INTERMEDIATE ACCOUNTING I

REMOVAL EXAM

1. Why are inventories stated at lower-of-cost-or-net realizable value?

a. To report a loss when there is a decrease in the future utility.
b. To be conservative
c. To report a loss when there is a decrease in the future utility below the original cost
d. To permit future profits to be recognized

2. Which of the following is not an acceptable method of applying the lower-of-cost-or-net realizable value method to
inventory?
a. Inventory location b. Groups of inventory items c. Individual item d. Total of the inventory

3. Commodity broker-traders
a. Produce or raise commodities such as corn, wheat, or precious metals
b Hold their inventory primarily to sell the commodities in the near term and generate a profit from price fluctuations
c. Value their inventories at the lower-of-cost-or-net realizable value (LCNRV)
d All of the choices are correct regarding broker-traders

4. Why is the allowance method preferred over the direct write-off method of accounting for bad debts?
a. Allowance method is used for tax purposes
b Estimates are used
c. Determining worthless accounts under direct write-off method is difficult to do
d. Improved matching of bad debt expense with revenue

5. Which of the following is true when accounts receivable are factored without recourse?
a. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of
the transaction
b The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables
c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables
d. The financing cost (interest expense) should be recognized ratably over the collection period of the receivables

6. IFRS requires all of the following when classifying receivables except

a. Indicate the receivables classified as current and non-current in the statement of financial position
b Disclose any receivables pledged as collateral
c. Disclose all significant concentrations of credit risk arising from receivables
d. All of these answer choices are required by IFRS when classifying receivables

7. Sun Inc. factors P2,000,000 of its accounts receivables without guarantee (recourse) for a finance charge of 5%. The
finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. What would be
recorded by Sun as a gain (loss) on the transfer of receivables?
a. Loss of P100,000 b Gain of P100,000 c. Loss of P300,000 d. Loss of P200,000

8. If the month-end bank statement shows a balance of P36,000, outstanding checks are P12,000, a deposit of P4,000
was in transit at month end, and a check for P500 was erroneously charged by the bank against the account, the
correct balance in the bank account at month end is
a. P27,500 b P28,500 c. P20,500. d. P43,500

9. You were retained by Gotesco Corporation on April 1, 2020 to estimate the inventory destroyed in a recent fire. The
company’s markup on cost is 40%. The following information is obtained from available records: Inventory, January 1,
P600,000; Gross purchases From January 1 to March
31 were P1,500,000, freight-in, P50,000, purchase returns and allowances, P20,000. Gross sales for the same period
were P2,280,000, sales returns were P40,000, while sales discounts were P15,000. Undamaged goods before the fire
cost P100,000. Damaged goods costing P80,000 were sold for P65,000.

How much is the inventory fire loss?

a. 530,000 b. 375,714 c. 365,000 d. 350,000

10. The books of Manila's Service, Inc. disclosed a cash balance of P687,570 on December 31, 2021. The bank
statement as of December 31 showed a balance of P547,800. Additional information that might be useful in
reconciling the two balances follows:
(a) Check number 748 for P30,000 was originally recorded on the books as P45,000.
(b) A customer's note dated September 25 was discounted on October 12. The note was dishonored on
December 29 (maturity date). The bank charged Manila's account for P142,650, including a protest
fee of P2,650.
(c) The deposit of December 24 was recorded on the books as P28,950, but it wasactually a
deposit of P27,000.
(d) Outstanding checks totaled P98,850 as of December 31.
(e) There were bank service charges for December of P2,100 not yet recorded on thebooks.
(f) Manila's account had been charged on December 26 for a customer's NSF check forP12,960.
(g) Manila properly deposited P6,000 on December 3 that was not recorded by the bank.
(h) Receipts of December 31 for P134,250 were recorded by the bank on January 2.
(i) A bank memo stated that a customer's note for P45,000 and interest of P1,650 hadbeen
collected on December 27, and the bank charged a P360 collection fee.
Adjusted cash in bank balance is
a. P512,400 b. P577,200 c. P583,200 d. P589,200

11. The following accounts were taken from Cervantes Inc.’s statement of financial position at December 31,
2021.
Debit Credit
Accounts receivable P4,100,000
Allowance for doubtful accountsNet 100,000
credit sales P7,500,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense tobe reported
for 2021.
a. P 23,000 b. P123,000 c. P223,000 d. P225,000
12. Saver Corp. established a savings account for building construction by making annual deposits of P800,000
at the beginning of each of six years to a savings account paying 8%. At the end of the sixth year, the account
balance was transferred to a bank paying 10%, and annual deposits of P800,000 were made at the end of each
year from the seventh through the tenth years. What was the account balance at the end of the tenth year?
a. P12,992,617 b. P12,305,193 c. P12,228,056 d. P11,589,274

13. According to PAS 41, biological assets are measured as follows:

Initial measurement Subsequent measurement
a. fair value less costs to sell fair value less costs to sell
b. cost cost less accumulated depreciation
c. cost cost less accumulated depreciation and impairment losses
d. fair value less costs to sell cost

14. The Fatima Corporation's inventory at December 31, 2021, was P325,000 based on a physicalcount priced
at cost, and before any necessary adjustment for the following:

• Merchandise costing P30,000, shipped F.o.b. shipping point from a vendor on December 30, 2021,
was received on January 5, 2022.
• Merchandise costing P22,000, shipped F.o.b. destination from a vendor on December 28,2021,
was received on January 3, 2022.
• Merchandise costing P38,000 was shipped to a customer F.o.b. destination on December28,
arrived at the customer's location on January 6, 2022.
• Merchandise costing P12,000 was being held on consignment by Club Company.
What amount should Fatima Corporation report as inventory in its December 31, 2021,statement of
financial position?
a. P367,000 b. P427,000 c. P405,000 d. P325,000

15. On December 3, Francis Company purchased inventory listed at P8,600 from Lyn Corp. Termsof the purchase
were 3/10, n/20. Francis Company also purchased inventory from Duck Company on December 10 for a list
price of P7,500. Terms of the purchase were 3/10, n/30.On December 16, Francis paid both suppliers for these
purchases. If Francis uses the net method of recording purchases, the journal entry to record the payment on
December 16 will include

a. A debit to Accounts payable of P15,875. C. A credit to Purchase Discounts of P258.

b. A debit to Purchase Discounts Lost of P258. D. A credit to Cash of P15,617.

16. The trial balance of Krea Company showed inventories of P164,000. The inventories includesome goods
that have a production cost of P18,000. These goods have a manufacturing defect that will cost P6,000 to correct.
The normal selling price for these goods would be P25,000, but after the remedial work they will be sold
through an agent as refurbished goods at a discount of 20% on the normal selling price. The agent will receive
a commission of 10% ofthe reduced selling price. In relation to the defective goods, the company will recognize
a losson inventory write down of
a. P6,000 b. P4,000 c. P1,000 d. P 0

17. Humility Corporation had the following items listed in its trial balance at 12/31/21:
Currency and coins P 650
Balance in checking account 2,600
Customer checks waiting to be deposited 1,200
Treasury bills, purchased on 11/2/21, mature on 4/30/22 3,000
Marketable equity securities 10,200
Commercial paper, purchased on 11/2/21, mature on 1/30/22 5,000
What amount will Humility include in its year-end statement of financial position as cash and cash equivalents?
a. P9,450 b. P7,450 c. P12,450 d. P19,650

18. Raptors Corporation sold a machine on January 1, 2021. The cash price of the machine is P1,000,000. The
buyer signed a deferred payment contract that provides for a down paymentof P200,000 and an 8-year note
bearing interest at 10%. The note is to be paid in 8 equal annual payments inclusive of interest. The payments are
made on December 31 of each year,beginning December 31, 2021. In its December 31, 2021 statement of financial
position, whatamount should Raptors report as note receivable?
a. P700,000 b. P720,000 c. P730,000 d. P780,000

19. On June 1, 2021, 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 Dec. 31,
2021 should be
a. P12,000,000 b. P10,391,103 c. P10,372,655 d. P10,368,965

20. On Dec. 28, 2021, Joanna Corp. commits itself to purchase a financial asset to be classified asFA at AC for
P1,000,000, its fair value on commitment (trade) date. This security has a fair value of P1,002,000 and
P1,005,000 on Dec. 31, 2021 (Joanna's financial year-end), and Jan.5, 2022 (settlement date), respectively. If
Joanna applies the settlement date accounting method to account for regular-way purchases of its securities,
the financial asset should be recognized on January 5, 2022 at
a. P1,000,000 b. P1,002,000 c. P1,005,000 d. P 0

21. Designation as a financial asset at fair value through other comprehensive income applies to
c. Debt investments b. Equity investments c. Both a and b d. Neither a nor b

22. Laoag Corp.’s accounting records showed the following investments in ordinary shares at Jan. 1, 2021:

Jang Corp. (1,000 shares) P 500,000

Geum Corp. (5,000 shares) 5,000,000

Laoag owns 1% of Jang and 30% of Geum. During the year ended Dec. 31, 2021, Laoag received cash dividends
of P350,000 from Jang and P750,000 from Geum, whose 2021 profit were P4,000,000 and P10,000,000
respectively.
The total income from investments in ordinary shares in 2021 is
a. P3,350,000 b. P1,100,000 c. P4,100,000 d. P3,000,000

23. The Hanwell Company acquired a 30% equity interest in The Northfield Company for P400,000on Jan. 1, 2020.
In the year to Dec. 31, 2020, Northfield earned profits of P80,000 and paid nodividend. In the year to Dec. 31, 2021,
Northfield incurred losses of P32,000 and paid a dividend of P10,000.
In Hanwell's statement of financial position at Dec. 31, 2021, what should be the carrying amountof its interest in
Northfield?
a. P438,000 b. P411,400 c. P414,400 d. P400,000

24. Bungee Co. is a calendar-year retailer. Its year-end physical count of inventory on hand did not consider the
effects of the following transactions:
• Goods with a cost of P50,000 were shipped by Bungee FOB shipping point on December 30 and
were tendered to and accepted by the buyer on Jan. 4.
• Goods with a cost of P40,000 were shipped FOB destination by a vendor on Dec. 30 and were
tendered to and accepted by Bungee on Jan. 4.
• Goods were sold on the installment basis by Bungee. Installment receivables representing sales of
goods with a cost of P30,000 were reported at year-end. Bungee retains title to such goods until full
payment is made.
• Goods with a cost of P20,000 were held on consignment for a vendor. These goods were excluded
from the count although they were sold in Jan.
If inventory based solely on the physical count of items on hand equaled P1,000,000. Bungee should report
inventory at year-end of
a. P1,000,000 b. P1,070,000 c. P1,040,000 d. P1,020,000
25. A physical inventory taken on Dec. 31, 2022 resulted in an ending inventory of P1,440,000. Sun
Company suspects some inventory may have been taken by employees. To estimate the cost of missing
inventory,the following were gathered:
Inventory, Dec. 31, 2021 P1,280,000
Purchases during 2022 5,640,000
Cash sales during 2022 1,400,000
Shipment received on Dec. 26, 2022, included in physical inventory, but not
recorded as purchases 40,000
Deposits made with suppliers, entered as purchases. Goods were not
received in 2022 80,000
Collections on accounts receivable, 2022 7,200,000
Accounts receivable, Jan. 1, 2022 1,000,000
Accounts receivable, Dec. 31, 2022 1,200,000
Gross profit percentage on sales 40%
At Dec. 31, 2022 what is the estimated cost of missing inventory?
a. P200,000 b. P160,000 c. P240,000 d. P320,000

26. 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 Oct. 31 should be:
a. P13,980 b. P12,780 c. P11,180 d. P10,960

27. Lemonade Corp. had a 1/1/22 balance in the Allowance for Doubtful Accounts of P10,000. During
2022, it wrote off P7,200 of accounts and collected P2,100 on accounts previously written off. The
balance in Accounts Receivable was P200,000 at 1/1 and P240,000 at 12/31. At 12/31/22, Lemonade
estimates that 5% of accounts receivable will prove to be uncollectible. What is Doubtful Accounts
Expense for 2022?
a. P2,000 b. P7,100 c. P 9,200 d. P12,000

28. Rafaela Corp. has P3,000,000 note receivable from sale of equipment bearing interest at 12% per
annum. The note is dated June 1, 2021. The note is payable in 3 annual installments of P1,000,000 plus
interest on the unpaid balance every June 1. The initial principal and interest payment was made on June 1,
2022.
The interest income for 2022 is
a. P360,000 b. P310,000 c. P300,000 d. P290,000

29. When bonds are acquired at a premium and the effective interest method is used, at each interest payment
date, the interest income:
a. Remains constant. b. Is equal to the change in book value. c. Increases. d. Decreases.

30. The following information pertains to investment in ordinary shares of Entity X:

• Dec. 1, 2021 - acquired ordinary shares of Entity A for P200,000. The transaction costs paid were P3,000.
• Dec. 31, 2021 - the fair value of the investment was P208,000 and the transaction costs that
would beincurred on sale were estimated at P3,200.
• Mar. 31, 2022 - sold the investment for its fair value of P220,000. The transaction costs paid were P3,300.
Compute for the gain on sale of investment on Mar. 31, 2022.
a. P 8,700 b. P11,900 c. P12,000 d. P15,200
31. On Dec. 28, 2022, Eric Company commits itself to purchase a financial asset to be classified as held for
trading for P500,000, its fair value on commitment (trade) date. This security has a fair value of P505,000
and P510,000 on Dec. 31, 2022 (Eric's financial year-end), and January 5, 2023 (settlement date),
respectively.
If Eric applies the settlement date accounting method to account for regular-way purchases of its securities,
how much should be recognized as fair value adjustment gain in its 2022 profit or loss?
A. P15,000 B. P10,000 C. P5,000 D. Nil

32. Tanjiro Company reported the checkbook balance at December 31, 2021 was P123,450. In addition, Tanjiro held
the following items in its safe on that date. Check payable to Tanjiro, deposited December 15 and included in December
31 checkbook balance, but returned by the bank on December 30 stamped “NSF”. The check was redeposited on
January 2, 2022 and cleared on January 9, 2022. – P12,500; Check payable to Tanjiro dated January 2, 2022 in payment
of a sale made in December 2021, not included in December 31 checkbook balance – P15,000; Check drawn on
Tanjiro’s account, payable to a vendor, dated and recorded in Tanjiro’s books on December 31, but not mailed until
January 10, 2022.
What is the amount of cash in Tanjiro’s December 31, 2021 balance sheet?
A. P127,675 B. P123,450 C. P119,225 D. P104,225

33. The following statements are based on PAS 38 (Intangible Assets):

Statement I: Internally generated goodwill shall not be recognized as an asset.

Statement II: No intangible asset arising from research or research phase of an internal project shall be
recognized.
Statement III: Internally generated brands, mastheads, publishing titles, customer lists and itemssimilar in
substance shall be recognized as intangible assets.
a. All of the statements are true b. Only statement I is true c. Only statement II is false d. Only statement III is false

34. The following statements are based on PAS 40 (Investment Property):

Statement I: An investment property is a property held to earn rentals or for capital appreciation or
both.
Statement II: An investment property shall be measured initially at costs. Transaction costs shall be
excluded in the initial measurement.
Statement III: Under the fair value model, a gain or loss arising from a change in the fair value of
investment property shall be recognized in profit or loss for the period in which it arises.
a. All of the statements are true b. Only statement I is true c. Only statement II is false d. Only statement III is false

35. An entry debiting inventory and crediting cost of goods sold would be made when
a. Merchandise is sold and the perpetual inventory is used.
b. Merchandise is sold and the periodic inventory method is used.
c. Merchandise is returned and the periodic inventory method is used.
d. Merchandise is returned and the perpetual inventory method is used.

36. Which of the following is false about erroneous bank charge?

a. Cash balance per bank is understated c. It should be recorded as a debit to cash in bank account
b. Disbursements per bank is overstated d. It should be added to balance per bank in preparing bank reconciliation

37. The statement of financial position may include unrealized gains and losses from which type of
investment securities?
a. FVPL only b. FVOCI only c. FVPL & FVOCI d. FVPLOCI
38. Which receivable financing arrangements do not result to a debit or credit to accounts receivable?
a. Pledging and Assignment b. a. Factoring and Discounting c. Discounting and Pledging d. Assignment and Factoring
A revaluation increase shall be recognized as income
a. Always
b. When the asset revalued for the first time
c. When the asset is revalued frequently than usual
d. When it reverses a revaluation decrease (impairment loss) of the same assetpreviously recognized as expense

39. The following statements are based on PAS 28 (Investment in Associate):

Statement I: An investment in an associate shall be accounted for using the equity method or fair
value method or the cost model
Statement II: An investor shall discontinue the use of equity method from the date when it ceases
to have significant influence over an associate and shall account for the investment in accordance
withPFRS 9.
Statement III: On the loss of significant influence, the investor shall measure at historical cost
anyinvestment the investor retains in the former associate.
a. Only statement I is false b. Only statement II is true c. Only statement III is true d. All of the statements are false

40. Which of the following is not true in relation to bearer plant?

a. It is a living plant that has a remote likelihood of being sold as agricultural produce,except for incidental scrap
sales
b. The bearer plant and the related agricultural produce are accounted as two separateassets
c. Plants which have a dual use or exclusive to be harvested as agricultural produce is not abearer plant
d. Bearer plant should be measured initially at fair value less estimated cost ofdisposal

41. Transactions and other information relating to GMAC Company’s Notes Receivable were as follows:
➢ Face value of the Notes Receivable from Company A is P2,800,000 and bears interest at 15%. The note is
dated April 1, 2019 and is payable in four equal annual installments of P700,000 beginning April 1, 2020.
The first principal and interest payment were made on April 1, 2020.
➢ On July 1, 2020, GMAC Company received a ten-year, P2,000,000 face value notes from Company C. The
note bears interest at 10% and the market interest rate of similar notes on July 1, 2020 was 12%. The
present value of the note on July 1, 2020, was P1,774,000. Interest is payable every July 1.
How much is the interest receivable on December 31, 2020?
a. P336,250 b. P236,250 c. P342,690 d. P441,250
42. The following information pertains to the living plant and agricultural produce of Iron Company. On
January 1, 2020, the cost of the living plant was P20,000,000 with an estimated useful life of 10 years. The
company is using the straight-line method of depreciation. As of December 31, 2020, Iron Company
determines the following:
Fair value of the fruits before the harvest on December 31, 2020 P5,000,000
Estimated cost to sell of the fruit 100,000
Estimated cost to sell of the living plant 500,000
With the assistance of valuation experts, Iron Company determines that the fair value of the living plant
including the fruit as of December 31, 2020 is P26,000,000.
How much is the carrying value of the living plant on December 31, 2020 under PAS 16?
a. 18,000,000 b. 20,000,000 c. 20,500,000 d. 25,400,000

43. On January 1, 2017, Red Company acquired 40,000 shares of the 160,000 shares outstanding of Pula
Company at P100 per share. Red also paid transaction cost of P100,000. During the year, Pula reported net
income of P2,000,000 and distributed dividends of P10 per share. On December 31, 2017, the management
of Red company determined that the fair value of investment in Pula Company was P4,300,000.
How much is the carrying value of Investment on December 31, 2017?
a. 4,300,000 b. 4,200,000 c. 4,100,000 d. 3,800,000

44. Aguinaldo Company has the following property items at December 31, 2017:
Land which at the date of acquisition is not intended for any specific use in the future P1,000,000
Land held for future plant site 2,000,000
Building in process of construction intended to be leased under operating leases 8,000,000
Building being leased out under finance lease 2,500,000
Equipment being leased under operating leases 1,500,000
Condominium building that is being constructed intended for sale in
the ordinary course of business 5,000,000
Building constructed on behalf of a third party 4,500,000
Building being leased out under operating lease, an
insignificant portion is used for administrative purposes 6,000,000
Property interest in a building leased from Emilio Corp. that is being subleased to others from which significant
rental income is derived 3,500,000
Hotel building owned which significant services are provide to the guests 7,000,000
How much should be classified as investment properties at Dec. 31, 2017?
a. 25,500,000 b. 18,500,000 c. 15,000,000 d. 23,000,000

45. Laser Corporation’s January 1, 2019 balances of its Machinery and Accumulated Depreciation- Machinery
accounts were P5,400,000 and P2,300,000 respectively. On April 30, 2019, the Corporation acquired a new machine
with a list price of P1,800,000; trade discount of 10%, 5%; term 1/10,n/30 and was paid beyond the discount
period. Another machine with an invoice cost of P800,000 was purchased on May 30, 2019 and the Corporation
incurred freight and insurance amounting to P20,000 while the machine is in transit.

What is the balance of the account Machinery on December 31, 2019?

a. 820,000 b. 1,523,610 c. 2,343,610 d. 7,743,610

46. Star Company acquired a land on July 1, 2019 on which a new building will be immediately constructed.
Star Company paid P2,000,000 and other costs related to the acquisition are as follows:
Broker’s Commission 50,000
Option paid for the land acquired 20,000
Option paid for an alternative land not 10,000
acquired
Delinquent property taxes for 2018 30,000
Property taxes for 2019 60,000
What is the cost of the land?
a. 2,100,000 b. 2,130,000 c. 2,160,000 d. 2,170,000

47. On January 1, 2017, Pound company acquired both a License and a Trademark in exchange for1,000
shares of Pound, P100 par ordinary shares. The shares are selling for P125 per share on January 1, 2017.
The trademark is worth thrice as much as the license. The license may be used for five years while the
trademark has a remaining useful life of 6 years. Pound Company intends to renew the trademark
continuously because the said trademark is expected to contribute to net cash flows indefinitely.
How much is the amortization expense for the year 2017?
a. 21,875 b. 6,250 c. 23,958 d. 0

48. An expenditure made in connection with a machine being used by an entity should be
A. Expensed if it merely extends the useful life but does not improve the quality.
B. Expensed if it merely improves the quality but does not extend the useful life.
C. Capitalized if it maintains the machine in normal operating condition.
D. Capitalized if it increases the quantity of units produced by the machine.

49. Which of the following is true/false regarding the trademark of Knicks Company? Statement I – The useful life of
the trademark is considered to be finite. Statement II – The carrying amount of the trademark as of January 1, 2019 is
P2,100,000.
Statement III – The impairment loss to be recognized in 2019 is P1,400,000. Statement IV – The amortization of the
trademark for 2019 is P700,000
A. Statement I false, Statement II, III, and IV true C. Statement III and IV true, Statement I and II false
B. Statement III false, Statement I, II, and IV true D. Statement II, III, and IV false, Statement I true

50. On December 31, 2020, G Company acquired the following intangible assets:
• A trademark for P3,000,000. The trademark has 8 years remaining in its legal life. It is anticipated that the
trademark will be renewed in the future, indefinitely, without problem.
• A patent for P2,000,000. Because of market conditions, it is expected that the patent will have economic life
for just 5 years, although the remaining legal life is 10 years.
Because of a decline in the economy, the trademark is 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 in 2022, P600,000 in 2023, P400,000 in 2024 and P500,000 in 2025. The
appropriate discount rate for all intangible assets is 6%. The present value of 1 at 6% for one period is 0.94, for two
periods is 0.89, for three periods is 0.84 and for four periods is 0.79.
G Company shall recognize a total impairment loss in 2021 at
A. P1,265,000 B. P1,000,000 C. P625,000 D. P0

Data regarding different entities

Cong TV Company acquired a tract of land containing an extractable natural resource. Diamond Company is required
by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the
natural resource. Geological surveys estimate that the recoverable reserves will be 2,500,000 tons and that the
extraction will be completed in five years. Relevant data follow:

Land P9,000,000
Exploration and development costs 1,000,000
Expected cash flows for restoration costs 1,500,000
Credit-adjusted risk-free interest rate 10%
Present value of 1 at 10% for 5 periods 0.62

The following information is made available by Junnie Boy Farms in Batangas City relating to its dairy livestock during
2021 - Carrying amount at January 1, P1,000,000; Fair value less cost to sell of livestock purchased during the year,
P340,000; Increase in fair value less cost to sell due to physical changes, P180,000; Increase in fair value less cost to
sell due to price changes, P40,000; Fair value less cost to sell of livestock sold during the year, P890,000.

51. What’s should be the depletion charge per ton of extracted material?
A. P4.37 B. P4.00 C. P3.97 D. P3.60

52. What amount shall be included in gross income of Junnie Boy Farms as a result of the transactions on its dairy
livestock?
A. P890,000 B. P220,000 C. P280,000 D. P40,000

53. To reduce in accounting costs, a firm always expenses its routine operating expenditures immediately and then
makes an adjusting entry at the end of the year if needed. For example, it received ₱1,200 for one year's rent from a
tenant on August 1 and immediately recorded ₱1,200 of rent revenue. The rental period begins August 1.The
adjusting entry required at December 31 would include
a. cr. unearned rent ₱700 b. dr. rent revenue ₱500 c. cr. rent revenue ₱700 d. dr. unearned rent ₱500

54. If a government grant is conditional on certain events, then the grant should be recognized as
a. Income when the conditions attaching to the grant are met.
b. Income when the grant has been approved.
c. A deferred credit when the conditions attached to the government grant are met.
d. A deferred credit when the grant is approved.
55. On January 1, 20x1, ABC Co. insures the life of its president for ₱1,000,000. ABC Co. is the beneficiary. Annual
insurance premium of ₱20,000 is payable at the beginning of each year. Information on the cash surrender value from
the insurance policy is shown below:
Policy year Cash surrender value
Dec. 31, 20x1 -
Dec. 31, 20x2 -
Dec. 31, 20x3 21,000
Dec. 31, 20x4 28,000
Dec. 31, 20x5 40,000
How much is the insurance expense for the year 20x3?
a. 1,000 b. 7,000 c. 13,000 d. 0

56. On March 1, 20x1, ABC Co. sold inventory to a foreign company for FC 1,000,000 (FC means foreign currency)
when the spot exchange rate is FC 40: ₱1. The payment is due on April 1, 20x1.

ABC Co. is concerned about the possible fluctuation in exchange rates, so on this date, ABC Co. entered into a forward
contract to sell FC 1,000,000 for ₱25,000 to a broker. According to the terms of the forward contract, if FC 1,000,000
is worth less than ₱25,000 on April 1, 20x1, ABC Co. shall receive from the broker the difference; if it is worth more
than ₱25,000, ABC Co. shall pay the broker the difference.
If the exchange rate on April 1, 20x1 is FC35: ₱1, how much is the net cash settlement?
a. 3,571 receipt b. 3,571 payment c. 4,231 receipt d. 4,231 payment

57. Lakepoint Company recently accepted a donation of land with a fair value of ₱200,000 from an unrelated party.
The entry that Lakepoint should use to record this land is:
a. Plant.............................. 200,000
Gain from Receipt of Donated Plant 200,000
b. Land.............................. 200,000
Gain from Receipt of Donated Land 200,000
c. Land.............................. 200,000
Unrealized Gain from Receipt of
Donated Land.................. 200,000
d. Land.............................. 200,000
Retained Earnings................ 200,000

58. Entity A sells a machine that is classified as PPE for ₱1,700,000. Entity A pays the broker a 10% commission.
Information on the machine is as follows:
Carrying amount ₱1,900,000
Revaluation surplus 400,000
How much is the gain (loss) from the sale?
a. (200,000) b. (370,000) c. (30,000) d. 30,000
59. According to PFRS 6, expenditures on exploration for and evaluation of mineral resources are recognized as
a. assets. b. expenses. c. a or b depending on the entity’s accounting policy. d. not accounted for

60. Entity A receives land from the government conditioned that the land will only be used in Entity A’s primary
business activities and should never be sold. If in case, Entity A decides not to use the land in its primary business
activities, it shall return the land to the government. Which of the following standards is least likely to be relevant in
accounting for the land?
a. PAS 2 b. PAS 16 c. PAS 20 d. All of these are relevant

61. According to PAS 23, borrowing costs that do not directly relate to the acquisition, construction or production of a
qualifying asset are
a. capitalized as cost of the qualifying asset. c. expensed, except when the borrowing costs relate to other assets.
b. expensed. d. any of these as a matter of accounting policy choice
62. On January 1, 20x1, Entity A started the construction of a qualifying asset. The qualifying asset is financed through
general borrowings. The average expenditures during the year amounted to ₱9,500,000. The capitalization rate is
11%. The actual borrowing costs incurred during the period were ₱1,990,000. How much are the borrowing costs
eligible for capitalization?
a. 1,990,000 b. 1,045,000 c. 1,090,000 d. 990,000

63. Which of the following is an investment property?

a. Property that is currently being redeveloped to be sold in the ordinary course of business operations.
b. Property that is currently being developed for future use as owner-occupied.
c. Property that is leased out to another entity under a finance lease
d. Building rented out in an operating lease whereby the owner provides minimal services.

64. Entity A acquires a building for ₱1,000,000. The building is to be leased out under various operating leases. The
building has an estimated useful life of 10 years and zero residual value. Entity A uses the cost model for its property,
plant and equipment and the fair value model for its investment property. At the end of Year 1, the building is
assessed to have a fair value of ₱1,080,000. How much should Entity A recognize in profit or loss in relation to the
building?
a. 80,000 gain on change in fair value c. 180,000 gain on change in fair value
b. 100,000 depreciation d. b and c

65. Which of the following assets typically are amortized?

Patents Trademarks Patents Trademarks
a. No No c. No Yes
b. Yes Yes d. Yes No

66. Which of the following analysis on asset impairment is most likely to have been made by a CPA? (where: RA =
recoverable amount; FVLCD = fair value less costs of disposal; VIU = value in use; CA = carrying amount; IL =
impairment loss; > = greater than; < = less than)
a. if “FVLCD > CA,” then, “IL = 0” c. if “FVLCD > VIU,” then, “RA = FVLCD,” now, if “CA > RA,” then “IL = RA –
CA”
b. if “FVLCD < VIU,” then, IL = > 0” d. if “FVLCD > VIU,” then, “RA = VIU,” now, if “CA < RA,” then “IL = RA – CA”

67. On December 31, 20x2, Entity A determines an indication that the impairment loss recognized in the prior period
may no longer exist. The revised recoverable amount of the building on December 31, 20x2 is ₱1,280,000. If no
impairment loss had been recognized in the prior period, the carrying amount of the building on December 31, 20x2
would have been ₱1,200,000. How much is the gain on reversal of impairment on December 31, 20x2?
a. 314,351 b. 312,156 c. 303,315 d. 300,000

68. Intangible assets, other than goodwill, are accounted for under
a. PAS 38. b. PFRS 36. c. PAS 26. d. PAS 20.

69. You are a member of the board of directors of ABC Co. Your company acquired a building to be held solely for
rentals. You are tasked in selecting an appropriate accounting policy for the building. In this regard, you will most likely
refer to which of the following standards?
a. PAS 17 b. PAS 39 c. PAS 40 d. PAS 41

70. You are the sole proprietor of Entity A. As a requisite to your business loan application, you were required by the
bank to submit audited financial statements. During the audit of your financial statements, the auditor questioned the
carrying amount of your land. The auditor believes that the carrying amount is overstated and needs to be written
down to its recoverable amount. In your discussions with your auditor, the auditor would most likely refer to this
standard in her report?
a. PAS 36 b. PFRS 38 c. PAS 26 d. PAS 12