INTERMEDIATE ACCOUNTING 3 Quiz
Problem 9-6 (IAA)
Initial Data:
o Cost: P6,000,000
o Initial Useful Life: 6 years
o Depreciation Method: Straight-line
Calculations:
o Annual Depreciation (Initial): P6,000,000 / 6 years = P1,000,000 per year
o Accumulated Depreciation (as of Jan 1, 2024): P1,000,000/year * 3 years = P3,000,000
o Book Value (as of Jan 1, 2024): P6,000,000 - P3,000,000 = P3,000,000
o Remaining Useful Life (as of Jan 1, 2024): 8 years - 3 years = 5 years
o Revised Annual Depreciation: P3,000,000 / 5 years = P600,000 per year
Answer: B. 600,000
Problem 9-7 (IFRS)
Initial Data:
o Building: P15,000,000 / 15 years
o Machinery: P10,500,000 / 10 years
o Furniture: P3,500,000 / 7 years
Calculations:
o Building:
Annual Depreciation (Initial): P15,000,000 / 15 years = P1,000,000 per year
Accumulated Depreciation (as of Jan 1, 2024): P1,000,000/year * 3 years = P3,000,000
Book Value (as of Jan 1, 2024): P15,000,000 - P3,000,000 = P12,000,000
Revised Annual Depreciation: P12,000,000 / 10 years = P1,200,000 per year
o Machinery:
Annual Depreciation (Initial): P10,500,000 / 10 years = P1,050,000 per year
Accumulated Depreciation (as of Jan 1, 2024): P1,050,000/year * 3 years = P3,150,000
Book Value (as of Jan 1, 2024): P10,500,000 - P3,150,000 = P7,350,000
Revised Annual Depreciation: P7,350,000 / 7 years = P1,050,000 per year
o Furniture:
Annual Depreciation (Initial): P3,500,000 / 7 years = P500,000 per year
Accumulated Depreciation (as of Jan 1, 2024): P500,000/year * 3 years = P1,500,000
Book Value (as of Jan 1, 2024): P3,500,000 - P1,500,000 = P2,000,000
Revised Annual Depreciation: P2,000,000 / 5 years = P400,000 per year
o Total Depreciation for 2024: P1,200,000 + P1,050,000 + P400,000 = P2,650,000
Answer: A. 2,650,000
Problem 9-8 (AICPA Adapted)
Initial Data (Jan 1, 2021):
o Cost: P5,280,000
o Useful Life: 8 years
o Residual Value: P0
o Method: Straight-Line
Revised Data (Jan 1, 2024):
o Total Useful Life: 6 years (from acquisition)
o Residual Value: P480,000
Calculations:
o Initial Annual Depreciation: P5,280,000 / 8 years = P660,000
o Accumulated Depreciation (Jan 1, 2024): P660,000 * 3 years = P1,980,000
o Book Value (Jan 1, 2024): P5,280,000 - P1,980,000 = P3,300,000
o Remaining Useful Life (Jan 1, 2024): 6 years - 3 years = 3 years
o Revised Annual Depreciation: (P3,300,000 - P480,000) / 3 years = P940,000
o Accumulated Depreciation (Dec 31, 2024): P1,980,000 + P940,000 = P2,920,000
Answer: A. 2,920,000
Problem 9-9 (IFRS)
Initial Data (Jan 1, 2020):
o Cost: P4,000,000
o Useful Life: 10 years
o Residual Value: P400,000
o Method: Straight-Line
Revised Data (Jan 1, 2024):
o Total Useful Life: 12 years (from acquisition)
o Residual Value: P480,000
Calculations:
o Initial Annual Depreciation: (P4,000,000 - P400,000) / 10 years = P360,000
o Accumulated Depreciation (Jan 1, 2024): P360,000 * 4 years = P1,440,000
o Book Value (Jan 1, 2024): P4,000,000 - P1,440,000 = P2,560,000
o Remaining Useful Life (Jan 1, 2024): 12 years - 4 years = 8 years
o Revised Annual Depreciation: (P2,560,000 - P480,000) / 8 years = P260,000
Answer: B. 260,000
Problem 9-10 (IAA)
Initial Data (Jan 1, 2022):
o Cost: P3,760,000
o Useful Life: 5 years
o Residual Value: P240,000
o Method: Sum-of-Years' Digits
Revised Data (Jan 1, 2025):
o Total Useful Life: 4 years (from acquisition)
o Residual Value: P352,000
Calculations:
o Initial Depreciation:
Depreciable Amount: P3,760,000 - P240,000 = P3,520,000
Sum of Years' Digits: 5 + 4 + 3 + 2 + 1 = 15
2022 Depreciation: P3,520,000 * (5/15) = P1,173,333.33
2023 Depreciation: P3,520,000 * (4/15) = P938,666.67
2024 Depreciation: P3,520,000 * (3/15) = P704,000
o Accumulated Depreciation (Jan 1, 2025): P1,173,333.33 + P938,666.67 + P704,000 =
P2,816,000
o Book Value (Jan 1, 2025): P3,760,000 - P2,816,000 = P944,000
o Revised Depreciation:
Depreciable Amount: P3,760,000 - P352,000 = P3,408,000
Sum of Years' Digits: 4 + 3 + 2 + 1 = 10
2022 Depreciation: P3,408,000 * (4/10) = P1,363,200
2023 Depreciation: P3,408,000 * (3/10) = P1,022,400
2024 Depreciation: P3,408,000 * (2/10) = P681,600
2025 Depreciation: P3,408,000 * (1/10) = P340,800
o Revised Accumulated Depreciation (Jan 1, 2025): P1,363,200 + P1,022,400 + P681,600 =
P3,067,200
o Revised Book Value (Jan 1, 2025): P3,760,000 - P3,067,200 = P692,800
o Depreciation for 2025: P944,000 - P692,800 = P251,200 (This method doesn't work well
because of the change)
o OR, using the revised figures:
Book Value (Jan 1, 2025): P944,000
Revised Depreciation for 2025: (P944,000 - P352,000) / 1 year = P592,000
Answer: C. 592,000
Problem 9-11 (AICPA Adapted)
Initial Data (Jan 1, 2022):
o Cost: P4,800,000
o Useful Life: 10 years
o Residual Value: P200,000
o Method: Double-Declining Balance
Given (Dec 31, 2023):
o Carrying Amount (Book Value): P3,072,000
Change (Jan 1, 2024):
o Method: Straight-Line
o Residual Value: P200,000 (no change)
Calculations:
o Book Value (Jan 1, 2024): P3,072,000
o Remaining Useful Life (Jan 1, 2024): 10 years - 2 years = 8 years
o Depreciable Amount (Jan 1, 2024): P3,072,000 - P200,000 = P2,872,000
o Depreciation for 2024: P2,872,000 / 8 years = P359,000
Answer: D. 359,000
Problem 9-12 (AICPA Adapted)
Initial Data (Jan 1, 2023):
o Cost: P2,750,000
o Useful Life: 10 years
o Residual Value: P0
o Method: Sum-of-Years' Digits
Change (Jan 1, 2024):
o Method: Straight-Line
o Residual Value: P0 (no change)
Calculations:
o Sum of Years' Digits: 10 + 9 + 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 55
o 2023 Depreciation: P2,750,000 * (10/55) = P500,000
o Book Value (Jan 1, 2024): P2,750,000 - P500,000 = P2,250,000
o Remaining Useful Life (Jan 1, 2024): 10 years - 1 year = 9 years
o Depreciation for 2024: P2,250,000 / 9 years = P250,000
Answer: C. 250,000
Problem 9-13 (AICPA Adapted)
Initial Data (Jan 1, 2022):
o Cost: P5,000,000
o Useful Life: 5 years
o Residual Value: P0
o Method: 200% Double-Declining Balance (first 2 years), then Straight-Line
Calculations:
o Straight-Line Rate: 1 / 5 years = 20%
o Double-Declining Rate: 20% * 2 = 40%
o 2022 Depreciation: P5,000,000 * 40% = P2,000,000
o Book Value (Dec 31, 2022): P5,000,000 - P2,000,000 = P3,000,000
o 2023 Depreciation: P3,000,000 * 40% = P1,200,000
o Book Value (Dec 31, 2023): P3,000,000 - P1,200,000 = P1,800,000
o Remaining Useful Life (Jan 1, 2024): 5 years - 2 years = 3 years
o Depreciation for 2024: P1,800,000 / 3 years = P600,000
o Accumulated Depreciation (Dec 31, 2024): P2,000,000 + P1,200,000 + P600,000 = P3,800,000
Answer: B. 3,800,000
Problem 9-14 (IAA)
Initial Data (Jan 1, 2021):
o Cost: P7,200,000
o Useful Life: 10 years
o Residual Value: P0
o Method: Straight-Line
Change (2024):
o Method: Sum-of-Years' Digits
o Useful Life: 10 years (no change)
o Residual Value: P0 (no change)
Calculations:
o Initial Annual Depreciation: P7,200,000 / 10 years = P720,000
o Accumulated Depreciation (Jan 1, 2024): P720,000 * 3 years = P2,160,000
o Book Value (Jan 1, 2024): P7,200,000 - P2,160,000 = P5,040,000
o Sum of Years' Digits (Remaining): 7 + 6 + 5 + 4 + 3 + 2 + 1 = 28
o Depreciation for 2024: P5,040,000 * (7/28) = P1,260,000
Answer: A. 1,260,000
Problem 9-15 (IAA)
Initial Data (Jan 1, 2023):
o Cost: P6,000,000
o Useful Life: 4 years
o Residual Value: P600,000
o Method: Double-Declining Balance
Change (Jan 2024):
o Remaining Useful Life: 2 years
Calculations:
o Straight-Line Rate: 1 / 4 years = 25%
o Double-Declining Rate: 25% * 2 = 50%
o 2023 Depreciation: P6,000,000 * 50% = P3,000,000
o Book Value (Jan 1, 2024): P6,000,000 - P3,000,000 = P3,000,000
o Revised Annual Depreciation: (P3,000,000 - P600,000) / 2 years = P1,200,000
Answer: D. 1,200,000
Problem 9-16 (IAA)
Patent Data:
o Purchase Date: January 1, 2019
o Cost: P3,000,000
o Initial Useful Life: 10 years
o Residual Value: P0
o Change (Jan 1, 2024): Useful Life to 8 years
o Change (Jan 1, 2024): Depreciation Method to Straight-Line
Calculations:
o Initial Annual Amortization: P3,000,000 / 10 years = P300,000
o Amortization (2019-2023): P300,000 * 5 years = P1,500,000
o Book Value (Jan 1, 2024): P3,000,000 - P1,500,000 = P1,500,000
o Remaining Useful Life (Jan 1, 2024): 8 years - 5 years = 3 years
o Amortization for 2024: P1,500,000 / 3 years = P500,000
Equipment Data:
o Cost: P8,000,000
o Accumulated Depreciation (Jan 1, 2024): P3,400,000
o Book Value (Jan 1, 2024): P8,000,000 - P3,400,000 = P4,600,000
o Remaining Useful Life (Jan 1, 2024): 10 years
o Residual Value: P200,000
o Depreciation Method: Straight-Line
Calculations:
o Depreciation for 2024: (P4,600,000 - P200,000) / 10 years = P440,000
Total Charge Against 2024 Income:
o Patent Amortization: P500,000
o Equipment Depreciation: P440,000
o Total: P500,000 + P440,000 = P940,000
Answer: A. 940,000
Problem 9-17 (IAA)
Initial Data (Jan 1, 2022):
o Cost: P10,000,000
o Useful Life: 8 years
o Residual Value: P1,000,000
o Method: Sum-of-Years' Digits
Change (Jan 2024):
o Useful Life: 6 years (from acquisition)
o Residual Value: P400,000
Calculations:
o Initial Depreciable Amount: P10,000,000 - P1,000,000 = P9,000,000
o Sum of Years' Digits (Initial): 8 + 7 + 6 + 5 + 4 + 3 + 2 + 1 = 36
o 2022 Depreciation: P9,000,000 * (8/36) = P2,000,000
o 2023 Depreciation: P9,000,000 * (7/36) = P1,750,000
o Accumulated Depreciation (Jan 1, 2024): P2,000,000 + P1,750,000 = P3,750,000
o Book Value (Jan 1, 2024): P10,000,000 - P3,750,000 = P6,250,000
o Revised Depreciable Amount: P10,000,000 - P400,000 = P9,600,000
o Sum of Years' Digits (Revised): 6 + 5 + 4 + 3 + 2 + 1 = 21
o 2022 Depreciation (Revised): P9,600,000 * (6/21) = P2,742,857.14
o 2023 Depreciation (Revised): P9,600,000 * (5/21) = P2,285,714.29
o Accumulated Depreciation (Dec 31, 2024): P2,742,857.14 + P2,285,714.29 = P5,028,571.43
o OR
o 2024 Depreciation (Revised): P9,600,000 * (4/21) = P1,828,571.43
o Accumulated Depreciation (Dec 31, 2024): P3,750,000 + P1,828,571.43 = P5,578,571.43
o However, the book value must be equal to residual value at the end of the useful life
o Book Value (Jan 1, 2024): P6,250,000
o Depreciable Amount (Jan 1, 2024): P6,250,000 - P400,000 = P5,850,000
o Remaining Useful Life (Jan 1, 2024): 6 years - 2 years = 4 years
o Sum of Years' Digits (Remaining): 4 + 3 + 2 + 1 = 10
o 2024 Depreciation: P5,850,000 * (4/10) = P2,340,000
o Accumulated Depreciation (Dec 31, 2024): P3,750,000 + P2,340,000 = P6,090,000
Answer: B. 6,090,000
Problem 9-18 (AICPA Adapted)
Change: FIFO to Weighted Average
Tax Rate: 25%
Data:
o January 1: FIFO P7,100,000, Weighted Average P7,700,000
o December 31: FIFO P7,900,000, Weighted Average P8,200,000
Calculations:
o Change in Beginning Inventory: P7,700,000 - P7,100,000 = P600,000 (Increase)
o Change in Ending Inventory: P8,200,000 - P7,900,000 = P300,000 (Increase)
o Net Change: P600,000 - P300,000 = P300,000 (Increase)
o After-Tax Effect: P300,000 * (1 - 25%) = P225,000 (Increase)
However, the problem is only asking for the effect of the change on the beginning inventory.
o Change in Beginning Inventory: P7,700,000 - P7,100,000 = P600,000 (Increase)
o After-Tax Effect: P600,000 * (1 - 25%) = P450,000 (Increase)
Answer: A. 450,000 addition
Problem 9-19 (AICPA Adapted)
Change: FIFO to Weighted Average
Tax Rate: 25%
Data:
o 2021: FIFO P4,500,000, Weighted Average P5,400,000
o 2022: FIFO P7,800,000, Weighted Average P7,100,000
o 2023: FIFO P8,300,000, Weighted Average P7,800,000
Calculations:
o 2021 Change: P5,400,000 - P4,500,000 = P900,000 (Increase)
o 2022 Change: P7,100,000 - P7,800,000 = -P700,000 (Decrease)
o 2023 Change: P7,800,000 - P8,300,000 = -P500,000 (Decrease)
o Cumulative Change: P900,000 - P700,000 - P500,000 = -P300,000 (Decrease)
o After-Tax Effect: -P300,000 * (1 - 25%) = -P225,000 (Decrease)
However, the problem is asking for the cumulative effect as of January 1, 2024. Therefore we
will use the 2023 change as the cumulative effect.
o 2023 Change: P7,800,000 - P8,300,000 = -P500,000 (Decrease)
o After-Tax Effect: -P500,000 * (1 - 25%) = -P375,000 (Decrease)
Answer: A. 375,000 decrease
Problem 9-20 (IAA)
Change: Cost Recovery Method to Percentage of Completion Method
Data (Cost Recovery):
o 2021 Income: P7,000,000
o 2022 Income: P13,000,000
o 2023 Income: P10,000,000
Data (Percentage of Completion):
o 2021 Income: P7,000,000 (Contract 1)
o 2022 Income: P5,000,000 (Contract 2) + P8,000,000 (Contract 2) + P1,000,000 (Contract 4) =
P14,000,000
o 2023 Income: P3,000,000 (Contract 3) + P7,000,000 (Contract 3) + P2,000,000 (Contract 3) +
P6,000,000 (Contract 4) - P1,000,000 (Contract 5) = P17,000,000
Calculations:
o 2021 Difference: P7,000,000 (POC) - P7,000,000 (CR) = P0
o 2022 Difference: P14,000,000 (POC) - P13,000,000 (CR) = P1,000,000
o 2023 Difference: P17,000,000 (POC) - P10,000,000 (CR) = P7,000,000
o Cumulative Effect: P0 + P1,000,000 + P7,000,000 = P8,000,000
Answer: B. 8,000,000
Problem 9-21 (IAA)
Change: Cost Recovery to Percentage of Completion
Tax Rate: 25%
Data:
o 2022: CR P950,000, POC P1,600,000
o 2023: CR P1,250,000, POC P1,900,000
o 2024: CR P1,400,000, POC P2,100,000
Calculations:
o 2022 Difference: P1,600,000 - P950,000 = P650,000 (Increase)
o 2023 Difference: P1,900,000 - P1,250,000 = P650,000 (Increase)
o 2024 Difference: P2,100,000 - P1,400,000 = P700,000 (Increase)
o Cumulative Effect (2022 + 2023): P650,000 + P650,000 = P1,300,000 (Increase)
o After-Tax Effect: P1,300,000 * (1 - 25%) = P975,000 (Increase)
Answer: d. 975,000 increase in retained earnings
Problem 9-22 (IFRS)
Discovery: Capitalization criteria never met.
Data:
o Dec 31, 2024: Dev. Costs P8,160,000, Amortization (P1,800,000)
o Dec 31, 2023: Dev. Costs P5,840,000, Amortization (P1,200,000)
Calculations:
o 1. Adjustment to Retained Earnings (Jan 1, 2024):
Book Value (Dec 31, 2023): P5,840,000 - P1,200,000 = P4,640,000
Since it shouldn't have been capitalized, the entire book value must be reversed.
Adjustment: P4,640,000 (Decrease)
o 2. Development Costs to be Expensed in 2024:
Book Value (Dec 31, 2024): P8,160,000 - P1,800,000 = P6,360,000
Since it shouldn't have been capitalized, the entire book value must be expensed.
Expense: P6,360,000
Answers:
1. C. 4,640,000
2. B. 6,360,000
Problem 9-23 (AICPA Adapted)
Error: Overstated income by P100,000 (net of tax) in 2022 and 2023.
2024 Net Income: P700,000 (correct)
Reported Retained Earnings:
o Jan 1, 2022: P2,000,000
o Dec 31, 2022: P2,800,000
o Dec 31, 2023: P3,400,000
Calculations:
o Pre-tax Error: Since the error is net of tax, we need to gross it up. Assuming a standard tax
rate of 30%, the pre-tax error is P100,000 / (1 - 0.30) = P142,857.14 (approximately).
o Total Pre-tax Error: P142,857.14 * 2 = P285,714.28
o Total Net Error: P100,000 * 2 = P200,000
o Corrected Retained Earnings (Jan 1, 2024): P3,400,000 - P200,000 = P3,200,000
o Corrected Retained Earnings (Dec 31, 2024): P3,200,000 + P700,000 = P3,900,000
Answer: A. 3,900,000
Problem 9-24 (IFRS)
Inventory Obsolescence Increase: P3,000,000 (2024)
2023 Provision: P1,800,000 higher than reported.
Calculations:
o Impact on 2024 Income: An increase in the provision for inventory obsolescence directly
reduces net income. Therefore, the net income for 2024 should be decreased by P3,000,000.
Answer: A. 3,000,000 decrease
Problem 9-25 (AICPA Adapted)
Error: Incorrectly expensed a P2,100,000 machine (Jan 1, 2021).
Correct Treatment: Should have been capitalized and depreciated.
Useful Life: 10 years
Residual Value: P100,000
Depreciation Method: Straight-line
Tax Rate: 25%
Calculations:
o Annual Depreciation: (P2,100,000 - P100,000) / 10 years = P200,000
o Depreciation (2021-2023): P200,000 * 3 years = P600,000
o Book Value (Jan 1, 2024): P2,100,000 - P600,000 = P1,500,000
o Error (Pre-Tax): P1,500,000 (net effect on retained earnings)
o Error (After-Tax): P1,500,000 * (1 - 25%) = P1,125,000
Answer: C. 1,125,000
Problem 9-26 (IFRS)
Reported Retained Earnings (Jan 1, 2023): P1,100,000
Reported Net Income (2023): P600,000
Dividends (2023): P300,000
Error (2023): P650,000 overstatement of net income (after-tax)
Reported Net Income (2024): P700,000
Dividends (2024): P150,000
Calculations:
o Corrected Retained Earnings (Jan 1, 2023): P1,100,000 (no change)
o Corrected Net Income (2023): P600,000 - P650,000 = -P50,000
o Corrected Retained Earnings (Dec 31, 2023): P1,100,000 - P50,000 - P300,000 = P750,000
o Corrected Retained Earnings (Dec 31, 2024): P750,000 + P700,000 - P150,000 = P1,300,000
Answer: A. 1,300,000
