FINANCIAL ACCOUNTING AND REPORTING

INSTRUCTIONS: Select the best answer for each of the following questions. ALL questions are compulsory and MUST be
attempted. Mark only one answer for each item on the answer sheet provided. Strictly NO ERASURES ALLOWED.
Erasures will render your examination answer sheet INVALID. Use PENCIL NO. 2 only. GOODLUCK!

1. The following are represented both to the FRSC and c. An entity shall not offset assets and liabilities or
the AASC, except income and expenses, unless required or permitted
a. Securities and Exchange Commission by a PFRS.
b. Bangko Sentral ng Pilipinas d. An entity shall present a complete set of financial
c. Commission on Audit statements (including comparative information) at
d. Bureau of Internal Revenue least annually.

2. Which statement is true about the IASB’s development Use the following information for the next two questions.
of IFRSs?
Presented below is the statement of financial position of
a. The IASB gives precedence to the balance sheet
Simple Corporation prepared by the chief accountant for
over Profit or Loss.
the current year, 2015.
b. The IASB gives precedence to fair value accounting
over amortized cost.
Simple Corporation
c. Both a and b.
Statement of Financial Position
d. Neither a nor b.
December 31, 2015
Current assets P 435,000
3. Which of the following steps in the accounting cycle
Investments 640,000
are listed in a logical order?
Property plant, and equipment 1,720,000
a. Post the closing entries, take a post-closing trial
Intangible assets 305,000
balance, and journalize the closing entries.
P3,100,000
b. Post the journal entries to the general ledger
accounts, prepare a worksheet, and then take a Current liabilities P 330,000
trial balance. Long-term liabilities 1,000,000
c. Take a trial balance, prepare a worksheet, then Shareholders’ equity 1,770,000
prepare financial statements. P3,100,000
d. Prepare the income statement, prepare the balance
sheet and then prepare a trial balance. Consider the following information:
1. The current assets section includes: cash P100,000,
4. The accountant of Review Company made the following accounts receivable P170,000 less P10,000 for
adjusting entry on December 31. allowance for doubtful accounts, inventories P180,000,
Prepaid Rent P1,800 and unearned revenue P5,000. The cash balance is
Rent Expense P1,800 composed of P114,000, less a bank overdraft of
P14,000. Inventories are stated on the lower of FIFO
If annual rent is paid in advance every October 1, the cost or market.
original transaction entry made was
a. Debit Prepaid Rent and credit Cash, P1,800. 2. The investments section includes: the cash surrender
b. Debit Rent Expense and credit Cash, P1,800. value of a life insurance contract P40,000; investment
c. Debit Rent Expense and credit Cash, P2,400. in ordinary shares, short-term (trading) P80,000 and
d. Debit Rent Expense and credit Cash, P7,200. long-term (available-for-sale) P270,000; and bond
sinking fund P250,000. The cost and fair value of
5. Which of the following is the foundation of the investments in ordinary shares are the same.
Conceptual Framework? 3. Property, plant, and equipment includes: buildings
a. The objective of general purpose financial P1,040,000 less accumulated depreciation P360,000;
reporting. equipment P450,000 less accumulated depreciation
b. A reporting entity concept. P180,000; land P500,000; and land held for future use
c. The qualitative characteristics of, and the P270,000.
constraint on, useful financial information.
4. Intangible assets include: a franchise P165,000:
d. The elements of financial statements.
goodwill P100,000; and discount on bonds payable
P40,000.
6. Contributions from and distributions to owners are
considered as income and expenses, respectively, 5. Current liabilities include: accounts payable P90,000;
under notes payable - short term P80,000 and long - term
a. The financial capital concept P120,000: and taxes payable P40,000.
b. The physical capital concept 6. Long - term liabilities are compose solely of 10%
c. Both a and b bonds payable due 2022.
d. Neither a nor b
7. Shareholders' equity has: preference shares, no par
7. Which statement is incorrect regarding presentation of value, authorized 200,000 shares, issued 70,000
financial statements? shares for P450,000; and ordinary shares, P1.00 par
a. An entity shall prepare its financial statements, value, authorized 400,000 shares, issued 100,000
without exception, using the accrual basis of shares at an average price of P10. In addition, the
accounting. corporation has retained earnings of P320,000.
b. An entity shall present separately each material
class of similar items and items of a dissimilar
nature or function unless they are immaterial.

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QUESTIONS: Increase
2015 2014 (Decrease)
Compute the adjusted amount to be reported on the
company’s statement of financial position as of December Cash P 125,000 P 175,000 (P50,000)
31, 2015: Accounts
receivable (net) 300,000 225,000 75,000
8. Current assets Inventory 350,000 225,000 125,000
a. P548,000 c. P588,000 Prepaid expenses 50,000 125,000 ( 75,000)
b. P574,000 d. P534,000
Buildings and
b. P520,000 d. P790,000
equipment 450,000 375,000 75,000
9. Current liabilities Accumulated
a. P224,000 c. P210,000 depreciation—
b. P229,000 d. P215,000 buildings and
equipment (90,000) (40,000) 50,000
Land 450,000 200,000 250,000
Use the following information for the next two questions. P1,635,000 P1,285,000 P350,000
Tawi2 Company’s income statement for the year ended
December 31, 2015 reported net profit of P10,000,000. Accounts payable P 340,000 P 275,000 P65,000
The auditor raised questions about the following amounts Accrued expenses 60,000 90,000 ( 30,000)
that had been included in the net profit: Notes payable—
Unrealized loss on decline in value of bank, long-term 200,000 (200,000)
available for sale securities P 500,000 Mortgage payable 150,000 150,000
Loss on write-off of inventory due to a Share capital, P10
government ban net of tax 1,500,00 par 1,045,000 795,000 250,000
0 Retained earnings
Adjustment of profit of prior year net-debit 2,000,00 (deficit) 40,000 (75,000) 115,000
0 P1,635,000 P1,285,000 P350,000
Loss from expropriation of property,
net of tax 3,500,00 Land was acquired for P250,000 in exchange for ordinary
0 shares, par P250,000, during the year; all equipment
Exchange differences gain on translating purchased was for cash. Equipment costing P25,000 was
foreign operations 4,500,00 sold for P10,000; book value of the equipment was
0 P20,000 and the loss was reported as an ordinary item in
Revaluation surplus realization 1,000,00 net income. Cash dividends of P50,000 were charged to
0 retained earnings and paid during the year; the transfer of
net income to retained earnings was the only other entry
The loss from expropriation was unusual in occurrence in
in the Retained Earnings account.
Tawi2’s line of business.
Based of the foregoing information, compute for the
10. Tawi2 Company’s 2015 statement of comprehensive
following.
income should report profit at
a. P9,000,000 c. P7,000,000
13. Net cash provided by operating activities.
b. P6,500,000 d. P8,500,000
a. P120,000 c. P140,000
b. P130,000 d. P165,000
11. Tawi2 Company’s 2015 statement of comprehensive
income should total comprehensive income at
14. Net cash provided by (used in) financing activities.
a. P12,000,000 c. P5,000,000
a. P150,000 c. (P100,000)
b. P11,000,000 d. P4,000,000
b. P350,000 d. (P250,000)

12. Gary Company had net income of P700,000 for the

15. The following pertains to Miraflor, Inc. on December 31
year ended December 31, 2015 after giving effect to
of the current year: Checking account balance
the following events which occurred during the year:
P925,000; an overdraft in special checking account at
 The decision was made January 2 to discontinue
same bank as normal checking account of P17,000;
the travel agency segment.
certificate of deposit P400,000; cash held in a bond
 The travel agency segment was sold June 30.
sinking fund P200,000; postdated check from
 Operating loss from January 1, to June 30 for the
customer P11,000; certified check from customer
travel agency segment amounted to P60,000 P9,800; NSF check received from customer P15,000;
before tax benefit. cash advance to subsidiary of P300,000; postage
 Travel agency assets with a book value of stamps on hand P620; utility deposit paid to electric
P350,000 were sold for P200,000 company P8,000; currency and coins in a petty cash
Gary’s tax rate was 40% for 2015. For the year ended fund (the company has not replenished the fund to the
December 31, 2015, Gary’s after-tax income from imprest amount of P5,000) P800. The correct amount
continuing operations was that should be reported as cash is
a. P574,000 c. P784,000 a. P908,800 c. P1,318,600
b. P700,000 d. P826,000 b. P918,600 d. P1,322,800

Use the following information for the next two questions. 16. You obtained the bank statement, paid checks, and
other memoranda relating to Lucy Company’s bank
The statement of financial position data of Davao Company account for December 2015. In reconciling the bank
at the end of 2015 and 2014 follow: balance at December 31, 2015, you observed the
following facts:

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Balance per bank statement, 12/31/15 P1,465,800 (Round off present value factors to four decimal
Outstanding checks, 12/31/15 624,750 places.)
Receipts of 12/31/15, deposited a. P12,752 c. P19,965
1/2/15 95,550 b. P31,669 d. P32,812
Proceeds of bank loan, 12/15/15, 20. Which of the following is incorrect regarding expected
discounted for 90 days at 10% per credit losses on financial assets in accordance with
year, omitted from records 195,000 PFRS 9?
Deposit of 12/23/15, omitted from 53,000 a. Expected credit losses are a probability-weighted
bank statement estimate of credit losses (ie the present value of all
Check 733 of Lucky Co., charged by 82,100 cash shortfalls) over the expected life of the
the bank in error to Lucy Co. financial instrument.
Proceeds of note receivable of Lucy b. A cash shortfall is the difference between the cash
Co. collected by bank, 12/10/15, 40,300 flows that are due to an entity in accordance with
not entered in cash records the contract and the cash flows that the entity
(Principal, P40,000; Interest, P400; expects to receive.
Collection charge, P100) c. Expected credit losses consider the amount and
Erroneous debit memo of 12/31/15, to timing of payments.
charge company’s account with d. A credit loss cannot arise if the entity expects to be
settlement of bank loan, paid by 100,000 paid in full even if later than when contractually
check no. 9344 on same date due.
Deposit of another client on 12/6/15
credited in error to Lucy Co. 25,000 21. On January 1, 2015, Alaska Corporation purchased
P1,000,000 10% bonds for P1,051,510 (including
The cash balance per books of Lucy Company on
broker’s commission of P20,000). Interest is payable
December 31, 2015 is
annually every December 31. The bonds mature on
a. P1,491,000 c. P961,800
December 31, 2017. The prevailing market rate for
b. P1,146,700 d. P911,400
the bonds is 9% at December 31, 2015. (Round off
present value factors to four decimal places)
17. Which statement is incorrect regarding loans and
receivables? If the bonds are classified as held-to-maturity (HTM),
a. An entity shall measure loans and receivables on the amount to be reported on the entity’s December
initial recognition at fair value plus transaction 31, 2015 statement of financial position is
costs that are directly attributable to the a. P1,034,340 c. P1,025,330
acquisition of the financial asset. b. P1,035,630 d. P1,017,610
b. The fair value of a long-term loan or receivable
that carries no interest can be estimated as the 22. On April 1, 2015, Etcha Co. purchased 25,000 ordinary
present value of all future cash receipts discounted shares of Pwera Co. at P180 per share which reflected
using the prevailing market rate of interest for a book value as of that date. At the time of the
similar instrument with a similar credit rating. purchase, Pwera had 100,000 ordinary shares
c. Short-term receivables with no stated interest rate outstanding. The shares are intended as a long term
may be measured at the original invoice amount if investment. The first quarter statement ending March
the effect of discounting is immaterial. 31, 2015 of Pwera recorded profit of P480,000. For
d. Loans and receivables are derivative financial the year ended December 31, 2015, Pwera reported
assets with fixed or determinable payments that profit of P2,400,000. Pwera paid Etcha dividends of
are not quoted in an active market. P60,000 on June 1, 2015 and again P60,000 on
December 31, 2015. The shares of Pwera are selling
18. On January 1, 2015, Comforter Company sold at P190 per share on December 31, 2015.
equipment with a carrying amount of P800,000 to Cold
Etcha is entitled to appoint two directors to the board,
Company. As payment, Cold gave Comforter Company
which consists of eight members. The remaining of
a P1,200,000 note. The note bears an interest rate of
the voting rights are held by two other companies,
5% and is to be repaid in three annual installments of
each of which is entitled to appoint three directors.
P400,000 (plus interest on the outstanding balance).
The board makes decisions on the basis of simple
The first payment was received on December 31,
majority. Because board meetings are often held at
2015. The market price of the equipment is not
very short notice, Etcha does not always have
reliably determinable. The prevailing rate of interest
representation on the board. Often the suggestions of
for notes of this type is 10%.
the representative of Etcha are ignored, and the
The interest income to be recognized in 2016 is decisions of the board seem to take little notice of any
a. P 40,000 c. P 74,708 representations made by the director from Etcha Corp.
b. P 69,587 d. P109,735
Based on the above information, the carrying amount
of the investment in Pwera Co. as of December 31,
19. The Premier National Bank has a note receivable of
2015 should be
P200,000 from the Marvelous Company that it is
a. P4,750,000 c. P4,860,000
carrying at face value and is due on December 31,
b. P4,500,000 d. P4,950,000
2019. Interest on the note payable at 9% each
December 31. The Marvelous Company paid the
23. Losses recognized using the equity method in excess
interest due on December 31, 2015, but informed the
of the entity’s investment in ordinary shares are
bank that it would probably miss the next two years'
applied first to which of the following?
interest payments because of its financial difficulties.
a. Preference shares
After that, it expected to resume its annual interest
b. Trade receivables
payments, but it would make the principal payment
c. Long-term receivables
one year late, with interest paid for that additional
d. Secured loans
year at the time of the principal payments. How much
should be recognized as loan impairment loss in 2015?

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24. On January 1, 2014, Job Corporation enters into a c. Estimates of net realizable value are based on the
forward contract to purchase on January 1, 2016, a most reliable evidence, available at the time the
specified number of barrels of oil at a fixed price. Job estimates are made, of the amount the inventories
Corporation is speculating that the price of oil will are expected to realize.
increase and plans to net settle the contract if the d. Materials and other supplies held for use in the
price increases. Job Corporation does not pay production of inventories are written down below
anything to enter into the forward contract on January cost even if the finished products in which they will
1, 2014. Job Corporation does not designate the be incorporated are expected to be sold at or
forward contract as a hedging instrument. At the end above cost.
of 2014, the fair value of the forward contract has
increased to P400,000. At the end of 2015, the fair 28. Yumul Company provided the following data:
value of the forward contract has declined to Cost Retail
P350,000. How much should be recognized in 2015 Beginning inventory P 160,000 P 400,000
profit or loss related to this forward contract? Purchases 2,800,000 3,200,000
a. P400,000 c. P50,000 Freight in 40,000
b. P350,000 d. P 0 Markup 300,000
Markup cancellation 30,000
25. Orang Dampuan Co. wholesales bicycles. It uses the Markdown 160,000
perpetual inventory system. The company's reporting Markdown
date is 31 December. At 1 December 2015, inventory cancellation 40,000
on hand consisted of 350 bicycles at P820 each and 43 Sales 3,000,000
bicycles at P850 each. During the month ended 31 Physical inventory at
December 2015, the following inventory transactions year end 500,000
took place (all purchase and sales transactions are on Estimated normal
credit): shrinkage is 4% of
Dec. 02 Sold 300 bicycles for P1,200 each. sales
03 Five bicycles were returned by a customer. Assuming the company uses the average retail
They had originally cost P820 each and were inventory method, the estimated inventory shortage is
sold for P1,200 each. a. P104,000 c. P200,000
09 Purchased 55 bicycles at P910 each. b. P130,000 d. P 4,000
13 Purchased 76 bicycles at P960 each.
15 Sold 86 bicycles for P1,350 each. 29. Items of property, plant and equipment acquired for
16 Returned one damaged bicycles to the safety or environmental reasons
supplier. This bicycle had been purchased on a. Qualify as assets because the acquisition of such
9 December. property, plant and equipment directly increases
22 Sold 60 bicycles for P1,250 each. the future economic benefits of existing item of
26 Purchased 72 bicycles at P980 each. property, plant and equipment.
29 Two bicycles, sold on 22 December, were b. Qualify as assets because they enable an entity to
returned by a customer. The bicycles were derive future economic benefits from related assets
badly damaged so it was decided to write in excess of what could be derived had those items
them off. They had originally cost P910 each. not been acquired.
c. Do not qualify as assets because the acquisition of
The cost of inventory as of December 31, 2015 using such property, plant and equipment does not
moving average method is (Round unit costs to the directly increase the future economic benefits of
nearest peso) existing item of property, plant and equipment.
a. P133,672 c. P145,349 d. Do not qualify as assets because the acquisition of
b. P143,485 d. P145,285 such property, plant and equipment is not
necessary for an entity to obtain the future
26. The closing inventory at cost of a company at 31 economic benefits from its other assets.
December 2015 amounted to P284,700. The following
items were included at cost in the total: 30. On April 1, 2015, the new machinery was ordered at a
 400 coats, which had cost P80 each and normally quoted price of P56,000. On July 1, 2015, it arrived at
sold for P150 each. Owing to a defect in Dodik Corp.’s plant with an actual invoice price of
manufacture, they were all sold after the reporting P58,000, which it paid immediately. During July 2015,
date at 50% of their normal price. Selling a new concrete platform was constructed at a cost of
expenses amounted to 5% of the proceeds. P4,000 to properly install the machine. In August
 800 skirts, which had cost P20 each. These too 2015, testing was performed at a cost of P7,000 to
were found to be defective. Remedial work in ensure the machine was operating properly. On
February 2016 cost P5 per skirt, and selling August 31, 2015, the machine was entered into
expenses for the batch totaled P800. They were service. Minor repairs and maintenance costs on the
sold for P28 each. new machine amounted to P3,000 in September 2015.
What should the inventory value be according to PAS 2 No other costs were incurred prior to December 31,
Inventories after considering the above items? 2015. Similar machinery is depreciated on a straight-
a. P281,200 c. P282,800 line basis over 10 years and typically has no residual
b. P282,100 d. P329,200 value. What should be the depreciation expense for the
year ended 31 December 2015?
27. Which is incorrect regarding writedown of inventory to a. P2,300 c. P2,875
net realizable value? b. P2,233 d. P3,350
a. Inventories are usually written down to net
realizable value item by item.
b. Each service of a service provider is treated as a
separate item.

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31. Roxanne Co. purchased equipment for P500,000. The treats the expenditure for that project as if it were
equipment had an estimated 10-year service life. incurred in the development phase only.
Roxanne’s policy for 10-year assets is to use the 150% d. A research and development project
declining balance depreciation method for the first five acquired in a business combination is recognized
years of the asset’s life and then switch to the straight- as an asset.
line depreciation method. What amount should
Roxanne report as accumulated depreciation for 36. Which statement is incorrect regarding intangible
equipment at the end of the sixth year? assets contained in or on a physical substance such as
a. P300,000 c. P278,147 a compact disc (in the case of computer software),
b. P322,518 d. P311,425 legal documentation (in the case of a license or patent)
or film?
32. Which of the following will most likely result to a. In determining whether an asset that incorporates
reclassification? both intangible and tangible elements should be
a. An entity decided to dispose of an investment treated property, plant and equipment or as an
property without development. intangible asset, an entity uses judgment to assess
b. An entity begins to redevelop an existing which element is more significant.
investment property for continued future use as b. Computer software for a computer-controlled
investment property. machine tool that cannot operate without that
c. Commencement of development with a view to specific software is an integral part of the related
sale. hardware and it is treated as property, plant and
d. All of the above. equipment.
c. When the software is not an integral part of the
33. Cute Corporation owns the following properties at 1 related hardware, computer software is treated as
January 2015: an intangible asset.
d. The operating system of a computer is treated as
Property A an intangible asset.
An office building used by Cute for administrative
purposes with a depreciated historical cost of P2 37. On 1 January 2015 an entity purchased a new software
million. At 1 January 2015 it had a remaining life of 20 package to operate its production equipment for
years. After a re-organization on 1 July 2015, the P600,000, including P50,000 refundable purchase
property was leased to a third party and reclassified as taxes. The purchase price was funded by incurring a
an investment property applying Cute’s policy of the loan of P605,000 (including P5,000 loan origination
fair value model. An independent valuer assessed the fees). The loan is secured against the software
property to have a fair value of P2.3 million at 1 July licenses.
2015, which had risen to P2.34 million at 31 December
2015. In January 2015 the entity incurred the following costs
in customizing the software so that it is more suited to
Property B the systems used by the entity:
 Labor – P120,000
Another office building sub-leased to a subsidiary of  Depreciation of plant and equipment used to
Cute. At 1 January 2015, it had a fair value of P1.5 perform the modifications – P15,000.
million which had risen to P1.65 million at 31
December 2015. At 1 January 2015 it had a remaining In January 2015 the entity’s production staff were
life of 15 years. trained in how to operate the new software. Training
costs included:
In relation to these properties, the net amount to be  Cost of an expert external instructor –
recognized in profit or loss in the entity’s separate P7,000
financial statements for the year ended December 31,  Labor – P3,000.
2015 is In February 2015 the entity’s production team tested
a. P540,000 c. P190,000 the software and the information technology team
b. P490,000 d. P140,000 made further modifications necessary to get the new
software to function as intended by management. The
34. An intangible asset shall be recognized if, and only if it following costs were incurred in the testing phase:
is probable that the expected future economic benefits  Material, net of P3,000 recovered from the
that are attributable to the asset will flow to the entity sale of the scrapped output – P21,000
and the cost of the asset can be measured reliably.  Labor – P11,000
The probability recognition criterion is always  Depreciation of plant and equipment while it
considered to be satisfied for intangible assets was used to perform the modifications – P5,000.
acquired The new software was ready for use on 1 March 2015.
a. Separately. However, because of low initial order levels, the entity
b. In a business combination. incurred a loss of P23,000 on operating the software
c. Either a or b during March.
d. Neither a nor b
What is the cost of the software?
35. Which statement is correct regarding initial recognition a. P550,000 c. P722,000
of research and development costs? b. P685,000 d. P732,000
a. Research costs may be capitalized.
b. All development costs should be 38. At the end of the reporting period, a tomato grower’s
capitalized. vines are six months old and bearing fully developed
c. If an entity cannot distinguish the research ripe tomatoes. The accumulated cost of the fruit-
phase of an internal project to create an intangible bearing vines is P12,500 and their fair value is
asset from the development phase, the entity P100,000. It is expected to cost the entity P5,000 to
sell the tomato crop at market. Once the tomatoes

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have been harvested the then-worthless vines will be

abandoned. At the end of the reporting period:
a. The entity measures the tomatoes at P82,500, 42. Pythagoras Co. must determine the December 31,
the tomato vines at P12,500 and recognizes a 2015 year-end accruals for advertising and rent
gain of P82,500 for the increase in fair value. expenses. A P2,000 advertising bill was received
b. The entity measures the tomato-bearing vines January 7, 2016. It related to costs of P1,500 for
at P95,000 and recognizes a gain of P82,500 advertisements in December 2015 issues and P500 for
for the increase in fair value. advertisements in January 2, 2016 issues of the
c. The entity measures the tomato-bearing vines newspaper. A store lease, effective December 16,
at P100,000 and recognizes a gain of P87,500 2014, calls for fixed rent of P4,800 per month payable
for the increase in fair value. 1 month from the effective date and monthly
d. The entity measures the tomatoes at P95,000, thereafter. In addition, rent equal to 5% of net sales
the tomato vines at P0 and recognizes a gain over P1,200,000 per calendar year is payable on
of P82,500 for the increase in fair value. January 31 of the following year. Net sales for 2015
were P2,200,000. In its December 31, 2015
39. Which statement is incorrect regarding ‘bearer plants’? statement of financial position, Pythagoras should
a. Tea bushes, grape vines, oil palms and rubber report accrued liabilities of
trees usually meet the definition of a bearer plant. a. P56,800 c. P56,300
b. Bearer plants are within the scope of PAS 16. b. P51,500 d. P53,900
c. The produce growing on bearer plants, for
example, tea leaves, grapes, oil palm fruit and 43. Funan Industries purchases new specialized
latex, is within the scope of PAS 41. manufacturing equipment on July 1, 2014. The
d. Incidental scrap sales would prevent the plant from equipment cash price is P79,000. Funan signs a
satisfying the definition of a bearer plant. deferred payment contract that provides for a down
payment of P10,000 and an 8-year note for P103,472.
40. Which statement is incorrect regarding impairment of The note is to be paid in 8 equal annual payments of
assets classified as ‘held-for-sale’ in accordance with P12,934. The payments include 10% interest and are
PFRS 5? made on June 30 of each year, beginning June 30,
a. Impairment must be considered both at the time of 2015.
classification as held for sale and subsequently.
The total interest expense for the year ended
b. Immediately prior to classifying an asset as held
December 31, 2015 is
for sale, any impairment loss is recognized in profit
a. P6,900 c. P6,612
or loss unless the asset had been measured at
b. P6,599 d. P5,982
revalued amount under PAS 16 or PAS 38, in which
case the impairment is treated as a revaluation
44. On December 31, 2015, X Corp. was indebted to
decrease.
Zyland Co. on a P1,000,000, 10% note. Only interest
c. After classification as held for sale, impairment loss
had been paid to date, and the remaining life of the
is the difference between the adjusted carrying
note was 2 years. Because X Corp. was in financial
amounts of the asset and fair value less costs to
difficulties, the parties agreed that X Corp. would settle
sell.
the debt on the following terms:
d. Any impairment loss that arises by using the
 Settle one-half of the note by transferring land
measurement principles in PFRS 5 must be
with a recorded value of P400,000 and a fair value
recognized in profit or loss, except for assets
of P450,000.
previously carried at revalued amounts.
 Settle one-fourth of the note by transferring
10,000, P1 par, ordinary shares with a fair market
41. The balance in Iwig Co.'s accounts payable account at
value of P15 per share.
December 31, 2015 was P400,000 before any
 Modify the terms of the remaining one-fourth of
necessary year-end adjustments relating to the
the note by reducing the interest rate to 5% for
following:
the remaining 2 years and reducing the principal to
 On December 28, 2015, Iwig purchased and
P150,000.
received goods for P40,000, terms 2/10, n/30.
Iwig records purchases and accounts payable at What total gains should X Corp. record in 2015 from
net amounts. The invoice was recorded and paid this troubled debt restructuring?
January 3, 2016. a. P100,000 c. P213,024
 Goods were in transit to Iwig from a vendor on b. P200,000 d. P313,024
December 31, 2015. The invoice cost was
P50,000. The goods were shipped f.o.b. shipping 45. Hosea Corporation gives warranties at the time of sale
point on December 29, 2015 and were received on to purchasers of its product. Under the terms of the
January 4, 2016. contract for sale the manufacturer undertakes to make
 Goods shipped f.o.b. destination on December 21, good, by repair or replacement, manufacturing defects
2015 from a vendor to Iwig were received on that become apparent within one year from the date of
January 6, 2016. The invoice cost was P25,000. sale. On the basis of experience, it is probable (ie
 Goods shipped to Iwig, f.o.b. shipping point on more likely than not) that there will be some claims
December 20, 2015, from a vendor were lost in under the warranties.
transit. The invoice price was P20,000. On Sales of P10 million were made evenly throughout
January 5, 2016, Iwig filed a P20,000 claim against 2015.
the common carrier.
At 31 December 2015 the expenditures for warranty
In Iwig's December 31, 2015 statement of financial repairs and replacements for the product sold in 2015
position, the accounts payable should be are expected to be made 50 per cent in 2015 and 50
a. P439,200 c. P509,200 per cent in 2016. Assume for simplicity that all the
b. P489,200 d. P534,200 2016 outflows of economic benefits related to the

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warranty repairs and replacements take place on 30 300,000 existing shares. In relation to this, the
June 2016. company incurred the following costs:
Experience indicates that 95 per cent of products sold Documentary stamp tax P 25,000
require no warranty repairs; 3 per cent of products Fairness opinion and valuation report 125,000
sold require minor repairs costing 10 per cent of the Tax opinion 75,000
sale price; and 2 per cent of products sold require Newspaper publication 200,000
major repairs or replacement costing 90 per cent of Listing fee 300,000
sale price. Other joint costs 275,000
P1,0000,000
The entity has no reason to believe future warranty
claims will be different from its experience. Which statement is incorrect?
a. The company will recognize the listing fee of
At 31 December 2015 the appropriate discount factor P300,000 immediately to profit or loss.
for cash flows expected to occur on 30 June 2016 is b. The documentary stamp tax and newspaper
0.95238. Furthermore, an appropriate risk adjustment publication fee amounting to P25,000 and
factor to reflect the uncertainties in the cash flow P200,000, respectively, will be recognized as a
estimates is an increment of 6 per cent to the deduction to equity.
probability-weighted expected cash flows. c. Joint costs, which include fee for fairness opinion
At 31 December 2015 the entity recognizes a warranty and valuation report, tax opinion cost and other
provision measured at: joint costs, amounting to P475,000 will be
a. P210,000 c. P113,300 allocated using the proportion of newly sold shares
b. P222,600 d. P106,000 to the total number of shares outstanding
immediately after the new share issuance.
46. The N Corporation is authorized to issue 100,000 d. The total costs incurred of P1,000,000 will be
ordinary shares, P17 par value. At the beginning of treated as a contra shareholders’ equity account.
the year, 18,000 ordinary shares were issued and
outstanding. These shares had been issued at P24. 49. On January 1, 2015, Entity D enters into a forward
During the year, the company entered into the contract that requires the entity to repurchase 1,000
following transactions: shares for P60,000 on December 31, 2015. No
Jan. 16 - Issued 1,300 ordinary shares at P25 per consideration is paid or received at the inception of the
share. contract. The market interest rate is 10% on January
Mar. 21 - Exchanged 12,000 ordinary shares for a 1, 2015 and 12% on December 31, 2015. The forward
building. The ordinary shares were selling at contract decreased Entity D’s equity on January 1,
P27 per share. 2015 by
May 7 - Reacquired 500 ordinary shares at P26 per a. P60,000 c. P53,574
share to be held in treasury. b. P54,546 d. P 0
July 1 - Accepted subscriptions to 1,000 ordinary
shares at P28 per share. The contract called 50. Cerritos Corporation began operations on January 1,
for 10% down payment with the balance due 2012. During its first three years of operations,
on June 30 next year. Cerritos reported net income and declared dividends as
Sept. 20 - Sold 500 treasury shares at P29 per share. follows:
Net income Dividends declared
Total contributed capital at December 31 is
2012 P 80,000 P 0
a. P615,000 c. P613,500
2013 250,000 100,000
b. P818,000 d. P816,500
2014 300,000 100,000
47. The following balances are shown in the shareholders'
The following information related to 2015:
equity of tamarind company on December 31, 2014:
Prior period adjustment:
Preference share capital, P10 par,
understatement of 2013 depreciation
100,000 shares P1,000,000
expense (before taxes) P 40,000
Ordinary share capital, P10 par,
Cumulative decrease in income from
500,000 shares, 5,000,000
change in inventory methods (before
Share premium - preference 50,000
taxes) 70,000
Share premium – ordinary 200,000
Income before income tax 480,000
Retained earnings 100,000
Dividends declared (of this amount,
Total P6,350,000
P50,000 will be paid on January 15,
During 2015, the following transactions pertaining to 2016) 200,000
the shareholders' equity were completed: Effective tax rate 35%
 Retirement of 5,000 preference shares at P11 per
As at December 31, 2015, the retained earnings of
share.
Cerritos Corporation is
 Purchase of 5,000 ordinary shares at P12 per
a. P520,500 c. P430,000
share.
b. P484,500 d. P470,500
 Share split, ordinary, 2 for 1.
 Reissue of 2,000 treasury shares at P8 per share. 51. The shareholders’ equity of Windy Company on
 Profit for 2015, P300,000. December 31, 2015, consists of the following capital
The total shareholders' equity on December 31, 2015 balances:
is Preference share capital, 10%
a. P6,556,000 c. P6,350,000 cumulative, 3 years in arrears, P100
b. P6,551,000 d. P6,251,000 par, P110 liquidation price 150,000
shares P15,000,000
48. Open Sesame Company undertakes an IPO for the Ordinary share capital, P100 par,
listing and issuance of 700,000 new shares and 200,000 shares 20,000,000

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7. Preference shares cash dividends — Cash dividends

to preference shareholders were declared and paid as
Subscribed ordinary share capital, net scheduled.
of subscription receivable of
P4,000,000 6,000,000 Determine the number of shares used to compute
Treasury shares-ordinary, 50,000 diluted earnings per share for the year ended
shares at cost 4,000,000 December 31, 2015.
Share premium 3,000,000 a. 7,891,000 c. 7,836,000
Retained earnings 20,000,000 b. 7,981,000 d. 7,286,000

The book value per share of ordinary is 53. The information below pertains to Prancer Company.
a. P156.00 c. P172.00 Profit for the year P1,200,000
b. P190.00 d. P286.67 8% convertible bonds issued at par
(P1,000 per bond). Each bond is
52. Edmund Halvor of the controller's office of East Aurora convertible into 40 ordinary
Corporation was given the assignment of determining shares 2,000,000
the basic and diluted earnings per share values for the 6% convertible, cumulative
year ending December 31, 2015. preference shares, P100 par
value. Each share is convertible 3,000,000
Additional information: into 3 ordinary shares.
a. The company is authorized to issue 8,000,000, P10 par Ordinary shares, P10 par value 6,000,000
value, ordinary shares. As of December 31, 2014, Share options (granted in a prior
3,000,000 shares had been issued and were year) to purchase 50,000
outstanding. ordinary shares at P20 per share 500,000
b. The per share market prices of the ordinary shares Tax rate 40%
on selected dates were as follows. Average market price of ordinary P25 per
Price per Share shares share
July 1, 2014 P20.00 There were no changes during the year in the number
January 1, 2015 21.00 of ordinary shares, preference shares, or convertible
April 1, 2015 25.00 bonds outstanding. There is no treasury share.
July 1, 2015 11.00
August 1, 2015 10.50 Compute diluted earnings per share.
November 1, 2015 9.00 a. P1.70 c. P1.66
December 31, 2015 10.00 b. P1.62 d. P1.26
c. A total of 700,000 shares of an authorized 1,200,000
shares of convertible preferred shares had been issued 54. At the beginning of year 1, an entity grants 100 share
on July 1, 2014. The share was issued at its par value options to each of its 200 employees. Each grant is
of P25, and it has a cumulative dividend of P3 per conditional upon the employee remaining in service
share. The share is convertible into ordinary shares at over the next three years. The entity estimates that
the rate of one share of convertible preference for one the fair value of each option is P21. On the basis of a
share of ordinary. The rate of conversion is to be weighted average probability, the entity estimates that
automatically adjusted for share splits and share 60 employees will leave during the three-year period
dividends. Dividends are paid quarterly on September and therefore forfeit their rights to the share options.
30, December 31, March 31, and June 30.
Suppose that 15 employees leave during year 1. Also
d. East Aurora Corporation is subject to a 40% income
suppose that by the end of year 1, the entity’s share
tax rate.
price has dropped, and the entity reprices its share
e. The after-tax profit for the year ended December 31,
options, and that the repriced share options vest at the
2015 was P13,550,000.
end of year 3. The entity estimates that a further 35
employees will leave during years 2 and 3. During
The following specific activities took place during 2015.
year 2, a further 10 employees leave, and the entity
1. January 1 — A 5% ordinary share dividend was
estimates that a further 10 employees will leave during
issued. The dividend had been declared on December
year 3. During year 3, a total of 8 employees leave.
1, 2014, to all shareholders of record on December 29,
2014. The entity estimates that, at the date of repricing, the
2. April 1 — A total of 200,000 preference shares was fair value of each of the original share options granted
converted into ordinary shares. The company issued (ie before taking into account the repricing) is P10 and
new ordinary shares and retired the preference shares. that the fair value of each repriced share option is P13.
3. July 1 — A 2-for-1 ordinary share split became
effective on this date. The board of directors had The amount to be recognized as expense in year 2 is
authorized the split on June 1. a. P159,000 c. P150,750
4. August 1 — A total of 300,000 ordinary shares b. P105,000 d. P135,750
were issued to acquire a factory building.
5. November 1 — A total of 24,000 ordinary shares 55. An entity grants to an employee the right to choose
were purchased on the open market at P9 per share. either 1,000 phantom shares, ie a right to a cash
These shares were to be held as treasury shares and payment equal to the value of 1,000 shares, or 1,200
were still in the treasury as of December 31, 2015. shares. The grant is conditional upon the completion
6. Ordinary shares cash dividends — Cash dividends of three years’ service. If the employee chooses the
to ordinary shareholders were declared and paid as share alternative, the shares must be held for three
follows. years after vesting date.
April 15 — P0.30 per share At grant date, the entity’s share price is P50 per share.
October 15 — P0.20 per share At the end of years 1, 2 and 3, the share price is P52,
P55 and P60 respectively. The entity does not expect

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to pay dividends in the next three years. After taking Rent revenue 16,000
into account the effects of the post-vesting transfer Royalty revenue (exempt from tax) 5,000
restrictions, the entity estimates that the grant date Doubtful debts expense 2,300
fair value of the share alternative is P48 per share. Entertainment expense (non-deductible) 1,500
Proceeds on sale of equipment 19,000
Compute for the amount to be recognized as
Carrying amount of equipment sold 18,000
compensation expense in year 2.
Annual leave expense 5,000
a. P21,868 c. P19,334
b. P36,667 d. P19,200
The draft statement of financial position at December 31,
2015 contained the following assets and liabilities:
56. During 2015, Grant Industries, Inc. constructed a new
manufacturing facility at a cost of P12,000,000. The 2015 2014
weighted average accumulated expenditures for 2015 Assets
were calculated to be P5,400,000. The company had Cash P 11,500 P 9,500
the following debt outstanding at December 31, 2015: Receivables 12,000 14,000
 10 percent, five-year note to finance construction Allowance for doubtful debts (3,000) (2,500)
of the manufacturing facility, dated January 1, Inventory 19,000 21,500
2015, P3,600,000. Rent receivable 2,800 2,400
 12 percent, 20-year bonds issued at par on April Motor vehicle 18,000 18,000
30, 2011, P8,400,000. Acc. Dep. - motor vehicle (15,750) (11,250)
 8 percent, six-year note payable, dated March 1, Equipment 100,000 130,000
2014, P1,800,000. Acc. Dep. - equipment (60,000) (52,000)
Deferred tax asset ? 5,550
Determine the amount of interest to be capitalized by
P135,200
Grant Industries for 2015.
Liabilities
a. P360,000 c. P557,280
Accounts payable 15,655 21,500
b. P563,220 d. P591,840
Provision for annual leave 4,500 6,000
Current tax liability ? 7,600
57. Which of the following statements is true?
Deferred tax liability ? 2,745
a. If a lease qualifies as a finance lease for the lessor,
37,845
it will also always qualify as a finance lease for the
lessee. Additional information
b. It is possible for neither the lessor nor lessee to  The company can claim a deduction of P15,000 (15%)
depreciate the asset under lease. for depreciation on equipment, but the motor vehicle is
c. A lessee's debt equity ratio is not increased if the fully depreciated for tax purposes.
lease is a finance lease, whereas, it would be if the  The equipment sold during the year had been
asset were purchases outright. purchased for P30,000 two years before the date of
d. There is always "accounting symmetry" for sale.
recording and reporting leases between the lessor  The company tax rate is 30%.
and lessee.
60. The current tax expense for 2015 is
58. Porkee Corp. sells equipment with a carrying amount a. P6,030 c. P7,500
P150,000 to Chopee Corp. for P170,000 when the b. P6,930 d. P8,040
equipment's fair value is P100,000, and then enters
into a cancellable operating lease agreement to use 61. The deferred tax expense (benefit) for 2015 is
the equipment for two years. In the current year, how a. P6,570 c. (P2,430)
much profit would Porkee Corp. record on the sale of b. (P3,270) d. (P1,080)
the equipment?
a. P20,000 c. P70,000 Use the following information for the next two questions:
b. P50,000 d. Nil
To encourage employees older than 60 years to extend
their employment with the entity, Lamentations
59. The Waloneke Company has a policy of using non-
Corporation promises its 60-year-old employees a lump-
current assets until they can no longer be operated and
sum benefit equal to 1 per cent of final salary for each
are worthless. On 1 January 2015 it acquired an item of
year of service they remain employed by the entity after
plant and machinery for P100,000. It is being
their 60th birthday provided they remain in the employ of
depreciated over 10 years on a straight-line basis. For
Lamentations Corporation until they are 65, at which time,
tax purposes there is an allowance of 20% per annum
in accordance with local laws, employees are required to
on a reducing balance basis. There are two rates of tax:
retire. The benefit is payable to the employees on
15% on trading profits and 25% on gains on disposals.
retirement.
What deferred tax balance should Waloneke recognize at
Employee A’s 60th birthday is on 1 January 2014. Her
31 December 2015, according to PAS12 Income taxes?
salary for the year ended 31 December 2014 is P100,000.
a. Deferred tax asset of P2,500
b. Deferred tax asset of P1,500 At 31 December 2014 the entity made the following
c. Deferred tax liability of P2,500 actuarial assumptions:
d. Deferred tax liability of P1,500  Employee A’s salary should increase by 5 per cent
(compound) each year.
Use the following information for the next two questions.  There is a 20 per cent probability that employee A’s
employment with the entity will terminate before 1
The accounting profit before tax for the year ended
January 2019.
December 31, 2015 for Regiel Ltd amounted to P18,500
 The appropriate discount rate is 10 per cent per year.
and included:
Depreciation – motor vehicle (25%) P 4,500 Employee A’s salary for 2015 is P105,000.
Depreciation - equipment (20%) 20,000

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At 31 December 2015 the entity revised its actuarial d. SMEs’ shareholders that are also managers of their
assumptions as follows: SMEs.
 Employee A’s salary should increase by 15 per cent
(compound) each year. 67. If an SME that uses the PFRS for SMEs in a current
 There is a 10 per cent probability that employee A’s year breaches the floor or ceiling of the size criteria at
employment with the entity will terminate before the end of that current year, and the event that caused
reaching retirement date of 1 January 2019. the change is considered “significant and continuing”,
 The appropriate discount rate remains 10 per cent per the entity should
year. a. Transition to the applicable financial reporting
framework in the next accounting period.
The entity does not fund its obligation to pay lump-sum
b. Transition to the applicable financial reporting
benefits. (Round off future and present value factors to
framework in the current accounting period.
four decimal places)
c. Transition to the applicable financial reporting
framework from the previous accounting period.
62. Calculate the amount that the entity would recognize
d. Use the same financial reporting framework.
in profit or loss for the year ended 31 December 2015.
a. P1,146 c. P1,437
68. The following accounting policy options in full IFRSs
b. P1,080 d. P1,534
are not included in the IFRS for SMEs, except
a. Financial instrument options, including available-
63. Calculate the amount that the entity would recognize
for-sale, held-to-maturity and fair value options.
in other comprehensive income for the year ended 31
b. The revaluation model for property, plant and
December 2015.
equipment, and for intangible assets.
a. P1,014 c. P350
c. Proportionate consolidation for investments in
b. P1,080 d. Nil
jointly-controlled entities.
d. The use of fair value model for investment
64. On January 1, Lessor Company signed a 1-year rental
property.
with quarterly payments of P100,000 due at the end of
each quarter. In addition, the lessee must pay
69. Which of the following is not a recognition and
contingent rent of 5% of all sales in excess of
measurement simplication of the full IFRSs in the IFRS
P10,000,000. The contingent rent is paid in one
for SMEs?
payment on December 31. The same lessee has used
a. Financial instruments meeting specified criteria are
the building for the past 5 years, and in each of those
measured at cost or amortized cost. All others are
years the lessee reached the contingent rent threshold
measured at fair value through profit or loss.
of P10,000,000 in sales. Sales of the lessee for the
b. The IFRS for SMEs does not require separate
first two quarters are as follows:
accounting for ‘embedded derivatives’.
Quarter ended Amount c. Goodwill and other indefinite-life intangible assets
March 31 P3,200,000 are not subject to impairment.
June 30 3,000,000 d. Research and development costs must be
recognized as expenses.
What amount of rent expense should be reflected in
Lessee’s quarterly income statement for the three 70. The Retry Company uses cash-basis accounting for
months ended June 30? their records. During 2015, Retry collected P500,000
a. P100,000 c. P130,000 from its customers, made payments of P200,000 to its
b. P125,000 d. P160,000 suppliers for inventory, and paid P140,000 for
operating costs. Retry wants to prepare accrual-basis
statements. In gathering information for the accrual-
65. The Maddy Company is preparing interim financial basis financial statements, Retry discovered the
statements for the six months to 30 June 2016 in following:
accordance with the minimum requirements of PAS34. a. Customers owed Retry P50,000 at the beginning
Its accounting year ends on 31 December each year. and P35,000 at the end of the year.
Which of the following comparative statement is not b. Retry owed suppliers P20,000 at the beginning and
appropriate? P27,000 at the end of the year.
a. Statement of financial position at 30 June 2015 c. Retry's beginning inventory was P42,000, and its
b. Statement of profit or loss and other comprehensive ending inventory was P44,000.
income for the half year to 30 June 2015 d. Retry had prepaid expenses of P5,000 at the
c. Statement of changes in equity for the half year to beginning and P7,400 at the end of the year.
30 June 2015 e. Retry had accrued expenses of P12,000 at the
d. Statement of cash flows for the half year to 30 June beginning and P19,000 at the end of the year.
2015 f. Depreciation for the year was P51,000.
Determine the accrual basis net income of Retry
66. Which of the following are not considered external
Company for the year ended December 31, 2015.
users of SMEs’ financial statements?
a. P79,600 c. P91,400
a. Banks that make loans to SMEs.
b. P84,400 d. P98,400
b. Vendors that sell to SMEs and use SMEs’ financial
statements to make credit and pricing decisions.
c. Credit rating agencies and others that use SMEs’
financial statements to rate SMEs.
 - end - 

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