Second Term Academic Year -2023-2024

ACC5115 – QUIZ 2 REVIEWER

THEORIES
1. Which is included in the comprehensive income?
I. Gain on sale of PPE.
II. FV changes related to FVOCI investment
a. I only.
b. II only
c. Both I and II
d. Neither I and II

2. Which is included in profit or loss:

I. Gain on sale PPE,
II. FV changes related to FVOCI equity investment.
a. I only
b. II only
c. Both I and II
d. Neither I nor II

3. Which approach to computing profit looks at the individual events rather than the
incremental (changes) amounts?
a. Capital Maintenance
b. Net Worth
c. Economist’s view
d. Transaction

4. Which is the first step in the model proposed by IFRS 5

a. Performance obligation identification
b. Transaction price determination
c. Contract identification
d. Revenue recognition

5. Which method normally includes this line item: “Changes in Inventory Balance” in lieu of
cost of sales?
a. Function
b. Nature
c. Both
d. Neither

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 6. Which is the first step within the hierarchy of guidance when selecting accounting
policies?
a. Apply a standard from IFRS if it specifically relates to the transaction.
b. Apply the requirements in IFRS dealing with similar issue.
c. Consider the applicability of the definition, recognition criteria and measurement
concepts in the Conceptual Framework.
d. Consider the most recent pronouncements of other standard setting policies.

7. A change in accounting policy requires the cumulative effect of the change for prior
periods be shown as an adjustment to
a. Beginning retained earnings for the earliest period presented.
b. Net income for the period in which the change occurred.
c. Comprehensive for the earliest period presented.
d. Shareholders’ equity for the period in which the change occurred.

8. When it is difficult to distinguish a change in an accounting policy from change in an

accounting estimate, the change is treated as
a. Change is accounting estimate with appropriate disclosure
b. Change is accounting policy
c. Correction of an error
d. Initial adoption of an accounting policy

9. Which method normally includes this line item: “Share in Profit of Associate”?
a. Function
b. Nature
c. Both
d. None of the choices

10. What is the treatment if an entity has included in the consolidation this year a subsidiary
that was appropriately excluded from consolidation last year?
a. An accounting change that should be reported prospectively.
b. An accounting change that should be reported retrospectively.
c. A correction of an error.
d. Neither an accounting change nor a correction of an error.

11. How should the assets and liabilities of a disposal group held for sale be reported?
a. The assets and liabilities should be offset and presented as a single amount.
b. The assets of disposal group should be reported separately as current assets and
the liabilities should be shown as current liabilities separately.
c. The assets and liabilities should offset and presented as a deduction from equity.
d. There should be no separate disclosure of assets and liabilities of the disposal
group.

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 12. The results of the discontinued operation should be reported net of tax as
a. A prior period adjustment.
b. As other income and expense item.
c. A single amount after continuing operations and before net income.
d. A bulk sale of plant assets included in income from continuing operations.

13. Under the function of expense, which is best classified as part of other expenses?
a. Freight In
b. Freight Out
c. Salary of CEO
d. Loss due to flood

14. Which is classified as finance cost?

a. Interest expense
b. Purchase discount lost
c. Discount amortization
d. All of the choices

15. Which is/are included in computing total comprehensive income?

a. Profit from continuing operations
b. Profit from discontinued operations
c. Other comprehensive income
d. All of the choices

16. Which OCI item can be reclassified to profit or loss?

a. Revaluation surplus
b. Unrealized holding gains from FVOCI (debt) investment
c. Both
d. Neither

17. Which OCI item cannot be reclassified to profit or loss?

a. Revaluation surplus
b. Unrealized holding gains from FVOCI (equity) investment
c. Both A & B
d. Neither

18. Which are the criteria for classifying an item as held for sale?
a. Asset’s carrying amount will be recovered through sale than use
b. Sale is highly probable
c. Both A & B
d. Neither

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 19. Which will comprise the single line item “profit or loss from discontinued operations”?
a. Impairment loss of the asset held for sale net of tax
b. Gain or loss from disposal of the asset held for sale net of tax
c. Either A & B
d. Neither

20. Which of the following statements is not correct?

a. Presentation of expense can be Function or Nature
b. If function of expense is used disclosure regarding nature of expense is not
necessary.
c. Finance Cost includes Interest Expense
d. Change in Inventory will be included under nature of expense.

21. It refers to an increase in economic benefits in the form of an increase in assets or a

decrease in liabilities that result in an increase in equity, other than contributions from
owners.
a. Asset
b. Income
c. Gain
d. Profit
22. An entity’s revenue may result from
a. A decrease in an asset from primary operations
b. A decrease in a liability from primary operations
c. An increase in an asset from incidental transactions
d. An increase in a liability from incidental transactions

23. They refer to increases in equity from peripheral or incidental transactions of an entity.
a. Revenues b. Dividends c. Comprehensive income d. Gains

24. It refers to a decrease in economic benefits in the form of a decrease in asset or an

increase in liability that result in a decrease in equity, other than distributions to owners.
a. Asset b. Liability c. Income d. Expense

25. Expense is recognized

a. When it has been paid for
b. When it is probable that economic benefit can be measured reliably
c. When it is probable that the outflow of economic benefit has occurred
d. When it is probable that an outflow of economic benefit has occurred and it can be
measured reliably

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 26. It is the process that involves the simultaneous recognition of revenue and expenses
that result directly from the same transactions or events
a. Matching of cost with revenue
b. Matching of revenue with cost
c. Immediate recognition
d. Systematic and rational allocation
27 If an asset provides benefits for several periods, its cost is allocated to the periods
benefited in the absence of a more direct basis for relating the cost to revenue.
a. Associating cause and effect
b. Systematic and rational allocation
c. Immediate recognition
d. Installment method
28. Which of the following is an example of the expense recognition principle of associating
cause and effect?
a. Depreciation of property
b. Sales commissions
c. Allocation of insurance cost
d. Officers’ salaries

29. The write-off of a worthless patent is an example of which of the following expense
recognition principles?
a. Systematic and rational allocation
b. Cause and effect association
c. Immediate recognition
d. Profit maximization

30. Under the transaction approach, net income (profit) is computed as the excess of
a. Income over expenses
b. Total assets over total liabilities
c. Ending capital over beginning capital
d. Beginning capital over ending capital

APPLICATION
Problem 1
CCC Company’s total assets increased by 100,000 during the year. Total liabilities, on the other
hand, increased by 150,000. Owners withdrew 20,000 during the year.
1. How much is profit or loss for the year?

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Problem 2
An entity had three operating divisions, Division One manufactures machinery, Division 2 breeds
and sell horses and Division 3 sells meat products. All divisions are considered separate
components. The following data were available all amounts are gross of tax.
2023 Division 1 Division 2 Division 3
Sales 4,000,000.00 5,000,000.00 7,500,000.00
COGS 2,250,000.00 2,000,000.00 2,500,000.00
OPEX 2,500,000.00 1,500,000.00 3,000,000.00

2024 Division 1 Division 2 Division 3

Sales 3,000,000.00 9,000,000.00 11,000,000.00
COGS 2,500,000.00 4,000,000.00 4,250,000.00
OPEX 1,000,000.00 2,000,000.00 3,500,000.00

During 2024, you as the company president decided to cease one of the division due to
continuous losses. Impairment Loss on this Division calculated to be P400,000. Tax rate is 25%.
2. What should be reported as loss from discontinued operation for 2023 as
comparative to 2024 SCI?

3. What amount should be reported as net income for 2024 & 2023?

Problem 3
An entity is diversified with nationwide interest in commercial real estate development, banking,
mining and food distribution. The food distribution division was deemed to be inconsistent with
the long-term direction of the entity. On October 1, 2024, the board of directors voted to
approve the disposal of this division. The sale is expected to occur in August 2025.
The food distribution had the following revenue and expenses in 2024: January 1 to September
30, revenue of P35,000,000 and expenses of P25,000,000; October 1 to December 31, revenue
of P10,000,000 and expenses of P12,000,000. The carrying amount of the division assets on
December 31, 2024 was P50,000,000 and the recoverable amount was estimated to be
P48,000,000. The sale contract required the entity to terminate certain employees incurring and
expected termination cost of P1,000,000 to be paid by December 15, 2025. Assume income tax
rate is 25%.
4. What amount should be reported as income from discontinued operations for
2024?

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Problem 4
WWW Inc reported the following data for the current year:
Legal and audit fees 1,700,000
Rent for office space 2,400,000
Advertising 500,000
Interest on inventory loan 2,100,000
Loss on abandoned data processing equipment 350,000
Freight in 1,750,000
Freight out 1,600,000
Officers’ salaries 1,500,000
Insurance 850,000
Sales representative salaries 2,150,000
Research and development Cost with Commercial & Feasibility 1,000,000

The office space is used equally by the sales and accounting departments.
5. What amount should be classified as general and administrative expense?
6. What amount should be reported as selling expenses?
Problem 5
MNM reported operating expenses other than interest expense for the year at 40% of cost of
goods sold but only 24% of sales. Interest expense is 8% of sales. The amount of purchases is
115% of cost of goods sold. Ending inventory is twice as much of the beginning inventory. The
net income for the year is P2,100,000 net of tax. Assume income tax rate is 25%.
7. What is the total amount of sales for the year?
8. What is the total amount of purchases for the year?
Problem 6
ACC5115 Corp. provided the following information for the current year:
Increase in raw materials inventory 150,000
Decrease in goods in process inventory 200,000
Decrease in finished goods inventory 350,000
Raw materials purchased 4,300,000
Direct labor payroll 2,000,000
Factory overhead 3,000,000
Freight out 450,000
Freight in 250,000

9. What is the cost of goods sold for the current year?

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 Problem 7
CA51013 Inc provided the following information for the current year:
Income from continuing operations 4,000,000
Income from discontinued operation 500,000
Unrealized gain on financial asset - FVPL 800,000
Unrealized loss on equity investment - FVOCI 1,000,000
Unrealized gain on debt investment - FVOCI 1,200,000
Unrealized gain on futures contract designated as cash flow hedge 400,000
Translation loss on foreign operation 200,000
Net remeasurement gain on defined benefit plan during the year 600,000
Revaluation surplus during the year 2,500,000

10. What net amount should be reported as other comprehensive income for the
current year? (Ignore tax)

11. What amount should be reported as comprehensive income for the current year?
(Ignore tax)

Problem 8
IFR Ltd. had the following events and transactions during 2022:
● Depreciation for 2021 was understated by P500,000
● A litigation settlement resulted in a loss of P2,000,000
● The inventory on December 31, 2020 was overstated by P800,000
● The entity disposed of a recreational division at a loss of P1,500,000
● Assume income tax rate is 25%

12. What total amount of loss should be included in income from continuing
operations for 2022?

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Problem 9
EngEng Corporation has the following amounts beginning 2024

Ordinary Share Capital, P50 par 4,000,000.00

Share Premium 1,000,000.00
Retained Earnings 9,000,000.00
Treasury Shares-P60 per share 900,000.00
UG-FVOCI Debt Security 1,200,000.00
Revaluation Surplus 800,000.00
Remeasurement Loss-Pension 500,000.00

During the year 2024 the following occurred:

a. February 14, shares totaling 20,000 were issued at P55/share
b. May 31, A building was received in exchange for 30,000 shares. The building
has a fair value of P1,740,000.
c. September 1, shares of 12,000 units were issued for a total of P756,000
d. Net Sales amounted to P5,000,000, GP Rate is 40% while all other expenses
totaled P950,000
e. FVOCI Debt Security with unrealized gain of P180,000 was sold at a gain of
P70,000.
f. Gain on sale of Land amounted to P240,000 the corresponding revaluation
surplus connected to land amounts to P400,000
g. All other land accounts were revalued and resulted an increase of P550,000
h. Remaining FVOCI Debt Security has unrealized gain of P360,000
i. Loss n remeasurement of pension amounts to P300,000
j. Treasury Shares of 6,000 units were sold at a gain of P30,000
Requirements:
13. Prepare Statement of Comprehensive Income using single statement approach.
14. Prepare Statement of Changes in Shareholders’ Equity

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Problem 10 Determine the Revenue
15. Sentosa Company sells one of its products for P500 per unit. However, Sentosa
Company gives customers a 20% discount on orders of 100 units or more. Furthermore, when
the customer has purchased 1,000 units or more in a single annual financial reporting period,
the company awards the customer a further volume discount of 10% of the list price for all units
acquired by the customer in that financial year. Customer A buys 100 units of the product each
month for one annual financial reporting period of year 2032. What amount of revenue should
Sentosa Company recognize related to customer A for the year 2032?

16 Changi Company sells one of its products for P500 per unit on credit. To encourage early
settlement, the company awards its customers a 10% early settlement discount provided that
the customer sells within 30 days of buying the goods. Normal credit terms are 60 days.
Customer A pays P40,500, within 30 days of the date of purchase, to settle the amount owing
for 90 units bought from the entity. Customer B pays P45,000, 60 days after the date of
purchase, to settle the amount owing for 90 units bought to the entity. What amount of revenue
should Changi Company related to the above sale?

17. Company R sells furniture and offers an interest-free period of 24 months to certain
qualifying customers. Customer B qualifies for the interest-free period and purchases furniture
on June 30, 2032. The current cash sales price of the furniture is P80,000. Customer B will pay
P40,000 each on June 30, 2033 and 2034. Company R determines that an appropriate discount
rate for imputing interest to the transaction is 4% per annum. What amount of revenue should
Company R recognize on June 30, 2032?

18. On January 1, 2033, Clippers Service Company sold some equipment; the cash price of
the equipment was P400,000, but it was sold for P560,000 with a commitment to service the
equipment for a period of two years, with no further charge. What total amount of revenue
should Clippers Service Company disclose in its December 31, 2033, statement of
comprehensive income?

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Problem 11
BBB Company’s net purchases is P1,000,000. Beginning and ending inventory are P100,000
and P200,000, respectively. Salaries and wages for sales and headquarter employees are
P100,00 and P80,000. Depreciation expense is P100,000 with 60% related to the selling space
while the rest pertains to the headquarters. Sales is P1,750,000. Assume income taxes of 30%.
19. How much is the cost of sales to be presented in the SCI using function of
expense method?
20. How much is the cost of sales to be presented in the SCI using the nature of
expense method?

Problem 12

The Retained Earnings account of AAA Company follows:

Date Items Debit Credit

01.01.2023 Balance P485,000
03.31.2023 Dividends declared P200,000
12.31.2023 Profit for the year 324,000
04.01.2024 Share premium 150,000
06.30.2024 Gain on sale of treasury shares 100,000
09.30.2024 Dividends declared 300,000
12.31.2024 Profit for the year 451,000
12.31.2024 Appraisal increase of land 300,000
12.31.2024 Balance 1,310,000
1,810,000 1,810,000

The other shareholder’s equity accounts in the books of the company as of December 31, 2024
are the following: ordinary share capital which has a balance of P4,000,000 composed of
40,000 shares issued with par value of P100. All of these shares are outstanding as of
December 31, 2024.

21. What is the correct balance of retained earnings as of December 31, 2024?
22. What is the correct balance of additional paid in capital at December 31, 2024?
23. What is the total shareholders’ equity at December 31, 2024?

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