INTERMEDIATE ACCOUNTING 1 Review

INTERMEDIATE ACCOUNTING 1: COMPILATION
1. It is the basic storage of information in accounting.

a. Journal entry c. Debit or Credit
b. T-account d. Account
2. A trial balance
a. proves that debits and credits are equal in the ledger.
b. provides a listing of open accounts and their balances which are used in preparing financial
statements.
c. is usually prepared three times in the accounting cycle. ( unadjusted, adjusted and post
closing)
d. all of these.
3. When an item of expense is paid and recorded in advance before it is incurred, it is normally
called a(n)
a. prepaid asset/expense. c. estimated expense. (not yet paid but already
considered as expense but the amount is estimated)
b. accrued expense. (liability) d. cash expense. (paid in cash)
4. An accounting record into which the essential facts and figures in connection with all
transactions are initially recorded is called the
a. ledger. c. trial balance.
b. account. d. none of these. (journal)
5. These are entries made at the end of the accounting period to update certain amounts so that
they reflect correct balances at the designated time.
a. Correcting entries c. Reclassification entries
b. Adjusting entries d. Reversing entries
6. ABC Co. prepared its unadjusted trial balance and determined that the totals of debits and
credits do not equal. Further investigation revealed the following:
 The debit posting for a cash sale was omitted.(not posted/recorded) 6,000
 The balance of Inventory was listed as a credit instead of debit 36,000
 The balance of Insurance expense was listed as Rent expense 9,000
 Unearned interest income was listed as a debit instead of credit 15,000
How much is the difference between the total debits and total credits in the trial balance?
a. 36,000
b. 42,000
c. 48,000
d. 55,000
Computation :
Dr Cr
6000 6000
36,000 36,000
36,000
15,000 15,000
15,000
30,000 - 78,000 = 48,000
7. The credit total of a trial balance exceeds the debit total by ₱700. In investigating the cause of
the difference, the following errors were determined:
a. A credit to accounts receivable of ₱660 was not posted;
b. A ₱6,000 debit to be made to the Purchases account was debited to Accounts payable instead;
c. A ₱3,600 credit to be made to the Sales account was credited to the Accounts receivable account
instead;
d. The Interest payable account balance of ₱5,040 was included in the trial balance as ₱6,400.
The reconciled balance from the given information is

a. 8,490.
b. 8,640.
c. 8,940.
d. 9,240.
Computation :
DR CR
700
(660)
under stated 6000 6000
under stated 3600 3600
1360 over stated (sol: 6040 – 5040 = 1360)
Total 8940 8940 (reconcile balances)
Use the following information for the next four questions:

On January 1, 20x1, an entity collects a 3-year advance rent of ₱360,000.
8. If the entity uses the liability method of initial recording, the 20x1 year-end adjusting journal
entry will include
a. a debit to rent income for ₱120,000.
b. a credit to unearned rent for ₱240,000.
c. a debit to unearned rent for ₱120,000.
d. a credit to rent income for ₱240,000.
Liability method : record as liability

Income Method: record as income
Explanation :
LIABILITY METHOD
360,0000/ 3 YRS = 120 000
Cash 360000
Unearned rent 36,0000
12/31 Unearned Rent 120,000

Rent income 120,000
INCOME METHOD
Cash 360000
Unearned rent 36,0000
12/31 Rent Income 240,000
Unearned rent 240,000 ( 360,000 – 120,000 = 240,000 )
9. If the entity uses the income method of initial recording, the 20x1 year-end adjusting journal
entry includes
a. a debit to rent income for ₱240,000
b. a credit to unearned rent for ₱120,000
c. a debit to unearned rent for ₱240,000
d. a credit to rent income for ₱120,000
10. If the entity uses the income method of initial recording, how much is the rent income for the
year 20x1?
a. 240,000
b. 180,000
c. 120,000
d. 80,000
Computation :
Recorded 360,000
Adjustments 240,000
Unearned 120,000
11. If the entity uses the liability method of initial recording, how much is the unearned rent as of
December 31, 20x1?
a. 240,000
b. 180,000
c. 120,000
d. 80,000
Computation :
Recorded 360,000
Adjustments 120,000
Unearned 240,000
Use the following information for the next two questions:

On August 1, 20x1, an entity prepays one-year insurance for ₱240,000.
12. If the entity uses the asset method of initial recording, the 20x1 year-end adjusting journal entry
will include
a. a credit to prepaid insurance for ₱140,000.
b. a credit to insurance expense for ₱140,000.
c. a credit to prepaid insurance for ₱100,000.
d. a debit to prepaid insurance for ₱140,000.
13. If the entity uses the expense method of initial recording, the 20x1 year-end adjusting journal
entry will include
a. a debit to prepaid insurance for ₱140,000.
b. a credit to insurance expense for ₱100,000.
c. a debit to prepaid insurance for ₱100,000.
d. a debit to insurance expense for ₱140,000.
ASSET METHOD
Aug 1 Prepaid Insurance 240,000

Cash 240,000
Dec. 31 Insurance expense 100,000

Prepaid Insurance 100,000 (expired portion: 5 mos./12 x 240,000= 100,000)
EXPENSE METHOD
Aug 1 Insurance expense 240,000
Cash 240,000
Dec. 31 Insurance expense 140,000

Prepaid Insurance 140,000 (expired portion: 5 mos./12 x 240,000= 100,000)
14. The inexperienced accountant of Raymel Co. prepared the following closing entry on
December 31, 20x1:
Dec. 31, 20x1 Sales 1,800,000
Interest income 40,000
Unrealized gain – OCI 20,000
Accrued interest income 32,000
Dividend income 16,000
Cost of goods sold 680,000
Prepaid insurance 18,000
Dividends 280,000
Accrued interest expense 70,000
Finance cost 50,000
Depreciation expense 60,000
Income summary 750,000
Dec. 31, 20x1 Income summary 750,000

Retained earnings 750,000
Purpose of Closing Entry – To bring down the balances to zero the Nominal Accounts
(temporary Account)
Revenue Account – debit
Expense Account - credit
Dr Cr
1,800,000
40,000
16,000
680,000
50,000
60,000
1,856,000 - 790,000 = 1,066,000
How much is the correct amount of “Income summary” to be closed to retained earnings?
a. 786,000
b. 1,028,000
c. 1,066,000
d. 1,048,000
15. Reversing entries are

1. normally prepared for prepaid, accrued, and estimated items.
2. necessary to achieve a proper matching of revenue and expense. (adjusting)
3. desirable to exercise consistency and establish standardized procedures.
a. 1 c. 3
b. 2 d. 1 and 2
Ano ang ni rereverse: Adjusting Entries that involved Accrual

: Adjustments in the income method
Purpose of reversing: to go back in the standardized procedure
16. Bank overdrafts that cannot be offset should be

a. reported as a deduction from the current asset section.
b. reported as a deduction from cash.
c. netted against cash and a net cash amount reported.
d. reported as a current liability.
17. Coins, currencies, checks, money orders, money on deposit, and cash funds that are available
for unrestricted use in current operations are disclosed in the notes to the financial statements as
a. Cash.
b. Cash equivalents.
c. Investments.
d. Accounts receivable.
18. These are short-term, highly liquid investments that are so near their maturity that they
represent insignificant risk of changes in value due to changes in interest rates.
a. Cash and Cash equivalents
b. Treasury bills
c. Treasury notes
d. Cash equivalents (atleast 90 days)
19. Cash in foreign currency is valued at

a. face value.
b. current exchange rate.
c. current exchange rate reduced by an allowance for expected decline in peso.
d. estimated realizable value.
20. The amount reported as "Cash" on a company's statement of financial position normally
should exclude
a. postdated checks that are payable to the company. (not cash)
b. cash in a payroll account.
c. undelivered checks written and signed by the company.
d. petty cash.
21. Noise Co. had the following balances on December 31, 20x1:
Cash in checking account ₱35,000
Cash in money market account 75,000
Treasury bill, purchased 11/1/20x1, maturing 1/31/20x2 350,000
Treasury bill, purchased 12/1/20x1, maturing 3/31/20x2 400,000
What amount should Noise Co. report as cash and cash equivalents in its December 31, 20x1 statement
of financial position?
a. 110,000 c. 460,000
b. 385,000 d. 860,000
22. The records of Kapiz Co. show the following balances on December 31, 20x1:
Cash on hand ₱ 400,000
Cash in Bank – current account 1,200,000
Cash in Bank – peso savings deposit 5,000,000
Cash in Bank – dollar deposit (unrestricted) $ 100,000
Cash in Bank – dollar deposit (restricted) 250,000
Cash in 3-month money-market account ₱ 500,000
3-month unrestricted time deposit $ 20,000
Treasury bill, purchased 11/1/20x1, maturing 2/14/20x2 ₱1,600,000
Treasury bond, purchased 3/1/20x1, maturing 2/28/20x2 1,000,000
Treasury note, purchased 12/1/20x1, maturing 2/28/20x2 400,000
Unused Credit Line 4,000,000
Redeemable preference shares, purchased 12/1/20x1, due on 3/1/20x2 740,000
Treasury shares, purchased 12/1/20x1, to be reissued on 1/5/20x2 200,000
Sinking fund 400,000
Credit line – limit of issued checks

Treasury shares – shares of the company na binili niya na hindi niya ni retired. Or equity
shares. WALANG MATURITY.
Preference shares – not equity subject to cash and cash equivalents. NOT OWN. Equity
securities but more on debt securities. (utang)
Sinking fund – long term investment. Ready to pay the liquidation of bonds payable.
Additional information:
 Cash on hand includes a ₱40,000 check payable to Kapiz Co. dated December 29, 20x1. (deduct)
 During December 20x0, check amounting to ₱30,000 was drawn against the Cash in bank - current
account in payment of accounts payable. The check remains outstanding as of December 31,
20x1. (add)
 The Cash in Bank – peso savings deposit includes ₱800,000 security bond on a pending labor case, in
favor of a previous employee. The establishment of the bond is mandated by a court of law. (
deduct) – mandated by law
 The Cash in Bank – peso savings deposit also includes a compensating balance amounting to ₱500,000
which is not legally restricted. (ignore)
compensating balance – maintaining balance in the bank
 The Cash in Bank – dollar deposit (unrestricted) account includes interest of $4,000, net of tax, directly
credited to Kapiz Co.’s account. The exchange rate at year-end is $1 is to ₱45. (Translate into peso)
ignore -
How much is the cash and cash equivalents to be reported in the 20x1 financial statements?
a. 14,720,000 c. 12,430,000
b. 19,520,000 d. 12,870,000
23. The information below was taken from the bank transfer schedule prepared during the audit
of Fox Co.’s financial statements for the year ended December 31, 2001. Assume all checks are
dated and issued on December 30, 2001.
Bank Accounts Disbursement date Receipt date
Check # From To Per books Per bank Per books Per bank
101 National Federal Dec. 30 Jan. 4 Dec. 30 Jan. 3
202 County State Jan. 3 Jan. 2 Dec. 30 Dec. 31
303 Federal American Dec. 31 Jan. 3 Jan. 2 Jan. 2
404 State Republic Jan. 2 Jan. 2 Jan. 2 Dec. 31
Which of the following checks might indicate kiting?

a. #101 and #303.
b. #202 and #404
c. #101 and #404
d. #202 and #303
Kiting – method to cover up fraud by management specifically by the treasurer. pantapal

Lapping – delay in the recording of collections/receivables specifically made by the
treasurer.
Window dressing – fraud committed by the management. Presenting a more favorable
financial condition/ performance.
24. The following were the transactions involving an entity’s petty cash fund during the period.
July. 1, 20x1 Established ₱30,000 petty cash fund.
July 1 through 21, Disbursements:
20x1 - Office supplies expense ₱4,200
- Transportation expenses 10,500
- Repairs and maintenance 3,000
- Miscellaneous expense 9,000
Total ₱26,700
July 22, 20x1 Total coins and currencies in the petty cash box is ₱1,500. Replenishment is
made.
The petty cash fund is not replenished and financial statements are prepared on July 31, 20x1. The
month-end adjustment to the petty cash fund would not include a
a. debit to receivable from custodian for ₱1,800. (30,000 – 26,600 = 1,800)
b. credit to petty cash fund for ₱28,500.
c. total debits to various expense accounts for ₱26,700.
d. credit to cash in bank for ₱28,500.
Disbursement – month end adjustment
25. On December 31, 20x1, the petty cash fund of Kristelle Co. with a general leger balance of
₱15,000 comprises the following:
Coins and currencies 2,550
Petty cash vouchers:
Gasoline for delivery equipment 3,000
Medical supplies for employees 2,040 5,040
IOU’s:
Advances to employees 2,220
A sheet of paper with names of several employees
together with contribution to bereaved employee,
attached is a currency of 2,400
Checks:
Check drawn to the order of the petty cash custodian 3,000
Personal check drawn by the petty cash custodian 2,400
The entry to replenish the fund on December 31, 20x1 includes a
a. credit to cash shortage or overage for ₱2,910.
b. debit to cash shortage or overage for ₱2,910.
c. credit to cash in bank for ₱9,450.
d. credit to petty cash fund for ₱9,450.
III.
1. In a bank reconciliation, deposits not recorded by the bank are:

a. added to the balance according to the bank statement
b. deducted from the balance according to the bank statement
c. added to the balance according to the depositor’s records
d. deducted from the balance according to the depositor’s records
Bank recon – technique used by the accountants in resolving the difference between the two account.
2. These are deductions made by the bank to the depositor’s bank account but not yet recorded
by the depositor.
a. Credit memos (CM)
b. Debit memos (DM)
c. Outstanding checks (OC)
d. Deposits in transit (DIT)
3. Bank statements provide information about all of the following except

a. checks cleared during the period.
b. NSF checks.
c. bank charges for the period.
d. errors made by the company.
4. Accompanying the bank statement was a credit memorandum for a short-term, noninterest-
bearing note collected by the bank. What entry is required in the depositor’s accounts?
a. Debit Cash; credit Miscellaneous Income
b. Debit Cash; credit Notes Receivable
c. Debit Accounts Receivable; credit Cash
d. Debit Notes Receivable; credit Cash
5. In preparing its bank reconciliation on December 31, 20x1, Sun Co. has made available the
following data:
Balance per bank statement, 12/31/x1 38,075
Deposit in transit, 12/31/x1 5,200
Outstanding checks, 12/31/x1 (6,750)
Amount erroneously credited by the bank to Sun's
account, 12/28/x1 (400)
Bank service charges for December 75
Sun's adjusted cash in bank balance on December 31, 20x1 is

a. 36,125
b. 32,345
c. 23,410
d. 39,420
6. In preparing its August 31, 20x3 bank reconciliation, Morning Co. has made available the
following information:
Balance per bank statement, 8/31/x3 18,050
Deposit in transit, 8/31/x3 3,250
Return of customer’s check for insufficient funds, 8/31/x3 600
Outstanding checks, 8/31/x3 (2,750)
Bank service charges for August 100
What is the correct cash balance of Morning on August 31, 20x3?

a. 15,550
b. 16,850
c. 17,650
d. 18,550
Use the following information for the next three questions:

The accounting records and bank statement of Entity A show the following information:
SUBSIDIARY LEDGER
CASH IN BANK - BPI CURRENT ACCOUNT
Date Description Debit Credit Balance
6/1 Bal. forwarded 881,000
6/11 Check #1113 130,800 750,200
6/15 Check #1114 220,000 530,200
6/16 Deposit 295,800 826,000
6/22 Deposit 670,000 1,496,000
6/24 Check #1115 80,000 1,416,000
6/28 Check #1116 380,000 1,036,000
6/29 Deposit 160,000 1,196,000
METROBANK
BANK STATEMENT - ENTITY A
Date Description Debit Credit Balance
6/1 Bal. forwarded 881,000
6/10 Deposit 350,000 1,231,000
6/15 Payment 2,000 1,229,000
6/15 Check #1114 220,000 1,009,000
6/16 Deposit 295,800 1,304,800
6/20 Payment 50,000 1,254,800
6/22 Deposit 670,000 1,924,800
6/24 Check #1115 80,000 1,844,800
6/26 Check #1113 130,800 1,714,000
6/28 Deposit 410,000 2,124,000
 The payments of ₱2,000 and ₱50,000 shown on the bank statement pertain to the cost of checkbook
requested from the bank and the monthly amortization of a bank loan, respectively. The loan
payment includes payment for interest of ₱8,000.
 Deposits shown on the bank statement but not on the cash ledger represent collections of accounts
receivable.
7. How much is the deposit in transit?
a. 160,000
b. 102,000
c. 52,000
d. 380,000
8. How much is the credit memo?

a. 52,000
b. 160,000
c. 760,000
d. 380,000
9. How much is the adjusted cash balance?

a. 1,940,000
b. 1,760,000
c. 1,380,000
d. 1,904,000
The next three items are based on the following information:

Taken from the records of Girly Co. are the following:
Balance per books, October 31 4,440

Total Credits per books, November 8,320
Balance per books, November 30 2,400
Balance per bank statement, October 31 5,520
Balance per bank statement, November 30 4,560
Total Debits per bank statement, November 2,800
Loan proceeds directly credited to Girly’s account in
October 1,200
Collection of receivable directly credited to Girly’s
account in November – not yet recorded in the books 600
NSF checks returned in October 900
NSF checks returned in November - not yet recorded in
the books 300
Check received from a customer amounting to ₱1,800
was recorded in the books in October as 180
Overstatement in book debit in October 800
Overstatement in book credit in November 300
Understatement in bank debit in October 290
Overstatement in bank credit in October 370
Deposit amounting to ₱1,050 was recorded by
the bank in November as 150
Deposits in transit – October 31 4,500

Outstanding checks – October 31 3,800
10. How much are the deposits in transit on November 30?

a. 5,820 b. 6,190 c. 5,340 d. 6,920
11. How much are the outstanding checks on November 30?

a. 7,620 b. 8,680 c. 9,120 d. 8,280
12. How much is the adjusted balance of cash on November 30?

a. 3,000 b. 3,300 c. 2,400 d. 3,580

Kriselda Co. has the following information for the months of June and July.
June 30 July 31
Book balance ? 9,300
Book debits 30,700
Book credits 27,000
Bank balance 10,200 16,800
Bank debits 21,300
Bank credits ?
Notes collected by bank 2,250 3,000
Bank service charge 20 100
NSF checks 880 1,400
Understatement of recorded cash
collections 1,900 1,200
Deposit in transit 6,000 11,250
Outstanding checks 9,750 17,850
Loan amortization of Kristeta
Corp. erroneously debited to
Kriselda Co.’s account 2,400 1,800
13. How much is the adjusted cash receipts in July?

a. 24,150 b. 27,900 c. 30,750 d. 24,350
14. How much is the adjusted cash disbursements in July?

a. 27,600 b. 27,900 c. 21,000 d. 21,600
15. How much is the adjusted cash balance as of July 31?

a. 12,000 b. 8,850 c. 15,930 d. 14,600
IV.
1. Which of the following should be recorded in Accounts Receivable?
a. Receivables from officers representing employee loans
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these
2. When the allowance method of recognizing bad debts expense is used, the entry to record the
write-off of a specific uncollectible account would decrease
a. the allowance for doubtful accounts.
b. the profit for the period.
c. the net realizable value of accounts receivable.
d. the working capital.
3. Information from the records of Stormfall Co. is shown below:

 Accounts receivable - net of ₱8,000 credit balance in customers' accounts 100,000
 Notes receivable (trade) 15,000
 Notes receivable (non-trade), ₱15,000 collectible within one year 30,000

 Dividends receivable 2,000
 Subscriptions receivable 2,000
 Advances to officers and employees (due in 10 months) 4,000
 Accounts payable - net of ₱10,000 debit balance in
suppliers' accounts 3,000
How much are the following?

Total trade receivables Total current receivables
a. 132,000 154,000
b. 123,000 154,000
c. 143,000 162,000
d. 123,000 145,000
4. On December 27, 20x1, ABC Co. received a sale order for a credit sale of goods with selling
price of ₱3,000. The goods were shipped by ABC on December 31, 20x1 and were received by the
buyer on January 2, 20x2. The related shipping costs amounted to ₱20. ABC Co. collected the
receivable on January 5, 20x2. If the term of the sale is FOB destination, freight collect, how much net
cash is collected on January 5, 20x2?
a. 3,020
b. 3,000
c. 2,980
d. 0
5. Soap Co. has the following information on December 31, 20x1 before any year-end
adjustments.
Allowance for doubtful accounts, Jan. 1 30,400
Write-offs 19,000
Recoveries 3,800
Sales (including cash sales of ₱380,000) 2,280,000
Sales returns and discounts (including ₱3,800 sales
22,800
returns on cash sales)
Accounts receivable, Dec. 31 570,000
Percentage of credit sales 3%
How much is the recoverable historical cost of accounts receivable?

a. 498,370
b. 502,630
c. 486,780
d. 478,970
6. Washing Co. has the following information on December 31, 20x1 before any year-end
adjustments.
Accounts receivable, Jan. 1 80,000
Net credit sales 270,000
Collections from customers (including recoveries) 140,000
Allowance for doubtful accounts, Jan. 1 10,000
Write-offs 5,000
Recoveries 1,000
Percentage of receivables 5%
How much is the bad debt expense?
a. 4,250
b. 4,300
c. 4,550
d. 10,300
7. Fabric Co. sells to wholesalers on terms of 2/15, net 30. An analysis of Fabric Co.’s trade
receivable balances on December 31, 20x1, revealed the following:
Age in days Receivable balances
0 – 15 180,000
16 – 30 108,000
31 – 60 90,000
61 – 90 72,000
91 – 120 54,000
121 – 150 36,000
Total accounts receivables 540,000
Fabric Co. uses the aging of receivables method. The estimated percentages of collectability based on
past experience are shown below:
Accounts that are overdue for less than 31 days 97%
Accounts that are overdue 31 – 60 days 90%
Accounts that are overdue for over 120 days 40%
The allowance for doubtful accounts has a balance of ₱18,000 as of January 1, 20x1. Write-offs and
recoveries during the year amounted to ₱6,000 and ₱3,000, respectively.
How much is the doubtful accounts expense for the year?

a. 15,600
b. 9,000
c. 22,600
d. 28,200

ABC Co. has the following information on December 31, 20x1 before any year-end adjustments.
Net credit sales 6,300,000
Accounts receivable, December 976,500
Allowance for doubtful accounts, Dec. 31 (before any
53,550
necessary year-end adjustments)
Percentage of credit sales 2%
The aging of receivables is shown below:

Days outstanding Receivable balances % uncollectible
0 – 60 378,000 1%
61 – 120 283,500 2%
Over 120 315,000 6%
Total accounts receivables 976,500
 ABC Co. uses the percentage of credit sales in determining bad debts in monthly financial reports
and the aging of receivables for its annual financial statements.
 Accounts written-off during the year amounted to ₱119,700 and accounts recovered amounted to
₱28,350.
 As of December 31, ABC Co. determined that ₱63,000 accounts receivable from a certain customer
included in the “61-120 days outstanding” group is 95% collectible and a ₱31,500 account included
in the “Over 120 days outstanding” group is worthless and needs to be written-off.
8. How much is the balance of the allowance for doubtful accounts on January 1, 20x1?
a. 12,600
b. 18,900
c. 19,200
d. 23,400
9. How much is the adjusted bad debt expense to be reported in the year-end financial
statements?
a. 123,300
b. 128,700
c. 143,300
d. 132,300
10. ABC Co. has the following information before any year-end adjustment.
Accounts receivable, Dec. 31 600,000
Allowance for doubtful accounts, Jan. 1 18,000 (Dr.)
Percentage of receivables 2%
Write-offs and recoveries during the year amounted to ₱22,800 and ₱3,000, respectively. How much
is the bad debts expense for the year?
a. 13,800
b. 26,800
c. 49,800
d. 52,800
V.
1. Present value is
a. the value now of a future amount.
b. the amount that must be invested now to produce a known future value.
c. always smaller than the future value.
d. all of these.
2. Which of the following factors would show the largest value for an interest rate of 12% for six
periods?
a. Present value of 1
b. Present value of an ordinary annuity of 1
c. Present value of an annuity due of 1
d. Answer cannot be determined
3. A higher interest rate results to

a. increased amount of present value.
b. decreased amount of present value.
c. same amount of present value.
d. Answer cannot be determined due to insufficient data
4. A shorter period results to

a. increased amount of present value.
b. decreased amount of present value.
c. same amount of present value.
d. shorter accountant.
5. The present value of 1 for a period of zero equals

a. 1.
b. 0.
c. Error!
d. Answer depends on the interest rate
6. An entity sells goods either on cash basis or on 6-month installment basis. On January 1, 20x1,
goods with cash price of ₱50,000 were sold at an installment price of ₱75,000. Which of the following
statements is correct?
a. Net receivable of ₱75,000 is recognized on the date of sale.
b. Net receivable of ₱50,000 is recognized upon full payment of the total price.
c. The ₱20,000 difference between the cash price and installment price is recognized as interest
income on the date of sale.
d. Net receivable of ₱50,000 is recognized on the date of sale.
7. An entity sells goods for ₱150,000 to a customer who was granted a special credit period of 1
year. The entity normally sells the goods for ₱120,000 with a credit period of one month or with a
₱10,000 discount for outright payment in cash. How much is the initial measurement of the receivable
if the entity does not use the practical expedient allowed under PFRS 15?
a. 150,000
b. 130,000
c. 120,000
d. 110,000

On January 1, 20x1, ABC Co. sold a transportation equipment with a historical cost of ₱1,000,000 and
accumulated depreciation of ₱300,000 in exchange for cash of ₱100,000 and a noninterest-bearing note
receivable of ₱800,000 due on January 1, 20x4. The prevailing rate of interest for this type of note is
12%.
8. How much is the interest income in 20x1?

a. 68,331
b. 76,532
c. 85,714
d. 96,000
9. How much is the carrying amount of the receivable on December 31, 20x2?
a. 800,000
b. 569,424
c. 637,755
d. 714,286

On January 1, 20x1, Mojo Co. sold transportation equipment with a historical cost of ₱20,000,000 and
accumulated depreciation of ₱7,000,000 in exchange for cash of ₱500,000 and a noninterest-bearing
note receivable of ₱8,000,000 due in 4 equal annual installments starting on December 31, 20x1 and
every December 31 thereafter. The prevailing rate of interest for this type of note is 12%.

a. 728,946
b. 678,334
c. 728,964
d. 704,236
11. How much is the current portion of the receivable on December 31, 20x1?
a. 1,271,036
b. 1,423,560
c. 3,380,102
d. 1,594,388
a. 4,803,663
b. 3,380,103
c. 6,074,699
d. 6,000,000

On January 1, 20x1, ABC Co. sold transportation equipment with a historical cost of ₱12,000,000 and
accumulated depreciation of ₱7,000,000 in exchange for cash of ₱100,000 and a noninterest-bearing
note receivable of ₱4,000,000 due in 4 equal annual installments starting on January 1, 20x1 and every
January 1 thereafter. The prevailing rate of interest for this type of note is 12%.

a. 408,230
b. 278,334
c. 328,964
d. 288,220
a. 1,690,510
b. 892,857
c. 2,690,051
d. 1,594,388
15. How much is the carrying amount of the receivable on January 1, 20x3?
a. 892,857
b. 3,380,102
c. 6,074,699
d. 6,000,000

On January 1, 20x1, ABC Co. sold machinery with historical cost of ₱3,000,000 and accumulated
depreciation of ₱900,000 in exchange for a 3-year, ₱2,100,000 noninterest-bearing note receivable due
in equal semi-annual payments every July 1 and December 31 starting on July 1, 20x1. The prevailing
rate of interest for this type of note is 10%.
a. 88,825
b. 177,649
c. 128,964
d. 164,591
a. 1,241,083
b. 982,378
c. 1,690,051
d. 1,594,388
18. On January 1, 20x1, ABC Co. sold machinery costing ₱3,000,000 with accumulated
depreciation of ₱1,100,000 in exchange for a 3-year, ₱900,000 noninterest-bearing note receivable
due as follows:
Date Amount of installment
December 31, 20x1 400,000
December 31, 20x2 300,000
December 31, 20x3 200,000
Total 900,000
The prevailing rate of interest for this type of note is 10%. How much is the carrying amount of
the receivable on December 31, 20x1?
a. 467,354
b. 438,016
c. 376,345
d. 428,346

On January 1, 20x1, ABC Co. sold inventory costing ₱1,800,000 with a list price of ₱2,200,000 and a
cash price of ₱2,000,000 in exchange for a ₱2,400,000 noninterest-bearing note due on December 31,
20x3.
19. How much is the initial measurement of the receivable?

a. 1,800,000
b. 2,200,000
c. 2,000,000
d. 2,400,000
a. 2,125,390
b. 2,135,341
c. 2,098,343
d. 2,000,000
VI.
1. An entity determines that the credit risk on a loan receivable has not increased significantly since
initial recognition. The entity should recognize loss allowance equal to
a. the 12-month expected credit losses on the instrument.
b. the lifetime expected credit losses on the instrument.
c. sum of a and b
d. none; credit losses should be recognized only when there is objective evidence of a loss event.
2. According to PFRS 9, it refers to the expected credit losses that result from all possible default
events over the expected life of a financial instrument.
a. 12-month expected credit losses
b. Lifetime expected credit losses
c. Loss allowance
d. Absolute loss
3. When the required balance of the loss allowance decreases,

a. the entity recognizes gain.
b. the entity recognizes loss.
c. the entity recognizes unearned interest to be amortized over the remaining term of the
instrument.
d. the entity recognizes a deferred charge to be amortized over the remaining term of the
instrument.
4. Interest income is computed on the net carrying amount (i.e., gross carrying amount less loss
allowance) of an instrument that is under which stage of the ‘three-bucket’ approach of PFRS 9’s
expected credit loss model?
a. Stage 1
b. Stage 2
c. Stage 3
d. Stage 4
5. After impairment testing, interest income on a credit-impaired note receivable is computed by

a. multiplying the present value of the note by the current market rate at year-end.
b. multiplying the present value of the note by the rate used in impairment testing.
c. multiplying the face value of the note by the rate used in impairment testing.
d. no interest income will be recognized because the note is already impaired.
6. Which of the following most likely does not result to the derecognition of a financial asset?
a. The contractual rights to the cash flows from the financial asset expire.
b. The creditor cancels the financial asset.
c. The cash flows from the financial asset become uncollectible because of loss events.
d. The entity transfers the contractual rights to receive the cash flows of the financial asset but
retains the obligation to repurchase the financial asset at a future date.
7. On January 1, 20x1, ABC Bank extended a 12%, ₱1,000,000 loan to XYZ, Inc. Principal is due
on January 1, 20x5 but interests are due annually every January 1. ABC Bank incurred direct loan
origination costs of ₱88,394 and indirect loan origination costs of ₱18,000. In addition, ABC Bank
charged XYZ a 2.5-point nonrefundable loan origination fee. How much is the interest income in 20x2?
a. 104,973
b. 105,364
c. 106,339
d. 136,661

On January 1, 20x1, ABC Bank extended a ₱900,000 loan to XYZ, Inc. Principal is due on December 31,
20x5 but 12% interest is due annually every December 31.
On December 31, 20x3, XYZ, Inc. was delinquent and it was ascertained that the loan is impaired. ABC
Bank assessed that interests accruing on the loan will not be collected; however, the principal is
expected to be received in three equal annual installments starting on December 31, 20x4. Accrued
interest receivable on December 31, 20x3 amounted to ₱100,000. The current market rate on December
31, 20x3 is 14%.
8. How much is the balance of allowance for impairment loss on December 31, 20x3 immediately
after impairment testing?
a. 279,460
b. 303,510
c. 203,510
d. 179,460

a. 86,465
b. 64,810
c. 60,841
d. 0

On January 1, 20x1, ABC Co. received a ₱1,000,000 note receivable from XYZ, Inc. Principal payments
of ₱200,000 and interest at 12% are due annually at the end of each year for 5 years. The first payment
starts on December 31, 20x1.
XYZ, Inc. made the required payments during 20x1 and 20x2. However, during 20x3 XYZ, Inc. began
to experience financial difficulties, requiring ABC Co. to reassess the collectability of the note on
December 31, 20x3. Because of the loss event, ABC Co. did not accrue the interest on December 31,
20x3. The current rate of interest on December 31, 20x3 is 10%. ABC Co. made the following cash flow
projections on December 31, 20x3:
Date of expected receipt Amount of cash flow

January 1, 20x4 200,000
January 1, 20x5 150,000
January 1, 20x6 150,000
10. How much is the impairment loss recognized in 20x3?

a. 146,492
b. 195,082
c. 139,669
d. 181,518

a. 54,421
b. 30,421
c. 16,071
d. 0

ABC Co. transfers loans receivable with a fair value of ₱500,000 and carrying amount of ₱420,000. ABC
Co. obtains an option to purchase similar loans and assumes a recourse obligation to repurchase
similar loans. ABC Co. also agrees to provide a floating rate of interest to the transferee company. The
assets and liabilities received as consideration for the transfer are listed below:
Assets received & liabilities assumed Fair values

Cash proceeds 250,000
Interest rate swap 120,000
Call option 60,000
Recourse obligation 120,000
12. How much is the gain (loss) on the derecognition of the financial asset?
a. 30,000
b. 7,500
c. (110,000)
d. (135,000)
13. Use the information in the immediately preceding problem above except that ABC Co. agreed
to service the loans without explicitly stating the compensation. The fair value of the service is
₱25,000. How much is the gain (loss) on the derecognition of the financial asset?
a. 30,000
b. 7,500
c. (110,000)
d. (135,000)
14. On March 1, 20x1, ABC Co. assigned its ₱1,000,000 accounts receivable to Piggy Bank in
exchange for a 2-month, 12% loan equal to 75% of the assigned receivables. ABC Co. received the loan
proceeds after a 2% deduction for service fee based on the assigned notes. During March, ₱500,000
were collected from the receivables. Sales returns and discounts amounted to ₱150,000. How much
net cash is received from the assignment transaction on March 1, 20x1?
a. 735,000
b. 730,000
c. 1,230,000
d. 1,235,000
Fact pattern for the next three questions:

ABC Co. factored ₱100,000 accounts receivable to XYZ Financing Corp. on a without recourse basis
on January 1, 20x1. XYZ charged a 4% service fee and retained a 10% holdback to cover expected sales
returns. In addition, XYZ charged 12% interest computed on a weighted average time to maturity of
the receivables of 73 days over 365 days.
15. How much net proceeds is received from the factoring on January 1, 20x1?
a. 100,320
b. 85,600
c. 83,600
d. 88,300
16. How much is the cost of factoring assuming all of the receivables were collected?
a. 6,400
b. 2,400
c. 16,400
d. 12,400
17. Use the ‘fact pattern’ above except that ABC Co. factored the receivables on a with recourse
basis. ABC Co. determines that the recourse obligation has a fair value of ₱3,000. How much is the
loss on sale of receivables recognized on January 1, 20x1 assuming the factoring was made on a casual
basis?
a. 3,000
b. 9,400
c. 19,400
d. 6,400
18. On October 1, 20x1, ABC Co. discounted a one-year, ₱600,000, 12% note, received from a
customer on January 1, 20x1, with a bank at 14% on a without recourse basis. How much is the loss
on discounting?
a. 4,960
b. 5,250
c. 4,690
d. 5,520
19. On July 1, 20x1, ABC Co. discounted a 90-day, ₱800,000, 12% note, received from a customer
on June 1, 20x1, with a bank at 16% on with recourse basis. The discounting is treated as conditional
sale. The bank uses 365 days per year in computing for discounts. On August 30, 20x1 (maturity date),
the maker of the note defaulted and the bank charged ABC Co. the maturity value of the note plus a
₱3,000 protest fee. How much is transferred to accounts receivable due to the dishonor?
a. 826,671
b. 823,671
c. 827,000
d. 862,671
20. On July 1, 20x1, Going Home Co. discounted its own note of ₱200,000 with a bank at 10% for
one year. How net proceeds did Going Home Co. receive from the transaction?
a. 180,000
b. 190,000
c. 200,000
d. 0
VII.
1. for VAT. The entity should
a. include the VAT paid as part of the cost of the inventory.
b. exclude the VAT paid and record it under the VAT payable account.
c. exclude the VAT paid and record it under the Input VAT account.
d. ignore the VAT payment and disclose it only in the notes to the financial statements.

During 2004, Elway Corporation transferred inventory to Howell Corporation and agreed to
repurchase the merchandise early in 2005. Howell then used the inventory as collateral to borrow from
Norwalk Bank, remitting the proceeds to Elway. In 2005 when Elway repurchased the inventory,
Howell used the proceeds to repay its bank loan.
2. This transaction is known as a(n)

a. consignment.
b. installment sale.
c. assignment for the benefit of creditors.
d. product financing arrangement.
3. On whose books should the cost of the inventory appear at the December 31, 2004 balance
sheet date?
a. Elway Corporation
b. Howell Corporation
c. Norwalk Bank
d. Howell Corporation, with Elway making appropriate note disclosure of the transaction
4. Eller Co. received merchandise on consignment. As of January 31, Eller included the goods in
physical inventory but did not record the transaction. The effect of this on its financial statements for
January 31 would be
a. net income or profit, current assets, and retained earnings were overstated.
b. net income or profit was correct and current assets were understated.
c. net income or profit and current assets were overstated and current liabilities were
understated.
d. net income or profit, current assets, and retained earnings were understated.
5. Dawn Co. purchased goods with invoice price of ₱3,000 on account on December 27, 20x1. The
related shipping costs amounted to ₱50. The seller shipped the goods on December 31, 20x1. Dawn
Co. received the goods on January 2, 20x2 and settled the account on January 5, 20x2. How much is
the net cash payment to the supplier if the terms of the shipment are FOB destination, freight collect?
a. 3,050 b. 3,000 c. 2,950 d. 0

On December 31, 20x1, ABC Co. has a balance of ₱240,000 in its inventory account, determined
through physical count, and a balance of ₱90,000 in its accounts payable account. The balances were
determined before any necessary adjustment for the following:
a. Segregated goods in the shipping area marked “Bill and hold sale” were included in inventory
because shipment was not made until January 4, 20x2. The goods were sold to the customer, on a “bill
and hold” sale, for ₱20,000 on December 30, 20x1. The customer accepted the billing on that day. The
cost of the goods is ₱10,000. The goods were already packed and ready for shipment. Both ABC and
the buyer acknowledged the shipping term.
b. A package containing a product costing ₱80,000 was standing in the shipping area when the
physical inventory was conducted. This was included in the inventory although it was marked “Hold
for shipping instructions.” The sale order was dated December 17, 20x1 but the package was shipped
and the customer was billed on January 4, 20x2.
c. Merchandise costing ₱10,000, shipped FOB destination from a vendor on December 30, 20x1,
was received and recorded on January 5, 20x2.
d. Goods shipped F.O.B. shipping point on December 27, 20x1, from a vendor to ABC Co. were
received on January 6, 20x2. The invoice cost of ₱30,000 was recorded on December 31, 20x1 and
included in the count as “goods in-transit.”
6. How much is the adjusted balance of inventory?

a. 240,000 b. 230,000 c. 160,000 d. 200,000
7. How much is the adjusted balance of accounts payable?

a. 90,000 b. 80,000 c. 60,000 d. 100,000
8. The records of ABC Co. show the following:
a. Goods sold on an installment basis to XYZ, Inc., title to the goods was retained by
ABC Co. until full payment is made. XYZ, Inc. took possession of the goods. 150,000
b. Goods sold to Alpha Co., for which ABC Co. has the option to repurchase the goods
sold at a set price that covers all costs related to the inventory. 280,000
c. Goods sold under a “sale on trial” arrangement 70,000
d. Goods received from Beta Co. for which an agreement was signed requiring ABC Co.
to replace such goods in the near future. 50,000
How much is included as part of inventory?

a. 50,000 b. 120,000 c. 270,000 d. 330,000
9. ABC Co. uses the periodic inventory system. In the current year, ABC’s ending inventory is
understated by ₱20,000. Which of the following statements is correct?
a. ABC’s cost of goods sold is understated by ₱20,000.
b. ABC’s gross income is understated by ₱20,000.
c. ABC’s net purchases are understated by ₱20,000.
d. ABC’s profit is overstated by ₱20,000.
10. On January 1, 20x1 Plaka Co. acquired goods for sale in the ordinary course of business for
₱250,000, excluding ₱5,000 refundable purchase taxes. The supplier usually sells goods on 30 days’
interest-free credit. However, as a special promotion, the purchase agreement for these goods
provided for payment to be made in full on December 31, 20x1. Transport charges of ₱2,000 were paid
on January 1, 20x1. An appropriate discount rate is 10 per cent per year. How much is the initial cost
of the inventories?
a. 229,273 b. 224,727 c. 250,000 d. 257,000
11. Ciano Co. acquired a tract of land for ₱2,000,000. The land was developed and subdivided into
residential lots at an additional cost of ₱200,000. Although the subdivided lots are relatively equal in
sizes, they were offered at different sales prices due to differences in terrain. Information on the
subdivided lots is shown below:
Lot group No. of lots Price per lot
A 4 480,000
B 10 240,000
C 15 192,000
During the year, 2 lots from the A group, 3 lots from the B group and 12 lots from the C group were
sold. How much gross income is recognized during the year?
a. 2,766,666 b. 2,783,333 c. 2,860,000 d. 2,877,333

Kryslanz Co. is a wholesaler of guitar picks. The activity for product “Pick X” during August is shown
below:
Date Transaction Units Unit cost Total cost

1-Aug Inventory 2,000 ₱ 28.80 ₱ 57,600
7 Purchase 3,000 29.76 89,280
12 Sales 4,200
13 Purchase 4,800 30.40 145,920
14 Sales return 600
22 Sales 3,800
29 Purchase 1,900 30.88 58,672
30 Purchase return 300 30.88 (9,264)
Total goods available for sale ₱ 342,208
12. How much are the ending inventory and cost of goods sold under the FIFO – periodic cost
flow formula?
Ending inventory Cost of goods sold
a. 219,840 122,368
b. 112,341 229,867
c. 122,368 219,840
d. 122,386 219,804
13. How much are the ending inventory and cost of goods sold under the FIFO – perpetual cost
flow formula?
a. 219,840 122,368
b. 112,341 229,867
c. 122,368 219,840
d. 122,386 219,804
14. How much are the ending inventory and cost of goods sold under the weighted average –
periodic cost flow formula?
a. 229,840 112,160
b. 126,468 215,740
c. 120,080 222,128
d. 120,072 222,153
15. How much are the ending inventory and cost of goods sold under the weighted average –
perpetual cost flow formula?
a. 121,794 220,414
b. 122,468 219,740
c. 122,017 220,191
d. 123,384 218,824
16. Vacation Co. buys and sells products A & B. The following unit costs are available for the
inventory as of December 31, 20x1: (All costs are borne by Vacation Co.)
A B
Number of units 2,000 3,000
Purchase cost per unit ₱125 ₱190
Delivery cost from supplier 10 30
Estimated selling price 150 250
Selling costs 22 28
General and administrative 15 18
How much total inventory shall be reported in Vacation Co.’s 20x1 financial statements?
a. 916,000 b. 930,000 c. 936,000 d. 696,000
17. On January 1, 20x1, Shock Co. signed a three year, noncancelable purchase contract that allows
Shock Co. to purchase up to 12,000 units of a microchip annually from Aha! Co. at ₱15 per unit. The
guaranteed minimum annual purchase is 3,000 units. At year-end, it was found out that the goods are
obsolete. Shock Co. had 4,000 units of this inventory at December 31, 20x1, and believes these parts
can be sold as scrap for ₱5 per unit. How much is the loss on purchase commitment to be recognized
on December 31, 20x1?
a. 70,000 b. 100,000 c. 60,000 d. 0
18. The raw materials inventory of Mug Co. on December 31, 20x1 have a cost of ₱20,000 and an
estimated net realizable value of ₱18,000. Information on the finished goods is as follows:
Cost……………………………………….₱250,000
NRV…………………….…………………₱280,000
How much is the total inventory on December 31, 20x1?

a. 268,000 b. 270,000 c. 298,000 d. 300,000

Almost Co. has the following comparative information regarding its inventories.
20x2 20x1
Inventory, December 31 at cost 30,000 24,000
Inventory, December 31 at NRV 33,000 22,000
Cost of goods sold before adjustments 180,000 200,000
Almost Co. recognizes write-downs of inventories in cost of goods sold.
19. How much is the cost of goods sold in 20x1?

a. 200,000 b. 202,000 c. 198,000 d. 220,000
20. How much is the cost of goods sold in 20x2?

a. 178,000 b. 177,000 c. 182,000 d. 183,000
VIII.
1. On October 1, 20x1, the warehouse of ABC Co. and all the inventories contained therein were
damaged by flood. Off-site back up of data base shows the following information:
Inventory, Jan. 1 10,000
Accounts payable, Jan. 1 3,000
Accounts payable, Sept. 30 2,000
Payments to suppliers 50,000
Freight-in 500
Purchase returns 500
Sales from Jan. to Sept. 80,000
Sales returns 5,000
Sales discounts 2,000
Gross profit rate based on sales 30%
Goods in transit as of October 1, 20x1, purchased FOB shipping point, amounted to ₱1,000, cost of
goods out on consignment is ₱1,200, and materials damaged by flood can be sold at a salvage value
of ₱1,800. How much is the inventory loss due to the flood?
a. 3,000 b. 2,500 c. 4,400 d. 4,900
2. On October 1, 20x1, the warehouse of ABC Co. and all the inventories contained therein were
razed by fire. Off-site back up of data base shows the following information:
Inventory, Jan. 1 20,000
Net purchases 190,000
Net sales from Jan. to Sept. 240,000
Gross profit rate based on cost 25%
Twenty percent of the inventory contained in the warehouse has been salvaged from the fire, while
half is partially damaged and can be sold as scrap at thirty percent of its cost. How much is the
inventory loss due to the fire?
a. 18,000 b. 5,400 c. 9,000 d. 11,700
3. The work in process inventories of ABC Manufacturing, Inc. were completely destroyed by
fire on June 1, 20x1. Amounts for the following accounts have been established.
January 1, 20x1 June 1, 20x1
Accounts payable 117,000 135,000
Raw materials 15,000 18,000
Work in process 60,000 ?
Finished goods 69,000 87,000
The following additional information was determined:

 Payments to suppliers for purchases on account, ₱60,000.
 Freight on purchases, ₱3,000.
 Purchase returns, ₱7,500.
 Direct labor, ₱48,000.
 Production overhead, ₱18,000.
 Sales from January 1 to May 31, ₱225,000.
 Sales returns, ₱45,000.
 Sales discounts, ₱15,000.
 Gross profit rate based on sales, 25%.
How much is the work in process destroyed by fire?

a. 48,000 b. 49,500 c. 58,500 d. 51,000

Presented below is information pertaining to ABC Co.:
Cost Retail
Inventory, January 1 21,750 35,000
Purchases 138,250 200,750
Freight-In 5,000 -
Purchase discounts 1,250 -
Purchase returns 13,000 21,500
Departmental Transfers-In (Debit) 2,500 3,750
Departmental Transfers-Out
2,000 3,000
(Credit)
Markups 15,000
Markup cancellations 5,000
Markdowns 30,000
Markdown cancellations 7,500
Abnormal spoilage (theft and casualty loss) 12,500 17,500
Sales 109,500
Sales returns 6,250
Sales discounts 2,500
Employee discounts 1,250
Normal spoilage (shrinkage and breakages) 500
4. How much is the ending inventory under the Average cost method?
a. 60,750 b. 60,000 c. 61,050 d. 62,400
5. How much is the ending inventory using the FIFO cost method?
a. 60,750 b. 60,000 c. 61,050 d. 62,400
IX.
1. According to PFRS 9, a financial instrument is recognized

a. when the instrument has probable economic benefits that can be measured reliably.
b. only when the entity becomes a party to the contractual provisions of the instrument.
c. when the entity enters into a binding contract to deliver a variable number of its own equity
instrument.
d. only when the instrument requires receipt of another financial instrument under conditions
that are potentially favorable.
2. Which of the following is a financial liability?

a. Income tax payable
b. Unearned revenue
c. Warranty obligation
d. Lease liability
3. During the period, an entity acquires an investment. The entity has a “hold to collect and sell”
business model. The investment should be classified as
a. investment measured at fair value through other comprehensive income.
b. investment measured at amortized cost.
c. investment measured at fair value through profit or loss.
d. any of these
4. Which of the following is measured at fair value with fair value changes recognized in profit
or loss?
a. Held to maturity investments
b. Financial assets designated at FVPL
c. FVOCI
d. All of these
5. If an entity’s business model’s objective is to hold investments in order to collect contractual

cash flows that are solely payments for principal and interests, then investments should be classified
as
a. subsequently measured at fair value through other comprehensive income.
b. subsequently measured at amortized cost.
c. subsequently measured at fair value through profit or loss.
d. any of these
6. Under PFRS 9, financial assets are classified

a. on the basis of the entity’s business model only.
b. based on the nature of the financial assets, i.e., debt or equity instrument.
c. as financial assets subsequently measured at FVPL, FVOCI (election), FVOCI (mandatory) or
Amortized cost.
d. all of these
7. According to PFRS 9, if an asset or a liability measured at fair value has a bid price and an ask
price, the price within the bid-ask spread that is most representative of fair value in the circumstances
is used to measure fair value. Bid price is
a. the maximum price at which market participants are willing to sell an asset.
b. the maximum price at which market participants are willing to buy an asset.
c. the minimum price at which market participants are willing to sell an asset.
d. the price that an entity will incur to bid farewell to an asset.
8. The following are taken from the records of Lunch Co. as of year-end.
Cash 10,400 Investment in subsidiary 44,000
Accounts receivable 12,000 Treasury shares 44,800
Allowance for bad debts (1,600) Investment in bonds 9,600
Note receivable 4,000 Land 112,000
Interest receivable 1,600 Building 208,000
Claim for tax refund 9,600 Accum. depreciation (52,000)
Advances to suppliers 4,800 Investment property 40,000
Inventory 60,000 Biological assets 24,000
Prepaid expenses 4,000 Intangible assets 56,000
Petty cash fund 800 Deferred tax assets 48,000
Investment in equity Cash surrender value 9,600
securities 10,400
Investment in associate 16,000 Sinking fund 16,000
How much are the total financial assets disclosed in the notes?
a. 142,400 b. 132,000 c. 132,800 d. 92,800

On January 1, 20x1, ABC Co. purchased 1,000 shares of XYZ, Inc. for ₱250,000. Commission paid to
broker amounted to ₱10,000. The equity securities were designated by management to be measured
at fair value through profit or loss. On December 31, 20x1, the shares are quoted at ₱200 per share. It
was estimated that transaction cost of ₱20 per share will be incurred if the shares were sold on that
date.
9. How much is the unrealized gain (loss) on change in fair value recognized in the 20x1 profit
or loss?
a. (70,000) b. (50,000) c. (40,000) d. 60,000
10. On January 3, 20x2, all the shares were sold at ₱300 per share. Commission paid for the sale
amounted to ₱60,000. How much is the realized gain (loss) from the sale?
a. 60,000 b. (10,000) c. 40,000 d. (40,000)
11. If ABC Co. uses an allowance account to account for changes in fair values, how much is the
balance of this account on December 31, 20x1?
a. 70,000 debit c. 40,000 credit
b. 50,000 debit d. 50,000 credit
On Jan. 1, 20x1, Three Co. purchased 10,000 shares of AM, Inc. for ₱1,000,000. Three Co. paid broker’s
commission of ₱15,000 on the acquisition. Three Co. made an irrevocable choice to subsequently
measure the shares at fair value through other comprehensive income. The quoted prices per share on
Dec. 31, 20x1 and Dec. 31, 20x2 were ₱90 and ₱108, respectively. On Jan. 3, 20x3, Three Co. sold all the
shares at ₱105 per share. Three Co. paid broker’s commission of ₱16,000 on the sale.
12. How much is the unrealized gain (loss) recognized in Three Co.’s 20x1 profit or loss?
a. 115,000 b. (115,000) c. (85,000) d. 0
13. How much is the unrealized gain (loss) recognized in Three Co.’s 20x2 other comprehensive
income?
a. 180,000 b. 65,000 c. (115,000) d. 0
14. How much is the cumulative gain (loss) transferred to retained earnings on Jan. 3, 20x3?
a. 19,000 b. 34,000 c. (19,000) d. (34,000)
15. On January 1, 20x1, ABC Co. purchased ₱1,000,000 bonds at a price that reflects a yield rate of
14%. The bonds mature on January 1, 20x4 and pay 12% annual interest. The bonds are classified as
held for trading securities. On December 31, 20x1, the bonds are selling at a yield rate of 10%. How
much is the unrealized gain (loss) on the change in fair value recognized in ABC’s 20x1 profit or loss?
a. 78,336 b. 83,561 c. 81,144 d. 0
X.
1. If the acquisition cost of investment in bonds is less than the face amount, there is
a. discount. b. premium. c. loss. d. gain.
2. The use of the effective-interest method in amortizing bond premiums and discounts results
in
a. a greater amount of interest income over the life of the bond issue than would result from use
of the straight-line method.
b. a varying amount being recorded as interest income from period to period.
c. a variable rate of return on the book value of the investment.
d. a smaller amount of interest income over the life of the bond issue than would result from use
of the straight-line method.
3. If the effective interest rate is higher than the nominal rate, there is
a. discount. b. premium. c. loss. d. gain.
4. The true or actual rate of interest that a bondholder earns on the investment.
a. nominal rate c. effective interest rate
b. coupon rate d. stated rate
5. It is a type of serial bond wherein the holder is given the right to extend the initial maturity to
a longer maturity date.
a. extendible bond c. redeemable bond
b. retractable bond d. callable bond
6. Subsequent to their initial recognition, which financial assets with quoted market prices in an
active market are measured at fair value?
Financial assets Financial Assets with fair values through profit or loss
at amortized cost
a. Yes No
b. Yes Yes
c. No Yes
d. No No
7. On January 1, 20x1, Impressed Co. acquired 8%, ₱1,000,000 face amount, 4-year ‘term’ bonds
for ₱936,603. The bonds are measured at amortized cost and have a yield rate of 10%. How much is
the carrying amount of the investment on December 31, 20x2?
a. 1,000,000 b. 950,263 c. 965,289 d. 981,818
8. On October 1, Dennis Company purchased ₱200,000 face value, 12% bonds at 98 plus accrued
interest and brokerage fees and classified them as amortized cost assets. Interest is paid semiannually
on January 1 and July 1. Brokerage fees for this transaction were ₱700. At what amount should this
acquisition of bonds be recorded?
a. 196,000 b. 196,700 c. 202,000 d. 202,700
9. On August 1, 2004, Bettis Company acquired ₱120,000 face value, 10% bonds of Hanson
Corporation at 104 plus accrued interest. The bonds were dated May 1, 2004, and mature on April 30,
2009, with interest payable each October 31 and April 30. The bonds are classified as subsequently
measured at amortized cost. What entry should Bettis make to record the purchase of the bonds on
August 1, 2004?
a. Investment in bonds 124,800
Interest Revenue 3,000
Cash 127,800
b. Investment in bonds 127,800
Cash 127,800
c. Investment in bonds 127,800
Interest Revenue 3,000
Cash 124,800
d. Held-to-Maturity Securities 120,000
Premium on Bonds 7,800
Cash 127,800
10. On April 30, 20x1, Heidelberg Co. acquired ₱100,000 face amount, 10% bonds dated January
1, 20x1 at 102. The purchase price includes accrued interest. How much is the initial carrying amount
of the investment?
a. 102,000 b. 99,500 c. 98,667 d. 105,333
11. On January 1, 20x1, Honey Co. intends to buy 3-year, zero-coupon bonds with face amount of
₱3,000,000 and maturity value of ₱3,993,000. The effective interest rate is 16%. The bonds will be
measured at amortized cost. How much is estimated purchase price of the bonds on January 1, 20x1?
a. 2,299,341 b. 2,356,214 c. 2,558,146 d. 2,789,123
12. On January 1, 20x1, Santa Co. acquired 10%, ₱1,000,000 bonds at 92. Commission paid to
brokers amounted to ₱9,100. The bonds are classified as investment measured at amortized cost.
Principal is due on December 31, 20x3 but interest is due annually every December 31. The carrying
amount of the investment on December 31, 20x1 is most approximately equal to
a. 949,883. b. 958,364. c. 973,368. d. 938,341.
13. On January 1, 20x1, Solicit Co. acquired 12%, ₱1,000,000 bonds for ₱1,049,737. The principal is
due on January 1, 20x4 but interest is due annually every December 31. The bonds are classified as
investment measured at amortized cost. The yield rate on the bonds is 10%. On September 30, 20x2,
all the bonds were sold at 110. Commission paid to the broker amounted to ₱10,000. How much is the
gain (loss) on the sale?
a. (67,686) b. 77,686 c. (77,686) d. (22,314)
14. On January 1, 20x1, MX Co. purchased 10%, ₱3,000,000 bonds for ₱3,105,726. The bonds are
classified as financial asset measured at amortized cost. Principal on the bonds mature as follows:
December 31, 20x1 1,000,000
December 31, 20x2 1,000,000
December 31, 20x3, 1,000,000
Total 3,000,000
Interest is due annually at each year-end. The effective interest rate on the bonds is 8%. How much is
the current portion of the investment on December 31, 20x1?
a. 1,051,542 b. 1,035,665 c. 2,054,184 d. 1,018,519
Use the following information for the next five questions:

On January 1, 20x1, NFCPAR, Inc. acquired 10%, ₱1,000,000 bonds for ₱827,135. The bonds mature on
December 31, 20x3 and pay annual interest every December 31. NFCPAR, Inc. incurred transaction
costs of ₱80,000 on the acquisition. The effective interest rate adjusted for the effect of the transaction
costs is 14%.
The bonds are to be held under a “hold to collect and sell” business model. Information on fair values
is as follows:
December 31, 20x1…………………………….98
December 31, 20x2……………………………102
December 31, 20x3……………………………100
15. How much is the carrying amount of the investment on December 31, 20x1?
a. 935,134 b. 1,002,000 c. 980,000 d. 965,443
16. How much is the unrealized gain (loss) recognized in other comprehensive income in 20x1?
a. 45,866 b. (45,866) c. (37,899) d. 0
17. How much is the interest income recognized in 20x2?

a. 126,999 b. 130,779 c. 135,088 d. 144,388
18. How much is the unrealized gain (loss) recognized in other comprehensive income on
December 31, 20x2?
a. 9,221 b. 40,000 c. (7,219) d. 0
19. Disregard the previous questions. Assume the bonds were sold for ₱900,000 on July 1, 20x2.
How much is the total gain (loss) on the sale, including any reclassification adjustment to profit or
loss?
a. (50,000) b. 50,000 c. (95,389) d. (99,523)
20. On January 1, 20x1, Staircase Glass Co. purchased 10%, ₱1,000,000 callable bonds for ₱966,199.
The bonds mature in 4 years’ time. Interest is due annually every Dec. 31. The investment is classified
as financial asset measured at amortized cost. The effective interest rate is 12%. If the carrying amount
of the investment on December 31, 20x1 is ₱982,143, what is the expected holding period for the
investment?
a. 4 years b. 3 years c. 2 years d. none of these
XI.
1. It refers to purchase or sale of a financial asset under a contract whose terms require delivery of
the asset within the time frame established generally by regulation or convention in the
marketplace concerned.
a. normal way c. special way
b. regular way d. no way
2. According to PFRS 9, which of the following represents a commencement of a financial asset’s

impairment accounting?
a. Reclassification of the financial asset from Amortized cost to FVPL
b. Reclassification of the financial asset from FVPL to Amortized cost
c. Reclassification of the financial asset from Amortized cost to FVOCI
d. Reclassification of the financial asset from FVOCI to Amortized cost

On December 29, 20x1, an entity commits itself to purchase a financial asset for ₱10,000. The
transaction will be settled on January 4, 20x2. On December 31, 20x1 and on January 4, 20x2, the fair
value of the asset is ₱12,000 and ₱15,000, respectively.
3. If the financial asset is measured at fair value through profit or loss and that the entity uses
the settlement date accounting, on what date and at what amount is the financial asset initially
recognized?
a. December 29, 20x1, ₱10,000
b. January 4, 20x2, ₱10,000
c. January 4, 20x2, ₱12,000
d. January 4, 20x2, ₱15,000
4. If the financial asset is measured at fair value through other comprehensive income and that
the entity uses the trade date accounting, what amount of gain (loss) on fair value change is recognized
on December 31, 20x1 and how is that gain (loss) recognized?
a. ₱2,000 gain in other comprehensive income
b. ₱3,000 gain in other comprehensive income
c. ₱2,000 gain in profit or loss
d. zero gain or loss

On Jan. 1, 20x1, Cloudy Day Co. acquires ₱2,000,000 face amount, 10% bonds for ₱1,903,927. The bonds
are due on Jan. 1, 20x4 but pay annual interest every Dec. 31. The yield rate is 12%. Cloudy changes
its business model for managing financial assets on Sept. 1, 20x2. Cloudy only reports annually every
Dec. 31. The bonds are quoted at 101 on Sept. 1, 20x2, 103 on Dec. 31, 20x2 and 104 on Jan. 1, 20x3.
5. The bonds are reclassified from amortized cost to fair value through profit or loss. How much
is the gain (loss) on reclassification and where is that amount presented?
a. 128,471 in P/L c. 115,714 in P/L
b. (143,292) in OCI d. 115,714 in OCI
6. The bonds are reclassified from fair value through profit or loss to amortized cost. What is the
amount of premium or discount to be amortized over the remaining life of the bonds subsequent to
the reclassification date?
a. 80,000 discount c. 115,714 discount
b. 80,000 premium d. 115,714 premium
7. On March 31, 20x1, Likkig, Inc. declares cash dividends of ₱40 per share to shareholders of
record on April 15, 20x1, to be distributed on April 30, 20x1. On April 9, 20x1, Ceecee Co. purchases
10,000 Likkig shares for ₱400 per share. The investment is classified as investment in equity securities
measured at FVOCI. How much is the initial carrying amount of the investment?
a. 4,000,000 b. 4,400,000 c. 3,600,000 d. 3,890,664
8. Devin Co holds 10,000 shares of Eureka, Inc. as investment in equity securities. On April 1,
20x1, Devin receives shares with fair value of ₱520,000 and aggregate par value of ₱400,000 as share
dividend. How much is the dividend income?
a. 520,000 b. 400,000 c. 120,000 d. 0
9. On April 1, 20x1, Jean Co. received ₱480,000 cash dividends, one-third of which represents
liquidating dividends. How much is the dividend revenue?
a. 160,000 b. 320,000 c. 80,000 d. 0
10. On March 31, 20x1, Bogart Co. received from its investment in equity securities 10,000 stock
rights to subscribe to new shares at ₱60 per share for every 4 rights held. Immediately after issuance
of stock rights, the shares were selling at ₱80 per share. How much is the initial carrying amount of
the stock rights?
a. 20,000 c. 50,000
b. 40,000 d. cannot be determined
XII.
1. Which of the following may be classified as “other long-term investments?”
a. Shares of stocks purchased as long-term investment and irrevocably elected to be measured
at fair value through other comprehensive income.
b. Long-term investment in bonds held under a ‘hold to collect’ business model.
c. Treasury shares acquired at a deep discount and expected to be reissued at a future date that
extends beyond 12 months from the end of the reporting period.
d. Shares of stocks and bonds purchased using funds earmarked for the retirement of bonds
payable.
2. On March 1, 2001, a company established a sinking fund in connection with an issue of bonds
due in 2013. At December 31, 2003, the independent trustee held cash in the sinking fund account
representing the annual deposits to the fund and the interest earned on those deposits. How should
the sinking fund be reported in the company’s balance sheet at December 31, 2003?
a. The cash in the sinking fund should appear as a current asset.
b. Only the accumulated deposits should appear as a noncurrent asset.
c. The entire balance in the sinking fund account should appear as a current asset.
d. The entire balance in the sinking fund account should appear as a noncurrent asset.

On January 1, 20x1, Light Co. insured the life of one of its key management personnel for ₱10,000,000.
Light Co. is the beneficiary. The insurance policy requires annual payments of ₱280,000 at the start of
each year. Information on the cash surrender value is shown below:
Policy year Cash surrender value
Dec. 31, 20x1 -
Dec. 31, 20x2 -
Dec. 31, 20x3 180,000
Dec. 31, 20x4 216,000
Dec. 31, 20x5 260,000
 Light Co. received ₱4,000 cash dividend from the life insurance on April 1, 20x4.
 The key employee died on October 1, 20x5.
3. What amount of insurance expense is recognized in 20x4?

a. 280,000
b. 276,000
c. 244,000
d. 240,000
4. How much is the gain on the settlement of the life insurance in 20x5?
a. 9,681,000
b. 9,882,000
c. 10,000,000
d. 10,021,000
5. Which of the following statements is correct regarding the accounting for sinking fund?
a. Sinking fund that is expected to be used in settling a currently maturing obligation is
presented as part of cash even if the sinking fund includes investments in stocks and bonds.
b. Sinking fund is always presented as noncurrent asset.
c. The classification of a sinking fund as either current or noncurrent asset parallels the
classification of the related obligation for which the sinking fund was established.
d. The investment income earned by the sinking fund is recognized in other comprehensive
income.
XIII.
1. It is a financial instrument or other contract that derives its value from the changes in value of
some other underlying asset or other instrument.
a. embedded derivative
b. derivative
c. financial asset
d. all of these
2. Which of the following is not among the characteristics of a derivative?

a. it must have at least two or more notional amounts
b. its value changes in response to the change in an underlying
c. it requires no initial net investment or only a very minimal initial net investment
d. it is settled at a future date
3. Which of the following can be a notional amount for a derivative?

a. share price
b. number of currency units
c. interest rate
d. exchange rate
4. In which of the following derivative contracts would the investor most likely pay a marginal
deposit, which is treated as receivable, at the inception of the contract?
a. Forward contract
b. Futures contract
c. Call option
d. Put option
5. These are options that can be exercised only at expiration time.

a. American options
b. European options
c. Bermudan options
d. Expired options

Travel Co. expects the value of the yen to decrease in the next 30 days. Accordingly, on Dec. 15, 20x1,
Travel Co. enters into a 30-day forward contract to sell 1,000,000 yens at a forward rate of ₱0.47. The
forward rate on Dec. 31, 20x1 is ₱0.45, while the spot rate on Jan. 15, 20x2 is ₱0.48.
6. What amounts of derivative asset (liability) should Travel Co. recognize on Dec. 15, 20x1 and
Dec. 31, 20x1, respectively?
a. 0; 20,000 c. 10,000; 20,000
b. 0; (20,000) d. (10,000); (20,000)
7. <List A> If the contract is settled on a net cash basis, how much is Travel Co.’s net cash receipt
or payment? <List B> If the contract is settled by the actual sale of yens, what amount of gain (loss)
should Travel Co. recognize on settlement date?
<List A> <List B>
a. net receipt of ₱10,000 ₱30,000 gain
b. net payment of ₱10,000 ₱30,000 loss
c. net receipt of ₱30,000 ₱10,000 gain
d. net payment of ₱30,000 ₱10,000 loss

On Dec. 1, 20x1, Kalinga Blend Co. enters into a futures contract to purchase 1,000 kilos of coffee beans
on February 1, 20x2 for ₱200 per kilo. The broker requires an initial margin deposit of ₱20,000. The
market prices per kilo of coffee beans are: ₱200 on Dec. 1, 20x1; ₱205 on Dec. 31, 20x1; and ₱215 on
Feb. 1, 20x2.
8. Kalinga Blend is said to be in the

a. short position.
b. long position.
c. call position.
d. wrong position.
9. What amounts of derivative asset (liability) should Kalinga Blend Co. recognize on Dec. 1,
20x1 and Dec. 31, 20x1, respectively?
c. 20,000; 15,000 c. 0; 5,000
d. (20,000); (15,000) d. 0; (5,000)
10. <List A> How much net cash did Kalinga Blend Co. receive from or pay to the broker on
settlement date? <List B> How much gain (loss) did Kalinga Blend Co. recognize on settlement date?
<List A> <List B>
a. 5,000 10,000
b. (5,000) (10,000)
c. 15,000 5,000
d. 35,000 10,000

Jackhammer Co. purchased a foreign currency option to purchase 1,000,000 units of a specified
currency at ₱47 per unit. Jackhammer Co. paid ₱7,500 for the option.
11. The option referred to above is a

a. call option.
b. text option.
c. put option.
d. remove option.
12. Which of the following statements is correct?

a. There is no entry for the option on initial recognition.
b. If the spot rate increases above the strike price, the option would be ‘out of the money’.
c. If the spot rate decreases below the strike price, the option would be ‘in the money’.
d. The maximum loss that Jackhammer Co. can recognize on the option is ₱7,500.

On April 1, 20x1, Road Construction Co. acquired a put option on 1,000 shares of Pinewoods Co. The
strike price is ₱100 per share. The option expires on July 1, 20x1. Road paid ₱600 for the option.
Information on current prices is as follows:
April 1, 20x1 June 30, 20x1 July 1, 20x1
Share prices ₱100/sh. ₱106/sh. ₱106/sh.
Time value of option ₱600 ₱400 0
13. How much is the carrying amount of the option in Road’s June 30, 20x1 statement of financial
position?
a. 6,000 asset
b. 6,000 liability
c. 5,800 liability
d. 400 asset
14. How much gain (loss) did Road recognize on July 1, 20x1?
a. 5,800 gain
b. 5,800 loss
c. 400 loss
d. 200 loss

On January 1, 20x1, Safe Journey Co. enters into an interest rate swap on a ₱2,000,000 loan. Under the
swap agreement, Safe agrees to pay fixed interest of 8% and receive interest based on whatever the
current market rate is at the start of each year. Swap payment shall be made on Dec. 31, 20x2. The following
are the current market rates:
Jan. 1, 20x1 8%
Jan. 1, 20x2 10%
15. What amounts of derivative asset (liability) should Safe recognize on Jan. 1, 20x1 and Dec. 31,
20x1, respectively?
a. 0; 40,000 c. 40,000; 36,364
b. 0; (40,000) d. 0; 36,364
16. What amount gain (loss) should Safe recognize on Dec. 31, 20x2?
a. 3,636
b. (3,636)
c. (2,724)
d. 2,724

On Jan. 1, 20x1, Confused Co. enters into an interest rate swap on a ₱2,000,000 loan whereby Confused
Co. agrees to receive variable interest and pay fixed interest of 9%. Swap payments shall be made
every Dec. 31 in the next three years. The following are the current market rates:
Jan. 1, 20x1 9%
Jan. 1, 20x2 8%
Jan. 1, 20x3 12%
17. What amount of derivative asset (liability) should Confused Co. recognize on Dec. 31, 20x1?
a. (17,147)
b. 17,147
c. (35,665)
d. 35,665
18. What amount of gain (loss) should Confused Co. recognize on Dec. 31, 20x2?
a. 53,571
b. (53,571)
c. 69,236
d. 37,906

The current rate on January 1, 20x1 is 10%. Annay Co. believes that market rates will decrease in the
future. Accordingly, on January 1, 20x1, Annay Co. enters into an interest rate swap on a ₱2,000,000
loan. Under the agreement, Annay Co. agrees to receive fixed interest at 10% and pay variable interest.
Swap payments shall be made at the end of each year in the next three years. The following are the
current market rates:
Jan. 1, 20x1 10%
Jan. 1, 20x2 12%
Jan. 1, 20x3 14%
19. What amount of derivative asset (liability) should Annay Co. recognize on Dec. 31, 20x1?
a. 40,000
b. (40,000)
c. (35,714)
d. (67,602)
20. What amount of gain (loss) should Annay Co. recognize on Dec. 31, 20x3?
a. 2,573
b. (2,573)
c. (9,825)
d. 10,365
XIV.
1. Investments in associates are accounted for under
a. PAS 8.
b. PFRS 9.
c. PAS 28.
d. PFRS 28.
2. An investment in equity securities is accounted for as investment in associate if

a. the investment represents 20% or more ownership interest over the investee.
b. the fair value of the equity securities cannot be determined on a continuing basis.
c. the investment provides the investor significant influence over the investee.
d. the entity’s management elects to do so.

On January 1, 20x1, ABASE Co. purchased 20,000 out of the 100,000 total outstanding shares of
PRAISE, Inc. for ₱4,000,000. PRAISE’s assets and liabilities approximate their fair values. In 20x1,
PRAISE, Inc. reported profit of ₱12,000,000 and declared and paid cash dividends of ₱800,000. In 20x2,
PRAISE reported loss of ₱8,000,000, declared and issued 10% stock dividends, and reported gain on
property revaluation of ₱2,000,000 and loss on exchange differences on translation of foreign
operations of ₱400,000.
3. How much are the amounts reported in ABASE Co.’s 20x1 (1) statement of profit or loss and
(2) statement of financial position?
a. 2,400,000; 6,240,000
b. 160,000; 4,000,000
c. 2,240,000; 6,240,000
d. 0; 6,400,000
4. How much are the amounts reported in ABASE Co.’s 20x2 (1) statement of profit or loss and
(2) statement of financial position?
a. (1,280,000); 4,960,000
b. (1,600,000); 4,960,000
c. (1,280,000); 4,000,000
d. 0; 4,960,000
5. On January 1, 20x1, ABET Co. purchased 25% interest in the ordinary shares of ENCOURAGE,
Inc. for ₱8,000,000. ENCOURAGE’s assets and liabilities approximate their fair values except for
inventories with carrying amount of ₱2,000,000 and fair value of ₱400,000 and depreciable asset with
carrying amount of ₱12,000,000 and fair value of ₱20,000,000. The remaining useful life of the
depreciable asset is 10 years. ENCOURAGE’s net assets have a book value of ₱20,000,000.
ENCOURAGE reported ₱4,800,000 profit in 20x1 and declared and paid dividends of ₱2,000,000 on
December 31, 20x1. How much are the (1) implied goodwill on the investment; (2) share in the
associate’s profit in 20x1; and (3) carrying amount of the investment on Dec. 31, 20x1?
a. 6,600,000; 1,200,000; 8,900,000
b. 1,400,000; 1,000,000; 8,320,000
c. 0; 1,400,000; 8,00,000
d. 1,400,000; 1,400,000; 8,900,000
6. AFFICIONADO Co. owns 15,000 shares out of the 100,000 outstanding shares of FAN, Inc. As
of year-end, AFFICIONADO holds 20,000 stock rights which enable AFFICIONADO to acquire
additional shares from FAN on a “2 rights for 1 share” basis. The stock rights are exercisable
immediately. However, AFFICIONADO Co.’s management does not intend to exercise the stock
rights. FAN does not have any other stock rights outstanding aside from those held by
AFFICIONADO. FAN reports year-end profit of ₱4,000,000 and declares cash dividends of ₱400,000.
The investment has a carrying amount of ₱1,200,000 before any year-end adjustment. At what amount
should the investment be reported in AFFICIONADO Co.’s year-end financial statements?
a. 1,200,000
b. 1,800,000
c. 1,740,000
d. 1,849,200
7. AUSTERE Co. owns 20% of SEVERE, Inc.’s ordinary shares. SEVERE also has outstanding
cumulative 6% preference shares of ₱8,000,000, none of which is held by AUSTERE. Dividends are in
arrears for three years as of year-end. SEVERE reported year-end profit of ₱4,000,000 and declared no
dividends. How much is AUSTERE Co.’s share in the profit of the associate?
a. 704,000
b. 800,000
c. 512,000
d. 770,000
8. On January 1, 20x1, ALLEVIATE Co. acquired 30,000 ordinary shares representing 30%
interest in LESSEN Co.’s net assets for ₱12,000,000. At the time of acquisition, LESSEN’s net assets had
a fair value of ₱40,000,000 and a carrying amount of ₱32,000,000. The difference between the fair value
and the carrying amount is attributable to a building which has a remaining useful life of 10 years. In
20x1, LESSEN reported profit of ₱4,000,000 and paid cash dividends of ₱2,400,000. LESSEN’s shares
were selling at ₱400 per share on December 31, 20x1.
On July 1, 20x2, ALLEVIATE sold 60% of its investment in LESSEN at the prevailing market price of
₱480 per share. The retained interest does not give ALLEVIATE significant influence over LESSES;
thus, ALLEVIATE reclassified the remaining investment to held for trading securities. LESSEN
reported interim profit of ₱2,000,000 for the six months ended June 30, 20x2. LESSEN reported total
profit of ₱4,800,000 in 20x2 and declared ₱4,000,000 cash dividend on December 31, 20x2. LESSEN’s
shares were selling at ₱540 per share on December 31, 20x2.
How much is the total investment-related income recognized in ALLEVIATE’s profit or loss in 20x2?
a. 2,640,000
b. 2,968,000
c. 3,360,000
d. 3,780,000
9. Porky Co. owns 40% of Watwat, Inc.’s ordinary shares. On July 1, 20x2, Porky Co. sells half of
its investment in Watwat shares for ₱800,000. The adjusted balances of the related accounts
immediately before the sale are as follows:
 Investment in associate ₱2,400,000
 Cumulative share in Watwat’s revaluation gains 1,000,000
Porky retains significant influence over Watwat after the sale.
How much of the cumulative share in Watwat’s revaluation gains is derecognized on July 1, 20x2?
a. 1,000,000
b. 500,000
c. 250,000
d. 0
10. On January 1, 20x1, POSTULATE Co. acquired 10,000 shares representing a 10% interest in
DEMAND, Inc.’s 100,000 outstanding shares for ₱3,200,000. In 20x1, DEMAND reported profit of
₱20,000,000 and declared and paid dividends of ₱4,000,000. The investment was initially classified as
investment in held for trading securities. The fair value of the shares on December 31, 20x1 was ₱340
per share.
On July 1, 20x2, POSTULATE Co. acquired additional 15,000 shares of DEMAND, Inc. at ₱280 per
share (the fair value on this date), resulting to an increase in its ownership interest to 25%. The
transaction did not give rise to any goodwill or negative goodwill. In 20x2, DEMAND reported profit
of ₱24,000,000, of which ₱16,000,000 were earned in the second half of the year. In addition, DEMAND
declared and paid dividends of ₱4,000,000 on December 31, 20x2. The DEMAND shares were quoted
at ₱360 per share on December 31, 20x2.
How much are the (1) total amount recognized in profit or loss in 20x2 in relation to the investment;
and (2) carrying amount of the investment on Dec. 31, 20x2?
a. 3,000,000; 12,400,000
b. 3,400,000; 10,000,000
c. 4,000,000; 10,000,000
d. 4,600,000; 12,400,000
XV.
1. Which of the following standards addresses the accounting for property, plant and equipment?
a. PAS 12 c. PAS 26
b. PAS 16 d. PFRS 5
2. Which of the following is least likely capitalized as cost of land?

a. Grading, filling, draining clearing and similar site development activities
b. Survey
c. Landscaping and similar improvements that have limited useful lives.
d. Special assessment
3. LOQUACIOUS TALKATIVE Co. acquired a piece of factory equipment overseas on cash basis
for ₱400,000. Additional costs incurred include the following: commission paid to broker for the
purchase of the equipment, ₱20,000; import duties of ₱100,000; non-refundable purchase taxes of
₱40,000; freight cost of transferring the equipment to LOQUACIOUS’ premises, ₱4,000; costs
of assembling and installing the equipment, ₱8,000; costs of testing the equipment, ₱6,000;
administration and other general overhead costs, ₱16,800; and advertisement and promotion costs of
the new product to be produced by the equipment, ₱15,200. The samples generated from testing the
equipment were sold at ₱2,000. How much is the initial cost of the equipment?
a. 576,000 c. 592,800
b. 578,000 d. 594,800
4. On January 1, 20x1, REEDY SLENDER Co. purchased fixtures at an installment price of

₱520,000. REEDY paid ₱40,000 cash down payment and issued a three-year noninterest bearing note
of ₱480,000 payable in three equal annual installments starting December 31, 20x1 for the balance. The
prevailing rate for the note as of January 1, 20x1 is 12%. How much is the initial cost of the fixtures?
a. 360,000 c. 480,000
b. 424,293 d. 520,000
5. On April 1, 20x1, ESCULENT EDIBLE Co. purchased land and building by paying ₱40,000,000
and assuming a mortgage of ₱8,000,000. The land and building have appraised values of ₱20,000,000
and ₱40,000,000, respectively. The building will be used by ESCULENT Co. as its new office.
Additional costs relating to the purchase include the following:
Legal cost of conveying and registering title to land ₱32,000
Payment to tenants to vacate premises 36,000
Option paid on the land and building 24,000
Option paid on similar land and building not acquired 12,000
Broker's fee on the land and building 60,000
Unpaid real estate taxes prior to April 1, 20x1 assumed
by ESCULENT Co. – assessed on land 120,000
Real estate taxes after April 1, 20x1 80,000
Repairs and renovation costs before the building
is occupied 160,000
Repair costs after the building is occupied 200,000
How much are the respective costs of the land and the building?
Land Building
a. 14,592,000 24,440,000
b. 15,492,000 32,640,000
c. 16,192,000 32,240,000
d. 17,292,000 23,420,000
6. Old Room Co. purchased land and building for a lump-sum price of ₱48,000,000. The existing
building will be demolished and a new building will be constructed. Old Room incurred the following
additional costs:
Title guarantee 80,000
Option paid for the land and old building acquired 24,000
Payments to tenants to vacate premises 48,000
Cost of razing the old building 240,000
Construction cost of new building (completed) 34,000,000
 The land and old building have fair values of ₱20,000,000 and ₱40,000,000, respectively.
 Some salvaged wood planks from the demolition were used as wall panels in the new building.
Old Room estimates that the salvaged wood planks have a fair value of ₱120,000. The other
salvaged materials were sold for ₱60,000.
How much are the allocated costs of the land and the new building?
Land New building Land New building
a. 16,864,000 33,780,000 c. 15,980,000 36,670,000
b. 16,104,000 34,180,000 d. 16,014,000 34,810,000
7. LOATH HATE Co. purchased a lot for ₱8,000,000. Immediately after the purchase, LOATH
Co. started the construction of a new building on the lot. Additional information follows:
Legal cost of conveying title to land ₱ 40,000
Special assessment 20,000
Survey costs 60,000
Materials, labor, and overhead costs 22,000,000
Cash discounts on materials purchased not taken 120,000
Clerical and other costs related to construction 56,000
Excavation costs 400,000
Architectural fees and building permit 240,000
Supervision by management on construction 48,000
Insurance premiums paid for workers 520,000
Payment for claim for injuries not covered by
insurance 180,000
Savings on construction 800,000
Cost of changes to plans and specifications due to
560,000
inefficiencies
Paving of streets and sidewalks (not included in
blueprint) 40,000
Income earned on a vacant space rented as parking
lot during construction 36,000
How much are the capitalized costs of the land and the building?
Land Building Land Building
a. 8,160,000 23,096,000 c. 8,100,000 23,184,000
b. 8,120,000 23,144,000 d. 8,060,000 23,264,000
8. FEEBLE Co. exchanged equipment with WEAK, Inc. Pertinent data are shown below:
FEEBLE Co. WEAK, Inc.
Equipment 4,000,000 8,000,000
Accumulated depreciation 800,000 3,200,000
Carrying amount 3,200,000 4,800,000
Fair value 3,800,000 4,400,000
Cash paid by FEEBLE to WEAK 600,000 600,000
In WEAK’s books, what amounts are recognized for the following?

Equipment Gain (Loss) Equipment Gain (Loss)
a. 3,400,000 400,000 c. 4,400,000 (1,000,000)
b. 3,800,000 (400,000) d. 5,000,000 0
9. TRANSCEND EXCEED Co. traded-in an old machine for a new model. Pertinent data are as
follows:
Old equipment:
Cost 200,000
Accumulated depreciation 80,000
Average published retail value 24,000
New equipment:
List price 380,000
Cash price without trade in 280,000
Cash price with trade in 220,000
How much is the gain (loss) recognized by TRANSCEND Co. on the transaction?
a. 60,000 c. (60,000)
b. 160,000 d. 0
10. Nail Bite Co. acquired land with fair value of ₱4,000,000 in exchange for Nail Bite’s 10,000
shares with par value of ₱40 per share and quoted price of ₱360 per share. How much gain (loss)
should Nail Bite Co. recognize on the exchange?
a. 3,200,000 c. (400,000)
b. 400,000 d. 0
XVI.
1. Subsequent to initial recognition, an entity shall use this model to account for its items of property,
plant and equipment.
a. cost model c. revaluation model
b. fair value model d. a or c as an accounting policy choice
2. It is the systematic allocation of the depreciable amount of an asset over its estimated useful
life.
a. Depreciation c. Impairment
b. Revaluation d. all of these
3. Which of the following is considered when depreciating an asset under the cost model?
a. The cost of the asset. c. The change in the fair value of the asset.
b. The useful life of the asset. d. Both a and b.
4. Which of the following depreciation methods will most likely result in the highest amount of
reported profit in the early years of an asset’s useful life?
a. Straight line c. 150% declining balance
b. Double declining balance d. Sum-of-the-years’ digits
5. The most commonly used depreciation method is the

a. straight-line method. c. replacement method.
b. depreciation method based on revenue. d. inventory method.
6. Assume that a drill press is rebuilt during its sixth year of use so that its useful life is extended
5 years beyond the original estimate of 10 years. If the asset recognition criteria are met, the cost of
rebuilding the drill press should be charged to the appropriate:
a. expense account c. asset account
b. accumulated depreciation account d. liability account
7. The carrying amount of an item of property, plant and equipment that is subsequently
accounted for under the cost model is equal to
a. the historical cost less any accumulated depreciation.
b. the fair value less any accumulated depreciation.
c. the historical cost less any accumulated depreciation and any accumulated impairment loss.
d. the fair value less any accumulated depreciation and any accumulated impairment loss.
8. On January 1, 20x1, SIMPLETON FOOL Co. acquired a piece of equipment with an estimated
useful life of 4 years and a residual value of ₱80,000 for a total purchase cost of ₱400,000. At normal
capacity, the equipment’s estimated service life is 40,000 hours or a total productive capacity of 160,000
units of a product. In 20x1 and 20x2, the actual manufacturing hours were 16,000 and 8,000,
respectively, and the actual units produced were 60,000 and 30,000, respectively. How much is the
accumulated depreciation on December 31, 20x2 under each of the following depreciation methods?
SLM SYD DDB UOPM (input) UOPM (output)
a. 100,000 160,000 200,000 129,000 120,000
b. 160,000 224,000 300,000 192,000 180,000
c. 80,000 128,455 200,000 128,000 120,000
d. 160,000 224,000 300,000 180,000 192,000
*SLM = straight line method; SYD = sum-of-the-years’ digits; DDB = double declining balance; UOPM = units-of-production method
9. DEPLORABLE BAD Co. acquired a machine on October 5, 20x1 for a total cost of ₱160,000.
The machine was estimated to have a useful life of 4 years and a salvage value of ₱10,000.
DEPLORABLE BAD Co. uses the sum-of-the-years’ digits method and prorates full-year depreciation
to the nearest month. DEPLORABLE BAD Co. sold the machine on December 27, 20x2 for ₱40,000.
How much is the gain (loss) on the sale?
a. (48,750) c. (32,250)
b. 48,750 d. 32,250
10. On January 1, 20x1, DEVIOUS CROOKED Co. purchased the following assets and decided to
depreciate them as a single unit:
Cost Residual value Useful life
Machine tools 80,000 4,000 3 years
Meters 64,000 2,000 5 years
Returnable containers 120,000 - 6 years
What is the composite life?

a. 5.40 c. 4.70
b. 5 d. 4.50
11. The small tools account of ATROCIOUS CRUEL Co. has a balance of ₱600,000 as of January 1,
20x1. The movements in this account during the year were as follows:
Feb. April Sept. Nov.
Cost of new tools acquired 40,000 - 120,000 88,000
Cost of old tools retired 24,000 48,000 - 72,000
Disposal proceeds of old tools 2,000 3,200 - 4,000
How much is the depreciation expense in 20x1 under the retirement method?
a. 134,800 c. 144,000
b. 166,800 d. 118,800
12. On January 1, 20x1, COCKY ARROGANT Co. acquired a piece of equipment for ₱4,000,000.
The equipment will be used to reproduce gaming software that is expected to be marketed for 3 years.
The equipment is expected to be used in producing products over the next two years, after which the
equipment will be disposed of at a negligible amount. The estimated revenues from the software are
as follows:
Year Estimated revenues
20x1 120,000,000
20x2 80,000,000
20x3 40,000,000
Total 240,000,000
The actual revenue earned in 20x1 is ₱180,000,000. The depreciation expense in 20x1 is most likely
equal to
a. 3,000,000 c. 2,977,667
b. 2,000,000 d. 333,333
13. On January 1, 20x1, DIMINUTIVE SMALL Co. signed a ten-year lease for office space.
DIMINUTIVE has the option to renew the lease for an additional five-year period on or before January
1, 2x10. During the first half of January 20x2, DIMINUTIVE Co. incurred the following costs:
 ₱3,600,000 for general improvements, with an estimated useful life of ten years, on the leased
premises.
 ₱400,000 for office furniture with an estimated useful life of ten years.
 ₱800,000 for movable assembly line equipment with a useful life of 5 years.
At the time the leasehold improvements were finished, DIMINUTIVE Co. was uncertain as to the
exercise of the lease renewal option. How much is the depreciation expense on the leasehold
improvements in 20x2?
a. 400,000 c. 533,333
b. 360,000 d. 488,889
14. On January 1, 20x1, KNAVE RASCAL Co. acquired a machine for a total cost of ₱80,000,000.
The machine was depreciated using the sum-of-the-years’ digits method over a period of 10 years. On
January 1, 20x4, KNAVE Co. changed its depreciation method to the double declining balance method.
How much is the depreciation expense in 20x4?
a. 40,727,272 c. 12,556,780
b. 11,635,782 d. 13,556,702
15. ENTREAT Co. acquired an aircraft from BEG, Inc. on January 1, 20x1 for a total cost of
₱24,000,000. The aircraft was estimated to have a useful life of 10 years. ENTREAT Co. uses the straight
line method of depreciation. On January 1, 20x5, a major part of the aircraft was replaced for a total
cost of ₱3,200,000. ENTREAT Co. cannot determine the cost of the replaced part. How much is the loss
on replacement?
a. 1,920,000 c. 1,200,000
b. 1,280,000 b. 0
16. On December 31, 20x1, SWIMMY UNSTEADY Co. determined the following information for
the purpose of revaluing its building:
Historical cost 80,000,000
Initial estimate of useful life 25
Actual life 10
Replacement cost 140,000,000
Effective life 8
Remaining economic life 17
Income tax rate 30%
If SWIMMY UNSTEADY Co. uses the proportional method of recording, the entry to record the
revaluation would include which of the following?
a. a debit to accumulated depreciation of ₱32,000,000.
b. a credit to accumulated depreciation of ₱12,800,000.
c. a credit to building of ₱15,200,000.
d. a debit to deferred tax of ₱14,160,000.
17. On December 31, 20x1, the building of LITHE FLEXIBLE Co. was revalued. Information
determined on revaluation date is as follows:
Historical cost 72,000,000
Accumulated depreciation 16,000,000
Initial estimate of residual value 8,000,000
Actual life on revaluation date 10
Replacement cost 144,000,000
Effective life 12
Remaining economic life 20
Income tax rate 30%
The estimate of residual value remained unchanged. How much are the (1) revaluation surplus, net
of tax, on December 31, 20x1 and (2) revised annual depreciation in periods subsequent to December
31, 20x1?
a. 25,900,000; 4,650,000
b. 37,000,000; 895,000
c. 37,000,000; 4,650,000
d. 25,900,000; 4,250,000
18. On December 31, 20x1, the building of Borong Co. with a historical cost of ₱320,000,000,
accumulated depreciation of ₱160,000,000, and an estimated useful life of 20 years was determined to
have a fair value of ₱200,000,000. Borong Co. is subject to an income tax rate of 30%. Under the
elimination method, the entry to record the revaluation includes
a. a debit to accumulated depreciation for ₱160,000,000.
b. a debit to accumulated depreciation for ₱40,000,000.
c. a debit to building for ₱120,000,000.
d. a credit to building for ₱160,000,000.
19. On December 31, 20x1, the land of CONJUNCTION UNION Co. with an original cost of
₱40,000,000 was revalued to a fair value of ₱28,000,000. This was the first revaluation made on the
land since it was purchased 2 years ago. On December 20x4, the building was appraised at a fair value
of ₱48,000,000. How much is the gain on impairment reversal in 20x4?
a. 8,000,000 c. 12,000,000
b. 20,000,000 d. 0
20. FORTITUDE ENDURANCE Co. purchased a piece of equipment on August 14, 20x1 for a total
cost of ₱400,000. The equipment has an estimated useful life of 10 years and a residual value of ₱80,000.
It is the policy of FORTITUDE Co. to provide for full-year depreciation in the year of acquisition and
none in the year of disposal. On May 12, 20x4, the equipment was sold for ₱120,000. Disposal costs of
₱8,000 were incurred. How much is the gain (loss) on the sale?
a. (184,000) c. 192,000
b. 184,000 d. (192,000)
XVII.
1. Exploration and evaluation assets are initially measured at
a. cost.
b. revalued amount.
c. fair value.
d. a or b
2. Exploration and evaluation assets are exploration and evaluation expenditures recognized as
a. assets in accordance with the entity’s accounting policy.
b. expenses in accordance with applicable PFRSs.
c. assets in accordance with (a) above, subject to the limitations provided under PAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors.
d. any of these

In 20x1, OBSTREPEROUS NOISY Mining Corp. acquired the right to use 1,000 acres of land to mine
for gold. The lease cost is ₱200,000,000, and the related exploration costs on the property amounted to
₱40,000,000. It is the policy of OBSTREPEROUS Mining Corp. to capitalize all costs of exploration and
evaluation of mineral resources. Intangible development costs of drilling, tunnels, shafts, and wells
incurred before opening the mine amounted to ₱340,00,000. At the end of the mine’s economic useful
life, OBSTREPEROUS Mining Corp. is required by legislation to restore the site. Estimated restoration
costs have a fair value of ₱20,000,000. OBSTREPEROUS Mining Corp. estimates that the mine will
provide approximately 100,000,000 ounces of gold. Actual ounce of gold mined in 20x2 totaled 300,000
ounces.
3. How much is the depletion charge in 20x2?

a. 1,740,000 b. 1,800,000 c. 165,000 d. 150,000
4. Assuming that of the 300,000 ounces of gold extracted in 20x2, 280,000 ounces were sold and
20,000 ounces remain in inventory. How much depletion is recognized in the 20x2 (a) statement of
financial position and (b) statement of profit or loss and other comprehensive income, respectively?
Statement of financial position Statement of profit or loss
a. 1,680,000 120,000
b. 116,000 1,624,000
c. 11,000 154,000
d. 120,000 1,680,000

In 20x1, BUCOLIC RURAL Co. acquired land for a total cost of ₱40,000,000 to be used to quarry
marble, limestone, and construction aggregates. Costs incurred to obtain legal right to explore the
property amounted to ₱8,000,000. Expenditures incurred in the exploration for and evaluation of
mineral resources before technical feasibility and commercial viability of extracting a mineral resource
are demonstrable totaled ₱12,000,000. Intangible development costs of drilling, tunnels, shafts, and
wells before the actual production totaled ₱20,000,000. BUCOLIC Co. estimates that total recoverable
reserves are 100,000,000 units. Furthermore, BUCOLIC Co. expects to sell the land for ₱4,800,000 after
resource is depleted. However, no buyer will pay this price unless the mine is drained, filled and
leveled, a process that will cost ₱800,000. It is BUCOLIC’s policy to capitalize all exploration costs.
Actual units quarried in 20x1 through 20x4 totaled 30,000,000 units. On January 1, 20x5, BUCOLIC
Co. estimated that the remaining recoverable reserves are only 25,000,000 units and after the reserves
are exhausted, the land will be sold for ₱3,200,000. Costs of disposal are estimated at ₱1,200,000. Actual
units quarried in 20x5 totaled 6,000,000 units.
5. How much is the depletion charge in 20x5?

a. 13,284,000 b. 13,480,000 c. 13,280,000 d. 13,248,000
6. What is the carrying amount of the wasting asset on December 31, 20x5?
a. 43,852,000 b. 44,272,000 c. 42,720,00 d. 43,952,000
XVIII.
1. According to PAS 20, non-monetary grants are measured at
a. the fair value of the non-monetary asset.
b. nominal amount.
c. the amount of cash received or receivable.
d. a or b
2. According to PAS 20, government grants are presented in the financial statements using
a. a gross presentation. c. a or b
b. a net presentation. d. a functional presentation.

On January 1, 20x1, Entity A received land with fair of ₱200,000 from the government conditioned on
the construction of a building on the lot. Entity A started immediately the construction and it was
completed on December 31, 20x1 for a total cost of ₱1,000,000. The building has an estimated useful
life of 10 years and zero residual value.
3. How much is the income from government grant in 20x1 and 20x2, respectively?
20x1 20x2
a. 0 200,000
b. 200,000 0
c. 0 20,000
d. 20,000 20,000
4. How much is the carrying amount of the building on December 31, 20x2 under the following
presentations?
Gross presentation Net presentation
a. 1,000,000 800,000
b. 900,000 720,000
c. 800,000 640,000
d. 800,000 533,333
5. How much is the depreciation expense recognized in 20x3 under the following presentations?
Gross presentation Net presentation
a. 100,000 80,000
b. 100,000 100,000
c. 80,000 100,000
d. 80,000 80,000
XIV.
1. According to PAS 23, borrowing costs are capitalized when
a. they relate directly to the acquisition, construction or production of a qualifying asset.
b. the entity chooses to capitalize them.
c. they are material and are expected to be incurred over more than one reporting period.
d. all of these
2. Which of the following is a qualifying asset?

a. Investment property measured at fair value
b. Building that is ready for its intended use upon purchase
c. Inventories that are routinely produced in large quantities on a continuous basis
d. An application software (intangible asset) that takes 3 years to develop
3. An entity starts the capitalization of borrowing costs to the cost of a qualifying asset when
a. expenditures for the asset are being incurred.
b. borrowing costs are being incurred.
c. activities necessary to prepare the asset for its intended use or sale are being undertaken.
d. all of the above conditions are met.
4. In which of the following instances is the capitalization of borrowing costs under PAS 23
would most likely be suspended?
a. Construction is temporarily stopped for the curing of concrete.
b. Active development is stopped to give time for the engineers to reevaluate a design flaw.
c. The construction of a bridge is disrupted by troubled waters.
d. The construction of a building is discontinued because it is condemned by the government.
The resumption of development is uncertain.

On January 1, 20x1, Entity A had the following general borrowings. A part of the proceeds was used
to finance the construction of a qualifying asset:
Principal
12% bank loan (1.5 years) ₱ 1,000,000
10% bank loan (3-year) 8,000,000
Expenditures made on the qualifying asset were as follows:

Jan. 1 ₱ 5,000,000
March 1 4,000,000
August 31 3,000,000
December 1 2,000,000
Construction was completed on December 31, 20x1.
5. How much borrowing costs are capitalized to the cost of the constructed qualifying asset?
a. 1,045,000 c. 1,026,667
b. 971,111 d. 920,000
6. How much is the cost of the qualifying asset on initial recognition?

a. 13,010,000 c. 14,920,000
b. 15,045,000 d. 14,971,111
7. PAS 23 does not require which of the following disclosures?

a. The amount of borrowing costs capitalized during the period.
b. The capitalization rate used to determine the capitalizable borrowing costs.
c. Separate presentation of qualifying assets from other assets either on the face of the statement
of financial position or in the notes.
d. PAS 23 requires the disclosure of all of these information.
XX.
1. Which of the following is not dealt with by PAS 41?
a. The accounting for biological assets.
b. The initial measurement of agricultural produce harvested from the entity’s biological assets.
c. The processing of agricultural produce after harvest.
d. The accounting treatment of government grants received in respect of biological assets.
2. Where there is a long aging or maturation process after harvest, the accounting for such
products should be dealt with by
a. PAS 41.
b. PAS 2, Inventories.
c. PAS 16, Property, Plant, and Equipment.
d. PAS 40, Investment Property.
3. Generally speaking, biological assets relating to agricultural activity should be measured

using
a. Historical cost.
b. Historical cost less depreciation less impairment.
c. A fair value approach.
d. Net realizable value.
4. Entity A had a plantation forest that is likely to be harvested and sold in 30 years. The income
should be accounted for in the following way:
a. No income should be reported until first harvest and sale in 30 years.
b. Income should be measured annually and reported using a fair value approach that recognizes
and measures biological growth.
c. The eventual sale proceeds should be estimated and matched to the profit and loss account
over the 30-year period.
d. The plantation forest should be valued every 5 years and the increase in value should be
shown in the statement of recognized gains and losses.
5. Where the fair value of the biological asset cannot be determined reliably on initial
recognition, the biological asset should be measured at
a. Cost.
b. Cost less accumulated depreciation.
c. Cost less accumulated depreciation and accumulated impairment losses.
d. Net realizable value.
6. Which of the following costs are not included in costs to sell?

a. Commissions to brokers and dealers.
b. Levies by regulatory agencies.
c. Transfer taxes and duties.
d. Transport and other costs necessary to get the assets to a market.

The following information pertains to Madagascar Co.
Sheep 500,000 Wool 6,000
Rubber products 10,000 Thread 3,000
Trees in a timber plantation 95,000 Felled trees 8,000
Maize plants 40,000 Clothing 150,000
Lumber 62,000 Milk 9,000
Pigs 200,000 Carcass 7,000
Roasted peanuts 20,000 Sugar 67,000
Cotton plants 10,000 Harvested cotton 13,000
Peanut plants 5,000 Harvested peanuts 140,000
Sugarcane 25,000 Harvested cane 22,000
Tobacco plants 45,000 Picked leaves 3,000
Tea bushes 800,000 Oil palms 300,000
Dairy cattle 1,000,000 Picked grapes 2,000
Fruit trees 600,000 Picked fruit 10,000
Tea 43,000 Grape vines 2,000,000
Rubber trees 300,000 Harvested latex 10,000
Yarn 22,000 Cured tobacco 320,000
Carpet 33,000 Wine 500,000
Logs 45,000 Processed fruit 20,000
Wheat plants 60,000 Palm oil 50,000
Cheese 75,000 Bean plants 20,000
Sausages 88,000 Cured hams 92,000
7. How much is classified as biological assets that are accounted for under PAS 41 Agriculture?
a. 2,660,000 b. 2,000,000 c. 6,000,000 d. 2,250,000
8. How much is classified as property, plant and equipment that are accounted for under PAS
16 Property, Plant and Equipment?
a. 4,000,000 b. 4,860,000 c. 4,560,000 d. 3,650,000
9. How much is classified as agricultural produce?

a. 149,000 b. 248,000 c. 290,000 d. 230,000
10. How much is classified as inventory?

a. 1,480,000 b. 1,600,000 c. 1,540,000 d. 1,880,000
XXI.
1. Which of the following would not be reported as investment property?
a. Property owned by the entity and leased out under one or more operating leases.
b. Property held by the entity to be leased out under one or more operating leases
c. Real estate held for an undetermined future use.
d. Property owned by the entity and leased out to another entity under a finance lease.
2. A property is classified as investment property if

a. it is leased out under a finance lease.
b. the owner-occupied portion of the property is significant.
c. the entity provides relatively insignificant ancillary services (e.g., security, janitorial services,
and the like) to the occupants of the property.
d. it is rented between a parent entity and a subsidiary and consolidated financial statements are
prepared for the group.
3. All of the following do not qualify as investment property, except

a. Machineries that are held for lease
b. Hotels or motels
c. Agricultural land purchased for appreciation purposes
d. Equipment purchased for an indeterminate purpose
4. How does the fair value model differ from the revaluation model?
a. Increases in carrying amount above a cost-based measure are recognized in equity
b. Changes in fair value are recognized in profit or loss
c. a and b
d. neither a nor b
5. Select the correct statement.

a. A leasing company should treat all its assets used in providing lease services as investment
property.
b. Investment properties that are to be disposed of without further development are treated as
investment property until they are derecognized.
c. All investment properties held for capital appreciation will be classified as held for sale in the
long run.
d. Investment properties being re-developed as investment properties on behalf of third parties
are investment properties.
6. Which of the following generally provides the best evidence of fair value of an investment
property?
a. Discounted cash flow projections based on reliable estimates of future cash flows.
b. Recent prices on less active markets with adjustments to reflect changes in economic
conditions.
c. Current prices for properties of a different nature or subject to different conditions.
d. Current prices on an active market for similar property in the same location and condition.
7. MODULATE Co. has the following assets.
Vacant building to be leased out under operating lease 4,000,000

Building being constructed for TO ADJUST, Inc. 800,000
Building under construction to be used as office 1,600,000
Building under construction to be rented out under operating lease 400,000
Building rented out to MODULATE’s employees who pay rent at market rates 3,200,000
Office building awaiting disposal 200,000
How much is the total investment property?

a. 4,200,000 b. 4,400,000 c. 4,600,000 d. 7,600,000
8. On January 1, 20x1, NURTURE REAR Co. acquired a building with an estimated useful life of
10 years and residual value of ₱400,000 for a total cost of ₱4,000,000. The fair value of the building on
January 1, 20x1 is ₱4,800,000 while the fair value on December 31, 20x1 is ₱5,200,000. NURTURE
estimates that if the building is sold currently on December 31, 20x1, costs to sell amount to ₱200,000.
NURTURE uses the straight line method in depreciating its PPE. NURTURE uses the fair value model
for its investment properties. The year-end adjusting entry will include
a. 360,000 depreciation c. 200,000 unrealized gain
b. 400,000 unrealized gain d. 1,200,000 unrealized gain
9. On December 31, 20x1, DECAPITATE BEHEAD Co. decided to lease out under operating lease
one of its buildings that was previously used as office space. The building has an original cost of
₱12,000,000 and accumulated depreciation of ₱8,000,000 as of January 1, 20x1. Annual depreciation is
₱400,000. DECAPITATE Co. uses the fair value model for investment property. The fair value of the
building on December 31, 20x1 is ₱6,000,000. The entry to record the transfer of the building to
investment property includes a
a. credit to gain on reclassification for ₱2,000,000.
b. credit to revaluation surplus for ₱2,000,000.
c. debit to building for ₱12,000,000.
d. credit to revaluation surplus for ₱2,400,000.
10. PERIODIC REGULAR Co. acquired a building on January 1, 20x1 for a total cost of ₱24,000,000
and classified it as investment property. PERIODIC Co. uses the fair value model for its investment
property. On January 1, 20x5, when the carrying amount of the building is ₱16,000,000, the elevator in
the building was replaced for a total cost of ₱3,200,000. It is impracticable to determine the fair value
of the replaced part. The fair value of the building on December 31, 20x5 is ₱17,200,000. How much is
the loss recognized during the year?
a. 3,200,000 b. 2,000,000 c. no loss d. indeterminable
XXII.
1. Which of the following statements is correct?
a. Some intangible assets have physical substance.
b. Intangible assets are always classified as noncurrent assets even in cases where they are part
of a disposal group.
c. The process of recording the expiration of the economic benefits of an intangible asset is called
depletion.
d. Intangible assets can be obtained in one of two ways – external acquisition or internal
development.
2. Which of the following statements is true?

a. The capitalizable costs of patents are legal fees and other registration costs.
b. An identifiable tangible asset developed internally is never recognized in the accounts as an
asset.
c. Intangible assets usually have a residual value that must be considered in the amortization of
cost.
d. An intangible asset is usually amortized by a credit to an income account.
3. Intangible assets have all of the following characteristics, except:

a. their ownership confers rights, but no physical substance.
b. they have no physical substance.
c. they are relatively long-lived.
d. they provide benefits to current operations only.
4. Which of the following is not a consideration in determining the useful life of an intangible
asset?
a. Cost
b. Legal, regulatory, or contractual provisions
c. Provisions for renewal or extension
d. Expected actions of competitors
5. In accordance with the PFRSs, which of the following methods of amortization is normally not
recommended for intangible assets?
a. Units of production
b. Declining balance
c. Effective interest method
d. Straight line
6. A change in the amortization rate for an intangible asset should be accounted for
a. by retrospective restatement.
b. by retrospective application.
c. on a prospective basis.
d. on a current basis.
7. Which of the following is an unidentifiable asset?

a. Goodwill
b. Private-to-private franchise
c. Deferred charges
d. Unearned rent
8. If a franchise becomes worthless before the end of its useful life, the carrying amount of the
franchise account should be charged as
a. franchise expense in the current period.
b. a prior period adjustment.
c. impairment loss.
d. amortization expense.
9. Which of the following costs related to computer software is capitalized to an intangible asset
account?
a. Costs of duplication and reproduction of software for sale
b. Development costs before technological feasibility is achieved
c. Coding and testing costs incurred to establish technological feasibility
d. Coding and testing costs incurred after technological feasibility is established but before the
product master is completed
10. Which of the following is a true statement concerning research and development (R&D) costs?
a. All R&D costs, without exception, must be charged to expense when incurred.
b. R&D costs can only be amortized over a life of 40 years or more.
c. Almost any treatment is acceptable for handling R&D costs.
d. Financial statements must disclose total R&D costs charged to expense in the period
11. A patent infringement suit may be either successful or unsuccessful. Which of the following
statements is correct?
a. If the lawsuit is successful, the cost of the lawsuit is expensed.
b. If the lawsuit is unsuccessful, the cost of the lawsuit is recognized as additional amortization
expense.
c. If the lawsuit is unsuccessful, the cost of the lawsuit is written-off from the carrying amount
of the related patent.
d. If the lawsuit is unsuccessful, the carrying amount of the related patent is amortized over its
remaining economic life.
12. An entity that incurs costs in defending a patent in an infringement suit should
a. expense the costs of all suits in the period in which they are incurred.
b. capitalize only the costs of unsuccessful suits.
c. capitalize only the costs of successful suits.
d. capitalize the cost of all suits regardless of the outcome.
13. A purchased patent has a remaining legal life of 15 years. It should be
a. expensed in the year of the acquisition.
b. amortized over 15 years regardless of its useful life.
c. amortized over its useful life if less than 15 years.
d. not amortized.
14. The cost of a franchise is classified in the statement of financial position as a(n)
a. operational asset.
b. deferred charge.
c. intangible asset.
d. current asset.
15. Silverchair Airlines purchased airline gate rights from Tomorrow International Airport for
₱2,000,000. The rights have a legal life of five years; however, Silverchair can extend the rights for
another ten years over an indefinite number of extensions at a nominal cost. Silverchair intends and
has the ability to make the extensions. Other owners of similar rights have made the right extensions
in the past. Over what period of time should Silverchair amortize the gate rights?
a. 5 years.
b. 15 years
c. 40 years.
d. The rights should not be amortized.
XXIII.
1. Under PAS 36 Impairment of Assets, which of the following statements best describes 'value in use'?
a. The present value of estimated future cash flows expected to arise from the continuing use of
an asset and from its ultimate disposal.
b. The amount of cash or cash equivalents that could currently be obtained by selling an asset in
an orderly disposal.
c. The net amount which an entity expects to obtain for an asset at the end of its useful life.
d. The amount at which an asset could be exchanged between knowledgeable, willing parties in
an arm's length transaction.
2. Under PAS 36 Impairment of Assets, which of the following terms best describes the higher of
an asset's fair value less costs of disposal and its value in use?
a. Recoverable amount
b. Revalued amount
c. Depreciable amount
d. Carrying amount
3. Under PAS 36 Impairment of assets, which of the following statements best describes the term
'impairment loss'?
a. The removal of an asset from an entity's statement of financial position
b. The amount by which the carrying amount of an asset exceeds its recoverable amount
c. The systematic allocation of an asset's cost less residual value over its useful life
d. The amount by which the recoverable amount of an asset exceeds its carrying amount
4. According to PAS 36 Impairment of Assets, which of the following terms is defined as: "The
smallest identifiable group of assets that generates cash inflows that are largely independent of the
cash inflows from other assets"?
a. Non-current assets
b. A cash-operating unit
c. An operating segment
d. A cash-generating unit
5. PAS 36 Impairment of assets should be applied in accounting for the impairment of which of the
following types of asset?
a. Assets arising from construction contracts
b. Non-current assets held for sale
c. Investment properties measured at fair value
d. Non-current assets measured at cost
6. According to PAS 36 Impairment of assets, which of the following are relevant in determining a
non-current asset's 'value in use'?
I.The expected future cash flows from the asset
II.The carrying amount of the asset
III.The future annual depreciation expense in respect of the asset
IV.The time value of money
a. I, II, III c. I, IV
b. II, III, IV d. I, II, IV
7. An entity is considering whether to apply an impairment test to an individual asset or to the

cash-generating unit to which that asset belongs. Are the following statements true or false, according
to PAS 36 Impairment of assets?
1. If the individual asset does not generate cash inflows that are largely independent of those
from other assets, then the cash-generating unit should be identified.
2. If the individual asset generates an insignificant proportion of the cash inflows of the entity as
a whole, then the cash-generating unit should not be identified.
Statement (1) Statement (2)

a. False False
b. False True
c. True False
d. True True
8. The Naylor Company has determined that it needs to recognize an impairment loss on each
of two non-current assets; plant and land. The relevant amounts are as follows:
Plant Land
Original cost ₱700,000 ₱1,400,000
Previous revaluations Nil ₱ 450,000
Existing carrying amount ₱700,000 ₱1,850,000
Impairment loss to be recognized in year ₱200,000 ₱ 300,000
According to PAS 36 Impairment of Assets, how should each of the impairment losses be recognized?
Plant Land
a. In profit or loss In profit or loss
b. In profit or loss In other comprehensive income
c. In other comprehensive income In profit or loss
d. In other comprehensive income In other comprehensive income
9. On 1 January 20X2 The Prosper Company acquired a non-current asset with an estimated
useful life of 8 years for ₱320,000. Non-current assets are accounted for under the cost model and
depreciation is charged by the straight-line method.
On 1 January 20X7 an impairment review identified an impairment loss of ₱10,000 and the
remaining useful life was revised to four years. Are the following statements true or false,
according to PAS 36 Impairment of Assets?
1. Future depreciation expenses should be measured by reference to the carrying amount after
deducting the impairment loss.
2. Future depreciation expenses should be measured by reference to the new estimate of the
remaining useful life.
Statement (1) Statement (2)

a. False False
b. False True
c. True False
d. True True
10. In testing a cash generating unit (CGU) for impairment the, bottom-up test means that
a. goodwill can be allocated to the CGU and an impairment loss has occurred if the recoverable
amount of the CGU is less than the carrying amount, including the allocated goodwill.
b. goodwill can be allocated to the CGU’s and an impairment loss occurred if the recoverable
amount of the CGU is less than its carrying amount, excluding the allocated goodwill
c. goodwill can be allocated to the CGU and an impairment loss has occurred if the recoverable
amount of the CGU is more than the carrying amount, including the allocated goodwill.
d. goodwill can be allocated to the CGU and an impairment loss has occurred if the recoverable
amount of the CGU is more than its carrying amount, excluding the allocated goodwill.

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INTERMEDIATE ACCOUNTING 1: COMPILATION

1. It is the basic storage of information in accounting.

The reconciled balance from the given information is

Use the following information for the next four questions:

Liability method : record as liability

12/31 Unearned Rent 120,000

Use the following information for the next two questions:

Aug 1 Prepaid Insurance 240,000

Dec. 31 Insurance expense 100,000

Dec. 31 Insurance expense 140,000

Dec. 31, 20x1 Income summary 750,000

15. Reversing entries are

Ano ang ni rereverse: Adjusting Entries that involved Accrual

Purpose of reversing: to go back in the standardized procedure

16. Bank overdrafts that cannot be offset should be

19. Cash in foreign currency is valued at

Credit line – limit of issued checks

Which of the following checks might indicate kiting?

Kiting – method to cover up fraud by management specifically by the treasurer. pantapal

1. In a bank reconciliation, deposits not recorded by the bank are:

3. Bank statements provide information about all of the following except

Sun's adjusted cash in bank balance on December 31, 20x1 is

What is the correct cash balance of Morning on August 31, 20x3?

Use the following information for the next three questions:

8. How much is the credit memo?

9. How much is the adjusted cash balance?

The next three items are based on the following information:

Balance per books, October 31 4,440

Deposits in transit – October 31 4,500

10. How much are the deposits in transit on November 30?

11. How much are the outstanding checks on November 30?

12. How much is the adjusted balance of cash on November 30?

Use the following information for the next three questions:

13. How much is the adjusted cash receipts in July?

14. How much is the adjusted cash disbursements in July?

15. How much is the adjusted cash balance as of July 31?

3. Information from the records of Stormfall Co. is shown below:

 Notes receivable (non-trade), ₱15,000 collectible within one year 30,000

How much are the following?

How much is the recoverable historical cost of accounts receivable?

How much is the doubtful accounts expense for the year?

Use the following information for the next two questions:

The aging of receivables is shown below:

3. A higher interest rate results to

4. A shorter period results to

5. The present value of 1 for a period of zero equals

Use the following information for the next two questions:

8. How much is the interest income in 20x1?

Use the following information for the next three questions:

10. How much is the interest income in 20x1?

Use the following information for the next three questions:

13. How much is the interest income in 20x1?

Use the following information for the next two questions:

Use the following information for the next two questions:

19. How much is the initial measurement of the receivable?

3. When the required balance of the loss allowance decreases,

5. After impairment testing, interest income on a credit-impaired note receivable is computed by

Use the following information for the next two questions:

9. How much is the interest income in 20x5?