FAR

Easy

1. Which statement is incorrect regarding Philippine Financial Reporting Standards (PFRSs)?

A. PFRSs are designed to apply to not-for-profit activities in the private sector.
B. PFRSs are designed to apply to the general purpose financial statements and other financial
reporting of all profit-oriented entities.
C. PFRSs are based on the Framework, which addresses the concepts underlying the information
presented in general purpose financial statements.
D. PFRSs set out recognition, measurement, presentation and disclosure requirements dealing with
transactions and events that are important in general purpose financial statements.

2. MINOTAUR CORP. assigned P3,000,000 of accounts receivable as collateral for a P2,000,000 loan
with a bank. The bank assessed a 4% finance fee and charged 6% interest on the note at maturity. What
would be the journal entry to record the transaction?
A. Debit cash P1,880,000, debit finance charge P120,000, and credit note payable P2,000,000.
B. Debit cash P1,920,000, debit finance charge P80,000, and credit note payable P2,000,000
C. Debit cash P1,920,000, debit finance charge P80,000, and credit accounts receivable P2,000,000.
D. Debit cash P 1,920,000, debit finance charge P80,000, debit due from bank P1,000,000, and credit
accounts receivable P3,000,000. FA VALIX 2016

3.Regarding goods on consignment, which of the following is correct about inventory rights and
obligations at year-end?
A. The consignor, not the consignee, should include the goods in ending inventory
B. The consignee, not the consignor, should include the goods in ending inventory
C. The consignee and consignor should agree as to which party should include the goods in ending
inventory
D. A seller of inventory should include goods held on consignment as inventory but exclude goods
shipped on consignment

4. Which of the following is not a current liability?

A. Accrued operating expenses expected to be paid 18 months after the end of reporting period.
B. A loan obligation where the entity has an unconditional right to defer settlement of the liability for 5
months after the end of reporting period.
C. Financial liabilities held for trading.
D. Deferred tax liability expected to reverse within 2 months after the end of reporting

5. WOW COMPANY’s year-end is December 31, 2021 and the 2021 financial statements were authorized
for issue on March 31, 2022. The entity had the following events:
• On February 1, 2022, the entity determined that the total cost of an equipment purchased is
P3,700,000. The equipment was purchased on November 12, 2021 but unrecorded on December
31, 2021.
• On March 15, 2021, the entity discovered that the 2021 depreciation expense was overstated by
P470,000.
• On March 20, 2022, the entity issued 100,000 ordinary shares at par of P10 per share
• On March 27, 2022, the entity filed a case against another entity for patent infringement. Legal
counsel assessed that is probable that the entity will win the case for an amount of P550,000
What amount should be reported as adjusting events on December 31, 2021?
A. 4,720,000 C. 4,170,000
B. 5,170,000 D. 3,700,000 CPAR 0515

6. Which of the following statements characterizes a sales type lease?

S1: The lessor recognizes interest revenue over the life of the asset and dealer’s profit over the lease
term.
S2: The lessor recognizes dealer’s profit at lease inception and recognizes initial direct cost in full
within profit or loss.
A. S1 only C. Both statements
B. S2 only D. None from the statements

7. Which of the following should not be disclosed in the summary of significant accounting policies?
A. Basis of profit recognition on long-term construction contracts
B. Criteria for measuring cash equivalents
C. Measurement basis
D. Maturity dates associated with long-term debt CPAR 0515

8. WE BARE BEARS INC, together with its segments is involved in the manufacture of stuffed toys. The
following data pertain to the segments for the year ended December 31, 2021:
Segment Profit (loss)
AAA 3,0000,000
BBB (2,000,000)
CCC (1,000,000)
DDD (1,500,000)
EEE 1,000,000
What is the minimum profit or loss of an operating segment to qualify as reportable?
A. P400,000C. P50,000
B. P450,000D. P300,000

9. Highly liquid investments that are readily convertible into cash can be shown as cash equivalents if the
investments have a maturity of 90 days or less
A. From the date of the investments are acquired
B. From the end of reporting period
C. From the date of issue of financial statements CPAR 0515
D. From the date of the investments are acquired or from the end of the reporting period

10. The following information is available regarding the current year’s statement of financial position of
KGA CORP:
Cash and cash equivalents P150,000
Bond sinking fund (classified as long-term investment of previous year) 300,000
Accounts receivable (net of P10,000 credit balance) 190,000
Accounts payable (net of P5,000 debit balance) 85,000
Bonds payable – due next year 350,000
Deferred tax asset – expected reversal is next year 100,000
How much is KGA’s total current assets for the current year?
A. P755,000C. P655,000
B. P450,000D. P350,000

11. CAREBEAR CORP. reported accounts payable of P770,000 on December 31, 2021 before necessary
year-end adjustments related to the following information:

On December 31, 2021, CAREBEAR has a P20,000 debit balance in accounts payable resulting
from a payment to a supplier for goods to be manufactured to CAREBEAR’s specifications

Goods shipped FOB destination on December 20, 2021 were received and recorded by
CAREBEAR on January 2, 2022. The invoice cost was P75,000.

Goods shipped FOB shipping point, freight prepaid on December 28, 2021 were received and
recorded by CAREBEAR on January 5, 2022. The invoice cost was P40,000 while the freight cost
is P5,000.
 Before year-end, checks drawn but not yet released to payees amounted to P30,000 while checks
drawn and released to payees but were post-dated amounted to P70,000. Both checks were
recorded before year-end.

On December 31, 2021, what amount should be reported as accounts payable?

A. 935,000 C. 900,000
B. 850,000 D. 895,000

12. During the current year, Beta Company incurred the following costs related to a new solar-powered
car:
Salaries of laboratory employees researching how to build the new car 2,500,000
Legal fees for the patent application for the new car 200,000
Engineering follow-up during the early stages of commercial production
and the follow up occurred during the current year 500,000
Marketing research to promote the new car 300,000
Design, testing and construction of a prototype 4,000,000
What amount should be reported as research and development expense for the current year?
A. 7,500,000 C. 2,500,000
B. 6,500,000 D. 7,200,000 CPAR 0515

13. On January 1, 2014, KINDNESS CORP. purchased a machine for P1,400,000. This machine has a 5-
year useful life, a residual value of P200,000, and is depreciated using the straight line method for
financial statement purposes. For tax purposes, depreciation expense was P500,000 for 2014 and
P400,000 for 2015. The 2015 income before tax and depreciation expense was P2,000,000 and the tax
rate was 30%.

The entity has made no estimated tax payments during 2015. What amount of current tax liability
should be reported on December 31, 2015? (E)
A. 330,000 C. 480,000
B. 450,000 D. 600,000 FA VALIX 2016

14. Estimates of future cash flows normally would cover projections over a maximum period of 5 years.
The estimates of future cash flows in calculating value in use include all of the following, except (E)
A. Income tax payments
B. Cash inflows from continuing use of the asset.
C. Net cash flows from the disposal of the asset at end of its useful life.
D. Cash outflows necessarily incurred to generate the cash inflows from continuing use of the asset.

15. Scherbatsky Company’s record for the year ended December 31, 2017 included the following
information:
Raw material purchases P860,000
Work in progress inventory decrease 10,000
Finished goods inventory decrease 70,000
Raw materials inventory decrease 30,000
Manufacturing overhead 600,000
Freight-out 90,000
Direct labor 400,000

Scherbatsky Company’s cost of sales for the year 2017 is

a. P1,910,000
b. P1,830,000
c. P1,770,000
d. P1,750,000
16. Under the effective-interest method of bond discount or premium amortization, the periodic interest
expense is equal to

a. the stated (nominal) rate of interest multiplied by the face value of the bonds.
b. the market rate of interest multiplied by the face value of the bonds.
c. the stated rate multiplied by the beginning-of-period carrying amount of the bonds.
d. the market rate multiplied by the beginning-of-period carrying amount of the bonds.

17. How should trade discounts be dealt with when valuing inventories at the lower of cost and net
realizable value (NRV) according to IAS2 Inventories?

a. Added to cost
b. Ignored
c. Deducted in arriving at NRV
d. Deducted from cost

18. The ingredients of faithful representation are

a. Completeness and neutrality

b. Completeness and free from error
c. Completeness, neutrality and free from error
d. Completeness, neutrality, free from error and conservatism

19. Violet Inc. acquired 60% of the outstanding shares of Sunny Company in a business combination.
The book values of Sunny’s net assets are equal to the fair values except for the building, whose net
book value and fair value are P400,000 and P600,000, respectively. At what amount is the building
reported on the consolidated balance sheet?

a. P360,000
b. P400,000
c. P520,000
d. P600,000

20. On July 1, 2017 Piper Bank granted a 5-year P4,000,000 loan to a borrower. The interest rate on the
loan is 10%. The direct origination cost incurred was P61,500 while the origination fee collected from
the borrowers was P350,000. The effective rate of the loan after considering the direct origination
costs and origination fees is 12%. The interest income for the period ending December 31, 2017 is

a. P200,000
b. P222,690
c. P400,000
d. P445,380

Average

1. ZAMBALES CORP. reported the following increase (decrease) in the account balances for the
current year:
Cash P 50,000
Accounts receivable (100,000)
Inventory 300,000
Investments (50,000)
 Equipment 300,000
Accumulated depreciation 50,000
Accounts payable (50,000)
Bonds payable 150,000
Discount on bonds payable 40,000
Unrealized gain –FVPL 30,000
Unrealized gain – FVOCI 60,000
Share capital 150,000
Share premium 50,000
During the current year, the entity declared P70,000 cash dividends and P30,000 stock dividends.
Also, the entity received a land from its shareholder with a fair value at the time of donation
amounting to P50,000. Using capital maintenance approach, how much is profit or loss during the
current year?
A. P120,000C. P230,000
B. P150,000D. P170,000 KGAUCP 2019

2. MANGIX COMPANY provided the following information on December 31, 2014:

Balance per book 6,776,000
Balance per bank statement 6,532,000
Deposit in bank closed by BSP 1,600,000
Deposit in transit 1,234,000
Outstanding checks 987,000
Currency and coins counted 950,000
Petty cash fund (of which P10,000 is in the form of paid vouchers) 50,000
Bank service charge not yet taken up in the book6,000
Bond sinking fund 1,000,000
Receivables from employees 70,000
Error in recording a check in the book. The correct amount as paid by the
bank is P89,000 instead of P98,000 as recorded in the book, or a difference of 9,000
What total amount of cash should be reported as current asset on December 31, 2014?
A. 6,779,000 C. 8,769,000
B. 7,769,000 D. 9,309,000

3. FREYA BANK loaned HAYABUSA CORP. P5,000,000 on January 1, 2019. The terms of the loan were
payment in full on January 1, 2023 plus annual interest payment at 10%. During 2020, HAYABUSA is
experiencing financial difficulty, thus, was unable to pay the interest for 2020. Due to this circumstance,
FREYA considered the loan impaired. FREYA and HAYABUSA agreed that no future interest payments
be made and the principal be paid in two equal payments on December 31, 2021 and December 31,
2023.

What is the interest income on loans receivable for the year 2021?
A. P500,000C. P415,075
B. P433,875D. None, no interest was agreed

4. On January 2, 2021. SUN CORP. purchased 200,000 shares (20%) of MOON CORP.’s ordinary share
for P4,500,000. During 2021, MOON reported the following in its statement of comprehensive income a
P4,000,000 net income and a P500,000 unrealized gain from its investment in available for sale. MOON
paid cash dividends of P3,000,000 on December 31, 2021. On January 1, 2022. SUN CORP. sold 50,000
shares of MOON CORP. at the current market value of MOON’s shares at P32 per share. What amount
of gain should SUN CORP. recognize from the sale of 50,000 shares?
A. P400,000C. P450,000
B. P425,000D. P500,000 RESA 1014

5. In relation to accounting process, which of the following statements is not true? (M)
A. If the total of the credits exceeds the total of the debits in the income statement columns of a
worksheet, there is a net income.
B. Reversing entries are made at the beginning of the new accounting period. Not all adjusting entries
may be reversed.
C. An adjusting entry to adjust the unearned rent income account for the earned portion of advance
rent collections during the year may be reversed in the next financial reporting period.
D. A balanced trial balance does not necessarily mean that no accounting errors were committed
during the accounting period.

6. The Dipper Company operates chemical plants. Its published policies include a commitment to making
good any damage caused to the environment by its operations. It has always honored this commitment.
Which of the following scenarios relating to Dipper would give rise to an environmental provision as
defined by PAS37 Provisions, contingent liabilities and contingent assets? (M)
A. The government has outlined plans for a new law requiring all environmental damage to be
rectified.
B. A chemical spill from one of the company’s plants has caused harm to the surrounding area and
wildlife.
C. Recent research suggests there is a possibility that the company’s actions may damage
surrounding wildlife.
D. On past experience it is likely that a chemical spill which would result in Dipper having to pay
fines and penalties will occur in the next year.

7. Which of the following is classified as investment property in the consolidated balance sheet of a parent
and its subsidiaries? (E)
(1) Building occupied by employees paying market rent
(2) Equipment being rented out under operating lease
(3) Land leased out to a subsidiary under operating lease
(4) Land with undetermined future use
A. 4 only D. 1 only
B. 2 and 4 E. None from 1, 2, 3 and 4
C. 1 and 4

8. S1: PAS 28 provides that if an investor's share of losses of an associate equals or exceeds the
INVESTOR’S INTEREST in the associate, the investor shall discontinue using equity method and should
reclassify the investment in accordance with PFRS 9.
S2: In determining the quantitative threshold for investment in associate, potential voting rights must be
considered but in determining the share of the investor in the income of the associate, present
ownership interest is used. (M)
A. True, false C. False, false
B. False, true D. True, true

9. Which of the following investment in equity securities is (are) governed by PFRS 9? (M)
I. Investment in preference shares of another entity with an ownership percentage of 60%.
II. Investment in unquoted ordinary shares of another entity with an ownership percentage of 15%.
III. Investment in ordinary shares of another entity with an ownership percentage of 25%.
A, I only D. III only
B, I and II E. II only
C. II and III

10. The inventory on hand at December 31, 2014 for CHINA INC. is valued at a cost of P947,800. The
following items were not included in this inventory amount:
A. Purchased goods in transit, shipped FOB destination. Invoice price-P32,000, which includes freight
charges of P1,600.
B. Goods held on consignment by CHINA at a sales price of P28,000, including sales commission of
20% of the sales price.
C. Goods sold to TAIWAN CORP, under terms FOB destination, invoiced for P24,400 which includes
P1,000 freight charges to deliver the goods. The goods are in transit.
D. Purchased goods in transit, terms FOB shipping point. Invoice price-P48,000. Freight costs,
P3,000.
E. Goods out on consignment to BHURMA CORP., sales price, P36,400. Shipping cost of P2,000.
Mark-up on cost for all sales is 30%.
What is the correct cost of inventory to be reported in CHINA's financial statements? (D)
A. P1,022,400 C. P1,046,800
B. P1,041,800 D. P1,078,800 UBERITA 2015
11. Which of the following is not true about the discount on short-term notes payable?

a. The Discount on Notes Payable account has a debit balance.

b. The Discount on Notes Payable account should be reported as an asset on the balance
sheet.
c. When there is a discount on a note payable, the effective interest rate is higher than the
stated discount rate.
d. All of these are true.

12. On January 1, 2017 The Millennial Company commenced trading to provide key skills education
facilities in a region identified for technology development. Also on January 1 2017, the company
received two grants from its government for setting up its operations in this location:

Grant (a) – was paid to give financial assistance for start-up costs already incurred.

Grant (b) – was paid to subsidize the costs of purchasing computer software over the five-year
period. The company is almost certain to keep the facilities operational for the next five years.

The company's accounting year end is 31 December. Are the following statements concerning
recognition of the income from the two government grants true or false, according to IAS20
Government grants and government assistance?
(1) Income from Grant (a) should be recognized in full on receipt in 2017.
(2) Income from Grant (b) should be recognized in full at the end of 5 years.

Statement (1) Statement (2)

a. False False
b. False True
c. True False
d. True True

13. The Orion Company operates chemical plants. Its published policies include a commitment to making
good any damage caused to the environment by its operations. It has always honored this
commitment. Which one of the following scenarios relating to Orion would give rise to an
environmental provision as defined by IAS37 Provisions, contingent liabilities and contingent assets?

a. On past experience it is likely that a chemical spill which would result in Dipper having to
pay fines and penalties will occur in the next year
b. Recent research suggests there is a possibility that the company's actions may damage
surrounding wildlife
c. The government has outlined plans for a new law requiring all environmental damage to
be rectified
 d. A chemical spill from one of the company's plants has caused harm to the surrounding
area and wildlife

14. Montgomery Company purchased a P2,000,000 life insurance policy for its chief executive officer.
The policy year and Montgomery Company’s accounting period coincide. Additional data are available for
the year ended December 31, 2023

Cash surrender value, 1/1/2023 P50,000

Cash surrender value, 12/31/2023 58,500
Annual advance premium paid on 1/1/2023 30,000
Dividend received 7/1/2023 2,000
Montgomery Company is the beneficiary under the life insurance policy

The amount reported as insurance expense in Montgomery Company’s 2023 income statement
a. P30,000
b. P28,000
c. P21,500
d. P19,500

15. Mosby Corporation had the following bank reconciliation at September 30, 2023
Balance per bank statement, 9/30/2023 P46,500
Add: Deposit in Transit 10,300
Less: Outstanding Checks __12,600
Balance per books, 9/30/2023 P44,200
Data per bank statement for the month of October 2023 follows:
Deposits P58,400
Disbursements 49,700
All reconciliation items at September 30, 2023, cleared through the bank in October. Outstanding
checks at October 31, 2023 totaled P7,500. The amount of cash disbursement per books in
October is.
a. P44,600
b. P49,700
c. P54,800
d. P57,200

16. Determine the correct classification of the following liabilities:

1) Liability due in 6 months, payable in non-cash assets.
2) Liability refinanced with long-term debt between the balance sheet date and date of
issuance of balance sheet.
3) Liability which will be refinanced on a long-term basis between the balance sheet date
and date of issuance of balance sheet through an irrevocable agreement signed by
debtor
4) Liability paid between the balance sheet date and date of issuance of balance sheet
with cash; the cash is replenished with proceeds from long term debt also between the
balance sheet date and date of issuance of balance sheet.
A. All are current liabilities. C. Only No.4 is a current liability
B. All are long-term liabilities D. Only No. 1 is a long-term liability

17. DAVAO CORP. prepared a draft of its 2016 balance sheet. The draft statement reported
current liabilities totaling P 2,000,000. However, none of the following items were included
in this preliminary total at December 31, 2016:
 Accounts payable - trade, P 300,000, bonds payable due in 2017, P 500,000; discount
on bonds payable. P 60,000; dividends payable due 2017, P 160,000; bond issue
costs, P 20,000; deferred tax liability, P 60,000 and notes payable, P 100,000. The
notes payable is an issued debt instrument that the entity intends to repurchase in the
near term to make a gain from short-term movements in interest rates and has a
current fair value of P 120,000.

The deferred tax liability is excess tax depreciation over financial that are expected to
reverse in the next three years. At what amount should Lever's current liabilities
correctly reported in the December 31, 2016 statement of financial position?
A. P 2,880,000 C. P 3,000,000
B. P 2,900,000 D. P 3,110,000

18. The following information relates to the obligations of CAGAYAN CORP. as of December
31, 2025:
• Accounts payable for goods and services purchased on open account amounted to
P500,000 and accrued expenses of P350,000 at December 31, 2025. On December
15, 2025, CAGAYAN declared a cash dividend of P7 per common share, payable on
January 15, 2026, to shareholders of record as of December 31, 2025. CAGAYAN had
100,000 shares of common stock issued and outstanding throughout 2025.
• On July 1, 2025, CAGAYAN issued P5,000,000, 8% bonds for P4,400,000 to yield
10%. The bonds mature on June 30, 2010, and pay interest annually every June 30.
At December 31, 2025, the bonds were trading in the open market at 86 to yield
12%. CAGAYAN, uses the effective interest method to amortize bond discount.
• CAGAYAN’ 2025 pretax financial income was P8,500,000 and its taxable income was
P6,000,000. The difference is due to P1,000,000 permanent difference and
P1,500,000 of temporary difference which is neither related to current nor noncurrent
assets but is expected to reverse within 2026. CAGAYAN is subject to the regular
corporate income tax rate of 32% and made estimated income tax payments during
the year of P1,000,000.
CAGAYAN CORP. should report total current liabilities on December 31, 2025 at
A. 2,670,000 C. 3,150,000
B. 2,690,000 D. 3,670,000

19. On January 1, Year One, a company buys three acres of land for exactly P800,000 with
the amount to be paid on December 31, Year Three. Interest of 3 percent (P24,000) will be
paid each December 31 although a 10 percent annual rate is viewed as reasonable. The
present value of P1 in three years at 10 percent annual interest is .75. The present value of
an ordinary annuity of P1 for three years at 10 percent annual interest is 2.49. The present
value of an annuity due of P1 for three years at 10 percent annual interest is 2.74. On a
December 31, Year One balance sheet, at what amount should the company report as the
liability for this land? (M1)
A P353,414 C P701,736
B P636,000 D P856,000

20. On January 1, 2023, LAKERS CORP. signed a P100,000 noninterest-bearing note due in
three years at a discount rate of 10%. LAKERS elects to use the fair value option for
reporting its financial liabilities. On December 31, 2023, LAKERS credit rating and risk
factors indicated that the rate of interest applicable to its borrowings was 9%. The present
value factors at 10% and 9% are presented below.
PV factor 10%, 3 periods .751
 PV factor 10%, 2 periods .826
PV factor 10%, 1 period .909
PV factor 9%, 3 periods .772
PV factor 9%, 2 periods .842
PV factor 9%, 1 period .917
At what amount should LAKERS present the note on the December 31, 2023 balance
sheet?
A. P75,100 C. P82,610
B. P77,200 D. P84,200

Difficult

1. Which of the following statement(s) is(are) incorrect about the Financial Reporting Standards Council
(FRSC)
I. FRSC is responsible for establishing generally accepted accounting principles in the Philippines.
II. FRSC members should be CPAs.
III. The Chairman of FRSC will establish a task force when deems it appropriate to assist in identifying
problems and issues with respect to a project on the Council's agenda.
IV. The Chairman and members of the FRSC shall have a term of 2 years renewable for another term
A. I and III only C. I, II and III only
B. II and IV only D. I, III and IV only

2. Statement 1: A compensating balance that is legally restricted as to withdrawal can be included as part
of cash and cash equivalents.
Statement 2: An entity acquires an investment in debt securities on November 30, 20x1: The debt
securities mature on January 31, 20x2. The debt securities qualify to be presented as part of cash
equivalents on the entity's 20x1 financial statements.
Statement 3: The bank statement shows a balance of P100. Deposits in transit are P20 while outstanding
checks are P10. The adjusted cash balance P115.
KGAUCP 2023 A. B. C. D.
Statement 1 True False False True
Statement 2 False True False True
Statement 3 True False False True

3. The controller of the FURION INC. is trying to determine the amount of Cash and cash equivalents to
be reported on its December 31, 2014, statement of financial position. The following information is
provided:
1 Balances in the company's accounts at the BPI BANK:
Checking account—P540,000
Savings account— P884,000
2 Undeposited customer checks of P208,000.
3 Currency and coins on hand of P23,200.
4 Savings account at the BDO BANK with a balance of P350,000.This account is being used to
accumulate cash for future plant expansion (in 2016).
5 P800,000 balance in a checking account at the BDO BANK. In exchange for a line of credit,
FURION has agreed to maintain a minimum balance of P100,000 in this account.
6 Treasury bills; 30-day maturity bills totaling P600,000, and 180-day bills totaling P800,000.
What total amount of "cash and cash equivalents" should be reported in the current asset section of
the 2014 statement of financial position?
A. P3,055,200 C. P2,455,200
B. P2,955,200 D. P2,355,200 Roque 2014
4. QATAR INC. sells merchandise with a term of 2/10, n/30 and uses the net method of recording sales
and receivables while purchases and accounts payables are recorded at gross amount.
On September 30, 2018, a fire at QATAR’s only warehouse caused severe damage to its entire
inventory. Based on recent history, QATAR has a gross profit of 30% of net sales. The following
information is available from QATAR’s records for the nine months ended September 30, 2018:
Inventory at 01/01/18 P 600,000
Total purchases received and recorded from January
to date of fire 4,000,000
Total freight cost of goods purchased and received 80,000
Total credit memo received on goods purchased and received 250,000
Total discounts taken on purchases 90,000
Invoice received for goods purchased but still in transit
shipped on September 30, 2018, FOB shipping point
(excluding the freight cost of P5,000) 150,000
Invoice purchased but still in transit, Free- Alongside
the Carrier, (excluding the freight and insurance cost
of P15,000) 250,000
Total sales delivered and recorded from January to
date of fire 3,724,000
Unrecorded sales invoice for goods delivered 392,000
Total sales returns accounted and recorded to date of fire 98,000
Total sales return recorded but the goods has yet to
be received 78,400
Total discounts not taken by customers24,000
A physical inventory disclosed usable damaged goods which QATAR estimates can be sold to a
jobber for P 100,000. What is the estimated cost of inventory destroyed by fire? (D)
A. P 1,490,000 C. P 1,371,120
B. P 1,370,000 D. P 1,447,600 RESA 1018

5. SANAOL CORP., one of the largest mining company paid P 20,000,000 to the local government for
the right to explore and extract mineral reserves in an area of interest. The following costs were also
incurred related to the exploration and evaluation activities of the entity: Total exploration costs, P
7,000,000 and evaluation costs of P 3,000,000. Results of the study revealed that the total estimated
mineral reserves is' 10,000,000 tons. Rupert Company started its commercial production in year 2018.
The company produced 1,200,000 tons in 2018.

SANAOL exchanged one business automobile for another business automobile for the use of their
department head. The old automobile had an original cost of P 400,000, an undepreciated cost of P
160,000, and a market value of P 210,000 when exchanged. In addition, Rupert paid P 90,000 cash for
the replacement automobile. The list price of the replacement automobile was P 350,000. The
replacement will help generate significantly greater cash flows in the business.

A cash-generating unit of SANAOL CORP. contains: Property, plant and equipment P 6,000,000; Patent
P 4,000,000 and Goodwill P 2,000,000. An annual impairment review is required as the cash-generating
unit contains goodwill. The most recent review assesses its recoverable amount to be P 9,000,000. An
impairment loss of P 3,000,000 has occurred and is recognized in profit or loss.

What is the amount of amortization/depletion of SANAOL COMPANY on the capitalized intangible

exploration and evaluation cost for the year 2018?
A. P 2,000,000 C. P 3,240,000
B. P 2,760,000 D. P 3,600,000

6. Under IFRS, which of the following accounts would not be considered a “provision”?
 a. Warranty liabilities
b. Bad debts
c. Taxes payable
d. Note payable

7. Harvey Company incurred P3,000,000 (P800,000 in 2017 and P2,200,000 in 2018) to develop a
computer software product. P1,000,000 of this amount was expended before technological feasibility
was established in early 2018. The product will earn future revenues of P8,000,000 over its 5-year
life, as follows: 2018 – P2,000,000; 2019 – P2,000,000; 2020 – P1,600,000; 2021 – P1,600,000; and
2022 – P800,000. What portion of the P3,000,000 computer software costs should be expensed in
2018?

a. P500,000
b. P600,000
c. P700,000
d. P2,200,000

8. Mango, Inc. sponsors a defined-benefit pension plan. The following data relates to the operation of
the plan for the year 2017.
Service cost P250,000
Contribution to the plan 220,000
Actual return on plan assets 180,000
Projected benefit obligation (beginning) 2,400,000
Fair value of plan assets (beginning) 1,600,000

The expected return on plan assets and settlement rate were both 10%. The amount of pension
expense reported for 2017 is

a. P250,000
b. P310,000
c. P330,000
d. P490,000

9. Which of the following assets shall be accounted for under PAS 16 (Property, Plant & Equipment)?
I) Bearer plants
II) Bearer animals
III) Living plants with dual use
IV) Animals related to recreational activities
a. I and II

b. I and IV

c. I, II and III

d. I, III and IV

10. ALPHA CORP. issued stock appreciation rights to its Chief Operating Officer on January 1, 2021. The
stock appreciation rights may be exercised beginning January 1, 2023 provided that the officer is still
in employ of the company at the date of exercise. Each right provides for a cash payment equal to the
prevailing market value of the stock appreciation rights. The equivalent number of shares for stock
appreciation rights will be based on the level of sales of the company at the end of 2023, as follows:
Sales Level (in millions) Number of SARs to be granted
P250 to P400 10,000
P400+ to P750 15,000
 Above P750 20,000
Sales actually achieved by the company and the stock price at the end of each year are:
Year Sales Level FV of SARs
2021 210 million P74
2022 410 million 85
2023 760 million 95
There has been an average increase in annual sales of 25% in the past years and the company
expects the same pattern over the vesting period.
What is the compensation expense to be recognized in 2023? (D)
A. P246,667C. P1,050,000
B. P603,333D, P1,950,000

Clincher

1. A building suffered uninsured fire damage. The damaged portion of the building was refurbished
with higher quality materials. The cost and related accumulated depreciation of the damaged
portion are identifiable. To account for these events, the owner should

a. Reduce accumulated depreciation equal to the cost of refurbishing.

b. Record a loss in the current period equal to the sum of the cost of refurbishing and the
carrying amount of the damaged portion of the building.
c. Capitalize the cost of refurbishing and record a loss in the current period equal to the
carrying amount of the damaged portion of the building.
d. Capitalize the cost of refurbishing by adding the cost to the carrying amount of the
building.

2. The amount of income tax applicable to transactions that are not reported in the continuing
operations section of the income statement is computed

a. By multiplying the item by the effective income tax rate.

b. As the difference between the tax computed based on taxable income without including
the item and the tax computed based on taxable income including the item.
c. As the difference between the tax computed on the item based on the amount used for
financial reporting and the amount used in computing taxable income.
d. By multiplying the item by the difference between the effective income tax rate and the
statutory income tax rate.

3. The following changes in Count Olaf Company’s assets and liabilities during the year are as
follows:

Increase Increase
(Decrease) (Decrease)
Cash and cash equivalents P300,000 Accounts payable P80,000
Accounts receivable (190,000) Salaries payable (90,000)
Allowance for bad debts (30,000) Utilities payable 70,000
Inventory 170,000 Notes payable 110,000
Allowance for inventory decline 20,000 Deferred tax liability (50,000)
Financial instrument @ FVPL 100,000 Bonds payable (200,000)
Financial instrument @ FVOCI 120,000 Discount on bonds payable (40,000)
Land (60,000) Ordinary shares 120,000
Building 130,000 Premium on ordinary shares 40,000
Accm. Dep’n – Building 25,000 Treasury shares 50,000
 Equipment (40,000) Revaluation surplus 100,000
Accm. Dep’n – Equipment (5,000) Retained earnings-appropriated (80,000)

The net income for the year is

a. P270,000
b. P350,000
c. P430,000
d. P480,000

4. Jourdan Co., organized on January 2, 2017, had pretax accounting income of P880,000 and
taxable income of P1,600,000 for the year ended December 31, 2017. The only temporary
difference is accrued product warranty costs which are expected to be paid as follows:
2018 P240,000
2019 120,000
2020 120,000
2021 240,000
The enacted income tax rates are 35% for 2017, 30% for 2018 through 2020, and 25% for 2021.
If Jourdan expects taxable income in future years, the deferred tax asset in Jourdan's December
31, 2017 balance sheet should be

a. P144,000
b. P168,000
c. P204,000
d. P252,000

5. As of December 31, 20x1, RAPTORS CORP. has adopted a detailed formal plan to close one of
its toys divisions and put up a new division to manufacture warfare weapons. The plan was
communicated through a public announcement and all of those affected by the closure were
informed. RAPTORS estimates the following costs in relation to the closure of the division:
Termination benefits of employees terminated as a
result of the closure ₱4,000,000
Costs of retraining and relocating retained employees 8,000,000
Payment for unpaid purchases made by the division 16,000,000
New systems and distribution networks for the weapons
division 80,000,000
Marketing costs for the weapons to be manufactured by
the new division 24,000,000
Expected losses during the first year of operations of
the weapons division 80,000,000
How much is the provision to be recognized?
A. 4,000,000 C. 84,000,000
B. 12,000,000 D. 20,000,000