 Investment property?
Response: Property that is being constructed or developed for use as an investment property

Correct answer: Property that is being constructed or developed for use as an investment property
Question 27
If fair value of an investment property can be measured reliably without undue cost or effort, the
entity
Response: Must disclose the fair value of the investment property.

Correct answer: Must disclose the fair value of the investment property.
Question 28
Cuyapo Company purchased a machine on January 2, 2017, for P500,000. The machine has an
estimated useful life of eight years and a salvage value of P50,000. Depreciation was computed by
the 200% declining-balance method.

What amount of depreciation should Cuyapo Company recognize for the year ended 31 December 2020?
Response: P52,734
Feedback:
Depreciation - 2020 (4th year)
(P500,000 x .75 x .75 x .75 x .25) 52,734
DR (1/8 x 2) = .25
Question 29
UwianNa Company asks you to review its December 31 inventory values and
prepare the necessary adjustments to the books. The following information is given
to you.

a. UwianNa uses the periodic method of recording inventory. A physical count
reveals P2,348,900 inventory on hand at December 31.
b. Not included in the physical count of inventory is P134,200 of merchandise
purchased on December 15 from Standing. This merchandise was shipped
f.o.b. shipping point on December 29 and arrived in January. The invoice
arrived and was recorded on December 31.
c. Included in inventory is merchandise sold to Dipa on December 30, f.o.b.
destination. This merchandise was shipped after it was counted. The invoice
was prepared and recorded as a sale on account for P128,000 on December
31. The merchandise cost P73,500, and Dipa received it on January 3.
d. Included in inventory was merchandise received from OhTee on December 31
with an invoice price of P156,300. The merchandise was shipped f.o.b
destination. The invoice, which has not yet arrived, has not been recorded.
e. Not included in inventory is P85,400 of merchandise purchased from Break
Industries. The merchandise was received on December 31 after the
inventory had been counted. The invoice was received and recorded on
December 30.
f. Included in inventory was P104,380 of inventory held by UwianNa on
consignment from Ovoid Industries.
g. Included in inventory is merchandise sold to Kemp f.o.b. shipping point. This
merchandise was shipped after it was counted. The invoice was prepared
and recorded as a sale for P189,000 on December 31. The cost of this
merchandise was P105,200, and Kemp received the merchandise on January
5.
h. Excluded from inventory was carton labeled “Please accept for credit.” This
carton contains merchandise costing P15,000 which had been sold to a
customer for P25,000. No entry had been made to the books to reflect the
return, but none of the returned merchandise seemed damaged.

The adjusted inventory cost of UwianNa Company at December 31 should be
Feedback:
Add (deduct) adjustments:
Item letter b 134,200
Item letter c -
Item letter d -
Item letter e 85,400
Item letter f (104,380)
Item letter g (105,200)
Item letter h 15,000

Question 30
How should the sales proceeds from selling samples produced when testing an item of property, plant
and equipment (PPE) and the related cost of producing the samples be accounted for?
Response: Deduct the net proceeds from the cost of PPE.

Correct answer: Deduct the net proceeds from the cost of PPE.
Question 31
Miraleste Corp. accounts for non-current assets using the cost model. On 30 October 2020 the entity
classified a non-current asset as held for sale in accordance with PFRS5. At that date the asset's
carrying amount was P15,000,000, its fair value was estimated at P11,000,000 and the costs to sell at
P1,500,000. On 20 November 2020 the asset was sold for net proceeds of P9,200,000.

In accordance with PFRS5, what amount should be included as a loss on disposal in Miraleste Corp.’s
statement of comprehensive income for the year ended 31 December 2020?
Response: P300,000
Feedback:
Sales proceeds, net 9,200,000
Carrying amount after classification as HFS (P11M -

9,500,000
P1.5M)
Gain (loss) on disposal (300,000)
Question 32
Which statement is correct regarding intangible assets?
Response: Subsequent expenditure on brands, mastheads, publishing titles, customer lists and items
similar in substance (whether externally acquired or internally generated) is always recognized in
profit or loss as incurred.
Correct answer: Subsequent expenditure on brands, mastheads, publishing titles, customer lists and
items similar in substance (whether externally acquired or internally generated) is always recognized
in profit or loss as incurred.
Question 33
Items such as spare parts, stand-by equipment and servicing equipment that do not meet the
definition of property, plant and equipment are classified as
Response: Inventory
Correct answer: Inventory
Question 34
Jayvison Company takes a full year's depreciation expense in the year of an asset's acquisition, and no
depreciation expense in the year of disposition. Data relating to one of Jayvison's depreciable assets at
December 31, 2019, are as follows:
Acquisition year 2017
Cost P110,000
Residual value 20,000

Accumulated depreciation 72,000
Estimated useful life 5 years

Using the same depreciation method as used in 2017, 2018, and 2019, how much depreciation
expense should Jayvison record in 2020 for this asset?
Response: P12,000
Feedback:
Acc. depreciation, 12/31/19 using SYD (P90,000 x

72,000
12/15)
Depreciation - 2020 using SYD

12,000
(P90,000 x 2/15)
Question 35
Costs that are incurred in bringing the inventories to their present location and condition are
capitalized as cost of inventories and these include
Response: Cost of designing products for specific customers.
Correct answer: Cost of designing products for specific customers.
Question 36
The cost of inventories of items that are not ordinarily interchangeable shall be assigned by
using
Response: Specific identification of their individual costs
Correct answer: Specific identification of their individual costs
Question 37
Sammy Corp. reported an impairment loss of P250,000 in its income statement for the year 2017.
This loss was related to an item of property, plant and equipment which was acquired on January 1,
2009 with a cost of P2,000,000. Depreciation on the asset is computed on a straight line basis and
annual depreciation on cost is P80,000. Depreciation for the year 2018 was computed on the asset’s
recoverable amount at December 31, 2017. On December 31, 2020, Sammy decided to measure the
asset using revaluation model. This asset was then appraised at a fair value of P1,650,000.

The revaluation increase to be recognized by Sammy Corp. in 2020 other comprehensive income is
Response: P610,000
Feedback:
Fair value, 12/31/20 1,650,000
CA, 12/31/20 without impairment

1,040,000
[P2,000,000 - (P80,000 x 12)]
Revaluation surplus 610,000
Fair value, 12/31/20 1,650,000
Less CA, 12/31/20 with impairment 836,875
Revaluation increase 813,125
Less reversal of impairment 203,125
Revaluation surplus 610,000
Question 38
Investment property includes
Question 39
Response: Compliance with the Philippine Interpretations Committee implementation guidance
is required for the fair presentation of financial statements in accordance with PFRS.
Correct answer: Compliance with the Philippine Interpretations Committee implementation
guidance is required for the fair presentation of financial statements in accordance with PFRS.
Question 40
When the revaluation model is used for reporting plant, property, and equipment, the gain or loss
should be included in
Response: A revaluation surplus account in other comprehensive income.

Correct answer: A revaluation surplus account in other comprehensive income.
Question 41
Evaluation activities do not include
Response: Permanent excavations
Correct answer: Permanent excavations
Question 42
At the end of the reporting period, a tomato grower’s vines are six months old and bearing fully
developed ripe tomatoes. The accumulated cost of the fruit-bearing vines is P12,500 and their fair
value is P100,000. It is expected to cost the entity P5,000 to sell the tomato crop at market. Once
the tomatoes have been harvested the then-worthless vines will be abandoned.
At the end of the reporting period, the tomato grower
Response: Measures the tomatoes at P95,000, the tomato vines at P0 and recognizes a gain of
P82,500 for the increase in fair value.
Correct answer: Measures the tomato-bearing vines at P95,000 and recognizes a gain of P82,500
for the increase in fair value.
Question 43
Which of the following oversees the IFRS Foundation?
Response: Monitoring Board
Correct answer: Monitoring Board
Question 44
On April 1, 2020, the new machinery was ordered at a quoted price of P56,000. On July 1, 2020, it
arrived at Dodik Corp.’s plant with an actual invoice price of P58,000, which it paid immediately.
During July 2020, a new concrete platform was constructed at a cost of P4,000 to properly install the
machine. In August 2020, testing was performed at a cost of P7,000 to ensure the machine was
operating properly. On August 31, 2020, the machine was entered into service. Minor repairs and
maintenance costs on the new machine amounted to P3,000 in September 2020. No other costs were
incurred prior to December 31, 2020. Similar machinery is depreciated on a straight-line basis over
10 years and typically has no residual value.

What amount of depreciation should Dodik Corp. recognize for the year ended 31 December 2020?
Response: P2,300
Feedback:
Actual invoice price 58,000
Concrete platform 4,000
Testing 7,000
Total cost 69,000
Depreciation - 2020:
(P69,000/10 x 4/12) 2,300
Question 45
An impairment loss that relates to an asset that has been revalued should be recognized in
Response: Revaluation reserve that relates to the revalued asset
Correct answer: Revaluation reserve that relates to the revalued asset
Question 46
Exploration activities do not include
Response: Constructing roads and tunnels
Correct answer: Constructing roads and tunnels
Question 47
Which statement is incorrect regarding the change in an asset’s carrying amount as a result of
revaluation?
Response: The decrease shall be recognized in other comprehensive income.

Correct answer: The decrease shall be recognized in other comprehensive income.
Question 48
Which of the following facts or circumstances would not trigger a need to test an evaluation and
exploration asset for impairment?
Response: Sufficient data exists to indicate that the carrying amount of the exploration and
evaluation asset is likely to be recovered in full from successful development or by sale.
Correct answer: Sufficient data exists to indicate that the carrying amount of the exploration and
evaluation asset is likely to be recovered in full from successful development or by sale.
Question 49
Income earned through using a building site as a car park until construction starts is
Response: Recognized in profit or loss.
Correct answer: Recognized in profit or loss.
Question 50
Stripper Corp. constructed a building costing P2,800,000 on the mine property. Its estimated residual
value will not benefit the company and will be ignored for purposes of computing depreciation. The
building has an estimated life of 10 years. The total estimated recoverable units from the mine is
500,000 tons. The company's production of the first four years of operations was:

First year 100,000 tons
Second year 100,000 tons
Third year Shut down, no output
Fourth year 100,000 tons

Stripper Corp. should recognize fourth year depreciation of
Response: P490,000
Feedback:

Cost/Depreciable amount 2,800,000
Accumulated depreciation, beg. of 3rd year

(200,000 x P5.6) (1,120,000)
CA/Remaining DA beg. of 3rd year 1,680,000
Depreciation - 3rd year (P1,680,000/8) (210,000)
CA/Remaining DA beg. of 4th year 1,470,000
/Remaining remaining reserves beg. of 4th year 300,000
Depreciation rate - 4th year 4.90
Depreciation - 4th year (100,000 x P4.9) 490,000
Question 51
The International Accounting Standards Board
Question 52
Under SIC 32, any cost incurred to develop a Web Site for purposes of promoting company products
and service shall be:
Response: Expensed in the period incurred.

Correct answer: Expensed in the period incurred.
Question 53
Wan acquired Yang, a small company that specializes in pharmaceutical drug research and
development for P35 million. The fair value of Yang’s net assets was P15 million (excluding any items
referred to below).

Yang owns a patent for an established successful drug that has a remaining life of 8 years. A firm of
specialist advisors, Tantsahan, has estimated the current value of this patent to be P10 million;
however, the company is awaiting the outcome of clinical trials where the drug has been tested to
treat a different illness. If the trials are successful, the value of the drug is then estimated to be P15
million. Also included in the company’s balance sheet is P2 million for medical research that has been
conducted on behalf of a client.

Compute the amount of goodwill from the acquisition of Yang by Wan.
Feedback:
Less fair value of net assets:
Unadjusted 15,000,000
Patent 10,000,000
Receivable 2,000,000 27,000,000
Goodwill 8,000,000
Question 54
LAC Company incurred research and development costs in 2020 as follows:
Equipment acquired for use in various R&D projects P6,000,000
Depreciation on the above equipment 1,200,000
Materials used 3,000,000
Compensation costs of personnel 4,000,000
Outside consulting fees 1,500,000
Indirect costs appropriately allocated 1,300,000

The 2020 total research and development expense to be reported by LAC Company should be
Feedback:
R & D expense (Include all except equipment) 11,000,000
Question 55
Judges Company quarries limestone, crushes it and sells it to be used in road building. Judges paid
P20,000,000 for a certain quarry on January 1, 2019. The property can be sold for P4,000,000 after
production ceases. The original total estimated reserves totaled 5,000,000 tons. Judges quarried
500,000 tons in 2019 and 1,500,000 tons in 2020. An engineering study performed in 2020 indicated
that as of December 31, 2020, 4,500,000 tons were available.

Judges Company should record 2020 depletion at
Feedback:
Cost subject to depletion (P20M - P4M) 16,000,000
Divide by total estimated reserves in 2019 5,000,000
Depletion rate in 2019 3.20
Number of tons mined in 2019 500,000
Depletion for 2019 1,600,000
Original cost subject to depletion 16,000,000
Less depletion in 2019 1,600,000
Remaining cost to deplete, 1/1/20 14,400,000
Remaining tons of ore, 1/1/20 (4,500,000+1,500,000) 6,000,000
Depletion rate in 2020 2.40
Number of tons mined in 2020 1,500,000
Depletion for 2020 3,600,000
Question 56
Sammy Corp. reported an impairment loss of P250,000 in its income statement for the year 2017.
This loss was related to an item of property, plant and equipment which was acquired on January 1,
2009 with a cost of P2,000,000. Depreciation on the asset is computed on a straight line basis and
annual depreciation on cost is P80,000. Depreciation for the year 2018 was computed on the asset’s
recoverable amount at December 31, 2017. On December 31, 2020, Sammy decided to measure the
asset using revaluation model. This asset was then appraised at a fair value of P1,650,000.

The gain on impairment recovery to be recognized by Sammy Corp. in 2020 profit or loss is
Response: P203,125
Feedback:
Useful life (P2,000,000/P80,000) 25
CA, 12/31/17 [P2,000,000 - (P80,000 x 9)] 1,280,000
RA 1,030,000
CA, 12/31/17 after impairment 1,030,000
Less depreciation - 2018 to 2020 [(P1,030,000/16) x 3] 193,125
CA, 12/31/20 836,875
CA, 12/31/20 without impairment

1,040,000
[P2,000,000 - (P80,000 x 12)]
Less CA, 12/31/20 with impairment 836,875
Reversal of impairment loss in P/L 203,125
Question 57
The following are costs excluded from the cost of inventories, except
Response: Import duties
Correct answer: Import duties
Question 58
Keen Sports Ltd (Keen Sports) internally developed several assets. Which one of the following
internally generated assets should be recognized in accordance with PAS 38 Intangible Assets?
Assume that the expected future economic benefits of the internally generated assets are probable
and the cost of the asset can be measured reliably.
Response: Computer program to keep track of customers’ orders and automate the generation of
invoices
Correct answer: Computer program to keep track of customers’ orders and automate the generation
of invoices
Question 59
Sunflower Company acquired some new equipment. The following data have been made available to
you:
List price of the equipment P14,000
Cash discount available but not taken on purchase 200
Freight paid on the new equipment 250
Cost of removing the old equipment 170
Installation costs of the new equipment 430

Testing costs before the equipment was put to
regular operation (including P120 in wages of the
regular equipment operator)
295
Loss on premature retirement of the old equipment 120
Estimated cost of manufacturing similar equipment

in the company's own plant, including overhead 13,800

What amount should Sunflower capitalize as the cost of the new equipment?
Response: P14,775
Feedback:
List price of the equipment 14,000
Cash discount (deduct whether taken or not) (200)
Freight 250
Installation costs 430
Testing costs 295
Cost of new equipment 14,775
Question 60
The closing inventory of Alucard Corp. amounted to P2,580,000. The following
items were not included in this inventory amount:
a. Purchased goods, in transit, shipped FOB destination invoice price P30,000
which included freight charges of P2,000.
b. Goods held on consignment, cost P50,000.
c. Goods sold to a customer, in transit, shipped FOB destination, cost P20,000.
Shipping cost to customer, P2,000.
d. Purchased goods in transit, terms FOB seller, invoice price P38,000, freight
cost, P3,000.
e. Goods out on consignment, cost P43,000.
f. Goods sold to a customer, in transit, shipped FOB shipping point, cost
P36,000.
The adjusted cost of Alucard Corp.’s inventory at December 31 should be
Feedback:
Item a -
Item b -
Item c 20,000
Item d 41,000

Item e 43,000
Item f -

Question 61
Vexana, Inc., a real estate company, has a property included in its inventory with a cost of
P10,000,000 and net realizable value of P8,000,000 on December 31, 2019. Because of the decline in
the real estate industry, the company decided to lease out the property to a tenant under an operating
lease in 2020 when the fair value of the property was P7,000,000. Vexana uses the fair value model
to measure its investment properties.

How much should Vexana recognize in 2020 profit or loss as a result of the transfer from inventory to
investment property?
Feedback:
Jounal entry to reclassify the property:
Investment property 7,000,000
Allowance for inventory writedown 2,000,000
Loss (P/L) 1,000,000
Inventory 10,000,000
Question 62
Entity A had a plantation forest that is likely to be harvested and sold in 30 years. The income should
be accounted for in the following way:
Response: Income should be measured annually and reported using a fair value approach that
recognizes and measures biological growth.
Correct answer: Income should be measured annually and reported using a fair value approach that
recognizes and measures biological growth.
Question 63
Twilight Corporation has determined that its fine china division is a cash-generating unit. The carrying
amounts of the assets at 31 December 2020 are as follows:
Factory P210,000
Land 150,000
Equipment 120,000
Inventory 60,000
Total P540,000

Twilight Corporation calculated the value in use of the division to be P510,000. The fair value less
costs of disposal of the land is P145,000.

The carrying amount of Twilight Corporation’s equipment after allocating impairment loss is
Response: P112,308
Feedback:
I.L. I.L. Re-

CA CA after CA after
Allocation* alloc.**
Factory 210,000 (11,667) 198,333 (1,795) 196,538
Land 150,000 (8,333) 141,667 3,333 145,000
Equipment 120,000 (6,667) 113,333 (1,026) 112,307
Inventory 60,000 (3,333) 56,667 (513) 56,154
540,000 (30,000) 510,000 - 510,000
* Allocated pro rata based on CA of all assets
** Allocated pro rata based on CA of other assets

Question 64
Clever Co has incurred the following costs in the course of the year ended 30 June 2020:
 P400,000 training selected staff members to be ‘World Class Knowledge Holders’ (an internal
qualification which is believed to result in increased sales)
 P100,000 acquiring patents
 P200,000 advertising new products. The advertising is expected to result in a doubling of sales
in the coming year
What amount should Clever Co capitalize as an intangible asset in the year ended 30 June 2020?
Response: P100,000
Feedback:
Cost to acquire patents 100,000
Cost of training and advertising - expense

when incurred
Question 65
In accordance with PAS 36 Impairment of Assets, which one of the following statements is correct?
Response: Intangible assets with indefinite useful lives must be tested for impairment at least
annually.
Correct answer: Intangible assets with indefinite useful lives must be tested for impairment at least
annually.
Question 66
The following pertains to an Organic Corp.’s biological assets:
Fair value based on unobservable inputs for the asset P4,900
Quoted price in an active market for similar asset 5,400
Quoted price in an active market for identical asset 5,300
Selling price in a binding contract to sell 5,600

Estimated commissions to brokers and dealers 500
Estimated transport and other costs necessary to get

asset to the market 300
Organic Corp.’s biological assets should be valued at
Response: P4,500
Feedback:
Fair value, based on level 1 input (P5,300 - P300) 5,000
Estimated costs to sell (Commissions) (500)
Carrying amount of biological assets 4,500
Question 67
Which of the following items should be included in a company's inventory at the statement of
financial position date?
Question 68
On January 2, 2019, Meadow Inc. purchased a patent with a cost P940,000 a useful life of 4 years. At
December 31, 2019, and December 31, 2020, the company determines that impairment indicators are
present. The following information is available for impairment testing at each year end:

12/31/2019 12/31/2020
Fair value less costs of disposal P715,000 P420,000
Value-in-use P750,000 P445,000

No changes were made in the asset's estimated useful life.

The total expense to be recognized in Meadow Inc.’s 2020 profit or loss in relation to the patent is
Response: P260,000
Feedback:
12/31/19 12/31/20
CA before amortization 940,000 705,000
Amortization (P940,000/4) (235,000) (235,000)
CA after amortization 705,000 470,000
Recoverable amount
720,000 445,000
(Higher of FV-COD and VIU)
Impairment loss - 25,000
Amortization 235,000
Impairment 25,000
Total expense in 2020 P/L 260,000

Question 69
On June 30, 2020, a flash flood damaged the warehouse and factory of Entity P,
completely destroying the work in process inventory. There was no damage to
either the raw materials or finished goods inventories. A physical inventory taken
after the flood revealed the following valuations:
Finished Goods P112,000
Work-in-process 0
Raw Materials 52,000

The inventory on January 1, 2020, consisted of the following.
Finished Goods P120,000

Raw Materials 42,500
P277,500

A review of the books and records disclosed that the gross profit margin historically
approximated 34% of sales. The sales for the first 6 months of 2020 were
P428,000. Raw materials purchases were P96,000. Direct labor costs for this
period were P130,000, and manufacturing overhead has historically been applied at
60% of direct labor.

Compute the value of Entity P’s work in process inventory lost on June 30, 2020.
Response: P135,020
Feedback:
Raw materials, 1/1 42,500
Purchases 96,000
Raw materials available for use 138,500
Less raw materials, 6/30 52,000
Raw materials used 86,500
Direct labor 130,000
Factory overhead (P130,000 x .6) 78,000
Total manufacturing cost 294,500
Work-in-process, 1/1 115,000
Total cost placed in process 409,500
Less work-in-process, 6/30 (squeeze) 135,020
Cost of goods manufactured 274,480

Finished goods, 1/1 120,000
Total goods available for sale 394,480
Less finished goods, 6/30 112,000
Cost of goods sold (P428,000 x .66) 282,480

Question 70
On January 15, 2018, Mountain Company paid P5,400,000 for property containing natural resource of
2,000,000 tons of ore. The entity is legally required to restore the site after mining operations. The
estimated cost of restoring the land after the resource is extracted is P450,000 and the land will have
a value of P650,000 after it is restored for suitable use. Tunnels, bunk houses and other fixed
installations are constructed at a cost of P8,000,000 and such expenditures are charged to mine
improvements.

Operations began on January 1, 2019 and resources removed totaled 600,000 tons. During 2020, a
discovery was made indicating that available resource after 2020 will total 1,875,000 tons. At the
beginning of 2020, additional bunk houses were constructed in the amount of P770,000. In 2020,
only 400,000 tons were mined because of a strike.

Mountain Company should report depletion for 2020 at
Response: P640,000
Feedback:
Estimated restoration cost 450,000
Total 5,850,000
Depletion - 2019 (600,000 x P2.6*) (1,560,000)
Remaining amount subject to depletion, 1/1/20 3,640,000

Divide by remaining estimated reserves, 1/1/20
2,275,000
(1,875,000+400,000)
Depletion rate for 2020 1.60
* (P5,200,000/2,000,000)
Depletion - 2020 (400,000 tons x P1.60) 640,000
Score: 1 out of 1
AP.01 Audit of Inventories

Question 1
You were engaged to perform an audit of the accounts of the Honesty Corporation for the year ended
December 31, 2020, and you observed the taking of the physical inventory of the company on
December 30, 2020. Only merchandise shipped by the company to customers up to and including
December 30, 2020 have been eliminated from inventory. The inventory as determined by physical
inventory count has been recorded on the books by the company’s controller. No perpetual inventory
records are maintained. All sales are made on an FOB shipping point basis. You are to assume that all
purchase invoices have been correctly recorded. The inventory was recorded through the cost of sales
method.
The following lists of sales invoices are entered in the sales books for the month of December 2020
and January 2021, respectively.
DECEMBER 2020
Sales Sales
invoice invoice
amount date Cost Date shipped
a) P150,000 Dec. 21 P100,000 Dec. 31, 2020
b) 100,000 Dec. 31 40,000 Nov. 03, 2020
c) 50,000 Dec. 29 30,000 Dec. 30, 2020
d) 200,000 Dec. 31 120,000 Jan. 03, 2021
e) 500,000 Dec. 30 280,000 Dec. 29, 2020

(shipped to
consignee)
JANUARY 2021
f) P300,000 Dec. 31 P200,000 Dec. 30, 2020
g) 200,000 Jan. 02 115,000 Jan. 02, 2021
h) 600,000 Jan. 03 475,000 Dec. 31, 2020
Profit for the year ended December 31, 2020 is misstated by
Response: P95,000 over
Feedback:
Profit
over
Item
(under)
a) 100,000
b)
c)
d) 200,000
e) 220,000
f) (300,000)
g)
h) (125,000)
95,000
Correct answer: P95,000 over

Question 2
The cost goods sold section of the income statement prepared by your client for the year ended
December 31 appears as follows:
Inventory, January 1 P 80,000

Purchases 1,600,000
Cost of goods available for sale 1,680,000

Inventory, December 31 100,000
Cost of goods sold P1,580,000
Although the books have been closed, your working paper trial balance is prepared showing all
accounts with activity during the year. This is the first time your firm has made an examination. The
January 1 and December 31 inventories appearing above were determined by physical count of the
goods on hand on those dates and no reconciling items were considered. All purchases are FOB
shipping point.
In the course of your examination of the inventory cutoff, both at the beginning and end of the year,
you discovered the following facts:
Beginning of the Year
1. Invoices totaling P25,000 were entered in the voucher register in January, but the goods were
received during December.
2. December invoices totaling P13,200 were entered in the voucher register in December, but goods
were not received until January.
End of the Year
3. Sales of P43,000 (cost of P12,900) were made on account on December 31 and goods delivered at
that time, but all entries relating to the sales were made on January 2.
received in December.

5. December invoices totaling P18,000 were entered in the voucher register in December, but the
goods were not received until January.
6. Invoices totaling P12,000 were entered in the voucher register in January, and the goods were
received in January, but the invoices were dated December.
Based on the preceding information, determine the net working paper adjustment that should be
made for each of the following accounts:
Sales
Response: P43,000 debit
Feedback:

Accounts receivable (Item 3)
43,000

Sales
43,000
Correct answer: P43,000 credit

Question 3

Purchases 1,600,000

shipping point.
End of the Year
Accounts receivable
Feedback:
Accounts receivable (Item 3) 43,000
Sales 43,000
Correct answer: P43,000 debit

Question 4
method.
DECEMBER 2020
Sales Sales
invoice invoice
a) P150,000 Dec. 21 P100,000 Dec. 31, 2020
b) 100,000 Dec. 31 40,000 Nov. 03, 2020
c) 50,000 Dec. 29 30,000 Dec. 30, 2020
d) 200,000 Dec. 31 120,000 Jan. 03, 2021
Dec. 29, 2020

e) 500,000 Dec. 30 280,000 (shipped to
consignee)
JANUARY 2021
f) P300,000 Dec. 31 P200,000 Dec. 30, 2020

g) 200,000 Jan. 02 115,000 Jan. 02, 2021
h) 600,000 Jan. 03 475,000 Dec. 31, 2020
Working capital as of December 31, 2020 is misstated by
Feedback:
WC
Item over (under)
a) 100,000
b)
c)
d) 200,000
e) 220,000
f) (300,000)
g)
h) (125,000)
95,000

Question 5
method.
DECEMBER 2020
Sales Sales
invoice invoice
a) P150,000 Dec. 21 P100,000 Dec. 31, 2020
b) 100,000 Dec. 31 40,000 Nov. 03, 2020
c) 50,000 Dec. 29 30,000 Dec. 30, 2020
d) 200,000 Dec. 31 120,000 Jan. 03, 2021
Dec. 29, 2020

e) 500,000 Dec. 30 280,000 (shipped to
consignee)
JANUARY 2021
f) P300,000 Dec. 31 P200,000 Dec. 30, 2020
g) 200,000 Jan. 02 115,000 Jan. 02, 2021
h) 600,000 Jan. 03 475,000 Dec. 31, 2020
Sales for the year ended December 31, 2020 is misstated by
Response: P200,000 under
Feedback:
Sales
Item over (under)

a)
b)
c)
d) 200,000
e) 500,000
f) (300,000)
g)
h) (600,000)
(200,000)
Correct answer: P200,000 under

Question 6

Purchases 1,600,000

shipping point.
End of the Year
Purchases
Feedback:
Debit
(Credit)
Item 1 - Purchases last year recorded this year (25,000)

Item 4 - Purchases this year recorded next year 15,000
Item 6 - Purchases this year recorded next year 12,000
Purchases net adjustment 2,000

Question 7

Purchases 1,600,000

shipping point.
End of the Year
Retained earnings
Feedback:
Debit (Credit)
Item 1 - Purchases last year under 25,000
(13,200
Item 2 - Ending inventory last year under
)
Retained earnings net adjustment 11,800

Question 8

Purchases 1,600,000

shipping point.
End of the Year

Beginning inventory
Feedback:
Inventory, beginning (Item 1) 13,200
Retained earnings 13,200

Question 9
method.
DECEMBER 2020
Sales Sales
invoice invoice
a) P150,000 Dec. 21 P100,000 Dec. 31, 2020

b) 100,000 Dec. 31 40,000 Nov. 03, 2020
c) 50,000 Dec. 29 30,000 Dec. 30, 2020
d) 200,000 Dec. 31 120,000 Jan. 03, 2021
Dec. 29, 2020

e) 500,000 Dec. 30 280,000 (shipped to
consignee)
JANUARY 2021
f) P300,000 Dec. 31 P200,000 Dec. 30, 2020
g) 200,000 Jan. 02 115,000 Jan. 02, 2021
h) 600,000 Jan. 03 475,000 Dec. 31, 2020
To gain assurance that all inventory items in a client’s inventory listing schedule are valid, an auditor
most likely would trace
Response: Items listed in the inventory listing schedule to inventory tags and the auditor’s recorded
count sheets.
Correct answer: Items listed in the inventory listing schedule to inventory tags and the auditor’s
recorded count sheets.
Question 10
method.
DECEMBER 2020
Sales Sales
invoice invoice
a) P150,000 Dec. 21 P100,000 Dec. 31, 2020
b) 100,000 Dec. 31 40,000 Nov. 03, 2020
c) 50,000 Dec. 29 30,000 Dec. 30, 2020
d) 200,000 Dec. 31 120,000 Jan. 03, 2021
Dec. 29, 2020

e) 500,000 Dec. 30 280,000 (shipped to
consignee)
JANUARY 2021
f) P300,000 Dec. 31 P200,000 Dec. 30, 2020
g) 200,000 Jan. 02 115,000 Jan. 02, 2021
h) 600,000 Jan. 03 475,000 Dec. 31, 2020
Inventory as of December 31, 2020 is misstated by
Feedback:
Inventory
over
Item
(under)
a) 100,000
b)
c)
d)
e) (280,000)
f)
g)
h) 475,000
295,000

Score: 1 out of 1
AP.03 Audit of Intangible Assets

Question 1
On December 31, 2019, Probe Corporation acquired the following three intangible assets:
 A trademark for P300,000. The trademark has 7 years remaining legal life. It is anticipated
that the trademark will be renewed in the future, indefinitely, without problem.
 Goodwill for P1,500,000. The goodwill is associated with Probe’s Nexus Manufacturing
reporting unit.
 A customer list for P220,000. By contract, Probe has exclusive use of the list for 5 years.
Because of market conditions, it is expected that the list will have economic value for just 3
years.
On December 31, 2020, before any adjusting entries for the year were made, the following
information was assembled about each of the intangible assets:
a. Because of a decline in the economy, the trademark is now expected to generate cash flows of just
P10,000 per year. The useful life of trademark still extends beyond the foreseeable horizon.

b. The cash flows expected to be generated by the Nexus Manufacturing reporting unit is P250,000
per year for the next 22 years. Book values and fair values of the assets and liabilities of the Nexus
Manufacturing reporting unit are as follows:

Book values Fair values
Identifiable assets P2,700,000 P3,000,000
Goodwill 1,500,000 ?
Liabilities 1,800,000 1,800,000

c. The cash flows expected to be generated by the customer list are P120,000 in 2021 and P80,000 in
2022.

REQUIRED:
Based on the above and the result of your audit, determine the following: (Assume that the
appropriate discount rate for all items is 6%):

Carrying amount of Goodwill as of December 31, 2020
Feedback:
Since goodwill is not amortized and is not impaired as of 12/31/20,
the carrying amount is P1,500,000.
Question 2
On November 15, 2020, Rodeo Corporation acquired Rapids, a company that operates a scenic railway
along the coast of a popular tourist area. The summarized statement of financial position at fair
values of Rapids on July 1, 2020, reflecting the terms of acquisition was:
Goodwill P 200,000
Operating license 1,200,000
Property-train stations and land 300,000
Rail track and coaches 300,000
Steam engines (2) 1,000,000
Purchase consideration P3,000,000
The operating license is for ten years. It has recently been renewed by the transport authority and is
stated at the cost of its renewal. The carrying amounts of the property and rail track and coaches are
based on their estimated replacement cost. The engines are valued at their net selling price.
On December 1, 2020, the boiler of one of the steam engines exploded, completely destroying the
whole engine. Fortunately no one was injured, but the engine was beyond repair. Due to its age, a
replacement could not be obtained. Because of the reduced passenger capacity, the estimated value
in use of the business after the accident was assessed at P2 million.
Passenger numbers after the accident were below expectations even after allowing for the reduced
capacity. A market research report concluded that tourists were not using the railway because of the
fear of a similar accident occurring to the remaining engine. In the light of this, the value in use of
the business was re-assessed on December 31, 2020 at P1.8 million. On this date Rodeo received an
offer of P900,000 in respect of the transferable operating license.
QUESTIONS:
Based on the above and the result of your audit, compute the carrying amount of the following as of
December 31, 2020 after recognizing the impairment loss, if any:

Rail track and coaches
Response: P200,000
Feedback: Folder1/AP.3003D_P2(4).png
Question 3
reporting unit.
years.


Liabilities 1,800,000 1,800,000
2022.

REQUIRED:

Impairment loss for the year 2020
Response: P133,333
Feedback: Folder1/AP.3003D_P1_2.png
Question 4
reporting unit.
years.


Liabilities 1,800,000 1,800,000

2022.

REQUIRED:

Total amortization for the year 2020
Response: P 73,333
Feedback:
Trademark* -
Goodwill* -
Customer list (P220,000/3) 73,333
Total amortization 73,333
*The useful life is indefinite, so no amortization expense is recognized.

Question 5
reporting unit.
years.


Liabilities 1,800,000 1,800,000
2022.

REQUIRED:

Carrying amount of Trademark as of December 31, 2020
Response: P166,667
Feedback:
Cost 300,000
Less impairment loss 133,333
Question 6
reporting unit.
years.


Liabilities 1,800,000 1,800,000
2022.

REQUIRED:

Carrying amount of Customer list as of December 31, 2020
Response: P146,667
Feedback:
Cost 220,000
Less amortization for 2020 73,333
Question 7
Goodwill P 200,000

QUESTIONS:

Goodwill
Response: P 0
Feedback: Folder1/AP.3003D_P2.png
Correct answer: P 0
Question 8
Goodwill P 200,000

QUESTIONS:

Operating license
Response: P900,000
Question 9
Goodwill P 200,000

QUESTIONS:

Steam engines
Response: P500,000
Question 10
Goodwill P 200,000

QUESTIONS:

Property – train stations and land
Response: P200,000
Score: 1 out of 1
FAR.15 Cash and cash equivalents

Question 1
Pops Co. established a P3,000 petty cash fund. You found the following items in the fund:
Cash and currency P1,683.80
Expense vouchers 829.80
Advance to salesman 200.00

IOU from employee 300.00

In the entry to replenish the fund, what amount should be debited to Cash Short and Over?
Response: P0
Feedback:
Cash and currency 1,683.80
Expense vouchers 829.80
Advance to salesman 200.00
IOU from employee 300.00
Cash and cash items 3,013.60
Cash accountability 3,000.00
Cash over (short) 13.60
Journal entry to replenish:
Expenses 829.80
Advances to employees (P200+P300) 500.00
Cash short and over 13.60
Cash (P3,000 - P1,683.80) 1,316.20
Correct answer: P0
Question 2
The Ingersoll Co.’s ledger showed a balance in its cash account at December 31, 2020 of P341,125
which was determined to consist of the following:
Petty cash fund P 1,800

Cash per bank statement with a check for P3,000 still outstanding 168,375
Notes receivable in the possession of a collecting agency 12,500
Undeposited receipts, including postdated check for P5,250 and

traveler’s check for P5,000 89,000
Bond sinking fund – cash 63,750
IOUs signed by employees 2,475
Paid vouchers not yet recorded 3,225
Total P341,125

At what amount should “Cash on hand and in bank” be reported on Ingersoll’s balance sheet?
Response: P250,925
Feedback:
Petty cash fund 1,800
Cash in bank:
Cash per bank statement 168,375
Outstanding check (3,000)
Undeposited receipts (P89,000 - P5,250) 83,750 249,125
Cash on hand and in bank 250,925
Question 3
Aguinaldo Corporation had the following transactions in its first year of operations:
Sales (90% collected in the first year) P750,000
Disbursements for costs and expenses 600,000
Purchases of equipment for cash 200,000

Proceeds from issuance of ordinary shares 250,000
Payments on short-term borrowings 25,000
Proceeds from short-term borrowings 50,000
Depreciation on equipment 40,000
Disbursements for income taxes 45,000
Bad debt write-offs 30,000

What is the cash balance at December 31 of the first year?
Response: P105,000
Feedback:
Collections from sales (P750,000 x .9) 675,000
Disbursements for costs and expenses (600,000)
Purchases of equipment for cash (200,000)
Proceeds from issuance of ordinary shares 250,000
Payments on short-term borrowings (25,000)
Proceeds from short-term borrowings 50,000
Disbursements for income taxes 45,000)
Cash balance, Dec. 31 105,000
Question 4
A cash equivalent is a short-term, highly liquid investment that is readily convertible into known
amounts of cash and
Response: Is so near its maturity that it presents insignificant risk of changes in interest rates.
Correct answer: Is so near its maturity that it presents insignificant risk of changes in interest rates.
Question 5
Diversity Corporation's checkbook balance on December 31, 2020, was P800,000. In addition,
Diversity held the following items in its safe on December 31:
Check payable to Diversity Corporation, dated January 2, 2021, not included in

December 31 checkbook balance P200,000
Check payable to Diversity Corporation, deposited December 20, and included in

December 31 checkbook balance, but returned by bank on December 30,

stamped "DAIF." The check was redeposited January 2, 2021, and cleared
January 7 40,000
Check drawn on Diversity Corporation's account, payable to a vendor, dated and

recorded December 31, but not mailed until January 15, 2021 100,000

The proper amount to be shown as cash on Diversity's statement of financial position at December 31,
2020, is
Response: P860,000
Feedback:
Unadjusted balance 800,000
PDC received (properly excluded) -

DAIF check
(40,000)
Unreleased check 100,000
Adjusted cash 860,000
Question 6
The amount reported as "Cash" on a company's balance sheet normally should exclude
Response: Postdated checks that are payable to the company.
Correct answer: Postdated checks that are payable to the company.
Question 7
Which statement is true?
Response: Savings accounts are usually classified as cash on the statement of financial position.
Correct answer: Savings accounts are usually classified as cash on the statement of financial
position.
Question 8
The following items were included as cash in the books of Gotch Co.:
Checking account at Security Bank (P1,200)
Checking account at BPI 5,335
Checking account at Citytrust used for payment of salaries 5,500
Postage stamps 107
Employee’s post-dated check 2,300
I.O.U. from an employee 200
A check marked “DAIF” 1,250
Postal money order 500
Petty cash fund (P324 in expense receipts) 500
Certificate of time deposit with BPI 5,000
A gold ring surrendered as security by a customer who lost his

wallet (at market value) 1,500

The correct amount that should be reported as cash is
Response: P11,511
Feedback:
Checking account at BPI 5,335
Checking account at Citytrust used for payment of salaries 5,500
Postal money order 500

Petty cash fund (P500 - P324) 176
Adjusted cash 11,511
Note: The certificate of time deposit is a 'cash equivalent'.
Question 9
On December 31, 2020, the cash account of Jen Company has a debit balance of P3,500,000. An
analysis of the cash account shows the following details:
Undeposited collections P 60,000
Cash in bank-PCIB checking account 500,000
Cash in bank-PNB (overdraft) (50,000)
Undeposited NSF check received from a customer, dated Dec. 1, 2020 15,000
Undeposited check from a customer, dated January 15, 2021 25,000
Cash in bank-PCIB (fund for payroll) 150,000
Cash in bank-PCIB (savings deposit) 100,000
Cash in bank-PCIB (money market instrument, 90 days) 2,000,000
Cash in foreign bank (restricted) 100,000
IOUs from officers 30,000
Sinking fund cash 450,000
Listed stock held as temporary investment 120,000
P3,500,000

Cash and cash equivalents on Jen’s December 31, 2020 statement of financial position should be
Feedback:
Undeposited collections 60,000
Cash in bank-PCIB checking account 500,000
Cash in bank-PCIB (fund for payroll) 150,000
Cash in bank-PCIB (savings deposit) 100,000
Cash in bank-PCIB (money market instrument, 90 days) 2,000,000
Cash and cash equivalents 2,810,000
Not included:
Cash in bank-PNB (overdraft) - short-term borrowing (current liability)
Undeposited NSF check received from a customer, dated Dec. 1, 2020 - Accounts receivable
Undeposited check from a customer, dated January 15, 2021 - Accounts receivable
Cash in foreign bank (restricted) - Other non-current assets
IOUs from officers - Other receivables
Sinking fund cash - Other non-current investments/assets
Listed stock held as temporary investment - Financial asset at FVTPL
Question 10
Which of the following items should not be included in the Cash caption on the statement of financial
position?
Response: Postage stamps on hand

Correct answer: Postage stamps on hand
Score: 1 out of 1
FAR.16 Bank reconciliation

Question 1
Sandy, Inc. had the following bank reconciliation at March 31:
Balance per bank statement, 3/31 P37,200
Add: Deposit in transit 10,300
47,500
Less: Outstanding checks 12,600
Balance per books, 3/31 P34,900

Data per bank for the month of April follow:
Deposits P42,700
Disbursements 49,700

All reconciling items at March 31 cleared the bank in April. Outstanding checks at April 30 totaled
P5,000. There were no deposits in transit at April 30. What is the cash balance per books at April 30?
Response: P25,200
Feedback:
Balance per bank, 3/31 37,200
Receipts per bank 42,700
Disbursements per bank (49,700)
Outstanding checks, 4/30 (5,000)
Balance per books, 4/30 25,200
Question 2
When preparing a bank reconciliation, bank credits are
Response: Added to the balance per book
Correct answer: Added to the balance per book
Question 3
The bookkeeper of Santa Clara Co. recently prepared the following bank reconciliation:
Santa Clara Co.
Bank Reconciliation
December 31

Balance per bank statement P126,420
Add:
Deposit in transit P8,700
Checkbook printing charge 210
Error made in recording check No. 25

(issued in December)

1,600
NSF check 5,000 15,510
P141,930
Deduct:
Outstanding checks P4,480
Note collected by bank (includes P50

interest)
9,500 13,980
Balance per books P127,950
Santa Clara has P9,100 cash on hand on December 31.

The amount Santa Clara should report as cash on the balance sheet as of December 31 should be
Response: P139,740
Feedback:
Balance per bank 126,420
Deposit in transit 8,700
Outstanding checks (4,480)
Adjusted balance per bank 130,640
Cash on hand 9,100
Total cash 139,740
Question 4
As of June 30, the bank statement of Ang Po Trading had an ending balance of P373,612. The
following data were assembled in the course of reconciling the bank balance:
 The bank erroneously credited Ang Po Trading for P2,150 on June 22.
 During the month, the bank charged back NSF checks amounting to P2,340 of which P800 had
been redeposited by the 25th of June.
 Collection for June 30 totaling P10,330 was deposited the following month.
 Checks outstanding as of June 30 were P30,205.
 Notes collected by the bank for Ang Po Trading were P8,150 and the corresponding bank
charges were P50.

The adjusted bank balance on June 30 is
Response: P351,587
Feedback:
Erroneous bank credit (2,150)
Deposit in transit 10,330

Question 5
The journal entries for a bank reconciliation
Response: May include a debit to Office Expense for bank service charges.
Correct answer: May include a debit to Office Expense for bank service charges.
Question 6
Which of the following is an appropriate reconciling item to the balance per bank in a bank
reconciliation?
Response: Deposit in transit
Correct answer: Deposit in transit
Question 7
Woody Company's accountant is preparing its October bank reconciliation and has collected the
following data:
Per Books Per Bank
Oct. 1 balance P11,600 P10,000
Oct. deposits 24,600 21,200
Oct. checks 27,800 29,000
Note collected (includes 10% interest) - 4,400
Oct. service charge - 20
Oct. 31 balance 8,400 6,580

Additionally, deposits in transit and outstanding checks from September's reconciliation were, P4,400
and P2,800 respectively.

The correct balance for cash at October 31 should be:
Response: P12,780
Feedback:
Deposit in transit, 10/31 (see below) 7,800
Outstanding checks, 10/31 (see below) (1,600)
Deposits in transit, 10/31
Deposits in transit, 9/30 4,400
Deposits per books - October 24,600
Deposits per bank - October (21,200)
7,800
Outstanding checks, 10/31
Outstanding checks, 9/30 2,800
Checks per books - October 27,800
Checks per bank - October (29,000)
1,600
Question 8
In preparing a monthly bank reconciliation, which of the following items would be added to the
balance reported on the bank statement to arrive at the correct cash balance?
Response: Deposit in transit
Correct answer: Deposit in transit
Question 9
Reconciliation of Heaven Company’s bank account at May 31 is:
Balance per bank statement 2,100,000
Deposits in transit 300,000
Checks outstanding ( 30,000)
Correct cash balance 2,370,000

Balance per book 2,372,000
Bank service charge ( 2,000)
Correct cash balance 2,370,000

June data are as follows:
Bank
Total credits P1,620,000
Total debits 2,300,000
Collection by bank (P400,000
Note plus interest) 420,000
NSF check 10,000
Balance 1,420,000
Books
Deposits recorded 1,800,000
Checks recorded 2,360,000
Balance 1,810,000

The deposits in transit on June 30 amount to
Response: P900,000
Feedback:
Deposits per books - June 1,800,000
Deposits per bank - June (P1,620,000 - P420,000) (1,200,000)
Question 10
Part of Tsibog Co.’s unadjusted trial balance at December 31 showed a Cash balance of P17,400. The
balance per bank statement was P12,000 on December 31. Outstanding checks amounted to P6,900.
Interest of P40 was credited to the enterprise's account by the bank during December, but has not yet
been entered on the company’s books.

Assuming no errors exist in the company’s cash balance, deposits in transit at December 31 amount to
Response: P12,340
Feedback:
CM - interest (40)
Deposits in transit (squeeze) 12,340
Balance per books 17,400
Score: 1 out of 1
FAR.17 Trade and other receivables

Question 1
Which of the following should be recorded in Accounts Receivable?
Response: None of these
Correct answer: None of these
Question 2
Which statement is correct regarding revenue recognition in accordance with PFRS 15?
Response: Revenue is recognized as control is passed, either over time or at a point in time.
Correct answer: Revenue is recognized as control is passed, either over time or at a point in time.
Question 3
Receivables from officers, directors and employees for goods sold or services rendered in the ordinary
course of business
Response: Are considered current if proper control is exercised in granting credit and the accounts
are currently collectible
Correct answer: Are considered current if proper control is exercised in granting credit and the
accounts are currently collectible
Question 4
A company, which has an adequate amount in its Allowance for Doubtful Accounts, writes off as
uncollectible an accounts receivable from a bankrupt customer. This action will
Response: Have no effect on total current assets.

Correct answer: Have no effect on total current assets.
Question 5
Tyson, Inc. reported the following balances (after adjustment) at the end of 2020 and 2019.
12/31/20 12/31/19
Total accounts receivable P105,000 P96,000
Net accounts receivable 102,000 94,500

During 2020, Tyson wrote off customer accounts totaling P3,200 and collected P800 on accounts
written off in previous years. Tyson's doubtful accounts expense for the year ending December 31,
2020 is

Response: P3,900
Feedback:
Allowance for D.A., 12/31/20 (P105,000 - P102,000) 3,000
Write-off 3,200
Allowance for D.A., 12/31/19 (P96,000 - P94,500) (1,500)
Recovery of accounts written off (800)
Doubtful accounts expense 3,900
Note: This solution is based on 'work back' from the ending balance of Allowance
for D.A. using T-account.
Question 6
Cabugao Company began operations on January 1, 2019. On December 31, 2019, Cabugao provided
for doubtful accounts expense based on 5% of annual credit sales. On January 1, 2020, Cabugao
changed its method of determining its allowance for doubtful accounts to the percentage of accounts
receivable. The rate of doubtful accounts was determined to be 15% of the ending accounts
receivable balance. In addition, Cabugao wrote off all accounts receivable that were over 1 year old.
The following additional information relate to the years ended December 31, 2019 and 2020.

2020 2019
Credit sales P8,000,000 P6,000,000
Collections (including collections on recovery) 6,950,000 4,500,000
Accounts written off 70,000 None
Recovery in accounts previously written off 20,000 None

How much is the doubtful accounts expense for the year ended December 31, 2020?
Response: P125,000
Feedback:
Allowance for D.A., 12/31/20 (see below) 375,000
Write-off 70,000
Allowance for D.A., 12/31/19 (P6M x .05) (300,000)
Recovery of accounts written off (20,000)
Doubtful accounts expense 125,000
Note: This solution is based on 'work back' from the ending balance of Allowance for D.A.
using T-account.
Allowance for D.A., 12/31/20:
Credit sales (2019 and 2020) 14,000,000
Collections, including recovery (2019 and 2020) (11,450,000)
Write-off (70,000)
Recovery of accounts written off 20,000
Accounts receivable, 12/31/20 2,500,000
x D.A. rate 0.15
375,000
Question 7
When examining the accounts of Medved Company, you ascertain that balances relating to both
receivables and payables are included in a single controlling account called receivables control that has
a debit balance of P4,850,000. An analysis of the composition of this account revealed the following:
Debit Credit
Account receivable – customers P7,800,000
Accounts receivable – officers 500,000
Debit balances – creditors 300,000
Postdated checks from customers 400,000
Subscriptions receivable 800,000
Accounts payable for merchandise P4,500,000
Credit balances in customers’ accounts 200,000
Cash received in advance from

customers for goods not yet shipped 100,000
Expected bad debts 150,000

After further analysis of the aged accounts receivable, you determined that the allowance for doubtful
accounts should be P200,000.

How much should be reported as trade and other receivables at December 31, 2020?

Feedback:
Account receivable – customers 7,800,000
Accounts receivable – officers 500,000
Debit balances – creditors 300,000
Postdated checks from customers 400,000
Allowance for uncollectible accounts (per aging) (200,000)
Trade and other receivables 8,800,000

Notes:
Debit balances – creditors - May be presented also as other current assets
Subscriptions receivable - If silent, equity deduction
Question 8
When you use an aging schedule approach for estimating uncollectible accounts:
Response: Bad debts expense is measured indirectly, and the allowance for uncollectible accounts
balance is measured directly.
Correct answer: Bad debts expense is measured indirectly, and the allowance for uncollectible
accounts balance is measured directly.
Question 9
On the December 31, 2020 statement of financial position of Mann Company, the receivables
consisted of the following:
Trade accounts receivable P 93,000
Allowance for uncollectible accounts ( 2,000)
Claim against shipper for goods lost in transit last November 2020 3,000
Selling price of unsold goods sent by Mann on consignment at 30% of

cost (not included in Mann's ending inventory) 26,000
Security deposit on the lease of a warehouse 30,000
Total P150,000

How much should be reported as trade and other receivables in Mann's December 31, 2020 statement
of financial position?
Response: P94,000
Feedback:
Trade accounts receivable 93,000

Allowance for uncollectible accounts (2,000)
Claim against shipper 3,000
Trade and other receivables 94,000
Question 10
Don’t Let Me Down, Inc. estimates its doubtful accounts by aging its accounts receivable. The aging
schedule of accounts receivable at December 31, 2020 is presented below:
Age of accounts Amount
0 – 30 days P1,264,800
31 – 60 days 691,500
61 – 90 days 288,600
91 – 120 days 114,975
over 120 days 59,100
P2,418,975
Don’t Let Me Down, Inc.’s uncollectible accounts experience for the past 5 years are summarized in
the following schedule:
0– 31 - 61 – 91 – Over
A/R Balance 30 60 90 120 120
Year Dec. 31 Days Days Days Days Days
2019 P1,968,750 0.3% 1.8% 12% 38% 65%
2018 1,500,000 0.5% 1.6% 11% 41% 70%
2017 697,500 0.2% 1.5% 9% 50% 69%
2016 1,224,000 0.4% 1.7% 10.2% 47% 81%
2015 1,865,500 0.9% 2.0% 9.7% 33% 95%

The balance of the allowance for doubtful accounts at December 31, 2020 (before adjustment) is
P126,750.

The necessary adjusting journal entry to adjust the allowance for doubtful accounts as of December
31, 2020 would include:

Response: A credit to allow. for doubtful accounts of P13,895.
Feedback:
Allow. for
AR balance D.A. Rate*
D.A.
0 to 30 days 1,264,800 0.46% 5,818
31 to 60 days 691,500 1.72% 11,894
61 to 90 days 288,600 10.38% 29,957
91 to 120 days 114,975 41.80% 48,060
Over 120 days 59,100 76.00% 44,916
Total 2,418,975 140,645
Computation of average D.A. rate:
0 to 30 days 31 to 60 days 61 to 90 days 91 to 120 days Over 120 days
2015 0.30% 1.80% 12.00% 38.00% 65.00%
2016 0.50% 1.60% 11.00% 41.00% 70.00%
2017 0.20% 1.50% 9.00% 50.00% 69.00%
2018 0.40% 1.70% 10.20% 47.00% 81.00%
2019 0.90% 2.00% 9.70% 33.00% 95.00%
Total 2.30% 8.60% 51.90% 209.00% 380.00%

Divide by 5 5
5 5 5 5
Average 0.46% 1.72% 10.38% 41.80% 76.00%

Adjusting entry:
Doubtful accounts expense (P140,645 - P126,750) 13,895
Allowance for doubtful accounts 13,895
Correct answer: A credit to allow. for doubtful accounts of P13,895.

Score: 1 out of 1
FAR.18 Loans and receivables - long term

Question 1
Which of the following risk is most relevant to notes receivable?
Response: The risk that one party to a financial instrument will cause a financial loss for the other
party by failing to discharge an obligation.
Correct answer: The risk that one party to a financial instrument will cause a financial loss for the
other party by failing to discharge an obligation.
Question 2
Which statement is correct regarding the general approach of applying the impairment requirements
of PFRS 9?
Response: Even if the credit risk increases significantly and the resulting credit quality is not
considered to be low credit risk, interest revenue is still calculated based on the gross carrying amount
of the financial asset.
Correct answer: Even if the credit risk increases significantly and the resulting credit quality is not
considered to be low credit risk, interest revenue is still calculated based on the gross carrying amount
of the financial asset.
Question 3
On December 31, 2020, Wolfgang Corporation sold for P50,000 an old machine having an original cost
of P90,000 and a carrying amount of P40,000. The terms of the sale were as follows: 1) P10,000
down payment; and 2) P20,000 payable on December 31 each of the next two years.

The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of
transaction.

How much should be recognized as gain on sale of machine?

Response: P5,182
Feedback:
Down payment 10,000
PV of remaining payments (P20,000 x 1.7591) 35,182
PV of all payments (Proceeds) 45,182
Carrying amount of machine (40,000)
Gain (loss) on sale of machine 5,182
Question 4
On December 31, 2020, Wolfgang Corporation sold for P50,000 an old machine having an original cost
of P90,000 and a carrying amount of P40,000. The terms of the sale were as follows: 1) P10,000
down payment; and 2) P20,000 payable on December 31 each of the next two years.

The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of
transaction.

How much should be recognized as interest income in 2021 related to above transaction?
Response: P3,166
Feedback:
Carrying amount of NR, 12/31/20 (P20,000 x 1.7591) 35,182
x EIR 0.09
Interest income - 2021 3,166
Question 5
Boy Company sold a machine to Golden Corporation on January 1, 2020, for which the cash sales
price was P379,100. Golden entered into an installment sales contract with Boy, calling for annual
payments of P100,000 for five years, including interest at 10%. The first payment was due on
December 31, 2020. How much interest income should be recorded by Boy in 2021?
Response: P31,701
Feedback:
Payment EI (10%) Decrease in CA CA
1/1/20 379,100
12/31/20 100,000 37,910 62,090 317,010
12/31/21 100,000 31,701 68,299 248,711
Question 6
On January 1, 2020, Boy Company sold a machine in the ordinary course of business to Bawang
Company. Bawang signed a non-interest-bearing note requiring payment of P30,000 annually for
seven years. The first payment was made on January 1, 2020. The prevailing rate of interest for this
type of note at date of issuance was 10%. Information on present value factors is as follows:

Present value of
Present value ordinary annuity
Periods of 1 at 10% of 1 at 10%
6 .56 4.36
7 .51 4.87

Boy should record the sale in January 2020 at
Response: P160,800
Feedback:
First payment 30,000
PV of remaining payments (P30,000 x 4.36) 130,800
PV of all payments (Sales revenue) 160,800
Question 7
On December 31, 2018, Quite Chubby borrowed from Piggy Bank, signing a 5-year non-interest-
bearing note for P100,000. The note was issued to yield 10% interest. Unfortunately, during 2020,
Chubby began to experience financial difficulty. As a result, at December 31, 2020, Piggy Bank
determined that it was probable that it would receive back only P75,000 at maturity. The market rate
of interest on loans of this nature is now 11%. How much should be recognized as impairment loss in
2020?
Response: P18,782
Feedback:
PV of contractual cash flows/CA, 12/31/20 (P100,000 x 0.7513) 75,130
PV of expected cash flows (P75,000 x 0.7513) (56,348)
Loss allowance 18,782
Question 8
On December 1, 2020, Money Co. gave Home Co. a P200,000, 11% loan. Money paid proceeds of
P194,000 after the deduction of a P6,000 nonrefundable loan origination fee. Principal and interest
are due in 60 monthly installments of P4,310, beginning January 1, 2021. The repayments yield an
effective interest rate of 11% at a present value of P200,000 and 12.4% at a present value of
P194,000. What amount of income from this loan should Money report in its 2020 profit or loss?
Response: P2,005
Feedback:
Interest income (P194,000 x .124 x 1/12) 2,005
Question 9
Payla Company borrowed from Gold Bank under a 10-year loan in the amount of P5,000,000 with
interest rate of 6%. Payments are due monthly and are computed to be P55,500. Gold Bank incurs
P200,000 of direct loan origination cost and P50,000 of indirect loan origination cost. In addition,
Gold Bank charges Payla a 5-point nonrefundable loan origination fee. Gold Bank, the lender, has
carrying amount of
Feedback:
Principal 5,000,000

Direct loan origination cost 200,000
Origination fee (P5M x .05) (250,000)
Initial carrying amount 4,950,000
Question 10
On January 1, 2020, Athens Company sold equipment with a carrying amount of P500,000 to Greece
Company. As payment, Greece gave Athens Company an P800,000 note. The note bears an interest
rate of 6% and is to be repaid in four annual installments of P200,000 (plus interest on the
outstanding balance). The first payment was received on December 31, 2020. The market price of
the equipment is not reliably determinable. The prevailing rate of interest for notes of this type is
12%. The total income to be recognized in 2020 profit or loss is
Response: P288,197
Feedback:
Year Principal Interest Total PVF@12% PV, 1/1/20
2020 200,000 48,000 248,000 0.8929 221,439
2021 200,000 36,000 236,000 0.7972 188,139
2022 200,000 24,000 224,000 0.7118 159,443
2023 200,000 12,000 212,000 0.6355 134,726
800,000 703,747
PV of cash flows 703,747
Carrying amount (500,000)
Gain on sale 203,747
Interest income (P703,747 x .12) 84,450
Total income for 2020 288,197
Score: 1 out of 1
FAR.19 Generating cash from receivables

Question 1
Which of the following is true when accounts receivable are factored without recourse?
Response: The factor assumes the risk of collectibility and absorbs any credit losses in collecting the
receivables.
Correct answer: The factor assumes the risk of collectibility and absorbs any credit losses in
collecting the receivables.
Question 2
Otter Company sold receivables with recourse for P530,000. Otter received P500,000 cash
immediately from the factor. The remaining P30,000 will be received once the factor verifies that
none of the receivables is in dispute. Control was surrendered by Otter. The receivables had a face
amount of P600,000; Otter had previously established an Allowance for Bad Debts of P25,000 in
connection with these receivables. The fair value of the recourse obligation is P13,000. The loss on
factoring to be recognized by Otter Company is
Response: P58,000
Feedback:
Cash received 500,000
Receivable from factor 30,000
Fair value of recourse obligation (13,000)
Consideration received and receivable, net 517,000
CA of receivables (P600T - P25T) (575,000)
Gain (loss) on sale of receivables (58,000)
Question 3
If an entity neither transfers nor retains substantially all the risks and rewards of ownership of a
transferred asset, and retains control of the transferred asset, the entity continues to recognize the
transferred asset to the extent of its continuing involvement. The extent of the entity’s continuing
involvement in the transferred asset is the extent to which it is exposed to changes in the value of the
transferred asset. When the entity’s continuing involvement takes the form of guaranteeing the
transferred asset, the extent of the entity’s continuing involvement is
Response: The lower of a and b.
Correct answer: The lower of a and b.
Question 4
Examples of when an entity has transferred substantially all the risks and rewards of ownership of
transferred financial asset do not include
Response: A sale of a financial asset together with a total return swap that transfers the market risk
exposure back to the entity.
Correct answer: A sale of a financial asset together with a total return swap that transfers the
market risk exposure back to the entity.
Question 5
On its second year of operations, Victorias Co. thought of expanding its business. In order to
generate additional cash necessary for this expansion, the company on September 1, factored
P200,000 of accounts receivable to Escalante Finance Co. Factoring fee was 10% of the receivables
purchased. The Finance Co. withheld 5% of the purchase price as protection against sales returns and
allowances. On November 2, accounts receivable amounting to P500,000 was assigned to La Carlota
Bank as collateral on P300,000, 20% annual interest rate loan. A 3% finance charge was deducted in
advance. As of December 31, data relating to accounts receivable follows:
 Allowance for doubtful accounts – P6,700 (credit)

 Estimated uncollectibles – 2% of accounts receivable
 Accounts receivable excluding factored and assigned accounts – P95,000
 Collections on assigned accounts – none

The total cash generated from factoring and assigning the accounts receivable was
Response: P461,000
Feedback:
AR factored 200,000
Factoring fee (P200,000 x .1) (20,000)
Factor's holdback (10,000)
Proceeds from factoring 170,000
Proceeds from assignment (P300,000 x .97) 291,000
Total cash generated 461,000

Question 6
On September 30, 2020, Dumalneg Company discounted at the bank a customer’s P5,000,000 6-
month 10% note receivable dated June 30, 2020. The bank discounted the note at 12%. The
proceeds from this discounted note amounted to
Feedback:
Face value 5,000,000
Interest to maturity (P5M x .1 x 6/12) 250,000
Maturity value 5,250,000
Discount (P5,250,000 x .12 x 3/12) (157,500)
Proceeds 5,092,500
Question 7
On January 1, Binal Corp. assigned P500,000 of accounts receivable to the Bagan Finance Company
in a transaction accounted for as a secured borrowing. Binal gave a 14% note for P450,000
representing 90% of the assigned accounts and received proceeds of P432,000 after deduction of a
4% fee. On February 1, Binal remitted P80,000 to Bagan, including interest for 1 month on the
unpaid balance. Binal’s equity in the assigned accounts receivable after the remittance is
Response: P44,750
Feedback:
Accounts receivable assigned:
Original 500,000
(80,000
Collection 420,000
)
Notes payable:
Original 450,000

Less principal repayment:
Total payment 80,000
Interest (P450,000 x .14 x 1/12) (5,250) 74,750 375,250
Equity in AR-assigned 44,750
Question 8
When accounts receivable are pledged, in addition to the disclosures required, total receivables will
Response: Remain the same.
Correct answer: Remain the same.
Question 9
Which of the following is a method to generate cash from accounts receivables?
Response:
Assignment Factoring
Yes Yes
Correct answer:
Assignment Factoring
Yes Yes
Question 10
On December 1, Caoayan Company assigned on a nonnotification basis accounts receivable of
P5,000,000 to a bank in consideration for a loan of 90% of the receivables less a 5% service fee on
the accounts assigned. Caoayan signed a note for the bank loan. On December 31, Caoayan collected
assigned accounts of P3,000,000 less discount of P200,000. Caoayan remitted the collections to the
bank in partial payment for the loan. The bank applied first the collection to the interest and the
balance to the principal. The agreed interest is 1% per month on the loan balance.

In its December 31 statement of financial position, Caoayan should report note payable as a current
liability at
Feedback:
Original note payable (P5M x .9) 4,500,000
Less principal repayment:
Total payment (P3,000,000 - P200,000) 2,800,000
Interest (P4.5M x .01) (45,000) 2,755,000
Note payable, 12/31 1,745,000
Score: 1 out of 1
AP.04 Audit of Cash and Cash Equivalents

Question 1
You are assigned to audit the cash accounts of Foul Corporation for the fiscal year ended June 30,
2021. The following is an excerpt of the company’s trial balance as of June 30, related to the
company’s cash accounts:
Petty cash fund, imprest balance P 120,000
Cash in bank, Metrobank 1,631,730

Audit notes:
a. You rendered a cash count on the company’s petty cash fund on June 30. The custodian presented
to you the following:
Currencies and coins P37,620
A disbursement check payable to the custodian 46,800
An officer’s personal check accommodated by the fund 12,000
Manager’s check marked NSF 6,000
Petty cash expense vouchers:
6/20 Transportation 4,500
6/24 Office repairs 2,700
6/27 Miscellaneous 6,300
Unused postage stamps 1,500

An enveloped marked “collections for charity” with list of
names and corresponding amounts contributed. There
is no money inside the envelope.
7,500
b. The bank reconciliation statement for the month of May included the following information:

Balance per general ledger P 980,490
Note collected by the bank in May 375,000
Interest on the note receivable in May 37,500
Bank service charge in May (16,800)
Customer NSF check (75,000)
Adjusted balance P1,302,190

Balance per statement in May P1,402,500
Bank charge error in May 26,700

The May book reconciling items were recorded in the books in June while the bank charge error in
May was automatically corrected by the bank in June. The bank collected another P300,000 note
receivable in June with a P30,000 interest on the company’s behalf. Bank service charge for June
was P24,300. The company erroneously recorded a disbursement check amounting to P168,000 as
P195,000 in June. The error is yet to be corrected. The bank erroneously credited the company
for P63,000 representing a deposit of Fool Corporation. The bank discovered and corrected the
error in June.

Total bank credits and debits appearing in the June bank statement were at P8,011,800 and
P7,325,760 respectively. Moreover, total receipts per the general ledger were at P7,977,330.

QUESTION:
How much is the June deposits in transit?
Response: P140,100
Feedback:
Add deposits per books - June
Receipts per books - June 7,977,330
Note collected by the bank in May (375,000)
Interest on the note receivable in May (37,500) 7,564,830
Total to be credited by bank in June 7,732,200
Less deposits credited by bank - June
Receipts (credits) per bank - June 8,011,800
Bank charge error in May (26,700)
Note collected by the bank in June (300,000)
Interest on the note receivable in June (30,000)
Bank credit error in June (63,000) 7,592,100

Question 2
In connection with your examination, the MQM Company presented to you the following information
regarding its Cash in Bank account for the month of December:
a. Balances per bank statements: November 30, P215,600, and December 31, P230,400.
b. Balances of cash in bank account in company’s books: November 30, P165,450, and December 31,
P226,800.
c. Total receipts per books were P2,221,900 of which P12,100 was paid in cash to a creditor on
December 24.
d. Total charges in the bank statement during December were P2,189,700.
e. Undeposited receipts were: November 30, P90,600 and December 31, P101,200.
f. Outstanding checks were: November 30, P26,750, and December 31, P19,300, of which a check for
P5,000 was certified by the bank on December 26.
g. NSF checks returned, recorded as reduction of cash receipts, were:
- Returned by bank on December, recorded also in December, P10,400.
- Returned by bank on December but recorded in January, P8,600
h. Collections by bank not recorded by Company were P121,500 in November and P116,400 in
December.
i. Bank service charges not entered in company’s books were: November 30, P7,500 and December
31, P4,200.
j. A check for P9,500 of QMQ Company was charged to MQM Company in error.
k. A check drawn for P8,400 was erroneously entered in the books as P4,800.

QUESTIONS:

Based on the above and the result of your audit, answer the following:

How much is the adjusted cash balance as of December 31?
Response: P326,800
Question 3
Which of the following would normally be discovered as part of the audit of the bank reconciliation?
Response: Failure to include a deposit in transit on the bank reconciliation
Correct answer: Failure to include a deposit in transit on the bank reconciliation
Question 4
P226,800.
December 24.
December.
31, P4,200.

QUESTIONS:


How much is the adjusted cash balance as of November 30?
Response: P279,450
Question 5

Audit notes:


7,500



error in June.


QUESTION:
What is the correct balance of the cash in bank account as of June 30, 2021?
Feedback:
Balance per bank, 5/31 1,402,500
Receipts (credits) per bank - June 8,011,800
Disbursements (debits) per bank - June (7,325,760)
Balance per bank, 6/30 2,088,540
Outstanding checks, 6/30 (264,210)
Adjusted balance per bank, 6/30 1,964,430
Balance per books, 6/30 1,631,730
Note collected by the bank in June 300,000
Interest on the note receivable in June 30,000
Bank service charge - June (24,300)
Book disbursement error - June (P195,000 - P168,000) 27,000
Adjusted balance per books, 6/30 1,964,430
-
Question 6
P226,800.
December 24.
December.
31, P4,200.

QUESTIONS:


How much is the adjusted book disbursements for December?
Question 7
P226,800.
December 24.
December.
31, P4,200.

QUESTIONS:


How much is the adjusted book receipts for December?
Question 8

Audit notes:

7,500



error in June.


QUESTION:
How much is the June outstanding checks?
Response: P264,210
Feedback:
Add checks per books - June
Balance per books, 5/31 980,490
Receipts per books - June 7,977,330
Balance per books, 6/30 (1,631,730)
Disbursements per books - June 7,326,090
Bank service charge - May (16,800)
Customer NSF check - June (75,000)
Book disbursement error - June (P195,000 - P168,000) (27,000) 7,207,290
Total to be paid by bank in June 7,502,670
Less checks paid by bank - June
Disbursements (debits) per bank - June 7,325,760
Bank service charge - June (24,300)

Bank credit error in June (corrected also in June) (63,000) 7,238,460
Question 9

Audit notes:

7,500



error in June.


QUESTION:
What is the petty cash shortage as of June 30, 2021?
Response: P11,580
Feedback:
Cash and cash items:
Currencies and coins (P37,620 - P7500) 30,120
Replenishment check 46,800

Accommodated check 12,000
Petty cash vouchers 13,500
108,420
Cash accountability:
Cash over (short) (11,580)
Notes:
1. Collections for charity - assumed to be included in the currencies and coins
2. Disbursement check payable to the custodian - assumed as replenishment check
3. Officer’s personal check accommodated - change in composition (from currencies and coins to check)
4. Manager’s check marked NSF - receivable from manager
5. Unused postage stamps - the purchase is assumed to be included already in the vouchers

Question 10
Which statement is true regarding audit of cash?
Response: The auditor is responsible for auditing the necessary disclosures when material lines of
credit and compensating balance arrangements have been made by the client with a lender.
Correct answer: The auditor is responsible for auditing the necessary disclosures when material
lines of credit and compensating balance arrangements have been made by the client with a lender.
Score: 1 out of 1
AP.05 Audit of Receivables

Question 1
An aging analysis of accounts receivable would provide an indication as to the
Response: Collectibility of the accounts.
Correct answer: Collectibility of the accounts.
Question 2
The Vigan Company included the following in its notes receivable as of December 31, 2020:
Note receivable from sale of land P 880,000
Note receivable from consultation 1,200,000
Note receivable from sale of equipment 1,600,000
In connection with your audit, you were able to gather the following transactions during 2020 and
other information pertaining to the company’s notes receivable:

 On January 1, 2020, Vigan Company sold a tract of land. The land, purchased 10 years ago,
was carried on Vigan Company’s books at a value of P500,000. Vigan received a noninterest-
bearing note for P880,000. The note is due on December 31, 2021. There is no readily
available market value for the land, but the current market rate of interest for comparable
notes is 10%.

 On January 1, 2020, Vigan Company finished consultation services and accepted in exchange
a promissory note with a face value of P1,200,000, a due date of December 31, 2022, and a
stated rate of 5%, with interest receivable at the end of each year. The fair value of the
services 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 10%.

 On January 1, 2020, Vigan Company sold equipment with a carrying amount of P1,600,000 to
X Company. As payment, X gave Vigan Company a P2,400,000 note. The note bears an
interest rate of 4% and is to be repaid in three annual installments of P800,000 (plus interest
on the outstanding balance). The first payment was received on December 31, 2020. The
market price of the equipment is not reliably determinable. The prevailing rate of interest for
notes of this type is 14%.
QUESTIONS:

Based on the above and the result of your audit, answer the following: (Round off present value
factors to four decimal places and final answers to nearest hundred)

The current portion of long-term notes receivable as of December 31, 2020 is
Feedback:
NR from sale of land (total amount due within 12 months) 799,955
NR from consultation services -
NR from sale of equipment (P1,398,158 - P729,900) 668,258
Current portion long-term notes receivable, Dec. 31, 2020 1,468,213
Question 3
Professional Company produces paints and related products for sale to the construction industry
throughout Metro Manila. While sales have remained relatively stable despite a decline in the amount
of new construction, there has been a noticeable change in the timeliness with which the company’s
customers are paying their bills.

The company sells its products on payment terms of 2/10, n/30. In the past, over 75 percent of the
credit customers have taken advantage of the discount by paying within 10 days of the invoice date.
During the year ended December 31, 2020, the number of customers taking the full 30 days to pay
has increased. Current indications are that less than 60% of the customers are now taking the
discount. Uncollectible accounts as a percentage of total credit sales have risen from the 1.5%
provided in the past years to 4% in the current year.
In response to your request for more information on the deterioration of accounts receivable
collections, the company’s controller has prepared the following report:

Professional Company
Accounts Receivable Collections
December 31, 2020

The fact that some credit accounts will prove uncollectible is normal, and annual bad debt
write-offs had been 1.5% of total credit sales for many years. However, during the year 2020,
this percentage increased to 4%. The accounts receivable balance is P1,500,000, and the
condition of this balance in terms of age and probability of collection is shown below:

Proportion to total Age of accounts Probability of collection
64% 1 – 10 days 99.0%

18% 11 – 30 days 97.5%
Past due 31 – 60
8% 95.0%
days
Past due 61 – 120

5% 80.0%
days
Past due 121 –

3% 65.0%
180 days
Past due over 180

2% 20.0%
days

At the beginning of the year, the Allowance for Doubtful Accounts had a credit balance of
P27,300. The company has provided for a monthly bad debt expense accrual during the year
based on the assumption that 4% of total credit sales will be uncollectible. Total credit sales
for the year 2020 amounted to P8,000,000, and write-offs of uncollectible accounts during the
year totaled P292,500.
QUESTIONS:
Based on the foregoing, answer the following:
The necessary adjusting journal entry to adjust the allowance for doubtful accounts as of December
31, 2020 would include a credit to allowance for doubtful accounts of:
Response: P22,300
Feedback:
(Debit) Doubtful accounts expense 22,300.00
(Credit) Allowance for doubtful accounts 22,300.00
Allowance for doubtful accounts, 1/1 27,300
Add provisions (P8,000,000 x 4%) 320,000
Total 347,300
Less accounts written-off 292,500
Balance before adjustment 54,800
Required allowance (see previous question) 77,100
Additional required allowance for doubtful accounts 22,300

Question 4

notes is 10%.


QUESTIONS:


The non-current notes receivable as of December 31, 2020 is
Feedback: Folder1/AP.3005D_P2.png
Question 5

notes is 10%.


QUESTIONS:


The interest income to be recognized in 2020 is
Response: P459,500
Feedback:
NR from sale of land 72,723
NR from consultation services 105,077
NR from sale of equipment 281,739
Interest income in 2020 459,539
Question 6
Which account balance is most likely to be misstated if an aging of accounts receivable is not
performed?
Response: Allowance for bad debts

Correct answer: Allowance for bad debts
Question 7
Professional Company produces paints and related products for sale to the construction industry
throughout Metro Manila. While sales have remained relatively stable despite a decline in the amount
of new construction, there has been a noticeable change in the timeliness with which the company’s
customers are paying their bills.

The company sells its products on payment terms of 2/10, n/30. In the past, over 75 percent of the
credit customers have taken advantage of the discount by paying within 10 days of the invoice date.
During the year ended December 31, 2020, the number of customers taking the full 30 days to pay
has increased. Current indications are that less than 60% of the customers are now taking the
discount. Uncollectible accounts as a percentage of total credit sales have risen from the 1.5%
provided in the past years to 4% in the current year.
In response to your request for more information on the deterioration of accounts receivable
collections, the company’s controller has prepared the following report:

Professional Company
Accounts Receivable Collections
December 31, 2020

The fact that some credit accounts will prove uncollectible is normal, and annual bad debt
write-offs had been 1.5% of total credit sales for many years. However, during the year 2020,
this percentage increased to 4%. The accounts receivable balance is P1,500,000, and the
condition of this balance in terms of age and probability of collection is shown below:

Proportion to total Age of accounts Probability of collection
64% 1 – 10 days 99.0%
18% 11 – 30 days 97.5%
Past due 31 – 60
8% 95.0%
days
Past due 61 – 120

5% 80.0%
days
Past due 121 –

3% 65.0%
180 days
Past due over 180

2% 20.0%
days

At the beginning of the year, the Allowance for Doubtful Accounts had a credit balance of
P27,300. The company has provided for a monthly bad debt expense accrual during the year
based on the assumption that 4% of total credit sales will be uncollectible. Total credit sales
for the year 2020 amounted to P8,000,000, and write-offs of uncollectible accounts during the
year totaled P292,500.
QUESTIONS:
Based on the foregoing, answer the following:
How much is the adjusted balance of the allowance for doubtful accounts as of December 31, 2020?
Response: P 77,100
Feedback:
Category Aging ratio AR Balance Rate Allowance
1 – 10 days 64% 960,000 1.00% 9,600
11 – 30 days 18% 270,000 2.50% 6,750
31 – 60 days 8% 120,000 5.00% 6,000
61 – 120 days 5% 75,000 20.00% 15,000
121 – 180 days 3% 45,000 35.00% 15,750
over 180 days 2% 30,000 80.00% 24,000

100% 1,500,000 77,100

Question 8

notes is 10%.


QUESTIONS:


The gain on sale of equipment that should be recognized in 2020 is
Response: P412,400
Feedback:
PV of consideration (see computation below) 2,012,419
Carrying amount of equipment (1,600,000)
Year Principal Interest Total PVF PV, 1/1/20
2020 800,000 96,000 896,000 0.8772 785,971
2021 800,000 64,000 864,000 0.7695 664,848
2022 800,000 32,000 832,000 0.6750 561,600
2,400,000 2,012,419
Question 9

notes is 10%.


QUESTIONS:


The consultation service fee revenue that should be recognized in 2020 is
Feedback:
PV of Principal (P1,200,000 x 0.7513) 901,560
PV of Interest (P1,200,000 x 5% x 2.4869) 149,214
Consultation service fee revenue 1,050,774
Question 10
An auditor selects a sample from the file of shipping documents to determine whether invoices were
prepared. This test is performed to satisfy the audit objective of
Response: Completeness
Correct answer: Completeness
Score: 1 out of 1
FAR.20 Investments in debt instruments

Question 1
On January 1, 2020, Choson Corporation purchased P4,000,000 10% bonds for
P3,711,520. These bonds are held in a business model whose objective is achieved by
both collecting contractual cash flows and selling financial assets. The bonds were
purchased to yield 12%. Interest is payable annually every December 31. The bonds
mature on December 31, 2024. On December 31, 2020 the bonds were selling at 99.
On December 31, 2021, Choson sold P2,000,000 face value bonds at 101, which is the
fair value of the bonds on that date, plus accrued interest.

The gain on sale of the bonds on December 31, 2021 is
Response: P116,135
Feedback:
Sales proceeds (P2M x 1.01) 2,020,000
Amortized cost, 12/31/21 (P3,807,730 x 1/2) 1,903,865

Question 2
On July 1, 2020, Morals Corp. acquired P4,000,000 face value of T Corporation bonds
with a nominal rate of interest of 4%. The bonds mature on July 1, 2025 and pay
interest semi-annually each July 1 and January 1, with the first interest payment due on
January 1, 2021. The bonds are classified as FA@AC. At the date of issuance the
bonds had a market rate of interest of 6%. The entity incurred transaction costs of 1%
of the purchase price. On December 31, 2020, the market value of the bonds was
P3,700,000. The amount to be recognized in 2020 profit or loss related to the bond
investment is
Response: P106,797
Feedback:
PVF at 3%, 10

Cash flows Purchase price
periods
Principal 4,000,000 0.7441 2,976,400
Interest 80,000 8.5302 682,416

3,658,816
Initial carrying amount (P3,658,816 x 1.01) 3,695,404
Interest income - 20120(P3,695,404 x .0289) 106,797
PVF at 2%, 10

periods
Principal 4,000,000 0.8203 3,281,393
Interest 80,000 8.9826 718,607
4,000,000
304,596
341,184
0.89
PVF at 2.89%,
10 periods
Principal 4,000,000 0.7521 3,008,400
Interest 80,000 8.5783 686,264
3,694,664

Question 3
On April 1, 2020, Saxe, Inc. purchased P2,000,000 face value, 9%, Treasury Notes for
P1,985,000, including accrued interest of P45,000. The notes mature on July 1, 2021,
and pay interest semiannually on January 1 and July 1. Saxe uses the straight-line
method of amortization. If the notes are classified as FA@AC, the carrying amount of
this investment in the company’s October 31, 2020 statement of financial position
should be
Feedback:
Carrying amount, 4/1/20 (P1,985,000 - P45,000) 1,940,000
Discount amortization, 4/1/20 to 10/31/20
(P60,000 x 7/15) 28,000
Carrying amount, 10/31/20 1,968,000

Question 4
The Polythene Pam Company purchases P2,000,000 of bonds. The asset has been
designated as one at fair value through profit and loss.
One year later, 10% of the bonds are sold for P400,000. Total cumulative gains
previously recognized in Polythene Pam's financial statements in respect of the asset are
P100,000.
What is the amount of the gain on disposal to be recognized in profit or loss?
Response: P190,000
Feedback:
Sales proceeds 400,000
Carrying amount of investment sold
[(P2,000,000 + P100,000) x .1] (210,000)
Gain on disposal 190,000

Question 5
The fair value of debt securities not regularly traded can be most reasonably approximated by:
Response: Calculating the discounted present value of the principal and interest payments.
Correct answer: Calculating the discounted present value of the principal and interest payments.
Question 6
On January 1, 2020, Alexander Corporation purchased P1,000,000 10% bonds for
P927,880 (including broker’s commission of P20,000). Alexander classified the bonds
as FA@AC. The bonds were purchased to yield 12%. Interest is payable annually
every December 31. The bonds mature on December 31, 2024. On December 31,
2020 the bonds were selling at 99. How much is the carrying amount the investment in
bonds on December 31, 2020?
Response: P939,230
Feedback:
Cash flow PVF@12% PV, 12/31/20
Principal 1,000,000 0.6355 635,500
Interest 100,000 3.0373 303,730
939,230

Question 7
On January 1, 2020, Choson Corporation purchased P4,000,000 10% bonds for
P3,711,520. These bonds are held in a business model whose objective is achieved by
both collecting contractual cash flows and selling financial assets. The bonds were
purchased to yield 12%. Interest is payable annually every December 31. The bonds
mature on December 31, 2024. On December 31, 2020 the bonds were selling at 99.
On December 31, 2021, Choson sold P2,000,000 face value bonds at 101, which is the
fair value of the bonds on that date, plus accrued interest.

The unrealized gain to be recognized as a separate component of equity on December
31, 2020 is
Response: P203,098
Feedback:
PVF at 12%, Purchase

5 periods price
4,000,000 0.5674 2,269,600
400,000 3.6048 1,441,920
3,711,520
EI (12%) NI (10%) Amort CA
1/1/20 3,711,520
12/31/20 445,382 400,000 45,382 3,756,902
12/31/21 450,828 400,000 50,828 3,807,730
12/31/22 456,928 400,000 56,928 3,864,658
12/31/23 463,759 400,000 63,759 3,928,417
12/31/24 471,583 400,000 71,583 4,000,000
Fair value, 12/31/20 (P4M x .99) 3,960,000
Amortized cost, 12/31/20 (see amortization schedule) 3,756,902
Unrealized gain 203,098
The investment should be classified as FA@FVTOCI

Question 8
On January 1, 2020, SMB Company acquired the entire issue of Beerman’s
P6,000,000 12% serial bonds. The bonds were purchased to yield 10%. Bonds of
P2,000,000 mature at annual intervals beginning December 31, 2020. Interest is
payable annually on December 31. What is the carrying amount of the investment in
bonds on December 31, 2020?
Feedback:
Date Principal Interest Total PVF@10% PV, 1/1/20
12/31/20 2,000,000 720,000 2,720,000 0.9091 2,472,752
12/31/21 2,000,000 480,000 2,480,000 0.8264 2,049,472
12/31/22 2,000,000 240,000 2,240,000 0.7513 1,682,912
6,000,000 6,205,136
PV,
Date Principal Interest Total PVF@10%
12/31/20
12/31/21 2,000,000 480,000 2,480,000 0.9091 2,254,568
12/31/22 2,000,000 240,000 2,240,000 0.8264 1,851,136
4,000,000 4,105,704
EI Prem.
NI (12%) Repayment CA
(10%) Amort.
1/1/20 6,205,136
12/31/20 720,000 620,514 99,486 2,000,000 4,105,650
12/31/21 480,000 410,565 69,435 2,000,000 2,036,215
12/31/22 240,000 203,622 36,378 2,000,000 (163)

Question 9
An investor purchased a bond as a long-term investment on January 1. Annual interest was
received on December 31. The investor’s interest income for the year would be highest if the
bond was purchased at
Response: A discount
Correct answer: A discount
Question 10
In 2019, Josh Co. acquired, at a premium, Lia, Inc. ten-year bonds as a long-term investment. At
December 31, 2020, Lia’s bonds were quoted at a small discount. Which of the following
situations is the most likely cause of the decline in the bonds’ market value?
Response: Interest rates have increased since Josh purchased the bonds.
Correct answer: Interest rates have increased since Josh purchased the bonds.
Score: 1 out of 1
FAR.21 Investments in equity instruments – Financial assets at

fair value
Question 1
On 2,2019, I AM DETERMINED CO. purchased 10,000 shares of CPA CO. at P56 plus
broker’s commission of P4 per share. The investment is FVTOCI. During 2018 and
2020, the following events occurred regarding the investment:

12/15/19 CPA CO. declares and pays a P2.20 per share dividend
12/31/19 The market price of CPA CO. stock is P52 per share at year-end
12/01/20 CPA CO. declares and pays a dividend of P2 per share
12/31/20 The market price of CPA CO. stock is P55 per share at year-end

The net unrealized loss at December 31, 2020 in accumulated OCI in shareholders'
equity is
Response: P50,000
Feedback:
Fair value, 12/31/20 (10,000 x P55) 550,000
Less cost [10,000 x (P56 + P4)] 600,000
Accumulated gain (loss) in equity (50,000)

Question 2
Holding gains and losses on trading securities are included in earnings because:
Response: They measure the success or failure of taking advantage of short-term price changes.
Correct answer: They measure the success or failure of taking advantage of short-term price
changes.
Question 3
On December 28, 2020, Bakeks Company commits itself to purchase equity securities to be
classified as held for trading for P1,000,000, its fair value on commitment (trade) date. These
securities have a fair value of P1,002,000 and P1,005,000 on December 31, 2020 (Bakeks'
financial year-end), and January 5, 2021 (settlement date), respectively. If Bakeks applies the
settlement date accounting method to account for regular-way purchases, how much should be
recognized in its 2020 profit or loss related to these securities?
Response: P2,000
Feedback: The change in fair value of the financial asset is recognized in the financial
statements between trade date and settlement date even if the entity applies settlement date
accounting. This is because the buyer’s right to changes in the fair value begins on the trade date.
Question 4
On December 28, 2020, Anne Company commits itself to purchase a financial asset to
be classified as FVTPL for P800,000, its fair value on commitment (trade) date. This
security has a fair value of P801,000 and P802,500 on December 31, 2020 (Anne's
financial year-end), and January 5, 2021 (settlement date), respectively.

If Anne applies the trade date accounting method to account for regular way purchases
of its securities, how much gain should be recognized on January 5, 2021?
Response: P1,500
Feedback:
Fair value, 1/5/21 802,500
Less fair value, 12/31/20 801,000

Fair value gain (loss)
1,500
Question 5
On December 31, 2018, Zenobia Co. purchased equity securities as classified as
FVTOCI. Pertinent data are as follows:

Fair value
Cost 12/31/19 12/31/20
C Company P 900,000 P 880,000 P780,000
P Company 1,100,000 1,120,000 1,240,000
A Company 2,000,000 1,920,000 1,720,000

On December 31, 2020, Zenobia transferred its investment in security P from
FVTOCI to FVTPL. How much should be recognized as component of equity as of
December 31, 2020 related to these securities?
Response: P260,000
Feedback:
Fair value, 12/31/20 3,740,000
Less cost 4,000,000
Accumulated gain (loss) in equity (260,000)
Note: Reclassification of equity investment is not allowed.

Therefore, ignore the reclass of security P.

Question 6
A debit balance in the account Market Adjustment—Equity Investment at the end of a year
should be interpreted as
Response: The net unrealized holding gain to date.
Correct answer: The net unrealized holding gain to date.
Question 7
On December 28, 2020, Anne Company commits itself to purchase a financial asset to
be classified as FVTPL for P800,000, its fair value on commitment (trade) date. This
security has a fair value of P801,000 and P802,500 on December 31, 2020 (Anne's
financial year-end), and January 5, 2021 (settlement date), respectively.

If Anne applies the settlement date accounting method to account for regular way
purchases of its securities, how much gain should be recognized on January 5, 2021?
Response: P1,500
Feedback: The change in fair value of the financial asset is recognized in the financial
statements between trade date and settlement date even if the entity applies settlement date
accounting. This is because the buyer’s right to changes in the fair value begins on the trade date.
Question 8
Marcus Company made the following transactions in the ordinary shares of Cato
Company designated as a financial asset at fair value through profit or loss:

July 16, 2018 - Purchased 10,000 shares at P45 per share.
June 28, 2019 - Sold 2,000 shares for P51 per share.
May 18, 2020 - Sold 2,500 shares for P33 per share.

The end-of-year market prices for the shares were as follows:

December 31, 2018 - P47 per share

How much should be recognized in 2020 profit or loss as a result of the fair value
changes?
Response: P44,000
Feedback:
Fair value, 12/31/20 31
Less fair value, 12/31/19 39
Increase (decrease) in fair value (8)
Remaining shares, 12/31/20 (10,000 - 2,000 - 2,500) 5,500
Gain (loss) in profit or loss (44,000)

Question 9
When a company has acquired a "passive interest" in another corporation, the acquiring
company should account for the investment
Response: By using the fair value method.
Correct answer: By using the fair value method.
Question 10
On December 28, 2020 (trade date), Charming Corp. enters into a contract to sell an equity
security classified as FA at FVTOCI for its current fair value of P505,000. The asset was
acquired a year ago and its cost was P500,000. On December 31, 2020 (financial year-end), the
fair value of the asset is P506,000. On January 5, 2021 (settlement date), the asset's fair value is
P507,500. If Charming uses the trade date method to account for regular-way sales of its
securities, how much should be reported as reclassification adjustment in its 2020 financial
statements?
Response: NIL
Feedback: Reclassification adjustment is not applicable to equity investments.
Correct answer: NIL
Score: 1 out of 1
FAR.22 Investments in equity instruments – Associates

Question 1
What accounting method should be used for an investment in an associate where it is operating
under severe long-term restrictions-for example where the government of a company has
temporary control over the associate?
Response: The equity method should be applied if significant influence can be exerted.
Correct answer: The equity method should be applied if significant influence can be exerted.
Question 2
On January 1, 2020, Solana Co. purchased 25% of Orr Corp.'s ordinary shares; no
goodwill resulted from the purchase. Solana appropriately carries this investment at
equity and the balance in Solana’s investment account was P480,000 at December 31,
2020. Orr reported profit of P300,000 for the year ended December 31, 2020, and paid
dividends totaling P120,000 during 2020. How much did Solana pay for its 25% interest
in Orr?
Response: P435,000
Feedback:
Share of profit (P300,000 x 25%) (75,000)
Dividends (P120,000 x 25%) 30,000
Cost 435,000

Question 3
Which of the following increases the investment account under the equity method of
accounting?
Question 4
Equity investments acquired by a corporation which are accounted for by recognizing unrealized
holding gains or losses as other comprehensive income and as a separate component of equity
are
Response: Non-trading where a company has holdings of less than 20%.
Correct answer: Non-trading where a company has holdings of less than 20%.
Question 5
On July 1, 2020, Diamond, Inc, paid P1,000,000 for 100,000 ordinary shares (40%) of
Ashley Corporation. At that date the net assets of Ashley totaled P2,500,000 and the
fair values of all of Ashley's identifiable assets and liabilities were equal to their book
values. Ashley reported profit of P500,000 for the year ended December 31, 2020, of
which P300,000 was for the six months ended December 31, 2020. Ashley paid cash
dividends of P250,000 on September 30, 2020. Diamond does not elect the fair value
option for reporting its investment in Ashley. In its income statement for the year ended
December 31, 2020, what amount of income should Diamond report from its
investments in Ashley?
Response: P120,000
Feedback:

Share of profit (P300,000 x 40%)
120,000

Question 6
On January 1, 2019 Ballesteros Company acquired 10% of the outstanding voting stock
of Buguey Company. On January 1, 2020, Ballesteros gained the ability to exercise
significant influence over financial and operating control of Buguey by acquiring 30% of
Buguey’s outstanding stock. The two purchases were made at prices proportionate to
the value assigned to Buguey’s net assets, which equaled their carrying amounts. For
the years ended December 31, 2019 and 2020, Buguey reported the following:

2019 2020
Net income P8,000,000 P15,000,000
Dividends paid 5,000,000 10,000,000

In 2020, what amounts should Ballesteros report as current year investment income and
as an adjustment to 2019 income, respectively?
Response:
P6,000,000 and Nil
Feedback:
Share of profit - 2020 (P15,000,000 x 40%) 6,000,000
Equity method is applied from the date the investee becomes an associate.
Correct answer:
P6,000,000 and Nil
Question 7
Baggao Company purchased 15% of Badoc Company’s 500,000 outstanding ordinary
shares on January 2, 2020, for P15,000,000. On December 31, 2020, Baggao
purchased additional 125,000 shares of Badoc for P35,000,000. Badoc reported
earnings of P20,000,000 for 2020. What amount should Baggao report in its December
31, 2020 statement of financial position as investment in Badoc Company?
Feedback:
Using fair value as deemed cost approach:
Purchase price of 25% interest 35,000,000
Fair value of 15% interest (P35,000,000/.25 x .15) 21,000,000
Carrying amount, 12/31/20 56,000,000
Equity method is applied from the date the investee becomes an associate.

Question 8
What should happen when the financial statements of an associate are not prepared to the same
date as the investor’s accounts?
Response: The associate should prepare financial statements for the use of the investor at the
same date as those of the investor.
Correct answer: The associate should prepare financial statements for the use of the investor at
the same date as those of the investor.
Question 9
On December 1, 2020, Citrus purchased 200,000 shares representing 45 percent of
the outstanding stock of Berry for cash of P2,500,000. As a result of this purchase,
Citrus has the ability to exercise significant influence over the operating and financial
policies of Berry. 45 percent of the profit of Berry amounted to P20,000 for the month of
December and P350,000 for the year ended December 31, 2020. On January 15,
2021, cash dividends of P0.30 per share were paid to shareholders of record on
December 31, 2020. Citrus' long-term investment in Berry should be shown in Citrus'
December 31, 2020, statement of financial position at:
Feedback:
Cost 2,500,000
Share of profit for December 20,000
Dividends (200,000 x P0.3) (60,000)

Question 10
Investor company acquired a 40% interest in an associate for P3,000,000. In the
financial period immediately following the date on which it became an associate, the
investee took the following action:
 revalued assets up to fair value by P500,000
 generated profits of P1,600,000
 declared a dividend of P300,000

The balance in the investor’s account of ‘Shares in associate’, after equity accounting
has been applied, is:
Feedback:
Cost 3,000,000
Share of OCI (P500,000 x 40%) 200,000
Share of profit (P1,600,000 x 40%) 640,000
Dividends (P300,000 x 40%) (120,000)
Cost 3,000,000
Share of net change in asscociate's equity
[(P500,000 + P1,600,000 - P300,000) x 40%] 720,000

Score: 1 out of 1
FAR.23 Other investments

Question 1
On January 1, 2020, Carly Company decided to begin accumulating a fund for asset
replacement five years later. The company plans to make five annual deposits of
P30,000 at 9% each January 1 beginning in 2020. What will be the balance in the fund
on January 1, 2025?
Response: P195,700
Feedback:
Annual deposit 30,000
x Future value of an annuity of 1 in advance 6.5233
Fund balance, 1/1/25 195,699

Question 2
Given below are the present value factors for P1.00 discounted at 10% for one to five
periods.

PV of P1 Discounted at 10% per

Periods
Period
1 0.909
2 0.826
3 0.751
4 0.683
5 0.621

What amount should an individual have in a bank account today before withdrawal if
P20,000 is needed each year for four years with the first withdrawal to be made
today and each subsequent withdrawal at one-year intervals? (The balance in
the bank account should be zero after the fourth withdrawal.)
Response: P20,000 + (P20,000 × 0.909) + (P20,000 × 0.826) + (P20,000 × 0.751)
Correct answer: P20,000 + (P20,000 × 0.909) + (P20,000 × 0.826) + (P20,000 × 0.751)
Question 3
Loan A has the same original principal, interest rate, and payment amount as Loan B. However,
Loan A is structured as an annuity due, while Loan B is structured as an ordinary annuity. The
maturity date of Loan A will be
Response: Earlier than Loan B.
Correct answer: Earlier than Loan B.
Question 4
On March 1, 2020, Saguday Company adopted a plan to accumulate P20,000,000 by
September 1, 2024. Saguday plans to make four annual deposits to a fund that will earn
interest at 10% compounded annually. Saguday made the first deposit on September
1, 2020. Future amount factors at 10% for 4 periods are:

Ordinary annuity of 1 4.64
Annuity of 1 in advance 5.11

Saguday should make four annual deposits of (rounded to the nearest P100)
Feedback:
Target amount 20,000,000
/Future value of an annuity of 1 in advance 5.11
Annual deposit 3,913,894

Question 5
The following information relates to noncurrent investment that Maddela Corporation
placed in trust as required by the underwriter of its bonds:

Bonding sinking fund balance, January 1, 2020 P4,500,000
2020 additional investment 900,000
Dividends on investment 150,000
Interest income 300,000
Administration costs 100,000
Carrying amount of bonds payable 6,000,000

What amount should Maddela report in its December 31, 2020 statement of financial
position related to its noncurrent investment for bond sinking fund requirements?
Feedback:
Fund balance, 1/1 4,500,000
Additional investment 900,000

Dividends on investment 150,000
Interest income 300,000
Administration costs (100,000)
Fund balance, 12/31 5,750,000

Question 6
On January 2, 2017, Beal, Inc. acquired a P700,000 whole-life insurance policy on its
president. The annual premium is P20,000. The company is the owner and
beneficiary. Beal charged officer’s life insurance expense as follows:

2017 P20,000
2018 18,000
2019 15,000
2020 11,000
Total P64,000

In Beal’s December 31, 2020 statement of financial position, the investment in cash
surrender value should be
Response: P16,000
Feedback:
Annual premium - 2017 to 2020 (P20,000 x 4) 80,000
Life insurance expense - 2017 to 2020 (64,000)
Cash surrender value, 12/31/20 16,000

Question 7
On January 1, 2020, Nagtipunan Company adopted a plan to accumulate funds for a
new building to be erected beginning January 1, 2023 at an estimated cost of
P21,000,000. Nagtipunan Company intends to make three equal annual deposits in a
fund beginning December 31, 2020 that will earn interest at 10% compounded
annually. Future amount factors at 10% for three periods are:

Future value of 1 1.33

Future value of an ordinary annuity of 1 3.31
Future value of an annuity of 1 in advance 3.64

What is the annual deposit to the fund?
Feedback:
Target amount 21,000,000
/Future value of an ordinary annuity of 1 3.31
Annual deposit 6,344,411

Question 8
An issuer of bonds uses a sinking fund for the retirement of the bonds. Cash was transferred to
the sinking fund and subsequently used to purchase investments. The sinking fund
Response: Increases by income earned on the investments.
Correct answer: Increases by income earned on the investments.
Question 9
Casiguran Corp. took out a P5,000,000 insurance policy on the life of its president on
January 1, 2011. Given below are data on this policy:

2019 2020
Annual dividend P 3,880 P 4,210
Cash surrender value, 12/31 138,030 189,350
Annual premium 121,040 121,040

The life insurance expense for Casiguran Corp. for 2020 would be
Response: P65,510
Feedback:
Annual premium 121,040
Increase in CSV (P189,350 - P138,030) (51,320)
Dividends received (4,210)
Life insurance expense 65,510

Question 10
During 2020, Stone Co. pays an insurance premium of P31,800 on a P900,000 life
insurance policy covering the president. The cash surrender value of the policy will
increase from P165,000 to P175,200 during 2020. Dividends received from the
insurance company during 2020 totaled P6,300. Life insurance expense for 2020 is
Response: P15,300
Feedback:
Annual premium 31,800

Increase in CSV (P175,200 - P165,000)
(10,200)

Dividends received
(6,300)
Life insurance expense 15,300

Score: 1 out of 1
FAR.24 Derivatives and hedge accounting

Question 1
Obando Agriculture sells approximately 300,000 bushels of corn each month. On
January 1, 2020, Obando purchased an option to sell 500,000 bushels of corn on June
30, 2020, at a price of P95 per bushel. The market price on January 1, 2020 is P95 per
bushel. Obando had to pay P400,000 to purchase this corn put option, which it
designated as a hedge against price decreases for its June 30, 2020 sale of corn. If the
price of the corn on June 30, 2020 is P100 per bushel, Obando shall recognize a loss
on put option in 2020 at
Response: P 400,000
Feedback: The put option is 'out of the money' at June 30, 2020.
Question 2
Which of the following is not an example of a derivative?
Response: Cash.
Correct answer: Cash.
Question 3
On January 1, 2020, Guiguinto Company received a 3-year, P10,000,000 loan, with
interest payments occurring at the end of each year and the principal to be repaid on
December 31, 2021. The interest rate for the first year is the prevailing market rate of
8%, and the rate in 2021 and 2022 will be equal to the market interest rate on January
1. In conjunction with this loan, Guiguinto enters into an interest rate swap agreement
to receive a swap payment (based on P10,000,000) if the January 1 interest rate is
greater than 8% and will make a swap payment if the rate is less than 8%. The interest
swap payment will be made on December 31, 2021 and 2022. On January 1, 2021, the
interest rate is 9 percent. How much should be recognized on Guiguinto’s December
31, 2020 statement of financial position as a result of the interest rate swap?
Response: P175,910 receivable
Feedback:
Receive 9%
Pay -8%
Net receipt (payment) 1%
Derivative asset, 12/31/20
(P10,000,000 x 1% x 1.7591) 175,910
Correct answer: P175,910 receivable

Question 4
On January 2, 2020, Entity A purchased a 5-year convertible bonds for P1,000,000. The
instrument pays fixed interest of 10% and that can be converted into 1,000 shares of the issuer
before maturity. The investment is held for collection and for sale. The estimated fair value of
the conversion option on the date of purchase is P137,290. On December 31, 2020, the
instrument has a fair value of P910,000 without the conversion option.
The amount to be recognized in other comprehensive income for the year ended December 31,
2020 is
Response: P 0
Feedback: The entire instrument should be classified as FA at FVTPL.
Correct answer: P 0
Question 5
A derivative financial asset may be classified as financial asset at
Response: d. Neither a nor b
Correct answer: d. Neither a nor b
Question 6
Nagui Company invested in shares of Lian Company in 2018, 90,000 shares at a total
cost of P8,000,000 and in 2019, 150,000 shares at a total cost of P13,200,000. On
November 15, 2020, Lian Company distributed 240,000 rights to Nagui. Nagui was
entitled to buy one new ordinary share of Lian for P100 and five of these rights until their
expiration on December 15, 2020. At issue date, the rights had a market value of P15
each and the share was selling ex-right at P135. On December 1, 2020 Nagui used the
rights to purchase 38,000 additional shares of Lian Company. The cost of Nagui’s new
investment in Lian shares acquired through exercise of rights at December 1, 2020
should be
Feedback:
Cost of equity investments:
2018 90,000 8,000,000
2019 150,000 13,200,000
240,000 21,200,000
Fair value
Right 15
Share 135
150
Stock rights as stand-alone derivative:
FV of rights used (38,000 x 5 x P15) 2,850,000
Purchase price (38,000 x P100) 3,800,000
6,650,000
Allocation method: Pro rata
Cost allocated to stock rights:
From 2018 (P8,000,000 x 15/150) 800,000
From 2019 (P13,200,000 x 15/150) 1,320,000

2,120,000
Rights used (38,000 x 5) 190,000
From 2018 90,000
From 2019 100,000
190,000
Cost of rights used:
From 2018 800,000
From 2019 (P1,320,000 x 100/150) 880,000
1,680,000
Purchase price (38,000 x P100) 3,800,000
5,480,000

Question 7
Malolos Company has the Philippine peso as its functional currency. The entity expects
to purchase equipment from USA for $20,000 on March 31, 2021. Accordingly, the
entity is exposed to a foreign currency exchange risk. If the dollar increases before the
purchase takes place, the entity will have to pay more pesos to obtain the $20,000 that
it will have to pay for the equipment.

To offset the risk of any increase in the dollar rate, the entity enters into a forward
currency contract on October 1, 2020 to purchase $20,000 in six months for a fixed
amount of P1,000,000 or P50 to $1. The entity designates the forward currency
contract as the hedging instrument in a cash flow hedge of its exposure to increases in
the dollar exchange rate.

On December 31, 2020, the exchange rate is P52 to $1 and on March 31, 2021, the
exchange rate is P53 to $1.

What is the fair value of the derivative asset (forward contract receivable) on December
31, 2020?
Response: P40,000
Feedback:
Peso equivalent, 12/31/20 52
Agreed peso equivalent (50)
Net receipt (payment) 2
Derivative asset, 12/31/20
(USD20,000 x P2) 40,000

Question 8
Which statement is correct regarding derivatives?
Response: Derivatives are usually classified as current in the statement of financial position.
Correct answer: Derivatives are usually classified as current in the statement of financial
position.
Question 9
On January 2, 2020, Entity A purchased a 5-year convertible bonds for P1,000,000. The
instrument pays fixed interest of 10% and that can be converted into 1,000 shares of the issuer
before maturity. The investment is held for collection and for sale. The estimated fair value of
the conversion option on the date of purchase is P137,290. On December 31, 2020, the
instrument has a fair value of P910,000 without the conversion option.
How much should be recognized as derivative asset on January 2, 2020?

Response: P 0
Feedback: The entire instrument should be classified as FA at FVTPL.
Correct answer: P 0
Question 10
Which of the following is not a derivative instrument?
Response: Variable annuity contracts.
Correct answer: Variable annuity contracts.
Score: 1 out of 1
Summative Drill No. 2

Question 1
The following statements relate to cash. Which statement is incorrect?
Response: The term “cash equivalent” refers to demand credit instruments such as money order
and bank drafts.
Correct answer: The term “cash equivalent” refers to demand credit instruments such as money
order and bank drafts.
Question 2
On June 1, 2020, an Joke Corp. acquired P12,000,000, 10 percent bonds at
P10,348,080. Interest is receivable semiannually on May 31 and November 30. The
bonds mature in 15 years. The entity is a calendar-year corporation.

If the bond investment of Joke Corp. is held for collection only, the carrying amount of
the bonds as of December 31, 2020 should be
Feedback:
Computation of effective interest rate:
Cash flows PVF at 6%, 30 periods PV, 6/1/20
12,000,000 0.1741 2,089,200
600,000 13.7648 8,258,880

10,348,080
Amortization schedule - partial
Disc.
Date EI (6%) NI (5%) C.A.
Amort.
6/1/20 10,348,080
11/30/20 620,885 600,000 20,885 10,368,965
5/31/21 622,138 600,000 22,138 10,391,103
Carrying amount, 11/30/20 (see schedule) 10,368,965
Discount amortization - December (P22,138 x 1/6) 3,690
Carrying amount, 12/31/20 10,372,655

Question 3
Under PFRSs, the presumption is that equity investments are
Response: Held to profit from price changes
Correct answer: Held to profit from price changes
Question 4
On July 1, 2019, Clippers Corporation sold equipment for P1,000,000. Clippers
accepted a 10% note receivable for the entire sales price. This note is payable in two
equal installments of P500,000 plus accrued interest on December 31, 2019 and
December 31, 2020. On July 1, 2020, Clippers discounted the note at a bank at an
interest rate of 12%.

Clippers’ proceeds from the discounted note were
Response: P517,000
Feedback:
Maturity value (P500,000 x 1.1) 550,000
Discount (P550,000 x .12 x 6/12) (33,000)
Proceeds 517,000

Question 5
At December 31, 2020, Aris Co. had the following balances in the accounts it maintains
at First State Bank:
Checking account #101 P175,000
Checking account #201 (10,000)
Money market account 25,000
90-day certificate of deposit, due 2/28/21 50,000
In its December 31, 2020 statement of financial position, what amount should Aris
report as cash and cash equivalents?
Response: P240,000
Feedback:
Checking account #101 175,000
Checking account #201 (10,000)
Money market account 25,000
Cash and cash equivalents 240,000

Question 6
Emong Co. purchased a put option on Apol ordinary shares on August 1, 2020, for
P10,000. The put option is for 20,000 shares, and the strike price is P30. The option
expires on January 31, 2021. The following data are available with respect to the put
option:

Market Price Time Value

Date of Apol Shares of Put Option
December 31, 2020 P31 per share P2,100
January 31, 2021 P32 per share 0

The gain or loss on settlement of put option on January 31, 2021 is
Response: P 2,100 loss
Feedback:

Intrinsic value, 1/31/21 (the option is 'out of the money')
-
Time value, 1/31/21 -

Fair value, 1/31/21
-
Increase (decrease) in fair value - P/L (Gain (loss) on settlement) (2,100)
Correct answer: P 2,100 loss

Question 7
Avent Company sells a financial asset with a carrying amount of P500,000 for P600,000
and simultaneously enters into a total return swap with the buyer under which the buyer
will return any increases in value to Avent and Avent will pay the buyer interest plus
compensation for any decreases in the value of the investment. Avent expects the fair
value of the financial asset to decrease by P40,000.

Avent Company’s journal entry to record the sale would include a credit to
Response: Financial liability of P600,000
Feedback:
Journal entry:
Cash 600,000
Financial liability 600,000
This is a transfer that does not qualify for derecognition since the entity retained substantially all
the risks and rewards of the transferred asset.
Correct answer: Financial liability of P600,000

Question 8
Bank overdrafts generally should be
Response: Reported as a current liability.
Correct answer: Reported as a current liability.
Question 9
The policy of Strong Company is to debit bad debt expense for 3% of all new sales. The
following are the Company’s sales and allowance for bad debts for the past four years.

Allowance

Sales for bad debts
2017 P3,000,00
P45,000
0
2018 2,950,000 56,000
2019 3,120,000 60,000
2020 2,420,000 75,000

Compared to 2019, the accounts written off in 2020 decreased by
Response: P32,000
Feedback:

Allowance for doubtful accounts, 12/31/19
60,000

Doubtful accounts expense (P2,420,000 x .03)
72,600
Allowance for doubtful accounts, 12/31/20 (75,000)

Accounts receivable written off - 2020
57,600
Accounts receivable written off - 2019

Allowance for doubtful accounts, 12/31/18
56,000

Doubtful accounts expense (P3,120,000 x .03)
93,600
Allowance for doubtful accounts, 12/31/19 (60,000) 89,600
Increase (decrease) (32,000)

Question 10
Under which section of the statement of financial position is "cash restricted for plant
expansion" reported?
Response: Non-current assets.
Correct answer: Non-current assets.
Question 11
On January 1, 2020, Goliath Corporation purchased P1,000,000 10% bonds classified
as FA at FVTOCI. The bonds were purchased to yield 12%. Interest is payable
annually every December 31. The bonds mature on December 31, 2024. On
December 31, 2020 the bonds were selling at 99. On December 31, 2021, Goliath sold
P500,000 face value bonds at 101.

How much should Goliath Corporation recognize in 2020 OCI?
Response: P50,770
Feedback:
Fair value, 12/31/20 (P1M x .99) 990,000
Less CA before FV adjustment (AC)
PV of Principal (P1M x 0.6355) 635,500
PV of Interest (P1M x .1 x 3.0373) 303,730 939,230
Fair value adjustment gain - OCI 50,770

Question 12
On December 31, 2020, Alfonso Company had the following cash balances:

Cash in bank P15,000,000
Time deposit 5,000,000
Saving deposit 2,000,000
Cash in bank includes P500,000 of compensating balance against short term borrowing
arrangement at December 31, 2020. The compensating balance is legally restricted as
to withdrawal by Alfonso. A check of P300,000 dated January 15, 2021 in payment of
accounts payable was recorded and mailed on December 31, 2020.

In the current assets section of the December 31, 2020 statement of financial position of
Alfonso Company, what amount should be reported as “cash and cash equivalents”?
Response: P21,850
Feedback:
Cash in bank (P15,000,000 - P500,000 + P300,000) 14,800,000
Time deposit 5,000,000
Saving deposit 2,000,000
Cash and cash equivalents 21,850,000

Question 13
Emong Co. purchased a put option on Apol ordinary shares on August 1, 2020, for
P10,000. The put option is for 20,000 shares, and the strike price is P30. The option
expires on January 31, 2021. The following data are available with respect to the put
option:

Market Price Time Value

Date of Apol Shares of Put Option
December 31, 2020 P31 per share P2,100
January 31, 2021 P32 per share 0

What was the effect on profit of entering into the derivative transaction for the year
2020?
Response: P 7,900 decrease
Feedback:

Intrinsic value, 12/31/20 (the option is 'out of the money')
-
Time value, 12/31/20 2,100
Fair value, 12/31/20 2,100

Initial carrying amount (option premium) 10,000
Increase (decrease) in fair value - P/L (7,900)
Correct answer: P 7,900 decrease

Question 14
The bank reconciliation:
Response: Should be performed by someone independent of the handling or recording of cash
receipts.
Correct answer: Should be performed by someone independent of the handling or recording of
cash receipts.
Question 15
At the beginning of 2018, Marcos Company received a three-year zero-interest-bearing
P1,000,000 trade note. Marcos reported this note as a P1,000,000 trade note receivable on its
2018 year-end statement of financial position and P1,000,000 as sales revenue for 2018. What
effect did this accounting for the note have on Marcos's net earnings for 2018, 2019, 2020, and
its retained earnings at the end of 2020, respectively?
Response: Overstate, understate, understate, no effect
Correct answer: Overstate, understate, understate, no effect
Question 16
On August 1, Southeast Corporation assigned P20,000 of its P56,000 of accounts
receivable. The finance company advanced 90% of the assigned accounts less a
P2,000 fee. Interest is 12% and payable monthly on the beginning-of-period loan
balance. A loan payment is remitted at the end of each month. Each payment includes
principal and interest. The amount of each loan payment equals the cash collected on
receivables during the month plus interest on the loan balance.

If P8,000 was collected by Southeast Corporation on accounts receivable during
August, the entry for the first loan payment would include a
Response: debit to Interest Expense of P180.
Feedback:
Journal entry to record loan payment:
Interest expense (P20,000 x .9 x .12 x 1/12) 180
Notes payable 8,000
Cash 8,180
Correct answer: debit to Interest Expense of P180.

Question 17
On January 1, 2016, Cavaliers 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 carrying amount of the note receivable of Cavaliers Company as of December 31,
2020 is
Response: P420,154
Feedback:
PVF at 8%,
Cash flows AC, 12/31/20
5 periods
Principal 500,000 0.6806 340,300
Interest 20,000 3.9927 79,854
420,154

Question 18
ABC Cycle Shop sells a bicycle to XYZ, a customer who uses Express Charge (a national credit
card, but not issued by a bank). In recording this sale, ABC Cycle Shop should record
Response: An account receivable from Express Charge.
Correct answer: An account receivable from Express Charge.
Question 19
The amounts that are recognized in profit or loss are the same for which of the following?
Response: FA at AC and FA at FVTOCI
Correct answer: FA at AC and FA at FVTOCI
Question 20
The following information pertains to Lender A’s loan portfolio at December 31, 2020:

PV of

Expected
Future Past
Loan Amount Cash Flows due status
1 P600,000 P360,000 91 days
2 500,000 450,000 Current
3 400,000 320,000 31 days
4 300,000 270,000 Current
5 200,000 160,000 61 days
6 100,000 60,000 91 days

Lender A considers all loans over 90 days past due to be credit-impaired based on
historical experience with recovering the associated debt.
Additional information taking into account historical information, current conditions and
forward- looking information, including actual loss experience and recoveries from the
sale of collateral, is as follows:

Probability of default in the next 12 months 2%
Lifetime probability of default
Credit-impaired loans 100%
Not credit-impaired loans 5%

The total loss allowance to be recognized by Lender A at December 31, 2020 is
Response: P287,600
Feedback:
Loan Stage Amount PV of ECF Credit loss Probability Allowance
1 3 600,000 360,000 240,000 100% 240,000

2 1 500,000 450,000 50,000 2%
1,000

3 2 400,000 320,000 80,000 5%
4,000

4 1 300,000 270,000 30,000 2%
600

5 2 200,000 160,000 40,000 5%
2,000
6 3 100,000 60,000 40,000 100% 40,000
287,600

Question 21
Pagudpud Company received a seven-year zero-interest-bearing note on February 22, 2019, in
exchange for property it sold to Rear Company. There was no established exchange price for this
property and the note has no ready market. The prevailing rate of interest for a note of this type
was 7% on February 22, 2019, 7.5% on December 31, 2019, 7.7% on February 22, 2020, and 8%
on December 31, 2020.
What interest rate should be used to calculate the interest revenue from this transaction for the
years ended December 31, 2019 and 2020, respectively?
Response: 7% and 7%
Correct answer: 7% and 7%
Question 22
Which of the following statements best defines a derivative financial instrument?
Response: Its value is derived from an underlying primary instrument, it requires little initial
investment, and it is settled at a future date.
Correct answer: Its value is derived from an underlying primary instrument, it requires little
initial investment, and it is settled at a future date.
Question 23
An option to convert a convertible bond into ordinary shares is a(n)
Response: Embedded derivative.
Correct answer: Embedded derivative.
Question 24
Your analysis of the accounts receivable of Bulba Company indicates the following:

Accounts receivable, January 1 P 300,000
Allowance for doubtful accounts, January 1 40,000
Credit sales during the year 1,200,000
Cash collections during the year 1,100,000
Accounts receivable written off during the year 20,000

In prior years, Bulba’s bad debt expense has averaged 2% of credit sales.

On December 31, what would be the amount of Bulba’s accounts receivable, net of any
allowance for doubtful accounts, assuming that Bulba uses the credit sales method to
estimating bad debt expense?
Response: P336,000
Feedback:

Accounts receivable, January 1 300,000
Credit sales during the year 1,200,000
Cash collections during the year (1,100,000)
Accounts receivable written off during the year (20,000)
Accounts receivable, December 31 380,000
Allowance for doubtful accounts, January 1 40,000
Accounts receivable written off during the year (20,000)
Doubtful accounts expense (P1.2M x .02) 24,000
Allowance for doubtful accounts, December 31 44,000
Accounts receivable - net, December 31 336,000

Question 25
On January 1, 2020, Goliath Corporation purchased P1,000,000 10% bonds classified
as FA at FVTOCI. The bonds were purchased to yield 12%. Interest is payable
annually every December 31. The bonds mature on December 31, 2024. On
December 31, 2020 the bonds were selling at 99. On December 31, 2021, Goliath sold
P500,000 face value bonds at 101.

How much should Goliath Corporation recognize as gain on sale of the investment in
bonds in 2021 profit or loss?
Response: P29,010
Feedback:
Sales proceeds (P500,000 x 1.01) 505,000
Less CA investment sold (AC)
PV of Principal (P500,000 x 0.7118) 355,900
PV of Interest (P500,000 x .1 x 2.4018) 120,090 475,990
Gain on sale of investment - P/L 29,010

Question 26
A compensating balance arrangement usually causes the company to
Response: Increase the effective interest rate on corporate borrowing.
Correct answer: Increase the effective interest rate on corporate borrowing.
Question 27
When a company holds between 20% and 50% of the outstanding ordinary shares of an
investee, which of the following statements applies?
Response: The investor should use the equity method to account for its investment unless
circumstances indicate that it is unable to exercise "significant influence" over the investee.
Correct answer: The investor should use the equity method to account for its investment unless
circumstances indicate that it is unable to exercise "significant influence" over the investee.
Question 28
A method of estimating uncollectible accounts that emphasizes asset valuation rather than
income measurement is the allowance method based on
Response: Aging the receivables.
Correct answer: Aging the receivables.
Question 29
The process of bifurcation
Response: Separates an embedded derivative from its host contract.
Correct answer: Separates an embedded derivative from its host contract.
Question 30
Which of the following is normally reported as current assets?
Response: FA at FVTPL
Correct answer: FA at FVTPL
Question 31
Kat Corp. has the following accounts with Sam Corp., an associate:

Investment in ordinary
P4,500,000
shares
Investment in preference
1,600,000
shares
Loans receivable -
unsecured 900,000
Loans receivable - secured 500,000
Accounts receivable 200,000
Accounts payable 100,000

If the ‘share of loss of associate’ recognized by Kat Corp. is P6,500,000, how much
should be allocated to Loans receivable – unsecured?
Response: P400,000
Feedback:
Losses recognised using the equity method in excess of the entity’s investment in ordinary shares
are applied to the other components of the entity’s interest in an associate in the reverse order of
their seniority (ie priority in liquidation). (PAS 28 par. 38)
Journal enrty to recognized the SOLA:

Share of loss of associate 6,500,000
Investment in ordinary shares (Associate) 4,500,000
Investment in preference shares 1,600,000
Loans receivable - unsecured (Balance) 400,000

Question 32
Dance Corp. provided the following information:

Credit sales P1,720,000
Collections on accounts receivable during the year 1,700,000
Cash sales 8,100,000
Unadjusted balance in Allowance for doubtful accounts 500 debit
Sales returns and allowances for credit sales 40,000
Accounts receivable, beginning of the year 140,000

If Dance Corp. estimates bad debts to be 1 1/2% of ending accounts receivable, in the
adjusting entry to recognize bad debts, you would debit bad debt expense for:
Response: P2,300
Feedback:
Accounts receivable, beginning of the year 140,000
Credit sales 1,720,000
Collections on accounts receivable during the year (1,700,000)
Sales returns and allowances for credit sales (40,000)

Accounts receivable, end of the year 120,000
Required allowance for D/A, end of the year (P120,000 x .015) 1,800
Unadjusted allowance for D/A (Debit) 500
Debit to bad debt expense 2,300

Question 33
Band Co. uses the equity method to account for its investment in Guard, Inc. common stock.
How should Band record a 2% stock dividend received from Guard?
Response: As a memorandum entry reducing the unit cost of all Guard stock owned.
Correct answer: As a memorandum entry reducing the unit cost of all Guard stock owned.
Question 34
On April 1, 2020, Eddie Co. purchased 25,000 ordinary shares of Patty Co. at P180 per
share which reflected book value as of that date. At the time of the purchase, Patty had
100,000 ordinary shares outstanding. The shares are intended as a long-term
investment. The first quarter statement ending March 31, 2020 of Patty recorded profit
of P480,000. For the year ended December 31, 2020, Patty reported profit of
P2,400,000. Patty paid Eddie dividends of P60,000 on June 1, 2020 and again P60,000
on December 31, 2020. The shares of Patty are selling at P190 per share on
December 31, 2020.

The carrying amount of the investment in Patty Co. as of December 31, 2020 should be
Feedback:
Cost (25,000 x P180) 4,500,000
Share of profit [(P2,400,000 - P480,000) x .25] 480,000
Dividends received (P60,000 + P60,000)

(120,000)
CA, 12/31/20 4,860,000

Question 35
Which statement is incorrect regarding loss of significant influence?
Response: An entity loses significant influence over an investee when it loses the power to
participate in the financial and operating policy decisions of that investee.
Correct answer: The loss of significant influence can occur only with a change in absolute or
relative ownership levels.
Question 36
When the interest payment dates of a bond are May 1 and November 1, and a bond issue is
purchased on June 1, the amount of cash paid will be
Response: Increased by accrued interest from May 1 to June 1.
Correct answer: Increased by accrued interest from May 1 to June 1.
Question 37
Debt investments that meet the ‘held for collection’ business model and contractual cash flow
tests are reported at
Response: Amortized cost.
Correct answer: Amortized cost.
Question 38
Which type of contract is unique in that it protects the owner against unfavorable movements in
the prices or rates while allowing the owner to benefit from favorable movements?
Response: Option.
Correct answer: Option.
Question 39
Cash in bank balance of William Co. on January 1, 2020 was P70,000 representing
35% paid-up Capital of its authorized share capital of P200,000. During the year you
ascertained the following postings to some accounts, as follows:
Debit Credit
Petty cash fund P 2,000
Accounts receivable trade 450,000 P290,000
Subscriptions receivable 60,000 50,000
Delivery equipment 50,000
Accounts payable trade 280,000 430,000
Bank loan 35,000 80,000
Accrued expenses 1,500
Subscribed share capital 60,000
Unissued share capital 130,000
Authorized share capital 200,000
Sales 450,000
Purchases 430,000

Expenses (including depreciation of
P5,000 and accrued expenses of
P1,500)
90,000

Cash in bank balance of William Co. at December 31, 2020 was
Response: P39,500
Feedback:
Cash in bank, 1/1

70,000
Set up of petty cash fund (2,000)
Collections of accounts receivable 290,000

Collections of subscriptions receivable
50,000
Payment for delivery equipment (50,000)
Payments of accounts payable (280,000)

Proceeds from bank loan
80,000
Payment of bank loan (35,000)
Payments of expenses (P90,000 - P5,000 - P1,500) (83,500)
Cash in bank, 12/31 39,500

Question 40
On December 1, 2020, Freddie Corp. acquired 10,000 shares of Investee Corp. (2% of
the outstanding shares of Investee Corp.) for P100,000. Freddie plans to actively trade
the shares to maximize its investment income. On December 15, 2020, Investee
declared and paid a dividend of P1.00 per share. For the month of December 2020,
Investee earned P1.50 per share. On December 31, 2020, Investee’s shares were
trading at P12.00 per share on the Philippine Stock Exchange.

How much should Freddie Corp. report in profit or loss for 2020 in relation to its equity
investment?
Response: P30,000
Feedback:
Dividend income (10,000 x P1) 10,000

FV adjustment gain (loss)
Fair value, 12/31/20 (10,000 x P12) 120,000
Less CA before FV adjustment 100,000 20,000
Total amount in profit or loss 30,000

Score: 1 out of 1

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FAR.

01 The environment of financial accounting and reporting

Direct materials P55,000

Direct materials purchases in transit, FOB destination 12,000

Direct materials purchases in transit, FOB shipping point 9,000

Prepaid insurance on inventory 2,000

Finished goods 45,000

Direct materials 55,000

Direct materials purchases in transit, FOB shipping point 9,000

Work-in-process 38,000

Finished goods 45,000

Goods shipped on consignment (P15,000 x .8) 12,000

Total inventories 159,000

Response: This fact must be disclosed.

Date Transaction Units Cost

Aug. 1 Inventory 2,000 P36.00

7 Purchase 3,000 37.20

21 Purchase 4,800 38.00

29 Purchase 1,600 38.60

Units Unit cost Total Cost

Inventory,

Purchases,

Purchases,

WAUC (P427,760/11,400) 37.52

Cost of inventory, Aug. 31 - periodic average

Ending inventory Net income

Correct answer: Decrease Decrease

Score: 1 out of 1 Yes

2018 2019 2020

Units produced - 2018 240,000 4.50

Units sold - 2018 (150,000)

Units on hand, 12/31/18 90,000 4.50

Units produced - 2019 232,500

Units sold - 2019 (217,500)

Units on hand, 12/31/19 105,000 5.20

Units produced - 2020 202,500

Units sold - 2020 (195,000)

Units on hand, 12/31/20 112,500 5.80

Sales 1,950,000

Less cost of goods sold:

Inventory, 1/1/20 (105,000 x P5.20) 546,000

Production - 2020 (202,500 x P5.80) 1,174,500

Inventory, 12/31/20 (112,500 x P5.80) (652,500) 1,068,000

Gross profit 882,000

Date Transaction Units Cost

Aug. 1 Inventory 2,000 P36.00

7 Purchase 3,000 37.20

21 Purchase 4,800 38.00

29 Purchase 1,600 38.60

Inventory, Aug. 1 2,000

Purchases (3,000 + 4,800 + 1,600) 9,400

TGAS 11,400

Inventory, Aug. 31 4,000

Cost of inventory, Aug. 31 (FIFO):

From Aug. 29 (1,600 x P38.60) 61,760

From Aug. 21 [(4,000 - 1,600) x P38] 91,200

Score: 1 out of 1 Yes

Response: All of the above.

By how much should the account payable be adjusted on May 31?

Purchase discount lost 600

Accounts payable 600

Response: Inventories allocated to another asset (example, self-constructed PPE) are recognized as

Correct answer: Inventories allocated to another asset (example, self-constructed PPE) are

Score: 1 out of 1 Yes