CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING FEBRUARY 2024
FIRST PREBOARD EXAMINATION BATCH 95
1. An entity reported the following information on December 31, 2024:
Cash (including bond sinking fund of P500,000) 1,500,000
Accounts receivable - assigned 3,000,000
Accounts receivable - unassigned 1,400,000
Inventory, including goods expected in the ordinary course of operations to be sold beyond 12 1,200,000
months amounting to P700,000
Bond investment held for trading 300,000
Equity investment at FVOCI 900,000
Cash surrender value 250,000
Land held for sale 2,000,000
Deferred tax asset 150,000
Statement I: An asset is classified as current if it is expected to be realized, sold or consumed within the normal
operating cycle.
Statement II: The total current assets amount to P8,900,000.
Statement III: The total noncurrent assets amount to P1,800,000.
a. All statements are true.
b. Statements I and II are true.
c. Statements II and III are true.
d. Statements I and III are true.
2. An entity provided the following information on December 31, 2024:
Accounts payable (net of advance payment to supplier of P250,000) 550,000
Note payable, 8% unsecured, due July 1, 2026 1,000,000
Accrued expenses 400,000
Contingent liability 450,000
Deferred tax liability 150,000
Bonds payable, 7%, due March 31, 2025 5,000,000
Premium on bonds payable 300,000
The contingent liability is an accrual for possible loss on a P1,000,000 lawsuit filed against the entity. The
legal counsel expects the suit to be settled in 2025 and has estimated that the entity will be liable for damages
in the range of P450,000 to P750,000. The deferred tax liability is expected to reverse in 2025.
Statement I: A liability is classified as current if it is due to settled within 12 months after the end of the
reporting period.
Statement II: The total current liabilities amount to P6,500,000.
a. All statements are true.
b. All statements are false.
c. Statement I is true.
d. Statement II is true.
3. An entity reported net income of P8,000,000 for the current year. The auditor raised questions about the
following amounts that had been excluded in net income:
Equity in earnings of an associate – 25% interest 1,300,000
Dividend received from the associate 600,000
Gain on sale of equity investment at FVOCI 750,000
Gain on sale of debt investment at FVOCI 1,200,000
Credit adjustment of profit of prior year for error in overdepreciation, net of tax 850,000
Loss from fire 1,400,000
Unrealized gain on equity investment held for trading 500,000
What amount should be reported as net income for the current year?
a. 10,350,000 c. 9,600,000
b. 9,150,000 d. 8,900,000
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4. On January 1, 2024, an entity acquired a machine for P5,500,000. The machine was depreciated using the
sum of the year’s digits method based on a useful life of 10 years with no residual value. On January 1, 2026
the entity changed to the straight-line method. The residual value on such date was P200,000.
Statement I: Accounting changes included change in accounting policy, change in accounting estimate and
prior period error.
Statement II: A change in depreciation method is a change in accounting estimate.
Statement III: The depreciation for 2026 amounts to P425,000.
a. All statements are true.
b. Statement III is true.
c. Statements I and II are true.
d. Statements II and III are true.
5. An entity purchased an equipment for P8,000,000 on January 1, 2024. The equipment had a useful life of 5
years with no residual value. On December 31, 2025, the entity classified the equipment as held for sale. On
such date, the fair value less cost of disposal of the equipment was P4,500,000. On December 31, 2026, the
entity believed that the criteria for classification as held for sale can no longer be met. Accordingly, the entity
decided not to sell the equipment but to continue to use it. On December 31, 2026, the fair value less cost of
disposal of the equipment was P3,700,000 and the value in use is P4,000,000.
Statement I: A noncurrent asset is classified as held for sale if the asset is available for immediate sale in its
present condition and the sale is highly possible.
Statement II: An abandoned noncurrent asset may be classified as held for sale.
Statement III: The impairment loss in 2025 is P300,000
Statement IV: The loss on reclassification in 2026 is P500,000

a. All statements are true.

b. All statements are false.
c. Statements I, III and IV are true.
d. Statement III is true.
6. On December 1, 2024. An entity committed to a plan to dispose of a business component’s assets. The disposal
met the requirements to be classified as discontinued operation. On such date, the entity estimated that the
pretax loss from disposition of the assets would be P700,000 and the component’s pretax operating loss was
P200,000 for 2024. The entity reported after-tax income from continuing operations of P4,300,000 and the
income tax rate for 2024 is 25%.
Statement I: A component of an entity is classified as discontinued operation at the date when the entity
has actually disposed of the component or if the component meets the criteria to be classified as
held for sale.
Statement II: The loss from discontinued operation for 2024 is P900,000.
Statement III: The net income for 2024 is P3,625,000.

a. Statements I and II are true.

b. Statements I and III are true.
c. Statement I is true.
d. Statements II and III are true.

7. An entity is preparing interim financial statements for the first quarter ending March 31. Expenses in the first
quarter totaled P5,000,000 of which 20% was variable. The fixed expenses included television advertising
expense of P1,800,000 which was incurred on February 1 and depreciation expense of P900,000 for the year,
for an equipment that was available for use on January 1. What total amount of expense should be reported
for the first quarter ending March 31?

a. 5,000,000
b. 4,325,000
c. 4,100,000
d. 4,775,000
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8. An entity had the following balances on December 31, 2024:

Cash in bank – current account 6,500,000
Cash in bank – payroll account 1,700,000
Cash on hand 500,000
Cash in bank – restricted account for building construction expected
to be disbursed in 2025 2,700,000
Commercial papers 1,200,000

The current account included legally restricted compensating balance of P500,000 against long-term
borrowing arrangement on December 31, 2024. Cash on hand included a check of P150,000 payable to the
entity dated January 28, 2025.
Statement I: The line item “Cash and Cash Equivalents” is presented as part of current assets.
Statement II: Generally, an investment with a maturity of 3 months or less from the end of the reporting period
may be classified as cash equivalent.
Statement III: The total cash and cash equivalents amount to P11,950,000

a. All statements are true.

b. Statements I and III are true.
c. Statement I is true.
d. Statement III is true.

9. On January 1, 2024, an entity established a petty cash fund with an imprest balance of P100,000. Upon review
of records, the entity discovered the following connected to the fund: currency and coins, P82,000; petty cash
vouchers representing expenses, P10,000; NSF employee check, P3,000. The fund was not replenished on
December 31, 2024.

Statement I: The petty cash fund balance should be reported at P82,000 on December 31, 2024.
Statement II: The entry to adjust the petty cash fund will include a credit to cash short / over of P5,000.

a. All statements are true.

b. Statement I is true.
c. Statement II is true.
d. All statements are false.

10. From inception of operations, an entity provided for doubtful accounts using percentage of credit sales. The
balance in the allowance for doubtful accounts was P500,000 on January 1, 2024. During 2024, credit sales
totaled P10,000,000, interim provisions for doubtful accounts were made at 2% of credit sales, P100,000 of bad
debts were written off and recoveries of accounts previously written off amounted to P25,000. An aging was
made on December 31, 2024.
Classification Balance Uncollectible
November - December 3,000,000 10%
July - October 1,000,000 20%
January - June 750,000 30%
Prior to January 1, 2024 250,000 50%
Based on the review of collectability of the account balances in the “prior to January 1, 2024” aging category,
additional accounts totaling P50,000 are to be written off on December 31, 2024. Effective December 31, 2024,
the entity adopted aging method for estimating the doubtful accounts.

Statement I: Accounts written off using the allowance method decreases working capital.
Statement II: The doubtful accounts expense that should be reported amounts to P450,000.
Statement III: The adjustment to change to the aging method will increase doubtful accounts expense by
P200,000.
Statement IV: The net realizable value of accounts receivable amounts to P4,125,000.

a. Statements II and IV are true.

b. Statements I, III and IV are true.
c. Statements II, III and IV are true.
d. Statements I and II are true.
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11. An entity provided the following accounts abstracted from the unadjusted trial balance at year-end:
Debit Credit
Accounts receivable 3,000,000
Allowance for doubtful accounts 50,000
Net credit sales 15,000,000
The entity estimated that 10% of the gross accounts receivable will become uncollectible. What amount of
doubtful accounts expense should the entity report for the current year?
a. 300,000
b. 250,000
c. 350,000
d. 400,000

12. An entity factored P1,600,000 of accounts receivable. Control was surrendered by the entity. The factor
accepted the accounts receivable subject to recourse for nonpayment. The fair value of the recourse obligation
is P100,000. The factor assessed a fee of 5% and retained a holdback equal to 8% of the accounts receivable.
In addition, the factor charged 10% interest computed on a weighted-average time to maturity of 146 days.
The accounts receivable was fully collected by the factor at year-end.
Statement I: When an account is factored, it is accounted for as a sale of accounts receivable.
Statement II: The cash received from the factoring is P1,228,000.
Statement III: The total loss on the factoring is P244,000.

a. All statements are true.

b. All statements are false.
c. Statements I and III are true.
d. Statements II and III are false.

13. An entity accepted from a customer in settlement of an account a P3,000,000, 6-month, 9% note dated March
1, 2024. On May 1, 2024, the entity discounted the note at 12% with recourse at the bank. The discounting is
accounted for as a conditional sale with recognition of a contingent liability. On September 1, 2024, the maker
dishonored the note and the entity is required to pay the bank the maturity value of the note plus a protest fee
of P80,000. On December 31, 2024, the entity collected the dishonored note in full plus 12% interest on the
total amount due.
Statement I: The account “Notes Receivable Discounted” is a liability account.
Statement II: The proceeds from discounting amounts to P3,009,600.
Statement III: The loss from discounting amounts to P35,400.
Statement IV: The collection from the customer on December 31, 2024 amounts to P3,260,400.
a. All statements are true.
b. Statements II and III are true.
c. Statements I, II and III are true.
d. Statements III and IV are true.

14. On January 1, 2024, an entity received a note from a customer with a face amount of P2,000,000. The note is
due on January 1, 2030, has an interest rate of 4% and all interest is payable at maturity. The market rate for
similar notes is 9%. The present value of 1 for 6 periods at 4% is 0.79 and the present value of 1 for 6 periods
at 9% is 0.60.

Statement I: Long-term notes receivable with unrealistic interest rates shall be initially measured at face
amount.
Statement II: The carrying amount of the note receivable on January 1, 2024 is P2,480,000
Statement III: The carrying amount of the note receivable on December 31, 2024 is P1,621,920

a. Statement III is true.

b. Statements II and III are true.
c. Statements I and II are true.
d. Statement I is true.
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15. On January 1, 2024, an entity (bank) loaned P6,000,000 to one of its customers. The loan is due on December
31, 2030, has an interest rate of 7% and interest is payable annually every December 31. On December 31,
2024, the entity had recognized a 12-month expected credit loss of P240,175. On December 31, 2025, the
entity assessed that there was a significant increase in credit risk of the loan but no objective evidence of
impairment. On such date, the entity concluded that there is a 30% probability of default over the remaining
term of the loan and it is expected that only P3,600,000 of the loan will be collected. Interest for the years
2024 and 2025 were collected. The present value of 1 at 7% for 5 periods is 0.71.

Statement I: Interest income for the year 2025 is P420,000.

Statement II: The impairment loss for 2025 is P1,033,200.

a. All statements are true.

b. All statements are false.
c. Statement II is true.
d. Statement I is true.

16. An entity reported inventory costing P4,410,000 based on physical inventory on December 31, 2024. Upon
investigation, the following items were excluded from the count:

• Merchandise of P610,000 which is held by the entity on consignment.

• Merchandise costing P330,000 which was shipped by the entity FOB Destination to a customer on
December 31, 2024. The customer received the merchandise on January 6, 2025.
• Merchandise costing P460,000 which was shipped by the entity FOB Shipping Point to a customer on
December 29, 2024. The customer was scheduled to receive the merchandise on January 2, 2025.
• Merchandise costing P730,000 shipped by a vendor FOB Buyer on December 30, 2024, and received by
the entity on January 4, 2025.
• Merchandise costing P510,000 shipped by a vendor FOB Shipping Point on December 31, 2024, and
received the entity on January 5, 2025.
Statement I: Merchandise in transit, sold to customers FOB Destination shall be excluded from inventory.
Statement II: Merchandise in transit, purchased from vendors FOB Shipping point shall be included in
inventory.
Statement III: The correct inventory balance is P5,980,000.

a. All statements are true.

b. All statements are false.
c. Statements I and III are false.
d. Statements II and III are true.

17. An entity’s inventory of P2,200,000 on December 31, 2024, was based on a physical count of goods priced at
cost and before any year-end adjustments relating to the following items:

• Goods shipped from a vendor FOB Seller on December 24, 2024, at an invoice cost of P138,000 to the
entity were received on January 4, 2025.
• The physical count included P58,000 of goods billed to another entity FOB Shipping Point on December
31, 2024. The carrier picked up these goods on January 3, 2025.
• On December 31, 2024, the entity purchased goods with a list price of P350,000, subject to trade discounts
of 20% and 10%, with no cash discounts allowable. The purchase was only recorded on January 5, 2025
and was included in the inventory balance on such date.
What amount of inventory should the entity report on December 31, 2024?

a. 2,590,000
b. 2,452,000
c. 2,200,000
d. 2,532,000
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18. An entity purchased merchandise during the month of December 2024 and used the net method of accounting
for cash discounts:

• December 10 - Purchased goods billed at P2,000,000 subject to terms of 2/10, n/60.

• December 11 - Purchased goods billed at P1,500,000 subject to terms of 1/15, n/30.
• December 19 - Paid invoice of December 10.
• December 24 - Purchased goods billed at P1,150,000 subject to terms of 2/10, n/30.
What amount of accounts payable should the entity report if financial statements are prepared on December 31,
2024?
a. 2,612,000
b. 2,650,000
c. 2,700,000
d. 2,627,000

19. An entity acquired the following merchandise for the month of March:
March 1 Balance 4,000 units at P200
March 10 Sale 3,000 units at P380
12 Purchase 6,000 units at P250
20 Sale 5,900 units at P380
28 Purchase 4,000 units at P300
Statement I: If the entity uses FIFO, the cost of inventory is P1,475,000.
Statement II: If the entity uses Weighted Average – Periodic, the average unit cost is P275.00
Statement III: If the entity uses Moving Average, the cost of inventory is P1,467,126.
a. All statements are true.
b. Statements I and III are true.
c. Statements II and III are true.
d. All statements are false.

20. On December 31, 2024, an entity had inventory at a cost of P4,080,000 and allowance for inventory writedown
of P275,000 before LCNRV measurement. Below are data pertaining to the entity’s inventory:
Cost Sales Price Net Realizable Value
Product A 700,000 640,000 560,000
Product B 860,000 940,000 848,000
Product C 1,120,000 1,864,000 1,683,000
Product B 1,400,000 1,548,000 1,400,000
Balance 4,080,000 4,992,000 4,491,000
Statement I: An entity shall apply the LCNRV measurement to inventory on a total basis.
Statement II: The entity shall report inventory at P4,491,000.
Statement III: The loss on inventory writedown for 2024 is P152,000.

a. All statements are true.

b. All statements are false.
c. Statement III is true.
d. Statements I and II are true.

21. An entity signed a noncancelable purchase commitment with a major supplier to purchase raw materials in
2025 at a cost of P2,000,000. On December 31, 2024, the raw materials to be purchased have a fair value of
P1,800,000. In its 2024 financial statements, the entity shall

a. Record inventory at P1,800,000.

b. Record inventory at P2,000,000.
c. Record a loss on purchase commitment of P200,000.
d. Record inventory at P1,800,000 and a loss on purchase commitment of P200,000.
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22. On January 1, 2024, an entity acquired milking cows for P3,500,000. During 2024, the fair value less cost of
disposal of the cows increased by P450,000 due to growth and price changes. However, the fair value less
cost of disposal decreased by P230,000 due to harvest. Milk was harvested at fair value less cost of disposal
of P700,000. Towards the end of 2024, all of the milk was sold for P850,000.
Statement I: Biological assets are measured at fair value less cost of disposal.
Statement II: Bearer plants are classified as biological assets.
Statement III: The entity shall report a net income of P1,070,000 for the year 2024.
Statement IV: The entity shall report biological assets at P3,720,000 on December 31, 2024.

a. Statements I, III and IV are true.

b. Statements I, II and IV are true.
c. Statements I and III are true.
d. Statement IV is true.

23. An entity uses the gross profit method to estimate inventory for interim reporting purposes. Below is the
information pertaining to the inventory transactions for the first quarter of 2024:

Inventory, January 1 1,600,000

Gross purchase 6,400,000
Purchase discount 120,000
Freight – in 300,000
Sales 10,000,000
Sales return 700,000
Statement I: If the gross profit rate is 25% of sales, the estimated cost of inventory is P1,125,000.
Statement II: If the gross profit rate is 25% of cost, the estimated cost of inventory is P740,000.
a. All statements are true.
b. All statements are false.
c. Statement I is false.
d. Statement II is false.

24. An entity is in the process of preparing an insurance claim because of a theft. The following data are available:
Inventory – May 1, P1,900,000; Purchases for the month of May, P4,500,000; Gross sales, P5,800,000; Sales
return, P200,000. Physical inventory on May 31 amounts to P1,525,000, which includes goods held on
consignment of P300,000. Gross profit is determined at 30% of sales and the entity’s insurance covers only
goods owned. What amount is the insurance claim?
a. 2,480,000
b. 2,180,000
c. 955,000
d. 1,255,000

25. An entity provided the following information pertaining to its inventory:

Cost Retail
Beginning inventory 200,000 280,000
Purchases 1,425,000 2,140,000
Markups 95,000
Mark up cancellation 15,000
Markdowns 35,000
Markdown cancellation 5,000
Sales 2,000,000

Statement I: Under the conventional retail method, the cost of inventory is P305,500.
Statement II: Under the average retail method, the cost ratio is 70%.

a. All statements are true. c. Statement I is true.

b. All statements are false. d. Statement II is true.
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26. On December 31, 2024, an entity reported the following information pertaining to its equity investments held
for trading:
Cost Fair value
A shares 2,500,000 3,300,000
B shares 1,200,000 1,100,000
C shares 1,800,000 1,000,000
During 2025, B shares were sold for P1,450,000. On December 31, 2025, A shares and C shares had fair
values of P3,000,000 and P1,400,000 respectively.
Statement I: Equity investments held for trading are measured at fair value through OCI.
Statement II: Equity investments held for trading are not subject to impairment.
Statement III: The gain on disposal of B shares in 2025 is P250,000.
Statement IV: The unrealized gain from change in fair value of A and C shares in 2025 is P100,000.

a. All statements are true.

b. Statements II and IV are true.
c. Statement IV is true.
d. Statements II, III and IV are true.

27. On January 1, 2024, an entity acquired 10% of 400,000 ordinary shares of Reeves Company at P150 per share.
On July 1, 2024, Reeves declared and paid P500,000 cash dividend. On December 31, 2024, Reeves reported
net income of P2,200,000 and on such date, the market price of Reeves’ share is P180. The shares are
nontrading, and the entity elected to measure the shares at fair value through other comprehensive income.
Statement I: For the year 2024, the amount recognized in profit or loss is P50,000.
Statement II: For the year 2024, the amount recognized in other comprehensive income is P1,200,000.
a. All statements are true.
b. All statements are false.
c. Statement I is true.
d. Statement II is true.

28. At the beginning of current year, an acquired 30% of the outstanding ordinary shares of another entity for
P7,000,000 when the net assets of the investee amounted to P15,000,000. At acquisition date, the carrying
amounts of the identifiable assets and liabilities of the investee were equal to fair value, except for inventory
whose fair value was P2,500,000 greater than cost. The inventory was unsold at year-end. During the current
year, the investee reported comprehensive income P10,000,000, which includes P1,500,000 of revaluation
surplus, and paid cash dividend on P2,500,000. What is the carrying amount of the investment at year end?

a. 9,250,000
b. 8,800,000
c. 7,000,000
d. 8,500,000

29. On January 1, 2024, an entity acquired 25% of the ordinary shares of another entity for P2,000,000. On such
date, the carrying amounts of all the identifiable assets equaled their carrying amounts. During 2024, the entity
sold inventory costing P450,000 to the investee for P600,000. The inventory remained unsold by the investee
at year-end. On December 31, 2024, the investee reported net income of P1,100,000 and paid cash dividend
of P300,000.
Statement I: If there are transactions between the investor and investee, the investor’s share in the profit or
loss of the investee under the equity method is up to the extent of investor’s unrelated interest
in the investee.
Statement II: The share in the net income in 2024 is P237,500
Statement III: The carrying amount of the investment on December 31, 2024 is P2,162,500
a. All statements are true.
b. Statements I and II are true.
c. Statements II and III are true.
d. Statements I and III are true.
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30. On January 1, 2024, an Jokoy Company acquired 15% of the ordinary shares of Gabriel Company. On January
1, 2025, Jokoy acquired an additional 25% of the ordinary shares of Gabriel. Gabriel reported the following
net income and dividends paid for the years 2024 and 2025:
December 31, 2024 December 31, 2025
Net income 4,000,000 4,500,000
Dividends declared and paid 1,200,000 1,600,000
What amount of income should Jokoy report in 2024 and 2025 respectively?
a. 600,000 and 1,800,000
b. 180,000 and 1,800,000
c. 180,000 and 1,125,000
d. 600,000 and 1,125,000
31. On December 31, 2024, an entity reported an equity investment in an associate at P1,078,000. The entity has
a 25% interest in the associate. On September 1, 2025, the entity sold 60% of its interest in the associate to
another entity for P750,000. The associate reported net income of P2,400,000 for the year 2025. It was
determined that the net income was earned evenly throughout 2025. On September 1, 2025, the fair value of
the remaining interest is P700,000, and the entity reclassified the investment to FVPL. What amount of gain
or loss on remeasurement on the remaining investment should the entity report in 2025?
a. 268,800
b. 108,800
c. 28,800
d. 186,800
32. On January 1, 2024, an entity purchased 12% bonds having a face value of P5,000,000 for P5,379,100. The
bonds provide the bondholders with a 10% yield. The bonds are dated January 1, 2024, and mature January
1, 2029, with interest received December 31 of each year. The entity’s business model is to hold these bonds
to collect contractual cash flows that are composed of interest and principal.
Statement I: The bonds are measured at amortized cost.
Statement II: Interest income is 2024 is P537,910.
Statement III: If the entity elected to use the fair value option, interest income in 2024 is P500,000.
a. All statements are true.
b. Statements I and III are true
c. Statements I and II are true.
d. Statements II and III are true.
33. On January 1, 2024, an entity purchased 6% bonds with a face amount of P8,000,000. Interest is payable
annually every December 31. The bonds mature on January 1, 2029 and were purchased for P7,060,000. The
entity’s business model is to hold these bonds to collect contractual cash flows composed of interest and
principal, and to sell the bonds in the open market. Below are some data connected to the bonds:
December 31, 2024 December 31, 2025
Carrying amount based on amortized cost 7,215,400 7,384,786
Fair value 7,900,000 8,100,000
What amount of interest income and unrealized gain in OCI should the entity report in 2025?
a. 649,386 and 715,214
b. 649,386 and 30,614
c. 480,000 and 715,214
d. 480,000 and 30,614
34. On January 1, 2024, an entity reported cash surrender value of P80,000. On the same date, the entity paid
annual premium of P120,000. On September 1, 2024, the entity received dividend of P12,000 and the cash
surrender value increased by P25,000 for the year 2024. What amount of life insurance expense should the
entity report in 2024?
a. 120,000 c. 108,000
b. 95,000 d. 83,000
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35. On January 1, 2024, an entity acquired land at a total cost of P6,000,000. The land is properly classified as
investment property and the entity elected to use the fair value model to account for all investment properties.
The fair values of the land on December 31, 2024 and December 31, 2025 are P7,000,000 and P7,800,000
respectively. On January 1, 2026, the entity decided use the land as a future plant site.
Statement I: The gain from change in fair value in 2024 is P1,000,000.
Statement II: The gain from change in fair value in 2025 is P1,800,000.
Statement III: The land remains to be investment property on January 1, 2026.

a. Statements I and III are true.

b. Statements I and II are true.
c. Statements II and III are true.
d. Statement I is true.

36. An entity acquired the following assets during 2024:

• Land, building and equipment for a lump sum price of P6,800,000. At the time of purchase, the assets and
the following carrying amounts and appraised values:
Carrying amounts Appraised values
Land 2,000,000 1,500,000
Building 2,300,000 3,500,000
Equipment A 3,000,000 3,000,000

• Purchased Equipment B by making a P20,000 cash downpayment and signing a 1-year, 10% P230,000
note payable. Interest is payable at the end of 2024.
• Purchased Equipment C for P400,000, terms, 2/10, n/30. The entity failed to pay within the discount
period.
• Constructed a warehouse at a total cost of P6,000,000. If the entity acquired a warehouse, it would have
cost P7,400,000.
What amount should be reported as total cost of the assets as property, plant and equipment?

a. 13,442,000
b. 14,642,000
c. 14,850,000
d. 12,942,000

37. An entity paid P70,000 and traded in used equipment to acquire a new equipment. The used equipment
originally cost P800,000 and is 30% depreciated on the date of exchange. In recent transactions, the used
equipment has a fair value of P450,000. Freight and installation charges of the new equipment amounted to
P15,000. The exchange has commercial substance.
Statement I: The cost of the new machine is P535,000.
Statement II The entity shall record a loss on exchange of P350,000.

a. All statements are true.

b. All statements are false.
c. Statement I is true.
d. Statement II is true.

38. An entity received a grant of a large tract of land in Baguio City from the Philippine Government. The land
has a fair value of P25,000,000. The grant required the entity to construct a factory building and employ only
personnel residing in Baguio. The cost of the factory is P40,000,000 with a useful life of 20 years.
Statement I: Government grant related to nondepreciable assets shall be recognized as income over the periods
which bear the cost of meeting the conditions.
Statement II: Grant income for the current year is P2,000,000.
a. All statements are true. c. Statement II is false.
b. Statement I is false. d. All statements are false.
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39. An entity incurred the following costs in connection with the acquisition of some assets:
Fee for title search of land 52,000
Architect’s fee 317,000
Cash paid for land and old building 9,200,000
Demolition cost of old building 1,450,000
Interest on loans during construction 740,000
Excavation before construction 1,900,000
Construction cost of new building 48,500,000
Special assessment by city for drainage project 160,000
Cost of landscaping 540,000
Statement I: The cost of the land is P9,412,000
Statement II: The cost of the building is P52,907,000
a. All statements are true
b. All statements are false
c. Statement I is true.
d. Statement II is true.

40. An entity started construction of an office building for its own use on January 1, 2024 at a cost of P5,200,000.
The construction of the building was completed on December 31, 2024. The entity has the following debt
outstanding during the construction period:
Construction loan – 12% interest payable annually, issued December 31, 2023 2,000,000
Long-term loan – 10% interest payable annually, and principal payable on May 30, 2027 1,600,000
Long-term loan – 17.8% interest payable annually, and principal due on January 1, 2028 1,000,000
The following expenditures were made during 2024: January 1, P1,000,000; April 1, P1,500,000; July 1,
P2,000,000; October 1, P700,000. Excess funds from the construction loan were invested during the period
and earned P20,000 of investment income. What amount of borrowing cost should be capitalized in 2024?

a. 578,000
b. 389,000
c. 624,000
d. 409,000

41. On January 1, 2024, an entity acquired a machine costing P1,040,000 with a useful life of 8 years and residual
value of P140,000. The entity shall use the sum-of-the-years digit method in depreciating the machine. The
entity’s accountant prepared the depreciation schedule, and for a particular year, the depreciation is P100,000.
Statement I: The numerator in the fractions for computing periodic depreciation is the total life in years.
Statement II: Depreciation of P100,000 is recorded for the year 2027.
a. All statements are false.
b. All statements are true.
c. Statement I is true.
d. Statement II is true.

42. On January 1, 2024, an entity acquired a tractor at a total cost of P1,000,000. The tractor has a useful life of
10 years. Included in the total cost are two significant components:

Cost Useful life in years

Tires 120,000 2
Transmission 200,000 5

What amount of depreciation should the entity report in 2024?

a. 100,000
b. 200,000
c. 168,000
d. 250,000
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43. An entity has purchased a tract of mineral land for P4,500,000. It is estimated that this tract will yield
1,200,000 tons of ore with sufficient mineral content to make mining and processing profitable. It is further
determined that 60,000 tons of ore will be mined the first and last year and 120,000 tons every year in between.
It is determined that all of the ore will be removed after 11 years. The land will have a residual value of
P150,000. The company builds necessary structures and sheds on the site at a cost of P180,000. It is estimated
that these structures can serve 15 years. The entity does not intend to use the buildings after all resources have
been extracted. What amount of depletion of mineral property and depreciation of structures, respectively,
should the entity recognize for the current (first) year?

a. 217,500 and 12,000

b. 225,000 and 12,000
c. 225,000 and 9,000
d. 217,500 and 9,000

44. On December 31, 2024, an entity has equipment costing P8,100,000 with accumulated depreciation of
P900,000. On such date, the equipment has fair value less cost of disposal of P3,960,000, value in use of
P6,300,000 and a remaining life of 4 years. On December 31, 2025, the recoverable amount is P5,000,000.
Impairment indicators exist in 2024 and 2025, and the entity tested the equipment for impairment.
Statement I: Recoverable amount is the lower of fair value less cost of disposal and value in use.
Statement II: The impairment loss in 2024 is P900,000.
Statement III: The gain on reversal of impairment in 2025 is P275,000.

a. All statements are true.

b. Statements II and III are true.
c. Statement II is true.
d. Statements I and II are true.

45. An entity acquired equipment at a cost of P5,000,000 on January 1, 2024, it has a useful life of 10 years with
no residual value. On January 1, 2026, the entity decided to use the revaluation model for this class of
equipment. The fair value on such date is P4,680,000. On December 31, 2028, the entity sold the equipment
for P3,400,000. Ignore effect of taxes.
Statement I: The revaluation surplus on December 31, 2026 is P595,000.
Statement II: The gain on disposal on December 31, 2028 is P900,000.
Statement III: Upon disposal of a revalued asset, any balance of revaluation surplus is transferred to P&L.

a. Statements I and II are true.

b. Statements II and III are true.
c. Statement I is true.
d. Statements I and III are true.

46. An entity acquired the following intangible assets during 2024:

• A franchise from Mac Company on January 1, 2024 for P7,000,000. The carrying amount of the franchise
on Mac’s books on such date was P10,000,000. The franchise agreement had an estimated useful life of
25 years. Because the entity must enter a competitive bidding at the end of 2033, it is unlikely that the
franchise will be retained beyond 2033.
• A license for distribution of a popular consumer product on January 1, 2024 for P3,000,000. It is expected
that this product will generate cash flows for an indefinite period of time. The license has an initial term
of 5 years but by paying a nominal fee, the entity can renew the license indefinitely for successive 5-year
terms.
What is the carrying amount of the intangible assets on December 31, 2024?

a. 10,000,000
b. 9,720,000
c. 9,300,000
d. 8,700,000
 Page 13

47. An entity has been working to develop a patented technology for backing up computer hard drives. The entity
had the following activities related to this project:
February 1 Incurred P200,000 in legal and processing fees to file and record a patent for the technology
March 15 Laboratory and material fees to identify a working system, P330,000
April 25 Prototype development and testing, P400,000
May 28 Meets the economic viability threshold upon receiving a firm contract for the product
June 13 Final development of product based on earlier tests, P550,000
What amount of research and development expense should the entity report for the current year?

a. 1,280,000
b. 930,000
c. 950,000
d. 730,000

48. An entity includes one coupon in each box of product that it packs, and 10 coupons are redeemable for a
premium item. In 2024, the entity purchased 8,000 premiums at P65 each and sold 150,000 boxes of product
at P200 per box. 40,000 coupons were presented for redemption in 2024. It is estimated that 60% of the
coupons will eventually be presented for redemption. What amount of liability for premium items should the
entity report on December 31, 2024?

a. 585,000
b. 260,000
c. 715,000
d. 325,000

49. An entity sells speakers that carry a 2-year warranty against defects. Based on past experience, it is estimated
that warranty cost is 3% of sales for the first year after sale, and 5% of sales for the second year after sale.
The entity reported sales of P7,500,000 for the year 2024 and actual warranty expenditures in 2024 totaled
P150,000. Sales are made evenly throughout the year. On December 31, 2024, the entity tested the accuracy
of its warranty liability. What is the adjusted warranty liability on December 31, 2024?

a. 431,250
b. 450,000
c. 600,000
d. 375,000

50. On February 18, 2024, the entity is identified as a responsible party by its Regulatory Agency. The entity’s
management, along with its counsel, have concluded that it is probable that the entity will be responsible for
damages, and a reasonable estimate of these damages is P12,000,000. The entity’s insurance policy of
P18,000,000 has a deductible clause of P1,000,000. What amount of insurance claim or reimbursement asset
should the entity report on December 31, 2024?
a. 12,000,000
b. 11,000,000
c. 18,000,000
d. 17,000,000

51. Which of the following is a fundamental quality of useful accounting information?

a. Comparability
b. Relevance
c. Verifiability
d. Materiality
52. What quality of information means the numbers and descriptions match what really existed?
a. Relevance
b. Faithful representation
c. Completeness
d. Neutrality
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53. Which of the following is not acceptable in presenting the income statement?
a. Including prior period adjustments in determining net income
b. The condensed income statement
c. The consolidated income statement
d. Including gains and losses from discontinued operations of a component of a business
54. Change in accounting estimate affects reported amounts
a. Retrospectively only.
b. Prospectively only.
c. Currently and prospectively.
d. Currently and retrospectively.
55. Which of the following is false?
a. Savings accounts are usually classified as cash
b. Certificates of deposit are usually classified as cash equivalents
c. Cash equivalents are investments with original maturities of six months or less
d. Petty cash fund shall be presented as cash
56. Trade receivables are classified in the statement of financial position as
a. Current liabilities
b. Noncurrent liabilities
c. Noncurrent assets
d. Current assets
57. Which of the following transactions shall require derecognition of a receivable?
a. Assignment of accounts receivable
b. Hypothecation of accounts receivable
c. Discounting of notes receivable with recourse as secured borrowing
d. Factoring of accounts receivable with recourse
58. What is the maximum amount that inventory can be valued at if there is a decline below cost?
a. Selling price
b. Net realizable value
c. Cost
d. Selling price less estimated cost to dispose
59. Agricultural activity results in
a. Biological assets only
b. Agricultural produce only
c. Both biological assets and agricultural produce
d. Neither biological assets nor agricultural produce
60. In using the conventional retail inventory method, the cost ratio
a. Includes net markups but ignores net markdowns
b. Includes both net markups and net markdowns
c. Ignores net markups but includes net markdowns
d. Ignores both net markups and net markdowns
61. A bond investment measured at amortized cost was acquired at a discount. The entry to record the amortization
will include

a. Credit to Investment in bonds

b. Debit to Investment in bonds
c. Debit to Interest income
d. Debit to Interest receivable
 Page 15

62. An entity acquires a passive interest in another entity. How will the entity account for its equity investment?
a. By using the equity method
b. By using the effective interest method
c. By using the fair value method
d. By consolidation
63. An entity uses the equity method in accounting for its investment in associate. The entity shall allocate first
its share in the net loss of the associate to
a. Investment in preference shares of the associate
b. Investment in ordinary shares of the associate
c. Loans and advances to the associate
d. Both investment in preference shares and ordinary shares equally
64. The following are major characteristics of property, plant and equipment, except
a. Long-term in nature
b. Acquired for resale
c. Acquired for use
d. Physical substance
65. When shall capitalization of borrowing cost end?
a. The necessary activities to get the asset ready for its intended use have started.
b. When the loan is fully settled.
c. When the asset is fully depreciated.
d. When the asset is substantially complete.
66. Depreciation is a variable expense if the method is
a. Production method
b. Straight-line method
c. Sum of the year’s digits method
d. Double declining balance method
67. After recording impairment loss, what is the basis for computing subsequent depreciation?
a. Historical cost
b. Replacement cost
c. Fair value
d. Recoverable amount
68. Which of the following is not a characteristic of an intangible asset?
a. Expensed over current and future periods
b. Identifiable
c. Physical substance
d. Provides future benefit
69. Which of the following costs shall be capitalized as an asset?
a. Research and development costs
b. Costs to internally create goodwill
c. Cost of equipment that is used in current and future R&D projects
d. Litigation cost of successfully defending a patent
70. Which of the following best describes accounting for warranty costs?
a. Expense when settled
b. Expense when warranty expires
c. Expense based on estimate in year of sale
d. Expense when actually incurred

END