KORBEL FOUNDATION COLLEGE, INC.

Purok Spring 1, Brgy. Morales, Koronadal City

Contact No. 228-1996/877-2051 ACCTG 25
DEPARTMENTAL EXAM, 2022-2023

1. On June 30, 20x1, an entity reported the following information: Equipment at cost P50,000,000
Accumulated depreciation 17,500,000 The equipment was measured using the cost model and
depreciated on a straight-line basis over 10-year period. On December 31, 20x1, the
management decided to change the basis of measurement from the cost model to the
revaluation model. The equipment was revalued at the fair value of P35,000,000 with no change
in useful life. The income tax rate is 25%.

a. P3,750,000 b. P1,250,000 c. P1,041,666 d. P1,125,000

2. On January 1, 2021, Parks Co. has the following balances: Defined benefit obligation P4,200,000;
Fair value of plan assets 3,750,000; the discount rate is 10%. Other data related to the pension
plan for 2021 are: Service cost P240,000; Past service costs 54,000; Contributions 270,000;
Benefits paid 225,000; Actual return on plan assets 264,000; Net gain on defined benefit
obligation 18,000

What is the balance of the defined benefit obligation at December 31, 2021?
a. P4,572,000 c. P4,629,000
b. P4,676,400 d. P4,635,000

3. Which of the following will NOT give rise to a taxable temporary difference?
a. Receipt of non-taxable government grant
b. Accelerated depreciation of a machine for tax purpose
c. Prepaid expenses that benefited from tax relief when paid
d. Capitalized development costs that were fully relived for tax purposes when paid
4. Which of the following best describes a temporary difference when applying the balance sheet
method of accounting for deferred tax?
a. Amounts that will be taxable or deductible in future periods
b. The amount that will be deductible for tax purposes when the carrying amount of an asset
is recovered
c. Differences between taxable profit and accounting profit that originate in one period and
reverse in another
d. The difference between the amount attributed to an asset or liability for tax purposes and
its carrying amount
5. Pentax Company purchased a property for P3,400,000 on January 1, 2016. On December 31,
2019 the property had a net carrying amount of P2,400,000 and was revalued to P6,000,000.
The tax rate is at 30% and in the tax, jurisdiction concerned, the tax base is not altered in
response to a revaluation.
What additional deferred tax liability and other comprehensive income arise as a result of the
revaluation?
a. P 780,000 and P2,520,000
b. P 780,000 and P3,600,000

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 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/877-2051 ACCTG 25
DEPARTMENTAL EXAM, 2022-2023

c. P1,080,000 and P2,520,000

d. P1,080,000 and P3,600,000
6. Art Company carries out research and development projects. Development expenditure is
capitalized as an intangible asset and amortized over the periods in which it is expected to give
rise to economic benefits. At January 1, 2019, the net carrying amount of the development cost
asset was P1,100,000. At December 31, 2019, the net carrying amount of the development cost
asset was P1,800,000. Development expenditure is deductible for tax purposes in the period in
which it is paid. The tax rate is 30%. Art Company applies the balance sheet liability method of
tax effect accounting in accordance with the requirements of IAS 12 Income taxes. What
information about this type of temporary difference must be disclosed in the financial
statements for the year ended December 31, 2019 in accordance with IAS 12?
a. A deferred tax liability of P540,000 is recognized in respect of the temporary difference
related to research and development expenditure. An associated expense of P210,000 is
recognized in profit or loss
b. A deferred tax liability of P540,000 is recognized in respect of the temporary difference
related to research and development expenditure. An associated expense of P540,000 is
recognized in profit or loss
c. A deferred tax liability of P540,000 is recognized in respect of the temporary difference
related to research and development expenditure. This arises because development costs
are capitalized for accounting purposes and expensed for tax purposes
d. A deferred tax expense of P540,000 is recognized in respect of the temporary difference
related to research and development expenditure. This arises because development costs
are capitalized for accounting purposes and expensed for tax purposes

7. During the calendar year 2020, National Company purchased an equity security designated as
investment to other comprehensive income. As of December 31, 2020 the fair market value of
the securities was P1,000,000 and the amount of unrealized loss was P136,000 net of the
deferred tax asset of P64,000. On March 1, 2021, National Company sold all of the equity
security it holds for P1,560,000. National Company incurred P10,000 brokers commission in
relation to the sale of equity security.

What amount of gain should National Company in its profit or loss as a result of the disposal?
a. none b. P374,000 c. P550,000 d. P560,000
8. Mico Company entered into a lease agreement for an item of plant. The lease liability was
originally recorded at P7,000,000 and Mico Company also incurred direct costs of P400,000 and
received lease incentives from the lessor totaling P140,000. At the end of the lease Mico
Company will have to dismantle the plant at an estimated (discounted) cost of P300,000.
At what amount should the right-of-use asset be initially measured?

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 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/877-2051 ACCTG 25
DEPARTMENTAL EXAM, 2022-2023

a. P7,000,000 b. P7,260,000 c. P7,300,000 d. P7,560,000

9. On January 1, 2021, Wally Company signed a four-year lease requiring annual payments of
P450,000, with the first payment due on January 1, 2021. Wally's incremental borrowing rate
was 6%. Actuarial information for 6% follows:

What is the carrying value of the Right-of-use asset on December 31, 2021?
a. P1,169,475 c. P1,559,300
b. P1,239,640 d. P1,652,855
10. On January 1, 2022 Belgium Corp. acquired 35% of the total 500,000 outstanding ordinary
shares of Brussels Company for P3,500,000. Brussels reported during 2022 a total net income of
P4,000,000 and actuarial loss from defined benefit plan from of P200,000. Belgium received
140,000 ordinary shares during 2022 as a result of bonus issue distributed by Brussels. The fair
value of share at that time is P15 per share. Brussels distributed total cash dividends at year end
of P1,000,000. What is the carrying value of Investment in Brussels on December 31, 2022?
a. P 4,480,000 b. P 4,725,000 c. P 6,580,000 d. P 4,840,000
11. Bulaga Company acquired a building on April 1, 2022 for P 18,000,000. The building is being
leased out under operating lease wherein the lessee pays rent on a quarterly basis amounting to
P 30,000. At that date, the building had an estimated useful life of 30 years and depreciated
using the straight-line method. On December 31, 2017, the fair value of the building was
P 19,200,000. How much is the total net increase/decrease in profit for the year 2022 assuming
the company is using cost model?
a. P 1,290,000 b. P 1,200,000 c. P 840,000 d. P 360,000

For the next 5 questions:

Nakar company has a long-standing policy of acquiring company equipment by leasing. Early 2020, the
company entered into a lease for new milling machine. The lease stipulates that annual payments will be
made for 5 years. The payments are to be made in advance on December 31 of each year. At the end of
the 5-year period, Nakar may purchase the machine. The estimated economic life of the equipment is 12
years. Nakar uses the calendar year for reporting purposes ad straight-line depreciation for other
equipment. In addition, the following information about the lease is also available:

Annual payments (including executory costs of 5,000) P60,000

Purchase option price 25,000

Estimated FV of machine after 5 years 75,000

Implicit rate 10%

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 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/877-2051 ACCTG 25
DEPARTMENTAL EXAM, 2022-2023

Date of first lease payment January 1, 2020

Compute the following:

12. Amount to be capitalized as an asset for the lease of milling machine.

a. 229, 345
b. 224, 017
c. 244, 868
d. 275, 913
13. Liability under finance lease as of December 31, 2020
a. 130, 919
b. 153, 855
c. 136, 780
d. 189, 868
14. Amount to be reported under current liabilities as liability under finance lease as of December
31, 2020
a. 39, 614
b. 41,322
c. 41, 908
d. 36, 013
15. Interest expense for the year 2020
a. 17, 435
b. 18, 987
c. 16, 902
d. 20, 916
16. Depreciation expense for the year 2020
a. 20, 406
b. 19, 112
c. 18, 668
d. 48, 974
17. ALVIN Inc. uses leases as a method of selling its products. In early 2021, ALVIN completed
construction of a passenger ferry for use between Quiapo and Guadalupe. On April 1, 2021 the
ferry was leased to the AGBUNAG Ferry Line on a contract specifying that ownership of the ferry
will transfer to the lessee at the end of the lease period. The ferry is expected to economically
useful for 25 years. Annual lease payments do not include executory costs.

Original Cost of the ferry P1, 500,000

Lease Payments 225, 000

Estimated residual value 78,000

Implicit rate 10%

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 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/877-2051 ACCTG 25
DEPARTMENTAL EXAM, 2022-2023

Date of first lease payment April 1, 2021

Lease period 20 years

Total finance income that will be earned by the lessor over the lease term:

a. 2,459, 306
b. 2,650, 849
c. 2, 392, 897
d. 2, 584, 440
18. The profit on sale to be recognized by the lessor
a. 607, 103
b. 427, 151
c. 415, 560
d. 618, 894
19. Liability under finance lease to be reported by the lessee as of December 31, 2022
a. 1, 634 616
b. 1, 845, 313
c. 1, 858, 063
d. 1, 647, 366
20. Karen Inc. leases equipment to its customers under noncancelable leases. On January 1, 2021,
Karen leased equipment costing P4,000,000 to Marvin Inc. for nine years. The rental cost was
P440,000 payable in advance semi-annually (January 1 and July 1) plus P20,000 semi-annually
for executory costs. The equipment had an estimated life of 15 years and sold for P5,330,250
with an estimated unguaranteed residual value of P800,000. The implicit rate is 12%.

How much is the total interest income from lease that will be earned by Karen Inc.?

a. 2, 869, 988
b. 3, 389, 748
c. 3, 675, 616
d. 0
21. How much interest expense will should be reported by Marvin Inc. in relation to the lease for the
year ended December 31, 2021
a. 508, 064
b. 501, 793
c. 543, 398
d. 0

For the next 4 questions

22. January 1, 2020:

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 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/877-2051 ACCTG 25
DEPARTMENTAL EXAM, 2022-2023

Projected Benefit Plan (PBO) P16,150,000

FV of plan assets 15, 135,000

Unrecognized prior service cost 1,050,000

Unrecognized actuarial gain or loss 0

Pension data for the years 2020 and 2021:

2020 2021
Current service cost 870,000 1,150,000
Contributions to the plan 1,200,000 1,250,000
Benefits paid to retirees 1,320,000 1,400,000
Amortization of past service cost 210,000 186,667
Actual return on plan assets 263, 500 1,800,000
Settlement interest rate 11% 11%
Long term-expected rate of return on plan assets 10% 10%

What is net pension expense on 2020?

a. 2, 593, 000
b. 4, 370, 000
c. 1, 200, 000
d. 1, 343, 000
23. The PBO as of 12/31/2020?
a. 18, 276, 500
b. 16, 973, 000
c. 17, 476, 500
d. 16, 173, 000
24. The prepaid/accrued pension expense on 12/31/2020?
a. 1, 358, 000
b. 3, 135, 000
c. 108, 000
d. 0
25. What is the net pension expense in 2021?
a. 1, 863, 702
b. 1, 250, 000
c. 1, 547, 082
d. 1, 819, 232

For the next 4 questions

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 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/877-2051 ACCTG 25
DEPARTMENTAL EXAM, 2022-2023

26. Current tax liability

a. 51, 120
b. 52, 590
c. 58, 260
d. 53, 760
27. Deferred tax liability
a. 1, 140
b. 20, 340
c. 19, 200
d. 11, 040
28. Deferred tax asset
a. 24, 000
b. 12, 540
c. 30, 600
d. 11, 400
29. Deferred tax expense
a. 180
b. 6, 780
c. 36, 300
d. 38, 580

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 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/877-2051 ACCTG 25
DEPARTMENTAL EXAM, 2022-2023

30. Right-of-use asset is measured at cost. The cost should comprise

a. The amount of the initial measurement of the lease liability
b. Any lease payments made at or before the commencement date, less any lease
incentives received
c. Any initial direct costs incurred by the lessee
d. An estimate of costs to be incurred by the lessee in dismantling and removing the
underlying asset, restoring the site on which it is located or restoring the asset to the
condition required by the terms and conditions of the lease, unless those costs are
incurred to produce inventories. The lessee incurs the obligation for those costs either at
the commencement date or as a consequence of having used the underlying asset
during a particular period.
e. All of the above
31. S1: For a lease modification that is not accounted for as a separate lease, at the effective date of
the lease modification, a lessee shall account for the remeasurement of the lease liability by
decreasing the carrying amount of the right-of-use asset to reflect the partial or full termination
of the lease for lease modifications that decreases the scope of the lease.
S2: At the commencement date, the lessor shall classify the lease as either an operating lease of
finance lease.
S3: A lease is an operating lease if it does not transfer substantially all the risks and rewards
incidental to ownership of an underlying asset.

a. One statement is wrong

b. Two statements are wrong
c. All statements are correct
d. All statements are wrong
32. The lessor should report the leased asset under an operating lease and income therefrom as
which of the following?
a. The asset should be kept off the statement of financial position and the lease income
should go to reserves.
b. The asset should be kept off the statement of financial position and the lease income
should go to the income statement.
c. The asset should be reported in the statement of financial position according to its
nature and the lease income should go to reserves.
d. The asset should be reported in the statement of financial position according to its
nature and the lease income should go to the income statement.
33. The minimum lease payments include all the following, except
a. Contingent rent
b. Rental payments over the lease term
c. Any amount guaranteed by the lessee.

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 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/877-2051 ACCTG 25
DEPARTMENTAL EXAM, 2022-2023

d. Payment required to exercise an option on the part of the lessee to purchase the asset
at a price which is certain to exercise by the lessee determined at inception of the lease.
34. When the lease is qualified for exception and is recognized as an operating lease, the lessee shall
recognize rent expense during the period:
I. Any contingent rent payments (payable) during the period based on rental agreement.
II. Straight-line amortization of total rental payments over the useful life of the asset
III. Straight-line amortization of total rental payments over the lease term
IV. Amortization of any lease bonus over the useful life of the asset
V. Amortization of any lease bonus over the lease term
a. I, III, and V only
b. II, IV and V only
c. I, IV and V only
d. II, III and V only
35. The amount to be recorded as the cost of the Right-of-use asset in the books of the lessee
a. The amount of the initial measurement of the lease liability
b. Any lease payments made at or before the commencement date, less any lease
incentives received plus any direct costs incurred by the lessee
c. An estimate of costs to be incurred by the lessee in dismantling and removing the
underlying asset to the condition required by the terms and conditions of the lease
d. All of the above comprises the cost of the right-of-use asset
36. Statement 1: In an operating lease (assuming the exception were satisfied), the rent expense
recognized by the lessee is always equals to the rent income recognized by the lessor.
Statement 2: In an operating lease, the annual payment of the lessee includes financing
component of renting the asset over the lease term.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false
37. . Which statement characterizes an operating lease?
a. Depreciation and interest expense are recorded by the lessee
b. Depreciation and rental revenue are recorded by the lessor
c. Lease rental liability is recorded in the books of the lessee
d. Title of the underlying asset is transferred from the lessor to the lessee
38. Which of the following is not included in the lease liability of the lessee at inception of the lease
when payment is made at the end of each year?
a. the present value of the residual value guaranteed by a third party.
b. the discounted value of the initial lease payment.
c. the present value of the bargain purchase option.
d. the discounted value of the variable payment.
39. Which of the following is not included in the initial cost of the right of use asset (ROUA)?

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 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/877-2051 ACCTG 25
DEPARTMENTAL EXAM, 2022-2023

a. Initial direct cost paid by the lessee.

b. The present value of the expected dismantling cost at the end of lease term.
c. The discounted value of any residual value guaranteed by the lessee.
d. Any lease incentives granted by the lessor to lessee.
40. In computing the present value of the lease liability, the lessee should
a. use its incremental borrowing rate of the lessor.
b. use the implicit rate of interest.
c. Use the incremental borrowing rate of the lessee at all times
d. None of these answer choices are correct.
41. A company uses the equity method to account for an investment. This would result in what type
of difference and in what type of deferred income tax?
Type of Difference Deferred Tax
a. Permanent Asset
b. Permanent Liability
c. Temporary Asset
d. Temporary Liability
42. Which of the following temporary differences results in a deferred tax asset in the year the
temporary difference originates?
I. Accrual for product warranty liability.
II. Subscriptions received in advance.
III. Prepaid insurance expense.
a. I and II only.
b. II only.
c. III only.
d. I and III only.
43. Which of the following will result to a surplus?
a. Defined benefit obligation at the end is higher than the FV of plan asset at the end.
b. FV of plan asset at the end is lower than the defined benefit obligation at the end.
c. Defined benefit obligation at the end is lower than the fv of plan asset at the end.
d. FV of plan asset at the end is equal to the defined benefit obligation at the end.
44. The total change in the effect of asset ceiling:
a. shall reported in other comprehensive income as benefit expense.
b. shall reported in profit or loss as benefit expense.
c. Shall reported in comprehensive income as benefit expense.
d. shall reported in the statement of financial position as prepaid benefit expense.
45. When asset ceiling is lower than the defined benefit asset (surplus) at the end of the period:
a. The amount reported in the statement of financial position as prepaid pension asset is
the asset ceiling.
b. The amount reported in the statement of financial position as prepaid pension asset is
the surplus.

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 KORBEL FOUNDATION COLLEGE, INC.
Purok Spring 1, Brgy. Morales, Koronadal City
Contact No. 228-1996/877-2051 ACCTG 25
DEPARTMENTAL EXAM, 2022-2023

c. The amount reported in the statement of financial position as prepaid pension asset is
the difference of the FV of plan asset and defined benefit obligation at the end of the
period.
d. No amount is reported as prepaid pension asset in the statement of financial position.
46. Statement 1: Employers are at risk with defined-benefit plans because they must contribute
enough to meet the cost of benefits that the plan defines.
Statement 2: The interest expense component of pension expense in the current period is
computed by multiplying the discount rate by the beginning balance of the defined benefit
obligation.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false
47. Which of the following is not a component of benefit (pension) expense?
a. Current service cost
b. Past service cost
c. Actuarial loss on defined benefit obligation due to changes in actuarial assumption.
d. Amount of benefits paid to retirees on scheduled date
48. It is the present value of any economic benefits available in the form of future refunds from the
plan or reduction in future contributions to the plan.
a. asset surplus
b. asset benefit
c. Asset ceiling
d. asset cancellation
49. In a sales-type lease, how would the amount of gross profit be affected when the residual value
is unguaranteed?
a. Decrease
b. Increase
c. Not affected
d. Not determinable
50. It is an arrangement whereby one party sells a property to another party and then immediately
leases the property back from its new owner.
a. Leaseback
b. Sale
c. Operating lease
d. Sale leaseback
- Nothing Follows -

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