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Gabriel, Alexa Krizzel Joy M.
MULTIPLE CHOICE
1. Which statement is correct regarding forward contracts?
a. These contracts are generic exchange-traded.
b. The party that sells the underlying asset in the contract is said to have a long
position.
c. The party that buys the underlying asset in the contract pays the seller a fee
to compensate the seller for the risk of payments.
d. Settlement is at maturity by actual delivery of the item specified in the
contract, or by a net cash settlement
Alexa Company uses lease as a means of selling its equipment. On July 1, 2023, the company leased a piece of
equipment to Gabriel Company. The cost of the equipment to Alexa Company was P615,600. The fair market
value (which was the sales price) was P712,980 at the time of the inception of the lease.
Annual lease payments are P121,500 and are payable in advance for 8 years. the equipment has an expected
economic life of 10 years. At the end of the lease term, title of the equipment will pass to Gabriel Company.
Implicit interest rate is 10%.
Round off any PV factors to three decimal places.
2. Assume that at the end of the lease term, the title to the equipment will not pass to the lessee. The
lessee however guarantees a residual value of P50,000 at the end of the lease term. How much is the
manufacturer’s profit and interest income recognized by Alexa Company for the year 2023?
a. P36,817 and P120,730 c. P30,742 and P120,730
b. P120,730 and P36,817 d. P120,730 and P30,742
3. Assume that at the end of the lease term, the title to the equipment will not pass to the lessee. The
equipment is expected to have an unguaranteed residual value of P50,000 at the end of the lease term.
How much is the cost of goods sold recognized by Alexa Company pertaining to this lease?
a. P592,250 c. P638,950
b. P615,600 d. P665,600
Alexa Company provided the following information for an inventory at year end:
Historical Cost P1,200,000
Estimated selling price 1,300,000
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Estimated completion and selling cost 150,000
Replacement cost 1,100,000
4. Under full PFRS and Under PFRS for SMEs, what amount should be reported as inventory at year end
respectively?
a. 1,150,000 and 1,100,000 c. 1,200,000 and 1,100,000
b. 1,150,000 and 1,150,000 d. 1,100,000 and 1,150,000
On April 30, 2023, Alexa Company approved a plan to dispose of a segment of its business. On this date, the
entity is committed to a plan to sell the segment and classifies its assets as held for sale. The carrying value of
the segment's net assets on April 30 was P400,000. In compliance with IFRS 5, no further depreciation or
amortization was taken up on these assets until they were sold in November. During November, disposal costs
incurred by Alexa totaled P11,250.
During the period January 1, 2023, through November 30, 2023, the segment had total revenues of P2,250,000
and total selling and administrative expenses of P2,040,000. On November 30, 2023, the segment's net assets
were sold for P425,000. The income tax rate is 30%.
5. What is the single amount reported as discontinued operations in Alexa's profit or loss for 2023?
a. P139,125 c. P198,750
b. P156,625 d. P223,750
Alexa Corp. contracted Gabriel Inc. on January 1, 2023, to construct building for P1,860,000 on land Alexa Corp.
purchased a couple of years back. The contract provides that Alexa Corp. is to make five payments in 2023, with
the last payment to be made upon completion. The building was completed on December 31, 2023.
Alexa Corp. made the following payments during 2023:
January 1 P160,000
March 31 380,000
August 1 488,000
September 30 552,000
December 31 280,000
Alexa Corp. made the following arrangements with various financial institutions in 2023: 12%, P680,000 loan
dated January 1, 2023, with interest compounded quarterly.
Both principal and interest are payable on December 31, 2025. This loan related specifically to the building
project.
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10%, 10-year, P480,000 note dated December 31, 2022, with simple interest; interest payable annually on
December 31. The loan was for general financing purposes including the partial financing of the construction.
• 12%, 5-year, P560,000 note dated December 31, 2022, with simple interest; interest payable annually on
December 31. The loan was for general financing purposes including the partial financing of the construction.
Requirements-
6. How much interest is capitalized in 2023?
a. 98,120 c. 98,127
b. P97,128 d. 97,182
7. What amount shall be reported as interest expense in 2023?
a. P109,123 c. P103,418
b. P106,625 d. 104,411
8. What is the accumulated cost of the building as of December 31, 2023?
a. P1,000,125 c. P1,980,750
b. P1,056,625 d. P1,957,128
On January 1, 2022, the company signed an agreement to operate as franchisee of Alexa Company for an initial
franchise fee of P340,000. Of this amount, P100,000 was paid when the agreement was signed and the balance
was payable in four annual payments of P60,000 each, beginning January 1, 2023. The agreement provides that
the down payment is non-refundable, and no future services are required of the franchisor. The implicit rate for
a loan of this type is 14%. The agreement also provides the 5% of the revenue from the franchise must be paid
to the franchisor annually. The company's revenue from the franchise for 2022 was P4,000,000. The company
estimates the useful life of the franchise to be ten years.
On July 1, 2022, the company purchased a patent from an inventor who asked P550,000 for it. The company
paid for the patent as follows: cash, P200,000; issuance of 10,000 shares of its own ordinary shares, par P5
(market value, P10 per share); and a note payable due at the end of three years, face amount, P250,000,
noninterest bearing. The market interest rate for this type of financing is 12 percent. The company estimates the
useful life of the patent to be ten years.
The company purchased for P600,000 a trademark for a very successful six pack abs-inducing drink it markets
under the name "AKG". The trademark was determined to have an indefinite life. A competitor recently
introduced a product that is in direct competition with the "AKG", thus suggesting the need for an impairment
test. Data gathered by the entity suggests that the useful life of the trademark is still indefinite, but the cash
flows expected to be generated by the trademark have been reduced either to P20,000 per year (with a
probability of 70%) or to P40,000 per year (with 30% probability. The appropriate discount rate is 5%.
Required: Determine the following- (Round of PV factors to four decimal places)
9. Carrying amount of franchise as of December 31, 2022
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a. 247,340 c. 237,418
b. 347,625 d. 238,411
10. Carrying amount of patent as of December 31, 2022
a. 545,100 c. 406,418
b. 406,625 d. 454,052
11. Carrying amount of trademark as of December 31, 2022
a. 510,000 c. 530,000
b. 550,000 d. 520,000
12. Total expenses related to the intangible assets in 2022
a. 366,532 c. 366,632
b. 366,656 d. 365,767
13. Under PAS 39, all of the following are characteristics of a derivative except
a. Its value changes in response to the change in a specified underlying.
b. It requires no initial investment or an initial net investment that is smaller than would be required for
other types of contracts that would be expected to have a similar response to changes in market factors.
c. It is settled at a future date.
d. It is acquired or incurred by the entity for the purpose of generating a profit from short-term
fluctuations in market factors.
Starting on January 1, 2022, Alexa Company leased office space to Gabriel Company for a period of five years. As
to the operational lease, the first year's rent is P100,000, and the following years' rent is P156,250 annually.
However, Alexa gave Gabriel the first three months of the lease without any rent as a benefit for accepting it.
14. What amount should Alexa Company report as lease income for 2022?
a. P25,000 c. P100,000
b. P75,000 d. P140,000
15. What amount should Alexa Company reports as lease receivable on December 31,2023?
a. Zero c. P48,750
b. P23,750 d. P57,250
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Answer Key:
1. D.
2. D.
Sales [P712,980 + (50T x 0.467)] 736,330
Less: Cost of Equipment (615,600)
Manufacturer’s Profit 120,730
Interest income – 2023 [(736,330 – 121,500) x 10% x 6/12 = 30,742
3. Cost of the equipment 615, 600
Less: PV of unguaranteed residual value (50Tx0.467) (23,250)
Cost of Goods sold A. 592,250
4. Estimated selling price 1,300,000
Less: Estimated completion and selling cost (150,000)
Net Amount 1,150,000
Historical Cost 1,200,000
Lower Amount B. 1,150,000
Under Full PFRS, inventories shall be measured at the LCNRV. Net realizable value is computed as
Estimated selling price less cost to complete and sell
Under PFRS for SMEs, under PFRS for SMEs, inventories shall be measured at the lower of cost and
selling price less cost to complete and dispose
5. Revenues P2,250,000
Expenses (2,040,000)
Disposal Costs (11,250)
Gain on disposal of the segment (425T-400T) 25,000
Pre-tax income from discontinued operations B. 223,750
6. 1/1/2023 160,000 x 12/12 = 160,000
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3/31/2023 380,000 x 9/12 = 285,000
8/1/2023 488,000 x 5/12 = 203,333
9/30/2023 552,000 x 3/12 = 138,000
12/31/2023 280,000 x 0/12 = -
Weighted average expenditures – 2023 786,333
Weighted average expenditures – 2023 786,333
Less: Expenditures applicable to specific borrowings (680,000)
Expenditures applicable to general borrowings 106,333
Capitalizable interest on specific borrowings* 85,346
Add: Capitalizable interest on general borrowings** 11,782
Capitalizable interest – 2023 B. 97,128
*Capitalizable interest on specific borrowings is computed as follows:
1st quarter interest (680T x 12% × 3/12) 20,400
2nd quarter interest [(680T + 20,400) x 12% x 3/12] 21,012
3rd quarter interest [(700,400 + 21,012) x 12% x 3/12] 21,642
4th quarter interest [(721,412 + 21,642) x 12% x 3/12] 22,292
Interest on specific borrowings 85,346
**Capitalizable interest on general borrowings is computed as follows:
Average interest cost on general borrowings (106,333 x 11.08%) 11,782
Actual interest cost on general borrowings 115,200
Capitalizable interest on general borrowings 11,782
The capitalization rate on general borrowings is computed as follows:
Principal amount Interest Rate Annual Interest
480,000 10% 48,000
560,000 12% 67,200
1,040,000 115,200
Capitalization rate = 115,200/1,040,000
Capitalization rate = 11.08%
7. C. 103,418
Total interest incurred - 2023 (85,346 + 115,200) 200,546
Less: Capitalized interest – 2023 (97,128)
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Interest expense – 2023 103,418
8. D. 1,957,128
Total payments on construction – 2023 (160T + 380T + 488T + 552T + 280T) 1,860,000
Add: Capitalized interest – 2023 97,128
Accumulated cost, 12/31/2023 1,957,128
9. Cash down payment
Present Value of unpaid balance P100,000
Franchise 174,822
Less: Amortization – 2022 (274,822/10) 274,822
Franchise, 12/31/2022 A. 247,340
10. Cash down payment P200,000
Market value of shares issued (10,000 sh. x P10/sh.) 100,000
Present value of note payable (250,000 x 0.7118) 177,950
Patent, 1/1/2022 477,950
Less: Amortization - 2022 [(477,950/10) x 6/12] (23,898)
Patent, 12/31/2022 D. 454,052
11. Weighted average cash flow from the trademark (20,000 x 70%) + (40,000 x 30%) 26,000
Divided by: 5%
Recoverable value of the trademark 520,000
Cost of the trademark 600,000
Lower amount D. 520,000
12. Franchise-related expenses Amortization expense 27,482
Interest expense (174,822 x 14% x 12/12) 24,475
Continuing franchise fee expense (4M x 5%) 200,000 251,957
Patent-related expenses Amortization expense 23,898
Interest expense (177,950 x 12% x 6/12) 10,677 34,575
Trademark-related expenses Impairment loss (600T - 520T) 80,000
Total expenses A. 366,532
13. D
14. Lease payment – year 1 (100Tx9/12) 75,000
Lease payment – year 2 – 5 (156,250/year x 4 years) 625,000
Total lease payments over the lease term 700,000
Annual lease income (700T/5) = D. 140,000
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15. Lease income to date, 12/31/2023 280,000
Leases: Lease collected to date, 12/31/2023 (75T + 156,250) (231,250)
Lease receivable, 12/31/2023 C. 48,750
