FAR05 - Practice Problems July - August

No. 125 Brgy.
San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : icarecpareview@gmail.com
FINANCIAL ACCOUNTING AND REPORTING
For Numbers 1 to 3
On December 31, 2022, Ella Company’s only cash generating unit was tested for impairment. Information to
the assets of the cash generating unit is presented below:
Building 2,500,000
Equipment 1,500,000
Machinery 1,000,000
Goodwill 500,000
It was determined that the cash generating unit has a recoverable amount of P3,500,000 and the building’s
fair value is P2,000,000.
1. What is the impairment loss to be recognized on the building?

a. 750,000
b. 800,000
c. 500,000
d. 700,000
2. What is the impairment loss to be recognized on the equipment?

a. 900,000
b. 450,000
c. 400,000
d. 600,000
3. What is the impairment loss to be recognized on the machinery?

a. 400,000
b. 900,000
c. 600,000
d. 300,000
4. Simone Company engaged your services to compute the goodwill in the purchase of Barker Company
January 1, 2023, which provided the following:
Net income Net assets

2019 1,400,000 6,000,000
2020 1,600,000 8,000,000
2021 2,000,000 8,800,000
2022 2,200,000 9,200,000
It is agreed that goodwill is measured by capitalizing excess earnings at 25% with normal return on average
net assets at 15%. How much is the purchase price for Barker Company?
a. 11,600,000
b. 10,400,000
c. 11,200,000
d. 11,000,000
5. In December 2022, Barney Company exchanged an old machine, which cost P6,000,000 and 50%
depreciated, for a used machine and paid a cash difference of P1,500,000. There is a substantial difference
with the cash flows associated to both machines exchanged. The fair value of the old machine was
determined to be P2,000,000. What is the cost of the new machine to Barney?
a. 2,000,000
b. 3,000,000
c. 3,500,000
d. 6,000,000
1|P a g e TSIY/RSORIANO/BVILLALUZ/JBINALUYO
No. 125 Brgy. San Sebastian
Mobile : 0927 283 8234
Telephone : (043) 723 8412
6. Shanghai Company purchased another entity for P8,000,000 cash. The acquiree had total liabilities of
P3,000,000. Shanghai Company’s assessment of the fair value it obtained when it purchased the other entity
is as follows:
Cash 1,000,000
Inventory 500,000
In-process research and development 5,000,000
Assembled workforce 1,200,000
What is the goodwill arising from the acquisition?

a. 4,500,000
b. 3,300,000
c. 1,500,000
d. 300,000
For Numbers 7 to 9
Byron Company provided the following data in its memorandum records for a defined benefit plan on January
1, 2021.
Fair value of plan assets 7,000,000

Projected benefit obligation (8,000,000)
Prepaid/accrued benefit cost (1,000,000)
The transactions affecting the defined benefit plan for 2022 of Byron Company are as follows:
Current service cost 1,400,000

Past service cost 500,000
Contribution to the plan 1,200,000
Benefits paid to retirees 1,500,000
Actual return on plan assets 600,000
Increase in projected benefit obligation due to changes
in actuarial assumptions 300,000
Present value of benefit obligation settled 1,000,000
Settlement price of benefit obligation 800,000
Discount rate 10%
Expected rate of return 15%
7. What is the 2022 total employee benefit expense?

a. 2,700,000
b. 2,200,000
c. 1,800,000
d. 2,000,000
8. What is the net remeasurement gain or loss to be recognized in 2022?

a. 400,000 loss
b. 400,000 gain
c. 200,000 loss
d. 200,000 gain
9. What is the total or net defined benefit cost for 2022?

a. 2,000,000
b. 2,300,000
c. 2,200,000
d. 1,400,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
10.Nerissa Company purchased new machinery on account as well as incurring the following cost:
Invoice price of the machinery 3,000,000

Cash discount not taken on the purchase 150,000
Freight on new machine 50,000
Insurance during freight 40,000
Cost of moving old machinery to a new location 5,000
Installation cost of new machine 30,000
Testing cost before new machine before new machine
was put into regular operation 80,000
Operating cost during the first month of regular use 300,000
The total cost to be capitalized as part of the new machinery is

a. 2,960,000
b. 2,970,000
c. 3,050,000
d. 3,260,000
For Numbers 11 and 12

Louise Company leased equipment from Robert Company on July 1, 2021, for an eight-year period expiring
June 30, 2029. Equal annual payments under the lease are P800,000 and are due on July 1 of each year. The
first payment was made on July 1, 2021. The rate of interest contemplated by Louise and Robert is 8%. The
cash-selling price of the equipment is P4,965,000 and the cost of the equipment on Robert's accounting records
was P4,200,000. The lease is appropriately recorded as a sale for accounting purposes by Robert.
11. What is the amount of profit on the sale and the interest income that Robert would record for the year
ended December 31, 2021?
a. 765,000 and 0
b. 382,500 and 166,600
c. 765,000 and 166,600
d. 765,000 and 333,200
12. What is the carrying amount of the lease receivable on December 31, 2021?
a. 4,165,000
b. 5,600,000
c. 4,331,600
d. 4,562,200
13. The third year of a construction project began with a P30,000,000 balance in Construction in Progress.
Included in that figure is 6,000,000 of interest capitalized in the first two years. Construction expenditures
during the third year were P80,000,000 which were incurred evenly throughout the entire year. The
company has had over P300,000,000 in interest-bearing debt outstanding the third year, at a weighted
average rate of 9 percent. How much interest for the third year is capitalized?
a. 3,600,000
b. 6,300,000
c. 9,360,000
d. 9,900,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
For Number 14 to 17
Glynne Company is a dealer in machinery. On January 1, 2021, machinery was leased to another enterprise
with the following provisions:
Annual rental payable at the end of each year 2,000,000

Lease term 5 years
Useful life of machinery 6 years
Cost of machinery 5,000,000
Residual value - guaranteed 1,000,000
Implicit interest rate 10%
PV of an ordinary annuity of 1 for 5 periods at 10% 3.79
PV of 1 for 5 periods at 10% 0.62
At the end of the lease term on December 31, 2025, the machinery will be returned to Glynne. The perpetual
inventory system is used. Glynne incurred initial direct costs of P200,000 in finalizing the lease agreement.
14. What is the total financial revenue from the lease from the lease transaction?
a. 2,800,000
b. 1,800,000
c. 3,000,000
d. 3,200,000
15. What amount of profit on the sale should Glynne Company report?
a. 3,200,000
b. 3,000,000
c. 2,000,000
d. 2,500,000
16. What amount of interest income should Glynne Company report in 2021?
a. 758,000
b. 820,000
c. 555,000
d. 920,000
17. What is the total income to be reported by Glynne from this lease in 2021?
a. 3,000,000
b. 2,800,000
c. 3,820,000
d. 820,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
18. On January 1, 2022, Heritage Company has a note payable to bank in the amount of P2,800,000.
Transactions during 2022 and other information relating to liabilities are:
▪ Principal amount of the note payable to bank is P2,800,000 and bears a 12% interest. The note is dated
April 1, 2021 and is payable in four equal annual installments beginning April 1, 2022. The first principal
and interest payment were made during the year.
▪ On July 1, 2022, Heritage Company issued for P1,774,000 a P2,000,000 face amount note to a it’s
supplier, dated July 1, 2022 and matures in one year. No explicit interest rate is stated on the note and
the entire face amount of the note is payable at maturity date.
▪ P5,000,000, 10% face amount serial bonds were issued on October 1, 2022. Interest is payable annually.
The bonds mature in five equal installments due on October 1, with the last payment to be made due on
October 1, 2028.
What is the total current liabilities on December 31, 2022?

a. 2,860,000
b. 2,901,000
c. 2,788,000
d. 3,901,000
19. Rowell Corporation is in the process of completing its financial statements for 2022. On January 3, 2023, a
fire at a production facility of Rowell resulted in serious injuries and permanent disability on several of
Rowell’s employees. Rowell’s insurance policy does not cover personal injuries caused by fires. The
affected employees and union have filed for damages totaling P12,000,000. Rowell’s legal counsels believe
it is probable that the company will have to pay for an estimated amount in the range of P8,000,000 to
P10,000,000, with all amounts in the range considered to be equally likely. In its December 31, 2022,
financial statements, what amount should Rowell report as provision for employees’ damage claims?
a. 8,000,000
b. 9.000,000
c. 12,000,000
d. 0
20.Omega Company exchanged a car from its inventory for a computer to be used as a noncurrent operating
asset. The following information relates to this exchange that took place on July 31, 2019:
Carrying amount of the car P 300,000

Listed selling price of the car 450,000
Fair value of the computer 430,000
Cash difference paid by Omega 50,000
On July 31, 2019, how much is the gain that should be recognized by Omega on this exchange?
a. 0
b. 80,000
c. 100,000
d. 130,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
21.Ricardo Company and Leonardo Company are fuel oil distributors. To facilitate the delivery of oil to
customers, Ricardo and Leonardo exchanged ownership of 5,000 barrels of oil without physically moving the
oil. Ricardo paid Leonardo P2,000,000 to compensate for a difference in the grade of oil. It was reliably
determined that the exchange lacks commercial substance because 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, cost and fair value of oil were:
Ricardo Company Leonardo Company

Cost 45,000,000 40,000,000
Fair value 51,000,000 53,000,000
Ricardo should record the oil inventory received in exchange at

a. 45,000,000
b. 47,000,000
c. 51,000,000
d. 53,000,000
For Numbers 22 to 25
Audimar Company finished construction of its building on January 1, 2019 at a total cost of P25,000,000. The
building was depreciated over its estimated useful life of 20 years using the straight-line method with no
residual value.
The building was subsequently revalued on January 1, 2023 and the revaluation report showed that the asset
had a replacement cost of P32,000,000 and was determined to have no change in its useful life.
On January 1, 2024, the building was tested for recoverability and the fair value was determined to be
P18,000,000 on this date, with no change on its remaining useful life.
22. What amount of revaluation surplus will be recognized on January 1, 2023?

a. 5,600,000
b. 3,920,000
c. 3,675,000
d. 5,250,000
23. What is the revaluation surplus on December 31, 2023?

a. 3,675,000
b. 8,400,000
c. 7,875,000
d. 5,250,000
24. What amount of impairment loss shall be recognized in 2024?

a. 750,000
b. 6,000,000
c. 2,325,000
d. 4,000,000
25. What is the depreciation on the building for the year ended December 31, 2024?
a. 1,125,000
b. 1,200,000
c. 1,600,000
d. 2,000,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
26.On January 1, 2022, Union Company received a grant of P10,000,000 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, P1,000,000, P2,000,000,
P2,000,000 and P3,000,000. How much income from the government grant should be recognized in 2022,?
a. 1,000,000
b. 1,250,000
c. 2,000,000
d. 10,000,000

On January 1, 2019, Carroll Company received a grant of P1,000,000 from the Philippine Government for the
construction of a laboratory and research facility with a total cost of P6 million and a useful life 5 years and a
residual value of P500,000. The facility was completed in early of 2019. Carroll Company recorded the grant
as deferred revenue upon the receipt.
27. What should Carroll Company include in its 2019 income statement an income from the government
grant?
a. 500,000
b. 240,000
c. 200,000
d. 100,000
28. If the grant becomes repayable in full in 2021 because Carroll is not able to comply with the conditions
required for the grant, what is the amount of loss to be recognized in the income statement?
a. 1,000,000
b. 600,000
c. 500,000
d. 400,000
29.On April 1, 2018, Ofelia Company bought machinery under a contract that required a down payment of
P500,000 plus 24 monthly payments of P300,000 for total payments of P7,700,000. The cash price of the
machinery was P6,500,000. The machinery has an estimated useful life of four years and estimated residual
value of P500,000. Ofelia uses SYD method of depreciation. In its 2019 income statement, what amount
should Ofelia report as depreciation for this machinery?
a. 1,800,000 c. 2,275,000
b. 1,950,000 d. 2,400,000
30.Tudor Company had the following loans outstanding during the years 2018 and 2019:
Specific construction loan P 2,000,000 10%

General loan 15,000,000 12%
The company began self-construction of a building on January 1, 2018 and was completed on December 31,
2019. The following expenditures were made during 2018 and 2019:
January 1, 2018 P 2,000,000

July 1, 2018 4,000,000
November 1, 2018 3,000,000
July 1, 2019 1,000,000
P 10,000,000
What is the total cost of the building on December 31, 2019?

a. 11,700,000
b. 11,660,000
c. 10,840,000
d. 10,000,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Julia Financing Company leases equipment to customers under a direct financing lease arrangement for a
noncancelable period of at least 10 years. On January 1, 2021, Julia purchased an equipment for P8,300,000
and immediately leased it to another company for 10 years. Lease payments of P1,200,000 are to be collected
at the beginning of each year and Julia expects to earn 9% interest on leases. Julia incurs P100,000 of initial
direct cost in connection with the lease. The lease transfers the ownership of the asset to the lessee.
31.What is the total financial revenue to be earned by Julia in this lease?

a. 3,000,000
b. 2,600,000
c. 3,600,000
d. 2,400,000
32. What is the financial revenue in 2021?

a. 648,000
b. 756,000
c. 1,080,000
d. 500,000
33. What is the carrying amount of the lease receivable to be presented in Julia’ statement of financial
position on December 31, 2021?
a. 10,800,000
b. 9,600,000
c. 9,156,000
d. 7,848,000
34. Fahrenheit Company has an incentive compensation plan under which the president receives a bonus equal
to 10 percent of the company's income after deductions for bonus and income taxes. Income before bonus
and income taxes is P9,585,000. The income tax rate is 35 percent. How much is Fahrenheit’s net income?
a. 5,607,225 c. 5,850,000
b. 4,850,000 d. 5,250,000
35.Ross Company had the following outstanding loans during 2018 and 2019:
Specific construction loan P 3,000,000 10%

General loan 25,000,000 12%
Ross Company began the self-construction of a new building on January 1, 2018 and building was completed
on September 30, 2019. The following expenditures were made in 2018 and 2019:
January 1, 2018 P 4,000,000

April 1, 2018 5,000,000
December 1, 2018 3,000,000
July 1, 2019 6,000,000
What is the total cost of the new building on September 30, 2019?
a. 18,700,000
b. 18,900,000
c. 20,196,000
d. 20,260,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412

The following expenditures were incurred by Rolex Company in 2022:
Purchase of land with existing building 10,500,000

Fair value of old building 500,000
Land survey 400,000
Fees for title search for title of land 300,000
Building permit 250,000
Temporary quarters for construction crews 100,000
Payments of tenants of old building
for vacating the premises 600,000
Payment to demolition company to raze the
old building and clean up 400,000
Excavating basement 350,000
Special assessment tax for street project 60,000
Salvage value of materials from old building 110,000
Damages awarded for injuries sustained in construction 90,000
Costs of construction 20,000,000
Cost of paving parking lot adjoining the building 180,000
Cost of shrubs, trees and other landscaping 40,000
36. What is the cost of the land?

a. 11,860,000
b. 11,750,000
c. 11,690,000
d. 10,760,000
37. What is the cost of the building?

a. 21,590,000
b. 20,970,000
c. 20,880,000
d. 20,700,000
On January 1, 2022, Joey Company provided the following data in connection with its defined benefit plan:
Fair value of plan assets 12,000,000

Projected benefit obligation 15,500,000
Prepaid /accrued benefit cost ( 3,500,000)
The accountant revealed the following information affecting the plan in 2022:
Current service cost 3,000,000

Past service cost – remaining vesting period of
employees covered by the plan is 5 years 1,275,000
Contribution to the plan 6,500,000
Benefits paid to retirees 5,000,000
Actual return on plan assets 2,000,000
Decrease in projected benefit obligation due to
changes in actuarial assumptions 600,000
Settlement discount interest rate 15%
38. What is the 2022 total employee benefit expense?

a. 4,800,000 c. 3,800,000
b. 5,000,000 d. 4,600,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
39. What is the remeasurement gain to be recognized in other comprehensive income in 2022?
a. 900,000
b. 800,000
c. 500,000
d. 600,000
40. What is the total or net defined benefit cost for 2022?
a. 2,800,000
b. 5,700,000
c. 4,000,000
d. 5,600,000
41. What is the fair value of plan assets on December 31, 2022?
a. 12,000,000
b. 15,000,000
c. 16,500,000
d. 15,500,000
42. What is the projected benefit obligation on December 31, 2022?
a. 14,800,000
b. 15,500,000
c. 17,800,000
d. 16,500,000
43. What is the balance of the prepaid/accrued cost account on December 31, 2022?
a. 1,000,000 accrued
b. 2,500,000 prepaid
c. 1,000,000 prepaid
d. 1,500,000 accrued
44.Paula Company has decided to expand its operations and has purchased land with a dilapidated building in
Quezon City for construction of a new manufacturing plant. The following costs were incurred in purchasing
the property and constructing the building:
Land purchase price 2,500,000

Payment of delinquent property taxes 100,000
Title search and insurance 50,000
Special assessment for city improvements
for water and sewer 150,000
Building permit 30,000
Cost to destroy existing building (P10,000 worth
of salvaged material used in new building) 60,000
Contract cost of new building 7,000,000
Land improvements 500,000
Sidewalks and parking lot 200,000
Fire insurance on building – 1 year 40,000
The depreciated value of the old building on the books of the company from which the land was purchased
was P300,000. The old building was never used by Paula. What is the cost of the land?
a. 3,050,000
b. 2,850,000
c. 2,800,000
d. 2,700,000
10 | P a g e TSIY/RSORIANO/BVILLALUZ/JBINALUYO
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Swatch Company leased equipment for its entire nine-year useful life, agreeing to pay P1,000,000 at the start
of the lease term on January 1, 2021, and P1,000,000 annually on each January 1, for the next eight years. The
present value on January 1, 2021, of the nine lease payments over the lease term, using the rate implicit in the
lease which Swatch knows to be 10% was P6,330,000. The January 1, 2021, present value of the lease
payments using Swatch’s incremental borrowing rate of 12% was P5,970,000. Swatch made a timely second
lease payment on January 1, 2022.
45.What is the balance of the finance lease liability on December 31, 2021?
a. 6,330,000
b. 5,330,000
c. 5,970,000
d. 4,970,000
46. What is the 2022 interest expense?

a. 496,300
b. 596,300
c. 486,300
d. 547,968
47. What amount should Swatch report as finance lease liability in its December 31, 2022, statement of
financial position?
a. 4,863,000
b. 5,963,000
c. 4,963,000
d. 3,863,000
48. What is the current lease liability on December 31, 2022?

a. 486,300
b. 467,000
c. 525,200
d. 513,700
49. Candy Company, a division of Realty Company maintains escrow accounts and pays real estate taxes for
mortgage customers. Escrow funds are kept in interest-bearing accounts. Interest, less a 10% service fee, is
credited to the mortgagee’s account and used to reduce future escrow payments. Additional information
follows:
Escrow accounts liability, 1/1/2022 700,000

Escrow payments received during 2022 1,580,000
Real estate taxes paid during 2022 1,720,000
Interest on escrow funds during 2022 50,000
What amount should Candy report as escrow accounts liability in its December 31, 2022, balance sheet?
a. 510,000
b. 515,000
c. 605,000
d. 610,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
On January 1, 2022, Jacob Company received a grant of P800,000 from a Foreign Government for the
acquisition of an equipment to be used for research activities with regard to environmental concerns. The
equipment was placed into activity early in 2022. Jacob Company recorded the grant as a deduction toward the
capital cost of the equipment. The equipment cost Jacob at a gross amount of P4,000,000 with a residual value
of P200,000 at the end of its 5-year useful life.
Jacob however was not able to comply with the strict requirements of the foreign government and was required
to pay the total amount of the grant in full in 2024.
50. How much is the depreciation expense in 2022?

a. 760,000
b. 640,000
c. 600,000
d. 500,000

a. 600,000
b. 920,000
c. 1,080,000
d. 1,200,000

a. 600,000
b. 760,000
c. 800,000
d. 960,000
53. Humble Company incurred the following costs during 2022:
Quality control during commercial production,

including routine testing of products 500,000
Laboratory research aimed at discovery
of new knowledge 700,000
Testing for evaluation of new products 300,000
Engineering follow-through in an early 1,000,000
phase commercial production
Adaptation of an existing capability to a particular requirement
or customer’s need as part of continuing commercial activity 200,000
Troubleshooting in connection with breakdowns
during commercial production 800,000
Searching for application of new research findings 450,000
What was Humble Company’s research and development expense for 2022?
a. 2,150,000
b. 1,450,000
c. 700,000
d. 1,150,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Mille Company provided the following information regarding its defined benefit plan during 2021:
Jan. 1 Dec. 31
Fair value of plan assets 8,000,000 10,300,000
Projected benefit obligation 6,000,000 7,500,000
Prepaid/accrued benefit cost - surplus 2,000,000 2,800,000
Asset ceiling 1,200,000 1,300,000
Effect of asset ceiling 800,000 1,500,000
During the current year, the entity recognized current service cost of P900,000, past service cost of
P600,000, actual return on plan assets of P2,000,000, an increase in the PBO of P300,000 due to changes
in actuarial assumptions, benefits paid of 1,200,000 and contribution to the plan of P1,500,000. The discount
rate is 15%.
54. What is the increase in the effect of the asset ceiling in 2021?
a. 700,000
b. 300,000
c. 100,000
d. 800,000
55. What is the employee benefit expense for the current year?
a. 1,200,000
b. 400,000
c. 1,280,000
d. 1,380,000
56. What is the net remeasurement gain or loss in 2021?
a. 200,000 loss
b. 120,000 loss
c. 800,000 gain
d. 580,000 gain
57. What is prepaid benefit cost to be presented on December 31, 2021?
a. 2,800,000
b. 2,000,000
c. 1,300,000
d. 1, 500,000
58. Sherrie Company purchased Houston Company for P7,500,000 cash. A schedule of the market value of
Houston’s assets and liabilities as of the purchase date follows.
Cash 50,000
Accounts receivable 800,000
Inventory 1,350,000
Property, plant and equipment 4,300,000 6,500,000
Current liabilities 800,000

Note payable – bank (long-term) 1,200,000 2,000,000
Net asset market value 4,500,000
What amount of goodwill shall recognize goodwill from the acquisition?

a. 1,000,000
b. 3,000,000
c. 950,000
d. 0
Mobile : 0927 283 8234
Telephone : (043) 723 8412
59. In September 2023, lawyers for current and former employees of Hublot Company filed a P3,000,000 class
action lawsuit, alleging that exposure to radiation has caused significant medical problems. Lawyers for
Hublot are uncertain as to the outcome of the case. However, similar lawsuits against other firms in the
same industry have resulted in significant payments by the employer but there was no reliable estimate as
to the amount. In Hublot’s December 31, 2023, financial statements, which were issued on April 30, 2024,
how much should item be reported?
a. An accrual of P3,000,000
b. No disclosure or accrual is necessary
c. A disclosure indicating a possible loss of P3,000,000
d. If the payment can be estimated, a liability should be recognized, but if the amount of expected payment
cannot be estimated, only a note disclosure would be required.
60. On January 1, 2021, Splash Company leased a building to Palace Company under an operating lease for
three years at P6,000,000 per year, payable the first day of each lease year. Splash paid P1,500,000 to a
real estate broker as a finder’s fee. The building is depreciated P600,000 per year. For 2021, Splash incurred
property tax expense totaling P300,000. What is the net rental income for 2021?
a. 4,600,000
b. 6,000,000
c. 5,100,000
d. 4,500,000
The following account balances relating to property, plant and equipment of Daryl Company appear on the books
on December 31, 2019:
Land 6,000,000
Building 60,000,000
Accumulated depreciation 24,000,000
Plant, property and equipment have been carried at cost since their acquisition. The land was acquired 15
years ago while the building’s construction was completed on January 1, 2010. The straight-line method for
depreciation is used and the building is depreciated over its 25-year useful life with no residual value. On
January 1, 2020, the company revalued property, plant, and equipment. On the same date, contracted
professional appraisers submitted the following information regarding the fair value of the land and the
building:
Land 9,000,000
Building 48,000,000
61. What is the revaluation surplus on January 1, 2020?

a. 15,000,000
b. 13,000,000
c. 10,000,000
d. 8,000,000
62. What is the revaluation surplus on December 31, 2020?
a. 14,000,000
b. 13,800,000
c. 14,200,000
d. 11,600,000
a. 3,000,000
b. 4,000,000
c. 5,000,000
d. 3,200,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
64. On December 31, 2022, Pacific Corporation has an outstanding P4,000,000 note payable which is due on
April 31, 2023. On December 1, 2022, Pacific, signed an agreement to borrow up to P4,000,000 to refinance
the note payable on a long-term basis with no payments due until 2012. The financing agreement stipulated
that borrowing may not exceed 80% of the value of the collateral Pacific was providing. At the date of
issuance of the December 31, 2022 financial statements, the value of the collateral was P4,500,000 and is
not expected to fall below this amount during 2023. What amount of the note payable can be classified as a
current liability in Pacific Corporation’s December 31, 2022, balance sheet?
a. 400,000
b. 3,600,000
c. 4,000,000
d. 0
65. On January 1, 2023, Kris Company acquired the following intangible assets:
* A trademark for P2,000,000. The trademark has 8 years remaining in its legal life.
It is anticipated that the trademark will be renewed in the future indefinitely, without
a problem.
* A patent for P4,000,000. Because of market conditions, it is expected that the

patent will have an economic life for just 5 years, although the remaining legal life
is ten years.
Because of a decline in the economy, the trademark us now expected to generate cash flows of just P120,000
per year. The useful life of the trademark still extends beyond the foreseeable horizon. The cash flows
expected to be generated by the patent are P500,000 annually for each of the next 4 years. The appropriate
discount rate for all intangible assets is 8%. The present value 1 at 8% for four periods is .74 and the present
value of an ordinary annuity of 1 at 8% for four periods is 3.31. What is the total impairment loss for the
intangible assets?
a. 2,045,000
b. 1,545,000
c. 2,845,000
d. 1,980,000
On January 1, 2022, Hamilton Company leased a machine. The lease requires Hamilton to make five annual
payments of P2,000,000 beginning January 1, 2022. At the end of the lease term on December 31, 2026,
Hamilton guarantees the residual value of the automobiles at P500,000. The interest rate implicit in the lease is
12% and present value factors are as follows:
For an annuity due with 5 payments 4.04

For an ordinary annuity with 5 payments 3.60
Present value of 1 for 5 periods 0.57
66. What is the finance lease liability immediately after the first required payment?
a. 6,080,000
b. 6,365,000
c. 5,485,000
d. 5,128,800
67. What is the 2023 interest expense?

a. 763,800
b. 615,456
c. 969,600
d. 729,600
Mobile : 0927 283 8234
Telephone : (043) 723 8412
68. What is the lease liability on December 31, 2023?

a. 3,744,256
b. 5,128,800
c. 5,774,256
d. 7,128,800
69. What is the current lease liability on December 31, 2023?

a. 1,384,544
b. 2,000,000
c. 1,236,200
d. 1,270,400
Cotton Company acquired a building on January 1, 2018 at a cost of P20,000,000. The building has an
estimated life of 10 years and residual value of P4,000,000. The building was revalued on January 1, 2022 and
the revaluation revealed replacement cost of P30,000,000, residual value of P5,000,000 and revised life of 12
years. The entity’s tax rate is 30%
70. What is the revaluation surplus on January 1, 2022?
a. 6,400,000
b. 3,900,000
c. 2,730,000
d. 4,480,000
71 What is the revaluation surplus on December 31, 2022?

a. 3,920,000
b. 5,600,000
c. 3,412,500
d. 2,388,750
a. 1,600,000
b. 1,875,000
c. 2,500,000
d. 2,000,000
73. On December 31, 2019, Carrie Company determined that there had been a significant decrease in
market value of its equipment. On December 31, 2019, Carrie compiled the following information concerning
the equipment:
Original cost 10,000,000

Expected undiscounted net future cash inflows from the
continued use and eventual disposal 6,000,000
Expected discounted net future cash inflows from the
continued use and eventual disposal 4,800,000
Fair value less cost to sell 4,000,000
What is the impairment loss that should be reported in the 2019 income statement?
a. 1,500,000
b. 3,000,000
c. 1,000,000
d. 2,200,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
74.Breguet Company acquired a welding machine with an invoice price of P3,000,000 subject to a cash discount
of 5% which was not taken. Breguet incurred freight and insurance during shipment of P50,000 and testing
and installation cost of P200,000. Breguet also incurred cost of P20,000 in removing the old welding machine
prior to the installation of the new one. Welding supplies were acquired at a cost of P100,000. The VAT on
the acquisition is P360,000. What is the cost of the new welding machine?
a. 3,100,000
b. 3,220,000
c. 3,250,000
d. 3,400,000
75. Casio Company had purchased equipment for P10,000,000 on January 1, 2019. The equipment had a
10-year life and a residual value of 500,000. Casio Company depreciated the equipment using the straight-
line method. On December 31, 2020, Everlast questioned the recoverability of the carrying amount of this
equipment. On December 31, 2020, the undiscounted expected net future cash flows related to the
continued use and eventual disposal of the equipment totaled P6,000,000. The equipment’s fair value less
cost to sell on December 31, 2020 is P4,500,000, while the discounted cash flows related to the equipment
is P5,000,000. After the asset was tested for impairment, it was determined that the useful life did not
change with no residual value. What is the carrying value of the equipment on December 31, 2021?
a. 4,375,000
b. 3,937,500
c. 7,150,000
d. 5,250,000
76. Caliber Company reported an impairment loss of P4,000,000 in its income statement for the year ended
2019. This loss was related to an item of property, plant and equipment which was acquired on January 1,
2018, with cost of P25,000,000, useful life of 10 years and no residual value. On the December 31, 2019,
statement of financial position, Caliber reported this asset at P16,000,000 which is the fair value on such
date. On December 31, 2020, Caliber determined that the fair value of its impaired asset had increased to
P19,000,000. The straight-line method is used in recording depreciation of this asset. What amount of gain
on impairment recovery should Caliber report in its 2020 income statement?
a. 5,000,000
b. 3,500,000
c. 1,500,000
d. 0
77.On January 1, 2019, Tiger Company acquired equipment to be used in its manufacturing operations. The
equipment has an estimated useful life of 5 year and an estimated residual value of P200,000. The
depreciation applicable to this equipment was P900,000 for 2021 computed under the sum of years’ digits
method. What was the acquisition cost of the equipment?
a. 4,300,000
b. 4,500,000
c. 4,700,000
d. 5,000,000

As an inducement to enter a lease, Honor Company, a lessor, grants Taco Company, a lessee, six months of
free rent under a five-year operating lease. The lease is effective on July 1, 2020, and provides for monthly rental
of P250,000 to begin January 1, 2021.
78. What is the rental income for the year ended June 30, 2021?
a. 3,000,000
b. 2,700,000
c. 1,200,000
d. 1,500,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
79. What is the rent receivable for the year ended June 30, 2022?
a. 900,000
b. 1,200,000
c. 600,000
d. 300,000
Breitling Company leased equipment from Wellington Company on January 1, 2021 under a lease with the
following pertinent information:
Annual rental payable at the end of each year 500,000

Lease term 7 years
Useful life of equipment 10 years
PV of an ordinary annuity of 1 for 7 periods at 11% 4.71
Present value of 1 for 7 periods at 11% 0.48
Breitling has the option to purchase the machine on January 1, 2028 by paying P400,000 that is deemed to
be reasonable certain. On January 1, 2021, Breitling paid a lease bonus of P350,000. The lease incentive
received was P200,000. Breitling also incurred initial direct costs of P50,000. Breitling uses the straight-line
method of depreciation for all its assets with no expected residual value.
80. What is the cost of THE RIGHT OF USE ASSET at the inception of the lease?
a. 2,547,000
b. 2,747,000
c. 2,355,000
d. 2,643,000
81. What is the balance of the total lease liability on December 31, 2021?
a. 2,547,000
b. 2,047,000
c. 2,327,170
d. 2,549,170
82. What is the current portion of this lease liability on December 31, 2021?
a. 500,000
b. 244,011
c. 219,830
d. 255,989
83. What is the depreciation expense for 2021 assuming no residual value?
a. 254,700
b. 363,857
c. 274,700
d. 392,428
Mobile : 0927 283 8234
Telephone : (043) 723 8412
84. Phillipe Company uses the composite method of depreciation and has a composite rate of 25%. During
2019, it sold assets with an original cost of P500,000 and a residual value of P100,000 for P300,000 and
eventually acquired P900,000 of new assets with a residual value of P150,000. Information regarding the
original group of assets as of January 1, 2019 is presented below:
Total cost 5,000,000

Total residual value 800,000
What was the depreciation expense recorded by Phillipe Company in 2019?

a. 1,000,000
b. 1,100,000
c. 1,312,500
d. 1,350,000

Sophie Company is in the business of leasing new sophisticated equipment. As a lessor, Sophie expects a 12%
return on its net investment with payments made in advance. All leases are classified as direct financing leases.
At the end of the lease term, the equipment’s ownership is not transferred to the lessee. On January 1, 2021,
equipment is leased to a lessee with the following information:
Cost of equipment to Sophie 5,250,000
Residual value – unguaranteed 600,000
Useful life and lease term 8 years
Present value of an annuity due at 12% for 8 periods 5.564
Present value of 1 at 12% for 8 periods .404
85. What is the annual rent payable in advance?

a. 900,000
b. 850,000
c. 1,000,000
d. 1,200,000
86. What is the total financial revenue from the direct financing lease transaction?
a. 2,550,000
b. 1,550,000
c. 1,950,000
d. 1,200,000
87. Journe Company acquired two items of machinery as follows:
• On December 30, 2022, Journe Company purchased a machine in exchange for a non-interest- bearing
note requiring three payments of P1,000,000. The first payment was made on December 30, 2023, and
the others are due annually on December 30. The prevailing rate of interest for this type of note at date
of issuance was 12%. The present value of an ordinary annuity of 1 at 12% is 1.69 for two periods and
2.40 for three periods. The new machine was damaged during its installation and the repair cost
amounted to P50,000.
• On January 1, 2022, Journe Company acquired used machinery by issuing the seller a three-year,
noninterest-bearing note for P4,000,000. In recent borrowing, Journe has paid a 12% interest for this
type of note. The present value of 1 at 12% for 3 years is .71.
What is the total cost of both machines?

a. 4,530,000
b. 4,580,000
c. 4,820,000
d. 5,240,000
Mobile : 0927 283 8234
Telephone : (043) 723 8412
88.In 2022, Vacheron Company incurred the following costs that are related with its research and development
activities:
Direct costs of doing contract R&D work for the local

government to be reimbursed by the LGU 5,000,000
Research and development costs not included in the above were:

Depreciation 4,000,000
Salaries 2,000,000
Materials 1,500,000
Utilities 900,000
Indirect cost appropriately allocated 300,000
What was Vacheron’s total research and development expense in 2022?

a. 8,700,000
b. 9,700,000
c. 13,700,000
d. 12,500,000
89.On January 1, 2020, Trina Company after incurring P5,000,000 worth of extensive research and development
for their new product line, registered Patent A at a cost of P800,000. Due to the competitive nature of Trina’s
industry, it was assessed that the useful life of the patent was only eight years. Since that time, Trina’s
competitors had taken strides in developing product lines that would equal Trina’s breakthrough.
It was only on December 31, 2022, that Trina took action to protect itself and purchased Patent B, the most
immediate threat to Patent A’s survival at a cost of P2,000,000. The value of Patent B was evident because
Trina’s product engineers estimated that the remaining useful life of Patent B was ten years from the date of
acquisition. What is the total amortization expense recorded by Trina in 2023?
a. 500,000
b. 300,000
c. 250,000
d. 1,125,000
90.Zenith Company entered into a P10,000,000 fixed contract with Constructors Company on January 1, 2022,
for the construction of a new building. On January 1, 2022, Zenith obtained a loan of P10,000,000 at an
interest rate of 12% to finance specifically the construction. Withdrawal from the loan may be made quarterly
at unequal amounts. Actual interest incurred for 2022 was P900,000. Prior to their disbursement, the proceeds
from the loan were temporarily invested and earned interest income of P50,000. The building was completed
on December 31, 2022. Additional costs incurred during the construction were P200,000 for plans,
specifications, and blueprint, and P350,000 for architectural design and supervision. What is the cost of the
building?
a. 11,450,000
b. 11,400,000
c. 10,550,000
d. 10,000,000
END

FAR05 - Practice Problems July - August

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FAR05 - Practice Problems July - August

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No. 125 Brgy.

FINANCIAL ACCOUNTING AND REPORTING

1. What is the impairment loss to be recognized on the building?

2. What is the impairment loss to be recognized on the equipment?

3. What is the impairment loss to be recognized on the machinery?

Net income Net assets

What is the goodwill arising from the acquisition?

Fair value of plan assets 7,000,000

Current service cost 1,400,000

7. What is the 2022 total employee benefit expense?

8. What is the net remeasurement gain or loss to be recognized in 2022?

9. What is the total or net defined benefit cost for 2022?

Invoice price of the machinery 3,000,000

The total cost to be capitalized as part of the new machinery is

For Numbers 11 and 12

Annual rental payable at the end of each year 2,000,000

What is the total current liabilities on December 31, 2022?

Carrying amount of the car P 300,000

Ricardo Company Leonardo Company

Ricardo should record the oil inventory received in exchange at

22. What amount of revaluation surplus will be recognized on January 1, 2023?

23. What is the revaluation surplus on December 31, 2023?

24. What amount of impairment loss shall be recognized in 2024?

For Numbers 27 and 28

Specific construction loan P 2,000,000 10%

January 1, 2018 P 2,000,000

What is the total cost of the building on December 31, 2019?

31.What is the total financial revenue to be earned by Julia in this lease?

32. What is the financial revenue in 2021?

Specific construction loan P 3,000,000 10%

January 1, 2018 P 4,000,000

For Numbers 36 and 37

Purchase of land with existing building 10,500,000

36. What is the cost of the land?

37. What is the cost of the building?

Fair value of plan assets 12,000,000

Current service cost 3,000,000

38. What is the 2022 total employee benefit expense?

Land purchase price 2,500,000

46. What is the 2022 interest expense?

48. What is the current lease liability on December 31, 2022?

Escrow accounts liability, 1/1/2022 700,000

50. How much is the depreciation expense in 2022?

51. How much is the depreciation expense in 2024?

52. How much is the depreciation expense in 2023?

53. Humble Company incurred the following costs during 2022:

Quality control during commercial production,

Current liabilities 800,000

What amount of goodwill shall recognize goodwill from the acquisition?

61. What is the revaluation surplus on January 1, 2020?

* A patent for P4,000,000. Because of market conditions, it is expected that the

For an annuity due with 5 payments 4.04

67. What is the 2023 interest expense?

68. What is the lease liability on December 31, 2023?

69. What is the current lease liability on December 31, 2023?

71 What is the revaluation surplus on December 31, 2022?

Original cost 10,000,000

For Numbers 78 and 79

Annual rental payable at the end of each year 500,000

Total cost 5,000,000

What was the depreciation expense recorded by Phillipe Company in 2019?

For Numbers 85 and 86

85. What is the annual rent payable in advance?

87. Journe Company acquired two items of machinery as follows: