Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2) VMBM, CPA

Biological Assets
Farmland Company has different kinds of farm animals on January 1, 2013. During several acquisitions occurred
related to these farm animals. A detailed summary of these transactions is as follows:

Carrying amount on January 1, 2013:

15 Horses ( 1 year old ) 1,000,000
10 Dairy cattle ( 2 years old) 400,000
8 Carabaos (2.5 years old) 200,000
20 Hogs ( 3 years old ) 500,000

Purchases on June 30, 2013:

4 Dairy cattle ( 1 year old ) 150,000
6 Carabaos ( 6 months old ) 100,000

Fair value less cost of disposal on December 31, 2013:

15 Horses ( 1 year old ) 1,350,000
10 Dairy cattle ( 2 years old ) 580,000
8 Carabaos ( 2.5 years old ) 290,000
20 Hogs ( 3 years old ) 600,000
4 Dairy cattle ( 1 year old ) 200,000
6 Carabaos ( 6 months old ) 140,000

Fair value less cost of disposal on December 31, 2013:

15 Horses ( 2 years old ) 1,200,000
10 Dairy cattle ( 3 years old ) 520,000
8 Carabaos ( 3.5 years old ) 250,000
20 Hogs ( 4 years old ) 550,000
4 Dairy cattle ( 1.5 years old ) 170,000
6 Carabaos ( 1 year old ) 110,000

There were no farm animals sold during the year and neither were there any newborns nor deaths.
1. What is the carrying amount of the biological assets on December 31, 2013?
a. 3,160,000 b. 2,350,000 c. 2,800,000 d. 2,380,000

2. What is the gain from change in fair value attributable to price change?
a. 810,000 b. 450,000 c. 360,000 d. 700,000

3. What is the gain from change in fair value attributable to physical change?
a. 810,000 b. 450,000 c. 360,000 d. 700,000

4. What is the gain from change in fair value due to growth and price fluctuation?
a. 810,000 b. 450,000 c. 360,000 d. 700,000

Investments

I. Financial Assets @ Fair Value

5. Lagoon Company had trading and non trading investments held throughout 2013 and 2014. The non trading
investments are measured at fair value through other comprehensive income. The investments had a cost of
P3,000,000 for trading and P3,000,000 for non-trading. The investments had the following fair value at year-
end:
December 31, 2013 December 31, 2014
Trading 4,000,000 3,800,000
Nontrading 3,200,000 3,700,000

1. What amount of unrealized gain or loss should be reported in the income statement for 2014?
a. 200,000 gain b. 200,000 loss c. 300,000 gain d. 300,000 loss
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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #2) VMBM, CPA

2. What amount of unrealized gain or loss should be presented as component of other comprehensive income
on December 31, 2014?
a. 500,000 gain b. 500,000 loss c. 700,000 gain d. 700,000 loss

3. What amount of cumulative unrealized gain or loss should be reported as component of other comprehensive
income in the statement of changes in equity on December 31, 2014?
a. 500,000 gain b. 500,000 loss c. 700,000 gain d. 700,000 loss

6. On Jan 1, Jeff Company purchased nontrading equity securities

Purchase price Transaction cost Market -12/31/2014
Security A 1,000,000 100,000 1,200,000
Security B 2,000,000 200,000 1,400,000
Security C 4,000,000 400,000 4,100,000
On July 1 2015, the entity sold Security C for P4,900,000 incurring P100,000 in brokerage commission and taxes.

1. What is the initial cost to be reported by Jeff Company on Jan 1?

a. 7,000,000 b. 6,300,000 c. 7,700,000 d. 700,000

2. What amount of gain on sale should be recognized in 2015 if the securities are designated as measured at
FVTOCI?
a. 900,000 b. 600,000 c. 800,000 d. 700,000

3. What amount of gain on sale should be recognized in 2015 if the securities are classified as available for sale?
a. 700,000 b. 500,000 c. 600,000 d. 400,000

II. Investment in Equity Securities

7. Cecilia Company received dividends from ordinary share investments during the current year as follows:
 A stock dividend of 10,000 shares form A Company when the market price of the share was P10
 A cash dividend of P1,500,000 from B Company in which the entity owned a 15% interest.
 A 5,000 shares of C Company in lieu of cash dividend of P20 per share. The market price of the
share was P150. The entity had 5,000 shares of C company and owned 5% interest in C
Company.
 The entity received P600,000 liquidating dividend from D Company. The entity owned a 10%
interest in D Company
 The entity owned a 20% interest in E Company which declared and paid a P4,000,000 cash
dividend to shareholders on Dec 31.
 On Dec 1, the entity received from F Company a dividend in kind of one share of G Company for
every 4F Company shares held. The entity had 100,000 F Company shares which have a market
price of P50 per share on Dec 1. The market price of G Company share was P10.
What amount of dividend revenue should be reported for the current year?
a. 2,750,000 b. 3,900,000 c. 3,300,000 d. 3,100,000

8. Gerald Company owned 50,000 shares of another entity. These 50,000 shares were originally purchased for
P100 per share. On Oct 1 2014, the investee distributed 50,000 rights to the entity. The entity was entitled to
buy one new share for P!40 and five of these rights. On Oct 1 2014, each share had a market value of P150 and
each right had market value of P10. On Dec 31 214, the entity exercised all rights. The stock rights are accounted
for separately and measured initially at fair value. What total cost should be reported for the new shares that
are acquired by exercising the rights?
a. 1,400,000 b. 1,000,000 c. 1,650,000 d. 1,900,000

III. Investment in Associate

9. On July 1,2014 Mylove Company acquired 20% of the outstanding ordinary shares of another entity for
P5,000,000. The carrying amount of the acquired shares was P4,000,000. The excess of cost over carrying
amount was attributable to an identifiable intangible asset which was undervalued on the investee’s statement
of financial position and which had a remaining useful life of 5 years. The investee reported net income of
P6,000,000 for 2014 and paid cash dividends of P1,000,000 on ordinary shares and issued 10% stock dividend on
Dec 31 2014. What is the carrying amount of the investment in associate on Dec 31 2014?
a. 5,900,000 b. 5,400,000 c. 5,300,000 d. 5,800,000

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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #2) VMBM, CPA

10. On Jan2 2014, Praise Company purchased 25,000 shares of Maze Company’s 100,000 outstanding shares for
P300 per share. The book value Maze Company’s net asset is P29,000,000. The book value of Maze factory
equipment is P4,000,000 and its fair value is P5,000,000. The factory equipment has a remaining useful life of 10
years. All throughout the year 2014 the factory equipment was carried at carrying value.

On Dec 31 2014, Maze Company paid P2,000,000 cash dividends to its ordinary shareholders. Maze reported net
of tax income for the whole year in the amount of P4,500,000.

On Jan 1 2015, Maze Company revalued its equipment. At the time of revaluation the equipment has a carrying
value of P3,600,000 and a fair value of P4,500,000. The revaluation was made known to Praise Company.

For the year ended Dec 31, 2015, Maze Company reported a net of tax income of P5,000,000 and paid a cash
dividends of P2,800,000. Income tax rate is 32%.

What is the carrying value of the investment in Associate account of Praise Company as of Dec 31 2015?
a. 8,641,000 b. 8,658,000 c. 8,811,000 d. 8,883,000

11. On Jan 1 2014, Happy Company acquired 40% of the ordinary shares of an associate. On such date, assets and
liabilities of the investee were recorded at fair value and the acquisition showed that goodwill of P1,000,000 was
acquired. The investee reported net income of P8,000,000 for 2014.

In Dec 2014, the investee sold inventory costing P3,000,000 to Happy Company for P5,000,000. The inventory
remained unsold by Happy Company on Dec 31 2014.

On Jan 1 2014, the investee sold an equipment to Happy Company with carrying value of P2,500,000 for
P4,000,000. The remaining life of the equipment is 5 years.
a. 1,920,000 b. 1,800,000 c. 3,200,000 d. 2,400,000

12. Sad Company purchased 10% of Excited Company’s 100,000 outstanding ordinary shares on Jan 1 2013 for
P5,000,000. On Dec 31 2013, Sad purchased an additional 20,000 shares of Excited for P1,500,000. Excited had
not issued any additional shares during 2013. The investee reported earnings of P3,000,000 for 2013. The fair
value of the 10% interest is P900,000 on Dec 31 2013. What is the carrying amount of the investment on Dec 31
2013?
a. 2,300,000 b. 2,000,000 c. 2,900,000 d. 2,400,000

IV. Investment in Bonds

13. On July 1, 2014, Jude Company paid P1,198,000 for 10% bonds with a face amount of P1,000,000 to be held to
maturity. Interest is paid on June 30 and Dec 31. The bonds were purchased to yield 8%. The entity used the
effective interest method to recognize interest income from this investment. What is the carrying amount of the
bond investment on Dec 31 2014?
a. 1,207,900 b. 1,198,000 c. 1,195,920 d. 1,193,050

14. On Jan 1 2014, Isabel Company purchased bonds with face amount of P8,000,000 for P7,679,000 to be held to
maturity. The stated rate on the bonds is 10% but the bonds are acquired to yield 12%. The bonds mature at the
rate of P2,000,000 annually every Dec 31 and the interest is payable annually also every Dec 31. The entity used
the effective interest method of amortizing discount. What is the carrying amount of the bond investment?
a. 5,800,480 b. 5,759,250 c. 7,759,250 d. 7,800,480

15. On Jan 1 2014, Kristine Company purchased bonds with face amount of P5,000,000 for P5,500,000 including
transaction cost of P100,000. The bonds provide an effective yield of 10%. The bonds are dated Jan 1 2014,
mature on Jan 1 2019 and pay interest annually on Dec 31 of each year. The bonds are quoted at 115 on Dec 31
2014. The entity has irrevocably elected to use the fair value option.

1. What amount of gain from change in fair value should be reported for 2014?
a. 750,000 b. 250,000 c. 350,000 d. 0

2. What amount of interest income should be reported for 2014?

a. 600,000 b. 550,000 c. 660,000 d. 540,000

V. Investment Property and other Investments

16. Jessica Company and its subsidiaries provided the following properties owned by the group
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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #2) VMBM, CPA

Building under construction for use as investment 3,500,000

property
Equipment leased to an unrelated party under an 500,000
operating lease
Land leased to a subsidiary under an operating lease 1,500,000
Building owned by subsidiary and for which the 2,500,000
subsidiary provides security and maintenance services
to the lessees
Property held by a subsidiary, a real estate firm, in the 3,000,000
ordinary course of business
Property held for use in production 4,000,000
Vacant building to be leased out under an operating 2,000,000
lease
Land held for undetermined future use 1,000,000
In the separate statement of financial position of the parent and its subsidiaries, what total amount should be
reported as investment property?
a. 9,000,000 b. 10,500,000 c. 11,000,000 d. 8,000,000

17. On Jan 1 2011, Arwin Company purchased P2,000,000 ordinary life policy on its president. The entity reported
the following data for 2014
Cash surrender value, Jan 1 50,000
Cash surrender value, Dec 31 60,000
Annual advance premium paid on Jan 1 100,000
Dividend received on July 1 5,000

The entity is the beneficiary under the life insurance policy. What amount should be reported as life insurance
expense for 2014?
a. 100,000 b. 95,000 c. 85,000 d. 90,000

18. Jelline Company insured the life of its president for P2,000,000, the entity being the beneficiary of an ordinary
life insurance policy. The annual premium is P80,000 and the policy is dated Jan 1 2011. The entity reported the
following cash surrender value:
Dec 31 2013 15,000
Dec 31 2014 19,000
The president died on Oct 1 2014 and the policy is settled on Dec 31 2014. What amount should be reported as
gain on life insurance settlement for 2014?
a. 1,962,000 b. 2,000,000 c. 1,961,000 d. 1,981,000

Derivatives

19. On Jan 1 2014, Joseph Company received a four year P5,000,000 loan with interest payments occurring at the
end of each year and the principal to be repaid on Dec 31, 2017. The interest for 2014 is the prevailing market
rate of 10% on Jan 1 2014, and the market interest rate every Jan 1 resets the variable rate of interest for that
year. The underlying fixed interest rate is 10%. In conjunction with the loan, the entity entered into a “receive
variable, pay fixed” interest rate swap agreement as cash flow hedge. The interest swap payment will be made
on Dec 31 of each year. The market rate of interest is 6% on Jan 1 2015 and 8% on Jan 1 2016. The PV of an
ordinary annuity of 1 at 6% for three periods is 2.67 and the PV of an ordinary annuity of 1 at 8% for two periods
is 1.78.

What is the derivative asset or liability on Dec 31 2015?

a. 178,000 asset b. 178,000 liability c. 334,000 asset d. 334,000 liability

20. Mary Company operates a chain of seafood restaurants. On July 1 2014 the entity determined that it will need
to purchase 50,000 kilos of deluxe fish on July 1, 2015. Because of the volatile fluctuation in the price of deluxe
fish, on July 1 2014, the entity negotiated a forward contract as a cash flow hedge with a reputable bank to
purchase 50,000 kilos of deluxe fish on July 1 2015 at a strike price of P50 per kilo or P2,500,000. This derivative
forward contract provides that if the market price of deluxe fish on July 1 2015 is more that P50, the difference
is paid by the bank to the entity. On the other hand, if the market price on July 1 2015 is less than P%0, the
entity will pay the difference to the bank. The market price per kilo of the deluxe fish is P55 on Dec 31 2014 and
P52 on July 1 2015. What is the derivative asset or liability on Dec 31 2014?
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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #2) VMBM, CPA

a. 100,000 asset b. 100,000 liability c. 250,000 asset d. 250,000 liability

Property, Plant and Equipment

21. Ace Company had the following property acquisitions during the current year:
 On Jan 1 2014, the entity purchased a machine for P2,000,000 in exchange for a non interest bearing
note requiring four payments of P500,000. The first payment was made on Jan 1, 2014. The rate of
interest for this note at date of issuance was 10%. The present value of an ordinary annuity of 1 at 10%
is 3.17 for four periods. The present value of an annuity of 1 in advance at 10% is 3.49 for four periods.
 Exchanged an old machine costing P3,000,000 and 50% depreciated, for a used machine and paid a cash
difference of P500,000. The fair value of the old machine was determined to be at P1,800,000.
 Acquired a tract of land and building in exchange for 50,000 ordinary shares of P100 par value with a
market value of P120 per share on the date of acquisition. The last property tax bill indicated assessed
value of P1,200,000 for the land and P2,800,000 for the building. However, the land has a fair value of
P2,000,000 and the building has a fair value of P3,500,000.
 Received land from a major shareholder as an inducement to locate a plant in the city. No payment was
required but the entity paid P50,000 for legal expenses for land transfer. The land is fairly valued at
P1,000,000
 Acquired a welding machine with an invoice price of P3,000,000 subject to a cash discount of 10% which
was not taken. The entity incurred cost of P50,000 in removing the old welding machine prior to the
installation of the new one. Welding supplies were acquired at a cost of P150,000
 Entity purchased a machine for P500,00 down and four monthly installments of P1,250,000. The cash
price of the machine was P4,700,000

What is the total increase in property, plant and equipment?

a. 17,445,000 b. 18,245,000 c. 18,295,000 d. 17,945,000

22. Karlene Company and Erika Company are fuel oil distributors. To facilitate the delivery of oil to customers, the
two entities exchanged ownership of barrels of oil without physically moving the oil. Karlene paid Erika
P1,500,000 to compensate for a difference in the grade of oil. It was reliably determined that the configuration
of the cash flows of the asset received does not differ from the configuration of the cash flows of the asset
transferred. On the date of exchange, the oil inventory of Karlene has a carrying amount of P5,000,000 and fair
value of P7,000,000. The oil inventory of Erika Company has a carrying amount of P6,000,000 and a fair value of
P8,500,000. What amount should Karlene record as cost of the oil inventory received in exchange?
a. 4,500,000 b. 6,500,000 c. 7,000,000 d. 8,500,000

Government Grant

23. On Jan 2 2011, Brand Company received a grant of P60,000,000 to compensate it for costs it incurred in planting
trees over a period of five years. Brand Company will incur such cost in this manner:
Years 2011 2012 2013 2014 2015
COSTS P2,000,000 P4,000,000 P6,000,000 P8,000,000 P10,000,000
What amount of income should Brand Company recognize at the end of the year 2014?
a. 8,000,000 b. 12,000,000 c. 16,000,000 d. 20,000,000

24. On Jan 2 2011, Wink Milk Corporation received a grant of P20,000,000 to build and run a power plant in an
economically backward area. The secondary condition attached to the grant is that the entity should directly
distribute the necessary needed power to the area at a rate that is much lower than the prevailing power rate in
other advance areas. The power plant is to be depreciated using the straight line method over a period of 10
years.

The power plant was completed at the end of year 2011 at cost of P50,000,000 and started producing and
distributing power to the backward area at rate which is at par that the prevailing rates in other advance areas.

On July 1 2013, the government demanded from Wink Milk Corporation the repayment of the grant due to the
non fulfillment of the conditions.

1. What is the carrying value of the power plant as of July 1 2013, assuming at the time of initial recognition the
grant was recognized as a deferred income?
a. 40,000,000 b. 42,500,000 c. 45,000,000 d. 50,000,000

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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #2) VMBM, CPA

2. What is the carrying value of the power plant as of July 1 2013 assuming at the time of initial recognition the
grant received was recognized as a reduction of the related asset?
a. 40,000,000 b. 42,500,000 c. 45,000,000 d. 50,000,000

Borrowing Cost

25. During 2013, Joshua Company constructed asset costing P5,000,000. The weighted average expenditures totaled
P3,000,000. To help pay for construction, P2,200,000 was borrowed at 10% on Jan 1 2013, and funds not needed
for construction were temporarily invested in short term securities yielding P45,000 in interest revenue. Other
than the construction funds borrowed, the only other debt outstanding during the year was a P2,500,000. 10-
year, 9% note payable dated Jan 1 2010. What amount of interest should be capitalized during 2013?
a. 300,000 b. 150,000 c. 247,000 d. 472,000

26. David Company had loans outstanding during 2014 and 2015,
Specific construction loan 3,000,000 10%
General loan 25,000,000 12%

The entity began the self construction of a building on Jan 1 2014 and was completed on Dec 31 2015. The
following expenditures were made during 2014 and 2015:
Jan 1 2014 4,000,000
April 1 2014 5,000,000
Dec 1 2014 3,000,000
March 1 2015 6,000,000
1. What is the cost of the building to date December 31 2014?
a. 15,300,000 b. 12,900,000 c. 13,380,000 d. 12,880,000

2. What is the cost of the building on December 31 2015?

a. 18,000,000 b. 19,980,000 c. 20,988,000 d. 20,100,000

3. What is the cost of the building, assuming the building was completed on June 30 2015?
a. 18,000,000 b. 19,884,000 c. 20,868,000 d. 19,377,000

Land, Building, Machinery

27. Alex Company purchased a tract of land for P4,000,000 as a factory site. There was an old office building which
was demolished. The entity decided to construct a factory building and incurred the following costs:
Cost of demolishing old office building 300,000
Proceeds from sale of salvaged materials 20,000
Legal fees for purchase contract and recording 150,000
ownership
Architect fee 950,000
Materials and supplies 3,000,000
Excavation 100,000
Legal cost of conveying land 10,000
New fence surrounding building 200,000
Title guarantee insurance 50,000
Payment of property taxes in arrears 100,000
Option paid for an alternative land acquired 30,000
Special assessment for city improvements 120,000
Plans and specifications 140,000
Paving of streets and sidewalks 30,000
Cash discounts on materials purchased, not taken 60,000
Cost of trees, shrubs and other landscaping 250,000
Building permit 150,000
Survey before construction 50,000
Payment to tenants for vacating old building 15,000
Cost of grading, leveling and landfill 45,000
Driveways and walks to new building from street(part 40,000
of building plan)
Cost of open house party 40,000

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Accountancy Program
AIR- Cluster 1 (Drill #2) VMBM, CPA

1. What is the cost of the land?

a. 4,805,000 b. 4,655,000 c. 4,850,000 d.4,700,000

2. What is the cost of the building?

a. 4,320,000 b. 4,380,000 c. 4,370,000 d. 4,430,000

3. What is the cost of land improvement?

a. 690,000 b. 520,000 c. 480,000 d. 450,000

28. Sam Company acquired a machine and incurred the following costs:
Cash paid for machine, including VAT of P96,000 896,000
Cost of transporting machine 30,000
Cost of installation 50,000
Cost of testing machine 40,000
Cost of safety rails and platform surrounding machine 60,000
Cost of water device to keep machine cool 80,000
Cost of adjustment to make it operate more efficiently 75,000
Cost of repairing damage during installation 45,000
Cost of repairing damage to machine caused when the machine was
Dropped during installation 50,000
Cost of spare parts to cover breakdowns 155,000
Estimated dismantling cost to be incurred as required by contract 65,000
Insurance cost for the current year 15,000
Cost of training personnel who will use the machine 25,000

What total amount should be capitalized as cost of machine?

a. 1,400,000 b. 1,296,000 c. 1,200,000 d. 1,210,000

29. Anne Company incurred the following expenditures:

Continuing, frequent, and low cost repairs 350,000
Painting partitions in a large room recently divided into 50,000
four sections
A broken gear on a machine was replaced 50,000
Renovation of a group of machine to secure greater 500,000
efficiency in production over their remaining five year
useful lives. The project was completed on Dec 31
Replacement of old shingle roof with a fireproof tile 296,000
roof
Major improvements to the electrical wiring system 300,000
Dust filters in the interior of the factory were replaced. 800,000
The new filters are expected to reduce employee
health hazards and thus reduce wage and fringe
benefit costs
Sealing of roof leaks in production area 80,000
How much should be charged to repairs and maintenance in 2014?
a. 2,426,000 b. 530,000 c. 826,000 d. 1,626,000

Depreciation

30. Shaw Company purchased a machine for P504,000 that was placed in service on March 1 2014. Additional costs
incurred to bring the asset to its location and prepare for its intended use were: shipping, P4,000 and installation
and testing cost, P6,000. The estimated useful life of the asset was 10 years and has an estimated salvage value
of P34,000. What amount of depreciation should be recognized for the year ended Dec 31 2014
a. 40,000 b. 42,000 c. 44,000 d. 48,000

31. On Jan 2 2012, Phosphorus Company acquired equipment to be used in its manufacturing operations. The
equipment has an estimated useful life of 10 years and an estimated salvage value of P50,000. The depreciation
applicable to this equipment was P240,000 for 2014 computed under the sum-of-years digit method. What was
the acquisition cost of the equipment?
a. 1,650,000 b. 1,700,000 c. 2,400,000 d. 2,450,000

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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #2) VMBM, CPA

32. Bataan Company purchased machinery that was installed and ready for use on Jan 2 2013 at a total cost of
P9600,00. Salvage value was estimated at P160,000. The machinery will be depreciated over five years using the
double declining balance method. How much should be recorded as depreciation on this machinery for the year
2014?
a. 100,000 b. 192,000 c. 230,400 d. 384,000

33. Faithful Company purchased an equipment on Jan 2 2012 for P3,000,000. The equipment had an estimated
useful life of 5 years. The company’s policy is to depreciate the asset using the 200% declining balance in the
first two years of the asset’s life and then switch to the straight line method for the remaining useful life asset.
What is the total accumulated depreciation as of Dec 31, 2014?
a. 1,800,000 b. 2,280,000 c. 2,352,000 d. 2,520,000

Depletion

34. Mistress Company has the following information pertaining to its mining operations:
Estimated cost of restoring property after mining is 400,000
completed
Number of tons mined during the current year 50,000 tons
Cost of land 6,000,000
Estimated number of tons of ore to be mined 400,000
Sales value of land after mining 300,000
Development costs incurred 500,000
Number of tons sold during the current year 35,000 tons
Cost of production (excluding depletion) P7.00
The company already recognized the estimated restoration cost immediately after the resource property was
acquired. How much would be the company’s cost of goods sold?
a. 525,000 b. 603,700 c. 787,500 d. 822,500

35. In 2012, Hopeless Company paid P4,000,000 to purchase land containing a total estimated 160,000 tons of
extractable mineral deposits. The estimated value of the property after the mineral has been removed is
P800,000. Extraction activities began in 2013 and by the end of the year, 20,000 tons had been recovered and
sold. In 2014, geological studies indicated that total amount of mineral deposits had been underestimated by
60,000 tons. During 2014, 30,000 tons were extracted, and 28,000 tons were sold. What is the depletion rate per
ton in 2014?
a. 12.73 b. 14.00 c. 15.56 d. 20.00

36. On July 1 2014, Trisha Company purchased the rights to a mine for P13,200,000, of which P1,200,000 was
allocable to the land. Estimated reserves were 1,500,000 tons. The entity expects to extract and sell 25,000 tons
per month. The entity purchased mining equipment on July 1 2014 for P9,500,000. The mining equipment had a
useful life of 8 years. However, after all the resource is removed, the equipment will be of no use and will be
sold for P500,000

1. What is the depletion for 2014?

a. 2,400,000 b. 1,200,000 c. 2,640,000 d. 1,320,000

2. What is the depreciation for 2014?

a. 1,800,000 b. 1,125,000 c. 900,000 d. 562,500

37. Rona Company provided the following balances on Dec 31 2014:

Wasting asset at cost 40,000,000
Accumulated depletion 15,000,000
Capital liquidated 5,000,000
Retained earnings 10,000,000
Depletion based on 100,000 units extracted at P30 3,000,000
per unit
Inventory of resource deposit (20,000 units) 2,000,000
What is the maximum dividend that can be declared on Dec 31 2014?
a. 19,600,000 b. 25,000,000 c. 20,000,000 d. 19,400,000

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Accountancy Program
AIR- Cluster 1 (Drill #2) VMBM, CPA

Revaluation and Impairment

38. King Company acquired a building on Jan 1 2011 at a cost of P20,000,000. The building had a useful life of 6
years and a residual value of P2,000,000. The building was revalued on Jan 1 2014 and the revaluation revealed
replacement cost of P30,000,000, residual value of P4,000,000 and revised useful life of 8 years from date of
acquisition. The income tax rate is 30%. What is the revaluation surplus on Dec 31 2014?
a. 6,000,000 b. 3,360,000 c. 2,800,000 d. 4,200,000

39. On January 1 2014, Alma Company showed land with carrying amount of P10,000,000 and building with cost of
P60,000,000 and accumulated depreciation of P18,000,000. The land and building were revalued on same date
and revealed the fair value of land at P15,000,000 and the building at P70,000,000. The original useful life is 20
years and depreciation is computed on the straight line. The income tax rate is 30%. What is the revaluation
surplus on December 31 2014?
a. 33,000,000 b. 23,100,000 c. 21,450,000 d. 21,700,000

40. On Jan 1 2014, Roxanne Company purchased equipment with cost of P10,000,000, useful life of 10 years and no
residual value. The entity used the straight line depreciation. On Dec 31 2014 and Dec 31 2015, the entity
determined that impairment indicators are present. There is no change in useful life or residual value. The
following information is available for impairment testing at each year end:

Dec 31 2014 Dec 31 2015

Fair value less cost of disposal 8,100,000 8,400,000
Value in use 8,550,000 8,200,000

1. What is the impairment loss for 2014?

a. 900,000 b. 600,000 c. 450,000 d. 0

2. What is the gain on reversal of impairment for 2015?

a. 400,000 b. 800,000 c. 600,000 d. 0

3. What is the depreciation for 2016?

a. 1,000,000 b. 1,050,000 c. 1,025,000 d. 950,000

Intangible Assets

41. On Jan 1 2012, Echo Company purchased a patent from an original patentee for P2,400,000. The remaining legal
life of the patent is 15 years but the useful life is only 12 years. On Jan 1 2013, the entity paid P550,000 in
successfully defending the patent in an infringement suit filed against the entity. On Jan 1 2014, the entity
acquired a competing patent for P1,500,000. The competing patent has a remaining legal life of 15 years but it is
not to be used because it was intended to protect the original patent. What is the carrying amount of the patent
on Dec 31 2014?
a. 3,500,000 b. 3,600,000 c. 3,200,000 d. 3,150,000

42. On Jan 2 2009, Wind Company bought a trademark for P500,000. The remaining legal life at the time of
acquisition is 20 years. The company made a reasonable and reliable estimate that this trademark will provide
additional cash flows to the enterprise for an indefinite period. During 2012, Wind Company’s net cash flows
related to the trademark have been on a decreasing trend. As a result of this, the company decided to evaluate
the trademark for possible impairment. On Dec 31 2012, reliable estimate showed that the present value of
expected net cash inflows related to the trademark is P240,000. What amount of impairment loss should the
company recognize in 2012?
a. 0 b. 240,000 c. 260,000 d. 500,000

43. On Jan 1 2011, Fire Company signed a 12 year lease for a building. The entity has an option to renew the lease
for an additional 6 year period on or before Jan 1 2015. During Jan 2014, the entity made substantial
improvement to the building. The cost of the improvement was P4,500,000 with an estimated useful life of 10
years. On Dec 31 2014, the entity intended to exercise the renewal option. The entity has taken a full year
depreciation on this improvement. On Dec 31 2014, what is the carrying amount of the leasehold improvement?
a. 4,500,000 b. 4,050,000 c. 4,200,000 d. 4,000,000

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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #2) VMBM, CPA

44. Earth Company incurred the following costs during the year ended Dec 31 2012:

Quality control during commercial production including 150,000

routine testing of products
Laboratory research aimed at discovery of new 180,000
knowledge
Routine on-going efforts to refine, enrich and improve 125,000
upon the qualities of an existing product
Design, construction, and testing of pre-production 110,000
prototypes and models
Trouble shooting in connection with breakdowns 450,000
during production
Modification for the formulation of a chemical product 405,000
Compensation paid to research consultants 200,000
Research and development costs reimbursable under a 350,000
contract to perform research and development for
Earth Company
Seasonal or other periodic design changes to existing 645,000
products
How much research and development costs Earth Company incur in 2012?
a. 895,000 b. 1,245,000 c. 1,395,000 d. 1,520,000

End of Drill #2 

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