PROBLEM 1

Shown below is the bank reconciliation for Orchid Company for November 2013:
Balance per bank, Nov. 30, 2013
Add: Deposits in transit
Total
Less: Outstanding checks
Bank credit recorded in error
Cash balance per books, Nov. 30, 2013

PROBLEM 2
On April 1, 2014, Anabelle Co., purchased land and building for a lump-sum price of P80,000,000. The existing
building (with a remaining useful life of 4 years) was demolished late 2015 to make way for the construction of
a new. The following data were collected concerning the property at the same date:

P 150,000
24,000
174,000
P 28,000
10,000

38,000
P 136,000

Land
Building

Book Value
(Sellers book)
P 50,000,000
25,000,000

Fair Value
P 96,000,000
24,000,000

The bank statement for December 2013 contains the following data:
Total deposits
P 110,000
Total charges, including NSF check of P 8,000
and a service charge of P 400
96,000

6.

Assume that the Anabelle Co., at date of acquisition, has decided to use the property as owner-occupied
property under cost model, what is the value of the acquired Old Building at the end of calendar year 2015
in accordance with PAS 16 Property, plant and equipment?
a. P 26,666,667
b. P 24,000,000
c. P 16,000,000
d. P -0-

All outstanding checks on November 30, 2013, including the bank credit, were cleared in the bank in December
2013.

7.

Assuming the fair value of the old building and land on fiscal year ending June 30, 2015 were P13,000,000
and P44,000,000, respectively, how much is the net impact on the comprehensive income of Anabelle Co.
on the said fiscal year under revaluation model?
a. P 22,000,000
b. P 23,000,000
c. P 3,000,000
d. P -0-

8.

Assume Anabelle Co. is a property developer and paid P2,500,000 to demolish the building on the land,
determine the appropriate amount that the Company should debit to PPE if its policy is to consider the
demolition cost as directly attributable cost in constructing the new asset.
a. P 24,000,000
b. P 2,500,000
c. P 17,500,000
d. P -0-

There were outstanding checks of P 30,000 and deposits in transit of P 38,000 on December 31, 2013.
Based on the above result of your audit, answer the following:

1. How much is the cash balance per bank on December 31, 2013?
a. P 154,000
b. P 150,000
c. P 164,000
2. How much is the December receipts per books?
a. P 124,000
b. P 96,000
c. P 110,000
3. How much is the December disbursements per books?
a. P 96,000
b. P 79,600
c. P 89,600
4. How much is the cash balance per books on December 31, 2013?
a. P 150,000
b. P 170,400
c. P 180,400

d. P 172,400
d. P 148,000

PROBLEM 3
On December 31, 2013, Nicole Co. identified that its building with a carrying amount of P2,400,000 has been
impaired. In estimating the recoverable amount, Nicole has determined that the fair value of the asset is
P2,000,000. In estimating the value in use, Nicole determined the following:
Year
Future cash inflows
Future cash outflows
2014
P 1,200,000
P 400,000
2015
1,120,000
400,000
2016
1,040,000
320,000

d. P 98,000

d. P 162,000

5. In auditing bank reconciliation, which of the following is/are true?

I. The auditor obtains copies of the entitys reconciliation and agrees the bank balance to the bank
confirmation and the book balance to the general ledger.

Each years estimated future cash flows include P40,000 representing cash outflows from future restructuring
not yet committed and P20,000 representing cash outflows on planned improvement and enhancement. Not
included in the estimated future cash flows are costs of day-to-day servicing of the asset amounting to P8,000
per year. The discount rate applicable for the computation of the value in use is 10%. (Round-off PV factors
in to 6 decimal places and amounts in whole number)

II. The auditor note the date on which outstanding items are shown on subsequent bank statements and obtain
explanations for all material items cleared within the reasonable time of the date of receipt of the cash or
the drawing of the checks
a. I only
b. II only
c. I and II
d. None of the above

9.

Assume that the following costs were also estimated for purposes of computing the fair value less cost to
sell: Transaction taxes P200,000; Legal costs, stamp duty, commissions, and similar fees P40,000; Cost
of dismantling or removing the asset included in provision for restoration and decommissioning cost

P20,000; Termination benefits and costs associated with reducing or reorganizing the business following the
disposal of an asset P60,000. How much is the fair value less costs to sell?
a. P 1,680,000
b. P 1,740,000
c. P 1,760,000
d. P 2,000,000

10. Based on the previous item and information provided above, how much is the impairment loss?
a. P 407,424
b. P 456,773
c. P 365,472
d. P 412,365
PROBLEM 4
You noted the following items relative to the companys intangible assets in connection with your audit of
Familiar Corporations financial statements for the year 2014.

14. In evaluating control risk and effectiveness for intangible assets, controls should be designed for numerous
purposes. Which of the following is not a usual control for intangible assets?
a. Ensure decisions are appropriately made as to when to capitalize or expense research and development
expenditures.
b. Develop amortization schedules that reflect the remaining useful life of patents or copyrights associated
with the assets.
c. Identify and account for intangible asset impairment.
d. All of the above are usual controls for intangible assets.
PROBLEM 5

Franchise - On January 1, 2014, Familiar signed an agreement to operate as franchisee of Tricky Copy Service,
Inc. for an initial franchise fee of P680,000. Of this amount, P200,000 was paid when the agreement was signed
and the balance was payable in four annual payments of P120,000 each, beginning January 1, 2015. The
agreement provides that the down payment is not refundable and no future services are required of the
franchisor. The implicit rate for the loan of this type is 14%. The agreement also provides the 5% of the revenue
from the franchise must be paid to the franchisor. Trickys revenue from the franchise for 2014 was P8,000,000.
Tricky estimates the useful life of the franchise to be ten years.
Patent - On July 1, 2014, Familiar purchased a patent from the inventor, who asked P1,100,000 for it. Familiar
paid for the patent as follows: cash, P400,000; issuance of 10,000 shares of its own ordinary shares, par P10
(market value, P20 per share); and a note payable due at the end of three years, face amount, P500,000,
noninterest-bearing. The current interest rate for this type of financing is 12%. The total consideration represents
the fair value of the patent. Familiar estimates the useful life of the patent to be 10 years.
Trademark - Familiar purchased for P1,200,000 a trademark for a very successful soft drink it markets under
the name POWER!. The trademark was determined to have an indefinite life. A competitor recently introduced
a product that is in direct competition with the POWER!, thus suggesting the need for an impairment test. Data
gathered by Familiar suggests that the useful life of trademark is still indefinite, but the cash flows expected to
be generated by the trademark have been reduced either to P40,000 per year (with a probability of 70%) or to
P80,000 per year (with 30% probability). The appropriate risk-free interest rate is 5%. The appropriate riskadjusted interest rate is 10%.

You have obtained the latest actuarial report prepared for Renzel Corps pension plan. Information about the
actuarial reports are presented below: From the December 31, 2015 actuarial report
Present value of defined benefit obligation
Fair value of plan assets at end of year
Current service cost for year
Benefits paid in year
Contributions paid in year
Discount rate at end of year

12/31/2014
3,600,000
3,900,000
345,000
240,000
430,000
4.5%

12/31/2015
3,500,000
3,800,000
320,000
230,000
410,000
5.0%

Assume contributions and benefit payments occurred evenly throughout the year.
Based on the above information and assumptions determine the following: (Round of any components in the
computation to the nearest thousands)

15. Net interest cost (income) for 2015

a. (P 23,000)
b. (P 14,000)

c. (P 15,000)

d. P 162,000

16. Net amount recognized in OCI for 2015

a. P 113,000
b. P 106,000

c. P 105,000

d. P 0

11. Total expenses related to franchise in 2014

a. P 503,914
b. P 535,200

c. P 448,950

d. P 454,964

12. Carrying amount of the patent as of December 31, 2014

a. P 1,045,000
b. P 955,900

c. P 860,310

d. P 908,105

PROBLEM 6
17. Aiza Co. determined that one of its cash-generating units is impaired. Information on the assets of the CGU
is shown below:
Assets
Carrying Amount
Inventory
P 800,000
Investment property (at cost model)
1,600,000
Building
2,400,000
Goodwill
1,200,000

13. Total expenses related to the above intangible assets in 2014

a. P 662,759
b. P 711,709
c. P 733,063

d. P 802,212

It was estimated that the value in use of the CGU is P3,600,000 and its fair value less costs to sell is P2,400,000.
How much is the carrying amount of the building after the impairment testing?

Based on the above and the result of your audit, determine the following: (Round off present value factors to 4
decimal places)

a.

P 1,680,000

b. P 1,120,000

c. P 1,800,000

d. P 2,040,000

PROBLEM 7
A recent fire severely damaged EL COMPANYs administration building and destroyed many of its financial
records. You have been contracted by ELs management to reconstruct as much financial information as
possible for the month of July. You learned that EL makes a physical inventory count at the end of each month
to determine monthly ending inventory values. You also find out that the company applies the average cost
method.
You are able to gather the following information by examining various documents:
Inventory, July 31
150,000 units
Total cost of goods available for sale in July
P 356,400
Cost of goods sold during July
P 297,000
Gross profit on sales for July
P 303,000
Cost of inventory, July1
0.35 per unit
The following are ELs July purchases of merchandise:
Date
Quantity
Unit Cost
July 6
180,000
P 0.40
July 12
150,000
0.41
July 16
120,000
0.42
July 17
150,000
0.45
ELs management has asked you to provide the following information:
18. Number of units on hand, July 1
a. 450,000
b. 848,571
c. 169,714
d. 300,000

19. Units sold during July

a. 600,000

b. 300,000

c. 750,000

d. 450,000

20. Unit cost of inventory at July

a. P 0.35

b. P 0.396

c. P 0.419

d. P 0.279

21. Value of inventory at July 31

a. P 59,400

b. P 52,500

c. P 62,850

d. P 41,850

PROBLEM 8
On January 1, 2013, Zest Airways, Inc. issued P 100,000, 10% 10 year bonds when the market rate of interest
was 8%. Interest is payable on June 30 and December 31. The following financial information is available:
Sales
P 300,000
Cost of sales
180,000
Gross profit
120,000
Interest expense
?
Depreciation expense
(14,500)
Other expenses
(82,000)
Net income
?

Accounts receivable
Inventory
Accounts payable

December 31, 2013

P 55,000
87,000
60,000

January 1, 2013
P 48,000
93,000
58,000

All purchases of inventory are on account. Other expenses are paid for in cash.
22. What is the carrying value of the bonds on December 31, 2013
a. P 100,000
b. P 112,233
c. P 112,661

d. P 113,592

23. What is the interest expense for 2013

a. P 4,544
b. P 8,641

c. P 9,069

d. P 10,000

24. How much was paid for inventory purchases

a. P 172,000
b. P 174,000

c. P 184,000

d. P 186,000

25. What is Zest Airways net income for 2013

a. P 13,500
b. P 14,431

c. P 14,859

d. P 23,000

26. How much was received from customers in 2013

a. P 245,000
b. P 283,000

c. P 293,000

d. P 307,000

PROBLEM 9
27. On January 1, 2014, SEXY Bank extended a P2,000,000, zero-interest loan to one of its directors Ms. NanLu Wang. The loan matures in lump sum on January 1, 2017. The prevailing market interest for this type of
loan is 10%. The loan proceeds (transaction price) extended to Ms. Nan-Lu Wang is equal to the face amount
of the loan. SEXY Banks personnel failed to journalize the entry on January 1, 2014, hence, no interest
income was recorded for 2014 related to this loan.
Because of this error, profit or loss for the year ended December 31, 2014 will be overstated (understated)
by
a. P0
b. (P200,000)
c. (P150,263)
d. P347,107
PROBLEM 10
On January 1, 2013, Voice Company acquired 100% of the outstanding shares of Idol Company by issuing
200,000 shares of its P10 par ordinary with market price of P12 per share. The book value of Idol Companys
net assets was P2,500,000. Voice Company journalized the said acquisition as follows:
Investment in Subsidiary
Expenses
Ordinary share capital, P10 par
Share Premium
Cash

P2,400,000
40,000
2,000,000
400,000
40,000

28. The correct journal entry to record the transaction costs in Voice books includes a debit to
a.
Direct acquisition expenses of P40,000
b.
Share premium P40,000

PROBLEM 12
Earl Company has the following capital structure at the beginning of 2015:
6% Cumulative, fully-participating preferred stock, P50 par value, 50,000 shares
authorized, 12,000 shares issued and outstanding
Common stock, P10 par value, 200,000 authorized; 147,500 issued and outstanding
Additional paid-in capital in excess of par preferred
Additional paid-in capital in excess of par common
Retained earnings (P2,500,000 appropriated for plant expansion)

c.

During 2015 the following transactions occurred:

Voice Company paid direct acquisition costs and issuance/registration costs of shares of P25,000 and P15,000,
respectively (refer to the entry above). The book value of Idol Companys net assets were the same with their
fair value except for a liability item which was understated by P3,000. For purposes of preparing the separate
financial statement of Voice Company, the auditor noted the error on the entry above.

Investment in Subsidiary of P40,000

d.

Cash P40,000

P 600,000
1,475,000
180,000
1,180,000
4,500,000
7,935,000

29. The correcting entry on the separate books of Voice Company includes a credit to?
a. Share premium of P15,000
b. Expenses P40,000
c. Investment in Subsidiary of P25,000
d. No entry needed

February 11

Earl Company acquired 6,000 preferred shares at P70 per share and 40,000 common
shares at P22 per share. Earl Company is using the cost-method in recording treasury
shares

March 31

Issued 2,000 preferred treasury shares at P73 per share

30. What is the best basis for the correcting entry related to the error above, if any?
a. IAS 8
b. IAS 27
c. IFRS 3
d. Both b and c

April 7

Issued 15,000 common shares at P25 per share

July 1

Issued 1,500 preferred treasury shares at P68 per share & 20,000 common shares at
P19 per share

August 15

Retired the remaining preferred and common treasury shares

September 1

Plant expansion was completed

November 22

Board of directors appropriated P2,000,000 for plant expansion in Mactan, Cebu.

Likewise, the Board issued a 3-year, 10% P1,500,000 face value bonds to partially fund
the construction. A sinking fund was set-up for the extinguishment of the bonds at their
maturity

December 31

Net income for the period P1,400,000. Total cash dividend declared and paid
P500,000. No dividends have been declared in 2014. A property dividend was likewise
declared, the distribution of which is on January 6, 2016. The carrying amount of the
property declared as dividend was P800,000; the fair value of which was P1,000,000

PROBLEM 11
On January 1, 2013 investor KITAKITS acquired a 30% interest in entity BEH! at a cost of P500,000. Investor
KITAKITS has significant influence over entity BEH! and accounts for its investment in the associate under the
equity method. The associate has net assets of P1,000,000 at the date of acquisition, which have a fair value of
P1,200,000. During the year ended December 31, 2013 entity BEH! recognized a post-tax profit of P200,000,
and paid a dividend of P18,000. Entity BEH! also recognized foreign exchange losses of P40,000 in OCI.
On January 1, 2014, entity BEH! has a rights issue that investor KITAKITS does not participate in. The rights
issue brings in an additional P150,000 in cash, and dilutes investor KITAKITS's interest in entity BEH! to 25%.
KITAKITS inquired for the proper accounting treatment of the dilution from his auditor.

31. Determine the net increase (decrease) on comprehensive income of the dilution on January 1, 2014.
a. (P54,933)
b. (P52,933)
c. (P53,266)
d. (P55,266)
32. The entry on January 1, 2014 will increase (decrease) the carrying amount of the investment account by
a. (P90,433)
b. (P52,933)
c. (P37,500)
d. P0
33. Impairment losses on equity securities classified at amortized cost under PFRS 9 are recognized in
a. profit or loss
b. OCI
c. Equity
d. None

34. Upon the retirement of the preferred shares, retained earnings shall be debited by
a. 0
b. 6,500
c. 9,500
35. Upon the retirement of the common shares, retained earnings shall be debited by
a. 0
b. 14,000
c. 17,000
36. The amount of cash dividends to be distributed to the common shareholders is
a. 329,800
b. 351,375
c. 355,420

d. 12,500

d. 20,000

d. 375,000

37. The retained earnings appropriated at the end of 2011 is

a. 1.5M
b. 2M
38. The total stockholders equity at December 31, 2011 is
a. 7,538,000
b. 7,738,000

c.

c.

3.5M

d. 6M

7,118,000

d.

PROBLEM 14
41. On April 1, 2014, Gerald Company engages in the development of a property, which is expected to take five
years to complete, at a cost of P6M. the statements of financial position at December 31, 2013 and December
31, 2014, prior to capitalization of interest are as follows:

8,038,000
Development property
Other assets

PROBLEM 13
Two real estate companies, RK Developers and SV Holdings set up a separate vehicle (entity DP) for the
purpose of acquiring and operating a shopping center. The contractual agreement between the parties establishes
joint control of the activities that are conducted by entity DP. The main feature of entity DPs legal form is that
the entity, not the parties, has rights to the assets and obligations for the liabilities relating to the arrangement.
These activities include the rental of the retail units, managing the car park, maintaining the center and its
equipment, such as lifts and building the reputation and customer base for the center as a whole.
The terms of contractual arrangement are such that:
a. Entity DP owns the shopping center. The contractual arrangement does not specify that the parties have
rights to the shopping center
b. The parties are not liable in respect of the liabilities of entity DP. If entity DP is unable to pay any of its
liabilities, the liability of each to any third party will be limited to the parties unpaid contribution.
c. The parties have the right to sell or pledge their interest in entity DP
d. Each party receives a share of the income from the shopping center (rental income net of operating costs)
in accordance with its interest in entity DP.
Transactions of the contractual arrangement for 2013 and 2014 follow:
2013:
RK and SV contributed P60M each for interest in the net assets of entity DP
Organization expenses incurred amounts to P600,000
Entity DP acquired land at a cost of P12M
Constructed building (shopping center) at a cost of P90M
Operating expenses for the year amounts to P6M
Rental income collected from tenants, P60M
Net income or loss is distributed to the venturers in accordance with their interest
2014:
Operating expenses (including depreciation) incurred for the year, P21M
Rental income collected for the year, P72M
Each venture receives a share of the income or loss

39. What is the interest of RK Developers in the joint venture as of December 31, 2013?
a. P60M
b. P87M
c. P113.4
d. P86.7M
40. What is the interest of SV Holdings in the joint arrangement as of December 31, 2014?
a. P60M
b. P164.4M
c. P112.2M
d. P86.7M

Loans
5.5% debenture stock
Bank loan at 6% per annum
Bank loan at 7% per annum
Shareholders equity

12/31/13
P
6,000,000
P 6,000,000

12/31/14
P1,200,000
6,000,000
P7,200,000

P 2,500,000
1,000,000
P 3,000,000

P2,500,000
1,200,000
1,000,000
P4,700,000

2,500,000

2,500,000

The bank loan with effective interest rate at 6% was drawn down to match the development expenditure on
April 1, July 1, and October 1 2014. The 5.5% debenture stocks were irredeemable. Expenditure was incurred
on the development as follows: April 1 P600,000; July 1 P400,000; October 1 P200,000. If all the
borrowing were general (i.e., the bank loan 6% was not specific to the development) and would have been
avoided but for the development, then the amount of interest to be capitalized would be (Round-off to 2
decimal % for the general borrowing rate)
A. P42,000
B. P41,580
C. P46,130
D. P0
PROBLEM 15
Kheen Company offers a cash rebate of P1 on each P4 package of batteries sold during 2013. Historically, 10%
of customers mail in the rebate form. During 2013, 6,000,000 packages of batteries are sold, and 210,000 P1
rebates are mailed to customers.

42. What is the rebate expense shown on the 2013 financial statements?
a. P 600,000
b. P 390,000
c. P 201,000

d. P -0-

43. What is the rebate liability shown on the 2013 financial statements?
a. P 600,000
b. P 390,000
c. P 201,000

d. P -0-

PROBLEM 16

44. What earnings figure should be used for determining basic EPS?
a. Consolidated net profit after tax attributable to parent
b. Consolidated profit after tax
c. A and B
d. None of the choices

45. For the year ended December 31, 2013, the following information relates to AA Ltd.:
- Profit for the year was P900,000
- No preference dividends were declared during the year
- 1,000,000 10% cumulative shares of P1 (classified as equity) were on issue for the entire year
Earnings used to determine Basic EPS will be?
a. P900,000
b. P800,000

47. Following the information in item 46:

70,000 partly paid ordinary shares issued on October 1 for P2.00 partly paid to P1.30, with right to participate
in dividends in proportion to the amount paid relative to the issue price.
How are these incorporated into the weighted average ordinary share calculation for basic EPS?
Excluded from the calculation as they are not fully paid up
Weighted as if they were fully paid up on the date that the first installment was receivable
Weighted based on their paid up portion each partly paid share would represent 0.65 ordinary shares
None of the above

48. For the year ending December 31, 2013:

a.
b.
c.
d.

IAS 33 requires diluted EPS be calculated where an entity has on issue potential ordinary shares that
are dilutive.

d. None of the choices

Which items above will have an impact on the weighted average number of shares outstanding during the year
for basic EPS?
a. Items 1 to 2
b. Items 1 to 3
c. Items 1 to 4
d. Items 1 to 5

In assessing whether potential ordinary shares are dilutive:

c. P1,000,000

46. For the year ending December 31, 2014, the following data relates to GG Ltd.
1. At January 1, there were 200,000 ordinary shares on issue
2. 100,000 fully paid ordinary shares issued on March 1
3. 25,000 ordinary shares repurchased on August 1
4. 70,000 partly paid ordinary shares issued on October 1, for P2.00 partly paid to P1.30, with right to
participate in dividends in proportion to the amount paid relative to the issue price
5. 1,000,000 10% cumulative preference shares of P1.00 (classified as equity) were on issue for the entire year

a.
b.
c.
d.

Use the following information for the next 2 items

At January 1 there were 800,000 ordinary shares on issue

On March 1 200,000 fully paid ordinary shares were issued by way of rights issue, providing one share
for each four shares held in return for payment of P1.50

What information is needed to determine whether the rights issue contains a bonus element?
Original issue price
Fair value of shares prior to exercise
Profit for the year (excluding preference share impact
All of the above

49. What measure of profit do we use?

a. Total profit/loss
b. Profit/loss from continuing operations
c. Profit/loss from discontinuing operations
d. All of the above
50. How are different instruments assessed?
a. Assess each independently
b. Depends on accounting policy
c. In series from most dilutive to least dilutive
d. All of the above