PREWEEK LECTURE

FINANCIAL ACCOUNTING AND REPORTING

MAY 2022 CPALE

REVISED CONCEPTUAL FRAMEWORK

1. Generally accepted accounting principles
a. are fundamental truths or axioms that can be derived from laws of nature.
b. derive their authority from legal court proceedings.
c. derive their credibility and authority from general recognition and acceptance
by the accounting profession.
d. have been specified in detail in the FASB conceptual framework.

2. The assumption that implies that the economic activities of an enterprise can be
identified with a particular unit of accountability is the:
a. economic entity assumption.
b. going concern assumption.
c. timeliness assumption.
d. periodicity assumption.

BASIC ACCOUNTING CONCEPTS AND PROCESS

3. Which among the rules on debit and credit below is not correct?
a. The normal balance on any account appears on the side for recording
increases.
b. Assets and expenses are debited when increased, and liabilities, revenues and
equity are credited when increased.
c. The debit is always on the left side of the accounting double entry
d. Debit means increase, and credit means decrease

4. What is the logical order in the accounting cycle?

a. Posting, financial statements and unadjusted trail balance.
b. Financial statements, closing entities and reversing entries.
c. Financial statements, adjusting entries and recording.
d. Closing entries, reversing entries and adjusting entries.

STATEMENT OF FINANCIAL POSITION

5. Darwin Company provided the following information at year-end:
Cash 300,000

Accounts receivable 1,200,000

Inventory, including inventory expected in the ordinary

course of operations to be sold beyond 12 months amounting
to P700,000 1,000,000

Prepaid expenses 100,000

 Financial asset held for trading 200,000

Equity investment at fair value through other comprehensive

income 800,000

Deferred tax asset 150,000

What amount should be reported as total current assets at year-end?

a. 2,800,000
b. 2,550,000
c. 3,600,000
d. 2,100,000

6. In presenting a statement of financial position, an entity

a. Must make the current and noncurrent presentation.
b. Must present assets and liabilities in the order of liquidity.
c. Must choose either the current and noncurrent or the liquidity presentation.
d. Must make the current and noncurrent presentation except when a
presentation based on liquidity provides information that is reliable and more
relevant.

7. A financial liability that is due to be settled within twelve months after the
reporting period shall be classified as noncurrent
a. When it is refinanced on a long-term basis before the issue of financial
statements.
b. When the entity has no discretion to refinance for at least twelve months
c. When it is refinanced on a long-tern basis after the end of reporting period.
d. When it is refinanced on a long-term basis on or before the end of reporting
period.

PRESENTATION OF FINANCIAL STATEMENTS

8. Which information is not specifically a required disclosure in relation to financial
statements?
a. Name of the reporting entity or other means of identification.
b. Names of major shareholders of the entity
c. Level of rounding used in presenting the financial statements
d. Whether the financial statements cover the individual entity or a group of
entities.

STATEMENT OF COMPREHENSIVE INCOME

9. Vivian Company reported operating expenses in two categories, namely
distribution and general and administrative.

The adjusted trial balance at year-end included the following expense and loss
accounts for current year:
 Accounting and legal fees 1,200,000

Advertising 1,500,000

Freight out 800,000

Interest 700,000

Loss on sale of long-term investment 300,000

Officers’ salaries 2,250,000

Rent for office space 2,200,000

Sales salaries and commissions 1,400,000

One-half of the rented premises is occupied by the sales department.

What amount should be reported as total distribution costs?

a. 4,800,000
b. 4,000,000
c. 3,700,000
d. 3,600,000

10.Faroe Company reported net income of P7,410,000 for the current year. The
auditor raised questions about the following amounts that had been included in
net income:

Unrealized loss on foreign currency translation (540,000)

Gain on early retirement of bonds payable 2,200,000

Adjustment of profit of prior year for error in depreciation (net (750,000)

of tax effect)

Loss from fire (1,400,000)

What amount should be reported as adjusted net income?

a. 6,500,000
b. 6,610,000
c. 8,160,000
d. 8,700,000

11.All of the following components of OCI should be reclassified to profit or loss,

except
a. Gain and loss arising from translating the financial statements of a foreign
operation.
 b. Gain and loss on remeasuring debt investment at FVOCI.
c. The effective portion of gain or loss on hedging instrument in a cash flow
hedge.
d. Gain or loss on remeasuring equity investment at FVOCI.

RELATED PARTY DISCLOSURES

12.During the current year, Jane Company engaged in the following transactions:

Key management personnel compensation 2,000,000

Sales to affiliated entities 3,000,000

What total amount should be included as related party disclosures in Jane

Company’s separate financial statements for the current year?
a. 5,000,000
b. 3,000,000
c. 2,000,000
d. 0

13.Related parties include all of the following, except

a. Parent, subsidiary and fellow subsidiaries
b. Associates
c. Key management personnel and close family members if such individuals
d. Two ventures simply because they share joint control over a joint venture

14.Unrelated parties include all of the following, except

a. Two entities simply because they have a common director
b. Providers of finance or banks
c. Customers
d. Spouse of managing director

EVENTS AFTER REPORTING PERIOD

15.Events after the end of the reporting period are favorable or unfavorable events
that
a. Occur between the end of the reporting period and the date of the next annual
financial statements.
b. Occur between the year-end and the date of the next interim or annual
financial statements.
c. Occur between the year-end and the date when financial statements are
authorized for issue.
d. Occur between the end of reporting period and the date of the next interim
statements.

OPERATING SEGMENTS
16.Joanna Company and its divisions are engaged solely in manufacturing
operations. The entity reported the following segment profit (loss) for the
current year:
 V 3,400,000

W 1,000,000

X (2,000,000)

Y 400,000

Z (200,000)

2,600,000

In the segment information for the current year, what are the reportable
segments?
a. V, W, X and Y
b. V, W and X
c. V and W
d. V, W, X, Y and Z

17.Ariel Company and its divisions provided the following information for the
current year:

Sales to unaffiliated person 20,000,000

Intersegment sales of products similar to those sold to

unaffiliated customers 6,000,000

Interest earned on loans to other operating segments 400,000

Ariel and all of its divisions are engaged solely in manufacturing operations.

What is the minimum amount of segment revenue in order that a division can be
considered a reportable segment?
a. 2,640,000
b. 2,600,000
c. 2,040,000
d. 2,000,000

18.Which statement is not true with respect to a chief operating decision maker?
a. The term chief operating decision maker identifies a function and not
necessarily a manager with a specific title.
b. In some cases, the chief operating decision maker could be the chief operating
officer.
c. The board of directors acting collectively could qualify as the chief operating
decision maker.
 d. The chief internal auditor who reports to the board of directors usually plays a
very important role and would generally qualify as chief operating decision
maker.

19.Which of the following statements about major customer disclosure is not true?
a. A major customer is defined as one providing revenue which amounts to 10%
or more of the combined external revenue of all operating segments.
b. The identities of major customers must be disclosed.
c. The entity shall disclose the total amount of revenue from major customers.
d. The entity shall disclose the identity of the segment reporting the revenue from
major customers.

ACCOUNTING CHANGES AND ERRORS

20.During 2021, Abby Company decided to change from the FIFO method of
inventory valuation to the weighted average method.

FIFO Weighted Average

January 1 inventory 7,100,000 7,700,000

December 31 inventory 7,900,00 8,300,000

In the statement of retained earnings for 2021, what amount should be reported
as the pretax cumulative effect of this accounting change?
a. 1,000,000 addition
b. 1,000,000 deduction
c. 600,000 addition
d. 600,000 deduction

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

22.Which method is required for reporting a change accounting policy?

a. Cumulative effect approach
b. Retrospective approach
c. Prospective approach
d. Averaging approach

NONCURRENT ASSET HELD FOR SALE AND DISCONTINUED OPERATIONS

23.Dina Company accounts for noncurrent assets using the cost model. On October
1, 2021, the entity classified a noncurrent asset as held for sale.
 At that date, the carrying amount was P3,200,000, the fair value was estimated
at P2,200,000 and the cost of disposal at P200,000.

On December 15, 2021, the asset was sold for net proceeds of P1,850,000.

What amount should be included as an impairment loss in the statement of

comprehensive income for the year ended December 31, 2021?
a. 1,000,000
b. 1,200,000
c. 1,350,000
d. 0

24.Joseph Company accounts for noncurrent assets using the cost model. On
December 31, 2021, the entity classified a noncurrent asset as held for sale.

At that date, the carrying amount was P1,450,000, the fair value was estimated
at P2,150,000 and the cost of disposal at P150,000. The asset was sold on March
31, 2022 for P2,120,000.

At what amount should the asset be measured on December 31, 2021?

a. 2,000,000
b. 2,150,000
c. 2,120,000
d. 1,450,000

25.An entity shall classify a noncurrent asset or disposal group as “held for sale”
when
a. The carrying amount of the asset or disposal group is recovered through a
sale.
b. The carrying amount of the asset or disposal group is recovered through
continuing use.
c. The noncurrent asset or disposal group is to be abandoned.
d. The noncurrent asset or disposal group is idle or retired from active use.

INTERIM REPORTING
26.Harper Company incurred an inventory loss from market decline of P840,000 on
June 30, 2021.

What amount of the inventory loss should be recognized in the quarterly income
statement for the three months ended June 30, 2021?
a. 210,000
b. 280,000
c. 420,000
d. 840,000

27.One June 20, 2021, Mill Company incurred a P1,000,000 net loss from disposal of
a business segment. Also, on June 30, 2021, the entity paid P400,000 for property
taxes assessed for the calendar year 2021.
 What total amount should be included in the determination of the net income or
loss for the six-month interim period ended June 30, 2021?
a. 1,400,000
b. 1,200,000
c. 900,000
d. 700,000

28.Interim financial reporting should be viewed

a. As a special type of reporting that need not follow IFRS.
b. As useful only if activity is evenly spread throughout the year.
c. As reporting for an integral part of an annual period.
d. As reporting for a separate accounting period.

29.Interim financial reports shall be published

a. Once a year at any time in that year.
b. Within a month of the half year-end.
c. On a quarterly basis.
d. Whenever the entity wishes.

CASH AND CASH EQUIVALENTS

30.Romaine Company had the following balances on December 31, 2021:

Cash in bank – current account 5,000,000

Cash in bank – payroll account 1,000,000

Cash on hand 500,000

Cash in bank – restricted account for building construction

expected to be disbursed in 2022 3,000,000

Time deposit, purchased December 15, 2021 and due March 15,
2022 2,000,000

The cash on hand included a P200,000 check payable to Romaine, dated January
15, 2022.

What total amount should be reported as cash and cash equivalents on December
31, 2021?
a. 6,300,000
b. 8,300,000
c. 6,500,000
d. 8,700,000

31.In preparing the bank reconciliation for the month of December, Tommy Company
provided the following data:
 Balance per bank statement 3,800,000

Deposit in transit 520,000

Amount erroneously credited by bank to Tommy’s account 40,000

Bank service charge for December 5,000

NSF check 50,000

Outstanding checks 675,000

What is the adjusted cash in bank?

a. 3,685,000
b. 3,645,000
c. 3,600,000
d. 3,605,000

32.Which statements is true about bank overdraft?

a. Overdraft typically can be offset against positive balance in other bank
account.
b. Generally, cash overdraft is allowed.
c. Overdraft can be offset against other bank account when payable on demand
and often fluctuates positive to overdrawn as an integral part of cash
management.
d. All of these statements are true about bank overdraft.

33.All of the following can be classified as cash and cash equivalents, except
a. Redeemable preference shares acquired and due in 60 days
b. Commercial papers held and due for repayment in 90 days
c. Equity investments
d. A bank overdraft

ACCOUNTS RECEIVABLE
34.Elmer Company provided the following data relating to accounts receivable for the
current year:

Accounts receivable, January 1 650,000

Credit sales 2,700,000

Sales returns 75,000

Accounts written off 40,000

Collection from customers 2,150,000

 Estimated future sales returns at December 31 50,000

Estimated uncollectible accounts at 12/31 per aging 110,000

What amount should be reported as net realizable value of accounts receivable on

December 31?
a. 1,200,000
b. 1,125,000
c. 1,085,000
d. 925,000

35.An entity provided the following accounts abstracted from the unadjusted trial
balance at year-end:

Debit Credit

Accounts receivable 5,000,000

Allowance for doubtful accounts 50,000

Net credit sales 20,000,000

The entity estimated that 3% of the gross accounts receivable will become
uncollectible.

What amount should be recognized as doubtful accounts expense for the current
year?
a. 100,000
b. 150,000
c. 200,000
d. 600,000

36.Which is accepted in determining bad debt expense?

a. A percentage of sales adjusted for the balance in the allowance
b. A percentage of sales not adjusted for the balance in the allowance
c. A percentage of accounts receivable not adjusted for the balance in the
allowance
d. An amount derived from aging accounts receivable and not adjusted for the
allowance

37.When aging of accounts receivable is used

a. Bad debt expense is measured indirectly, and the allowance is measured
directly.
b. Bad debt expense and allowance are measured directly.
c. Bad debt expense and the allowable are measured indirectly.
d. Bad debt expense is measured directly and the allowance is measured
indirectly.
NOTES RECEIVABLE
Use the following information for the next two questions:
Frame Company has an 8% note receivable dated June 30, 2021, in the original
amount of P1,500,000.

Payments of P500,000 in the principal plus accrued interest are due annually on
July 1, 2022, 2023 and 2024.

38.What is the balance of note receivable on July 1, 2022?

a. 1,500,000
b. 1,000,000
c. 500,000
d. 0

39.In the June 30, 2023 statement of financial position, what amount should be
reported as a current asset for interest on the note receivable?
a. 120,000
b. 40,000
c. 80,000
d. 0

40.What is imputed interest?

a. Interest based on stated interest rate
b. Interest based on implicit interest rate
c. Interest based on average interest rate
d. Interest rate based on bank prime rate

RECEIVABLE FINANCING
41.Emerald Company assigned P4,000,000 of accounts receivable as collateral for a
P2,000,000 6% loan with a bank. The entity also paid a finance fee of 5% on the
transaction upfront.

What amount should be recorded as a gain or loss on the transfer of accounts

receivable?
a. 200,000 loss
b. 100,000 loss
c. 240,000 gain
d. 0

42.Brewey Company received from a customer a one-year, P500,000 note bearing

annual interest of 8%. After holding the note for six months, the entity discounted
the note without recourse at 10%?

What amount of cash was received from the bank?

a. 540,000
b. 523,810
 c. 513,000
d. 495,238

43.Accounts receivable hypothecated against borrowings should be

a. Disclosed in the notes.
b. Excluded from total receivables, with disclosure.
c. Excluded from total receivables, with no disclosure.
d. Excluded from the total receivables and a gain or loss is recognized.

44.Notes receivable discounted with recourse should be

a. Included in total receivables with disclosure of contingent liability
b. Included in total receivables without disclosure of contingent liability
c. Excluded from total receivables with disclosure of contingent liability
d. Excluded from total receivables without disclosure of contingent liability

INVENTORY
45.Stanley Company had the following transactions during December 2021:

Inventory shipped on consignment to Beta Company 1,800,000

Freight paid by Stanley 90,000

Inventory received on consignment from Alpha Company 1,200,000

Freight paid by Alpha 50,000

No sales of consigned goods were made in December 2021.

What amount should be included in inventory on December 31, 2021?

a. 1,200,000
b. 1,250,000
c. 1,800,000
d. 1,890,000

46.An entity included the following items in inventory at year-end:

Goods out on consignment at sales price, including 40% markup

on cost 1,400,000

Goods purchased in transit, shipped FOB destination 1,200,000

Goods held on consignment by the entity 900,000

At what amount should the inventory at year-end be reduced?

a. 1,460,000
b. 2,660,000
c. 1,300,000
 d. 2,500,000

47.Variable production overheads are allocated to each unit of production on the

basis of
a. Normal capacity of the production facilities
b. Actual use of the production facilities
c. Either the normal capacity or the actual use of production facilities, whichever
is appropriate
d. Neither the normal capacity nor the actual use of production facilities

48.The use of purchase discount account implies that the recorded cost of a purchase
is
a. Invoice price
b. Invoice price plus purchase discount lost
c. Invoice price less purchase discount taken
d. Invoice price less purchase discount allowable whether taken or not

INVENTORY ESTIMATION
49.Rodney Company reported during the current year:

Beginning inventory 500,000

Net purchases 2,500,000

Net sales 3,200,000

A physical count at year-end resulted in an inventory of P575,000. The gross profit

in sales had remained constant at 25%.

The entity suspected that some inventory may have been taken by a new
employee.

What is estimated cost of missing inventory at year-end?

a. 100,000
b. 175,000
c. 225,000
d. 25,000

50.Which statement is true about the LCNRV method of measuring inventory?

a. The LCNRV is always either the net realizable value or cost.
b. The LCNRV gives the lowest valuation if applied to individual items of
inventory.
c. When the cost of goods sold method is used to record inventory at net
realizable value, the NRV is substituted for cost and the loss is buried in the
cost of goods sold.
d. All of these statements are true about LCNRV method.
BIOLOGICAL ASSETS
51.Josephine Company provided the following assets in a forest plantation and farm:

Freestanding trees 5,000,000

Land under trees 600,000

Roads in forests 300,000

Animals related to recreational activities 1,000,000

Bearer plants 1,500,000

Bearer animals 2,000,000

What total amount of the assets should be classified as biological assets?

a. 7,000,000
b. 8,500,000
c. 5,000,000
d. 8,000,000

52.Biological assets
a. Are found only in Biotech entities
b. Are living animals or living plants and must be disclosed as a separate line item
in the statement of financial position
c. Must be valued at cost
d. Do not generally have future economic benefits

53.When fair value cannot be determined reliably, the biological asset is measured
at
a. Cost
b. Cost less accumulated depreciation
c. Cost less accumulated depreciation and impairment
d. Nominal amount

INVESTMENT - FVPL, FVOCI, AMORTIZED COST

54.On January 1, 2021, Ondoy Company purchased marketable equity securities to
be held as “trading” for P5,000,000. The entity also paid transaction cost
amounting to P200,000.

The securities had a market value of P5,500,000 on December 31, 2021 and the
transaction cost that would be incurred on sale is estimated at P100,000. No
securities were sold during 2021.

What amount of unrealized gain or loss on these securities should be reported in

the 2021 income statement?
a. 500,000 gain
b. 500,000 loss
 c. 300,000 gain
d. 400,000 gain

55.Ray Company provided the following data for 2021:

● On September 1, Ray received a P500,000 cash dividend from Seco Company
in which Ray owns a 30% interest.
● On October 1, Ray received a P60,000 liquidating dividend from King Company.
Ray owns a 5% interest in King.
● Ray owns a 2% interest in Bow Company, which declared a P2,000,000 cash
dividend on November 15, 2021 payable on January 15, 2022.

What amount should be reported as dividend income for 2021?

a. 600,000
b. 560,000
c. 100,000
d. 40,000

56.Equity investments accounted for by recognizing unrealized holding gains or

losses as component of other comprehensive income as
a. Non-trading where an entity has holding of less than 20%.
b. Trading investment where an entity has holding of less than 20%.
c. Investment where an entity has holdings of between 20% and 50%.
d. Investments where an entity has holdings of more than 50%.

57.Which statement is not true when a debt investment at amortized cost is

reclassified to FVOCI?
a. The debt investment is measured at fair value at reclassification date.
b. The difference between the previous carrying amount and fair value at
reclassification date is recognized in other comprehensive income.
c. A new effective rate must be computed.
d. Interest income is completed using effective interest method.

INVESTMENT IN ASSOCIATE
58.On January 1, 2021, Evelyn Company purchased 20% of Lex Company’s ordinary
shares outstanding for P6,000,000. The acquisition cost is equal to the carrying
amount of the net assets acquired.

During 2021, the investee reported net income of P7,000,000 and paid cash
dividend of P4,000,000.

What is the balance in the investment in associate on December 31, 2021?

a. 5,200,000
b. 6,000,000
c. 6,600,000
d. 7,400,000
59.On July 1, 2021, Denver Company purchased 30,000 shares of Eagle Company’s
100,000 outstanding ordinary shares for P200 per share. On December 15, 2021,
the investee paid P400,000 in dividends to the ordinary shareholders.

The investee’s net income for the year ended December 31, 2021 was P1,200,000,
earned evenly throughout the year.

What amount of income from the investment should be reported in 2021?

a. 360,000
b. 180,000
c. 120,000
d. 60,000

60.Which statement is true when an entity holds between 20% and 50% of the voting
shares?
a. The investor must use the equity method.
b. The inventory should use the equity method unless circumstances indicate that
it is unable to exercise significant influence over the investee.
c. The investor must use the fair value method.
d. The investor should use the fair value or cost method.

61.What should happen when the financial statements of an associate are not
prepared at the same date as that of the investor?
a. The associate should prepare financial statements for use by the investor at
the same date as that of the investor.
b. The financial statements of the associate prepared at a different date will be
used.
c. Any major transactions between the date of the financial statements of the
investor and that of the associate should be accounted for.
d. As long as the gap is not greater than three months, there is no problem.

INVESTMENT PROPERTY
62.Eragon Company and its subsidiary own the following properties at year-end:

Land held by Eragon for undetermined use 5,000,000

A vacant building owned by Eragon and to be leased out under

an operating lease 3,000,000

Property held by a subsidiary of Eragon, a real estate firm, in

the ordinary course of business 2,000,000

Property held by Eragon for use in production 4,000,000

Building owned by a subsidiary of Eragon and for which the

subsidiary provides security and maintenance services to the
lessees 1,500,000
 Land leased by Eragon to a subsidiary under an operating
lease 2,500,000

Property under construction for use as investment property 6,000,000

Land held for future factory site 3,500,000

Machinery leased out by Eragon to an unrelated party under

an operating lease 1,000,000

What total amount should be considered as owner-occupied property and included

in property, plant and equipment in the consolidated statement of financial
position?
a. 11,000,000
b. 13,000,000
c. 10,500,000
d. 8,500,000

63.Berwin Company purchased an investment property on January 1, 2021 for

P2,200,000. The property has a useful life of 40 years and on December 31, 2023
had a fair value of P3,000,000.

On December 31, 2023, the property was sold for net proceeds of P2,900,000.
The entity used the cost model to account for the investment property.

What is the carrying amount of the investment property on December 31, 2023?
a. 2,200,000
b. 2,035,000
c. 2,145,000
d. 2,090,000

64.Which statement best describes investment property?

a. Property held for sale in the ordinary course of business.
b. Property held for use in the production and supply of goods or services and
property held for administrative purposes.
c. Property held to earn rentals or for capital appreciation.
d. Property held for capital appreciation.

PROPERTY, PLANT AND EQUIPMENT

65.Blake Company made the following acquisitions during the year:
● Purchased for P5,400,000, including appraiser fee of P50,000, a warehouse
building and the land on which it is located.

The land had an appraised value of P2,000,000 and original cost of

P1,400,000. The building had an appraised value of P3,000,000 and original
cost of P2,800,000.
 ● Purchased an office building and the land on which it is located for
P7,500,000 cash and assumed an existing P2,500,000 mortgage.

For realty tax purposes, the property is assessed at P9,600,000, 60% of

which is allocated to the building.

What is the total cost of land?

a. 6,160,000
b. 5,840,000
c. 6,000,000
d. 5,000,000

66.At the beginning of the current year, Wendy Company traded in an old machine
having a carrying amount of P1,680,000 and paid a cash difference of P600,000
for a new machine having a cash price of P2,050,000.

What amount of loss should be recognized on the exchange?

a. 600,000
b. 230,000
c. 370,000
d. 0

67.An entity purchased a tract of land as an investment property. The entity razed
an old building on the property.

Purchase price of land and an old building 4,000,000

Fair value of old building 300,000

Demolition of old building 200,000

Proceeds from sale of salvage material 20,000

Legal fees for purchase contract and recording ownership 150,000

Title guarantee insurance 50,000

Payment of property taxes in arrears on land 100,000

Option paid for an alternative land not acquired 30,000

Special assessment for city improvements 120,000

What is the cost of land?

a. 4,600,000
b. 4,120,000
c. 4,330,000
d. 4,300,000
68.Which is not a characteristic of property, plant and equipment?
a. Tangible asset
b. Used in production, for rental or for administrative purpose
c. Expected to be used over a period of more than one year
d. Subject to depreciation

69.What is the theoretical basis of straight line depreciation?

a. The operating efficiency of the asset decreases in later years.
b. Service value declines as a function of time rather than use.
c. Service value declines as a function of obsolescence rather than time.
d. Physical wear and tear are more important than economic obsolescence.

DEPLETION
70.Jordan Company purchased a coal mine for P2,000,000. An amount of P500,000
was incurred to prepare the coal mine for extraction of the coal.

It was estimated that 750,000 tons of coal would be extracted from the mine
during the useful life.

The entity planned to sell the property for P100,000 at the end of the useful life.

During the current year, 15,000 tons of coal were extracted and sold.

What would be the depletion amount per ton for the current year?
a. 3.30
b. 2.60
c. 3.20
d. 2.50

71.Which accurately describes the GAAP regarding accounting for costs of drilling dry
holes?
a. Only the successful effort method may be used.
b. Only the full cost method may be used.
c. Both the successful effort method and the full cost method may be used.
d. Neither the successful effort method nor the full cost method may be used.

BORROWING COST
72.During 2021, Loren Company constructed asset costing P4,215,000. The weighted
average expenditures during 2021 amounted to P3,900,000.

The entity borrowed P2,000,000 at 7.5% on January 1, 2021. Funds not needed
for construction were temporarily invested in short-term securities and earned
P59,000 in interest revenue.

In addition to the construction loan, the entity had two other notes outstanding
during the year, a P1,500,000, 10-year, 10% note payable dated October 1, 2020,
and a P1,000,000, 8% 5-year note payable dated November 1, 2020.
 What amount of interest should be capitalized during 2021?
a. 324,800
b. 297,500
c. 273,000
d. 265,800

73.Capitalization of borrowing costs

a. Shall be suspended during temporary period of delay.
b. May be suspended only during extended period of delay in which active
development is delayed.
c. Should never be suspended once capitalization commences.
d. Shall be suspended only during extended period of delay in which active
development is delayed.

74.When computing capitalizable interest cost, what is the concept of avoidable

interest?
a. The total interest cost actually incurred.
b. A cost of capital charge for equity.
c. That portion of total interest cost which would not have been incurred if
expenditures for asset construction had not been made.
d. That portion of average accumulated expenditures on which no interest cost
was incurred.

REVALUATION AND IMPAIRMENT

75.On January 1, 2011, Raven Company acquired a building at cost of P5,000,000.
The building has been depreciated on the basis of a 20-year life.

On January 1, 2016, an appraisal of the building showed replacement cost at

P8,000,000 with no change in useful life.

What is the revaluation surplus that should be reported in the December 31, 2016
statement of financial position?
a. 2,100,000
b. 2,250,000
c. 1,850,000
d. 2,800,000

76.Jamelyn Company had an equipment with carrying amount of P4,500,000 at year-

end:

Expected discounted net cash flows 4,000,000

Fair value of similar asset 4,150,000

Fair value of the asset when sold stand-alone 4,280,000

 What is the impairment loss for the current year?
a. 500,000
b. 350,000
c. 220,000
d. 0

77.Which statement is true when an entity chooses the revaluation model?

a. When an asset is revalued, the entire class of property, plant and equipment
to which that asset belongs must be revalued.
b. Individual asset within a class of property, plant and equipment can be
revalued.
c. Revaluation of property, plant and equipment must be made at least every
three years.
d. Increase in an asset’s carrying amount as a result of the first revaluation must
be recognized as a component of profit or loss.

GOVERNMENT GRANT
78.On January 1, 2021, Versache Company received grant of P10,000,000 from the
Australian government for the construction of a laboratory and research facility
with an estimated cost of P15,000,000 and useful life of five years. The laboratory
and research facility was completed and ready for the intended use on January 1,
2022.

What amount of grant income should be included in the income statement for
2022?
a. 10,000,000
b. 2,000,000
c. 1,500,000
d. 0

79.Government grant shall be recognized when there is reasonable assurance that

a. The entity will comply with the conditions of the grant.
b. The grant will be received.
c. The entity will comply with the conditions of the grant and the grant will be
received.
d. The grant must have been received.

INTANGIBLE ASSETS
80.Sandy Company reported the following assets at year-end:

Financial asset held for trading 1,000,000

Goodwill 1,500,000

Prepaid insurance 50,000

Patent 2,500,000
 Customer list 500,000

What amount should be reported as total intangible assets at year-end?

a. 4,000,000
b. 5,500,000
c. 4,500,000
d. 3,000,000

81.Helen Company acquired a patent for a drug with a remaining legal and useful life
of six years on January 1, 2014 for P5,400,000.

On January 1, 2016, a new patent is received for an improved version of the same
drug. The new patent has a legal and useful life of twenty years.

What is the amortization expense for 2016?

a. 900,000
b. 200,000
c. 180,000
d. 300,000

82.Which of the following is a criterion that must be met for an item to be recognized
as an intangible asset other than goodwill?
a. The fair value can be measured reliably.
b. The item is part of an activity aimed at gaining new scientific or technical
knowledge.
c. The item is expected to be used in the production or supply of goods or
services.
d. The item is nonmonetary, identifiable and lacks physical substance.

83.An entity that acquired an intangible asset may use the revaluation model for
subsequent measurement only when
a. The useful life of the intangible asset can be reliably determined.
b. An active market exists for the intangible assets.
c. The cost of the intangible asset can be measured reliably.
d. The intangible asset is a monetary asset.

LEASES
Use the following information for the next 2 questions:
At the beginning of current year, an entity leased a building from a lessor with the
following pertinent information:

Annual rental payable at the end of each year 1,500,000

Initial direct cost paid 405,000

Lease bonus paid to lessor before commencement of the lease 300,000

 Lease incentive received 50,000

Cost of restoring building as required by contract 1,500,000

Present value of restoration cost discounted at 8% for six

periods 945,000

Lease improvement – useful life 8 years 600,000

Purchase option that is reasonably certain to be exercised 1,000,000

Lease term 6 years

Useful life of building 10 years

Implicit interest rate 10%

PV of an ordinary annuity of 1 for 6 periods at 10% 4.36

PV of an ordinary annuity of 1 for 10 periods at 10% 6.14

Present value of 1 for 6 periods at 10% 0.56

Present value of 1 for 10 periods at 10% 0.39

Present value of 1 for 6 periods at 8% 0.36

84.What is the initial lease liability?

a. 7,100,000
b. 6,540,000
c. 9,210,000
d. 9,600,000

85.What is the cost of the right of use asset?

a. 8,750,000
b. 8,700,000
c. 9,255,000
d. 7,755,000

86.On July 1, 2020, an entity leased an equipment to a lessee under a 3-year

operating lease. Total rent for the lease term of P3,600,000, payable P50,000
monthly for the first lease year, P75,000 monthly for the second lease year and
P175,000 monthly for the third lease year. All payments were made when due.
On June 30, 2022, what amount should be reported as accrued rent receivable?
a. 2,100,000
b. 1,200,000
c. 900,000
d. 0
87.Under IFRS, a lessee is required to account for all leases as finance lease and
recognize
a. Right of use asset and lease liability.
b. Right of use asset but not lease liability.
c. Lease liability but not right of use asset.
d. Neither right of use asset nor lease liability.

88.Which is a correct statement of one of the lease capitalization criteria on the part
lessor?
a. The lease transfers ownership of the property of the lessor.
b. The lease contains a purchase option.
c. The lease term is equal to or more than 75% of the economic life of the leased
property.
d. The lease payments excluding executor costs equal or exceed 90% of the fair
value of the leased property.

EMPLOYEE BENEFITS
Use the following information for the next two questions:

Fair value of plan assets 10,000,000

Projected benefit obligation (13,000,000)

Prepaid/accrued benefit cost (3,000,000)

The entity revealed the following transactions affecting the plan for the current
year:

Current service cost 2,500,000

Past service cost 1,200,000

Contribution to the plan 3,500,000

Benefits paid to retirees 3,000,000

Actual return on the plan assets 1,500,000

Decrease in projected benefit obligation 400,000

Discount rate 10%

Expected return on plan assets 12%

89.What is the employee benefit expense for the current year?

a. 4,000,000
 b. 3,040,000
c. 5,000,000
d. 5,200,000

90.What is the net remeasurement gain for the current year?

a. 500,000
b. 400,000
c. 900,000
d. 0

91.In a defined contribution plan, a formula is used that

a. Defines the benefits that the employee will receive at the time of retirement.
b. Ensures that pension expense and the cash funding amount will be different.
c. Requires an employer to contribute a certain sum each period based on the
formula.
d. Ensures that employers are at risk to make sure funds are available at
retirement.

92.In a defined benefit plan, a formula is used that

a. Requires that the benefit of gain or the risk of loss from the assets contributed
to the pension plan be borne by the employee.
b. Defines the benefits that the employee will receive at the time of retirement.
c. Requires that pension expense and the cash funding must be the same.
d. Defines the contribution the employer is to make and no promise is made
concerning the ultimate benefits to be paid out to the employees.

INCOME TAX
Use the following information for the next two questions:
An entity reported pretax financial income of P8,000,000 for the current year. The
taxable income was P7,000,000 for the current year. The difference is due to
accelerated depreciation for income tax purposes. The income tax rate is 30% and
the entity made estimated tax payment of P500,000 during the current year.

93.What amount should be reported as current tax expense for the current year?
a. 2,100,000
b. 2,400,000
c. 1,600,000
d. 1,900,000

94.What amount should be reported as income tax payable at year-end?

a. 1,600,000
b. 2,100,000
c. 2,400,000
d. 1,900,000

95.It is the income tax payable in future periods in respect of taxable temporary
differences.
a. Deferred tax liability
 b. Deferred tax asset
c. Current tax liability
d. Current tax asset

SHAREHOLDERS' EQUITY
96.An entity had issued 100,000 ordinary shares. Of these, 5,000 shares were held
as treasury at the beginning of current year. During the current year, transactions
involving ordinary shares were:

May 1 2,000 shares of treasury were sold.

August 1 10,000 previously unissued shares were sold.

November 1 A 3 for 1 share split took effect.

At year-end, how many ordinary shares were issued?

a. 330,000
b. 110,000
c. 105,000
d. 315,000

97.On January 1, 2020, an entity reported the following shareholders’ equity:

Share capital, 100,000 shares authorized, 50,000 shares

outstanding, P100 par 5,000,000

Share premium 4,000,000

Retained earnings 5,000,000

The board of directors declared a 10% share dividend on July 1, 2020, when the
market value of the share was P150. The share dividend was issued on October
1, 2020 when the market value of the share was P200. The entity sustained a net
loss of P2,000,000 for 2020. What amount should be reported as retained
earnings on December 31, 2020?
a. 2,250,000
b. 2,000,000
c. 2,500,000
d. 3,000,000

98.Total shareholders’ equity represents

a. A claim to specific assets contributed by the owners.
b. The maximum amount that can be borrowed by the entity.
c. A claim against a portion of the total assets of an entity.
d. Only the amount of earnings that have been retained in the business.
99.When collectability is reasonably assured, the excess of the subscription price over
the stated value of the no par share capital subscribed should be recorded as
a. No par share capital.
b. Share premium when the subscription is recorded.
c. Share premium when the subscription is collected.
d. Share premium when the shares are issued.

SHARE-BASED COMPENSATION
100. An entity granted share options to employees. The total compensation expense
to the vesting date on December 31, 2023 was calculated at P6,000,000. The
entity decided to settle the award early on December 31, 2022. The compensation
expense charged since the date of grant on January 1, 2020 was P1,500,000 for
2020 and P1,300,000 for 2021. The compensation expense that would have been
charged for 2022 is P1,200,000.

What is the compensation expense for 2022?

a. 3,200,000
b. 2,000,000
c. 1,200,000
d. 0

101. For share appreciation rights, the measurement date for computing
compensation is the
a. Date the rights mature
b. Date the share reaches a predetermined amount
c. Date of grant
d. Date of exercise or settlement

EARNINGS PER SHARE

102. An entity had the following share capital during 2020:

Preference share capital, P100 par, 10% cumulative, 30,000

shares 3,000,000

Ordinary share capital, P50 par, 100,000 shares 5,000,000

The entity reported net income of P5,000,000 for the current year. There are no
preference dividends in arrears on December 31, 2018. The entity paid no
preference dividends during 2019 and paid P500,000 in preference dividends
during 2020. What amount should be reported as basic earnings per share for
2020?
a. 47
b. 50
c. 45
d. 44

103. EPS disclosures are required for

 a. Entities whose ordinary shares and potential ordinary shares are publicly
traded.
b. Entities that are in the process of issuing ordinary shares in the public market.
c. All entities.
d. Entities whose ordinary shares and potential ordinary shares are public traded
or entities that are in the process of issuing ordinary shares in public market.

104. Dilution of EPS is defined as

a. Decrease in earnings per share when any financial instrument is converted to
any form of share capital.
b. Decrease is share capital.
c. Decrease in earnings per share when convertible instruments are converted to
ordinary shares.
d. Decrease in earnings per share when share capital is converted to debt capital.

CASH FLOWS
Use the following information for the next three questions:
An entity provided the following information for the current year:

Dividend received 500,000

Dividend paid 2,000,000

Cash received from customers 9,000,000

Cash paid to suppliers and employees 6,000,000

Interest received 200,000

Interest paid on long-term debt 400,000

Proceeds from issuing share capital 4,000,000

Proceeds from sale of long-term investments 2,000,000

Cash paid for equity investment at FVOCI 3,500,000

Cash paid for equity investment held for trading 1,000,000

Income taxes paid 300,000

Proceeds from long-term debt 2,500,000

Cash balance - beginning 1,500,000

105. What is the net cash provided by operating activities?

a. 3,300,000
b. 3,000,000
 c. 2,700,000
d. 2,000,000

106. What is the net cash used in by investing activities?

a. 3,500,000
b. 2,000,000
c. 1,500,000
d. 500,000

107. What is the net cash provided by financing activities?

a. 4,100,000
b. 2,000,000
c. 6,500,000
d. 4,500,000

108. The primary purpose of the statement of cash flows is to provide information
a. About the operating, investing and financing activities of an entity during a
period.
b. That is useful in assessing cash flow prospects.
c. About the cash receipts and cash payments of an entity during a period.
d. About the entity’s ability to meet obligations and pay dividends.

109. When preparing a statement of cash flows using the indirect method, the
amortization of patent is reported as
a. Increase in cash flows from investing activities.
b. Reduction in cash flows from investing activities.
c. Increase in cash flows from operating activities.
d. Reduction in cash flows from operating activities.

HYPERINFLATION AND CURRENT COST

110. An entity provided the following information during 2020:

Inventory – January 1 1,650,000

Purchases 4,000,000

Inventory – December 31 2,500,000

The relevant index numbers are 120 on January 1, 2020, 280 on December 31,
2020, and the average index number for 2019 is 110.

What is the cost of goods sold in a hyperinflation income statement for 2020?
a. 6,300,000
b. 7,300,000
c. 3,150,000
d. 4,410,000
111. On January 1, 2020, an entity had monetary assets of P5,000,000 and
monetary liabilities of P3,000,000.

During 2020, the entity monetary inflows and outflows were relatively constant
and equal so that if ended the year with the same net monetary assets of
P2,000,000.

The index number on January 1, 2020 was 125 and the index number on
December 31, 2020 was 300.

What is the gain or loss on purchasing power during the current year?
a. 2,800,000 gain
b. 2,800,000 loss
c. 2,000,000 gain
d. 2,000,000 loss

112. All of the following would indicate that hyperinflation exists, except
a. The general population regards monetary amounts in terms of stable foreign
currency.
b. The cumulative inflation rate over three years is approaching or exceeds
100%.
c. Inflation rates have exceeded interest rates in three successive years.
d. The general population prefer to keep wealth in nonmonetary assets.

113. During a period of inflation in which a liability account balance remains

constant, which of the following occurs?
a. A purchasing power loss if the item is a nonmonetary liability.
b. A purchasing power gain if the item is a nonmonetary liability.
c. A purchasing power loss if the item is a monetary liability.
d. A purchasing power gain of the item is a monetary liability.

SMALL AND MEDIUM-SIZED ENTERPRISES (SMES)

Use the following information for the next five questions:
An SME provided the following information at year-end:

Cash 25,000

Accounts receivable 530,000

Prepayments 60,000

Inventories 60,000

Investments in associate 110,000

Property, plant and equipment 3,250,000

Accumulated depreciation and impairment 700,000

 Software-net of amortization and impairment 10,000

Deferred tax asset – to be reversed next year 5,000

Bank overdraft 80,000

Bank loan, fully payable in two years and prepayable without 50,000
penalty

Trade payables 430,000

Interest payable 2,000

Current tax liability 270,000

Provision for warranty 14,000

Employee benefit obligation, current portion, P4,000 10,000

Finance lease liability, current portion, P20,000 44,000

Share capital 2,000,000

Retained earnings ?

114. What is the total amount of current assets?

a. 675,000
b. 615,000
c. 785,000
d. 725,000

115. What is the total amount of noncurrent assets?

a. 2,615,000
b. 2,670,000
c. 2,675,000
d. 2,660,000

116. What is the total amount of current liabilities?

a. 820,000
b. 870,000
c. 796,000
d. 816,000

117. What is total amount of noncurrent liabilities?

a. 68,000
b. 54,000
c. 80,000
d. 30,000
118. What is the balance of retained earnings?
a. 2,000,000
b. 2,450,000
c. 500,000
d. 450,000

119. In the Philippines, which entity is not an SME?

a. A non-publicly accountable entity with total assets between P3,000,000 and
P350,000,000 or total liabilities between P3,000,000 and P250,000,000.
b. An entity that is not in the process of filing its financial statements for the
purpose of issuing any class of instruments in a public market.
c. An entity that is not a holder of a secondary license issued by a regulatory
agency.
d. A public utility.

120. The reconciliation of equity under the previous reporting framework to the
equity under PFRS for SMEs is made at
a. The date of transition to PFRS for SMEs.
b. The end of current reporting period.
c. The date of transition to PFRS for SMEs and at the end of latest reporting
period.
d. The end of the preceding comparative period.

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