PAIRamid Pair 1

Basic Accounting, CFAS,

Oblicon, IA 1 and Law on
Partnership and Corp.
EASY
1. When a plant asset is disposed of, a gain or loss may result. The
gain or loss would be classified as an extraordinary item in the
income statement if it resulted from

a. an involuntary conversion and the conditions of the disposition

are unusual and infrequent in nature.
b. a sale prior to the completion of the estimated useful life of the
asset.
c. the sale of a fully depreciated asset.
d. an abandonment of the asset.
 Answer: A
It should be noted that extraordinary items are unusual and
infrequent material gains and losses
that are separately presented in the statement of income.
2. When the obligation modified its object and also the principal
conditions

a. There is real novation

b. There is personal novation
c. There is mixed novation
d. There is delegacion
 Answer: A
There is real novation
3. What liability is created by a purchase on account?

a.Contingent Liability
b.Accounts Receivable
c.Accounts Payable
d.Purchases
 Answer: C
Accounts Payable
4. According to PAS 10, these are those events, favorable and
unfavorable, that occur between the end of the reporting period
and the date when the financial statements are authorized for
issue
a. Events after the reporting period
b. Adjusting events
c. Non-adjusting events
d. all of these
 Answer: A
Events after the reporting period
5. A general professional partnership must

a. Pay corporate income tax

b. Have two or more partners
c. Have written articles of partnership
d. Provide for apportionment of liability for partnership debts.
 Answer: B
Have two or more partners
6. Under this doctrine, the corporation may exercise only powers
expressly authorized by law or incident to its existence:

a. Doctrine of separate juridical personality

b. Doctrine of limited capacity
c. Doctrine of piercing the veil of corporate entity
d. Trust fund doctrine
 Answer: B
Doctrine of limited capacity
7. Which of the following cannot be a valid object of a contract?

a. Transmissible rights c. Possible services

b. Future inheritance d. Future things
 Answer: B
Future inheritance
8. According to IAS 40, Investment property is property (land or a
building—or part of a building—or both) held (by the owner or
by the lessee as a right-of-use asset):

a. To earn rentals
b. For capital appreciation
c. A or B or both
d. Exclusively either A or B
 Answer: C
According to the definition of terms on IAS 40,
Investment property is property (land or a building—or part of a building—
or both) held (by the
owner or by the lessee as a right-of-use asset) to earn rentals or for capital
appreciation or both,
rather than for:
a) use in the production or supply of goods or services or for administrative
purposes; or
b) sale in the ordinary course of business.
9. In accordance with PFRS 9, A gain or loss on a financial asset or
financial liability that is measured at fair value shall be
recognized in profit or loss unless:

a. it is part of a hedging relationship

b. it is a financial liability designated as at fair value through
profit or loss and the entity is required to present the effects of
changes in the liability’s credit risk in other comprehensive
income
c. Either A or B
d. Neither A nor B
 ANSWER: C
RATIONALE:
Par 5.7.1 of IFRS 9 specifically states that:
A gain or loss on a financial asset or financial liability that is measured at fair value shall be
recognized in profit or loss unless:
a) it is part of a hedging relationship (see paragraphs 6.5.8–6.5.14 and, if applicable, paragraphs
89–94 of IAS 39 for the fair value hedge accounting for a portfolio hedge of interest rate risk);
b) it is an investment in an equity instrument and the entity has elected to present gains and
losses on that investment in other comprehensive income in accordance with paragraph 5.7.5;
c) it is a financial liability designated as at fair value through profit or loss and the entity is
required to present the effects of changes in the liability’s credit risk in other comprehensive
income in accordance with paragraph 5.7.7; or
d) it is a financial asset measured at fair value through other comprehensive income in
accordance with paragraph 4.1.2A and the entity is required to recognise some changes in fair
value in other comprehensive income in accordance with paragraph 5.7.10.
10. What is the effect of expenses on stockholder’s equity?

a.Increase
b.Decrease
c.No effect
d.None of the above
Answer: B
Decrease
11. A debtor may still be held liable for ·loss or damages even if it
was caused by a fortuitous event in any of the following instances,
except:
a. The debtor is guilty of dolo, malice or bad faith, has promised
the same thing to two or more persons who do not
have· the same interest
b. The debtor contributed to the loss.
c. The thing to be delivered is generic.
d. The creditor is guilty of fraud, negligence or delay or if he
contravened the tenor of the obligation.
 Answer: D
The creditor is guilty of fraud, negligence or delay or if he
contravened the tenor of the obligation.
12. The report of election of directors, trustee and officer must be
submitted to the Securities and Exchange Commission within
a. Thirty (30) days after the election of the directors, trustee and
officers of the corporation.
b. Sixty (60) days after the election of the directors, trustee and
officers of the corporation.
c. Ninety (90) days after the election of the directors, trustee and
officers of the corporation.
d. One hundred twenty (120) days after the election of the
directors, trustee and officers of the corporation.
 Answer: A
Thirty (30) days after the election of the directors, trustee
and officers of the corporation.
13. What is the normal balance of an asset account?

a.Credit
b.Debit
c.Both
d.None of the above
Answer: B
Debit
14. The use of a discount lost account implies that the recorded cost
of an inventory is

a. Invoice price
b. Invoice price plus the purchase discount lost
c. Invoice price less the purchase discount taken
d. Invoice price less the purchase discount allowable whether
taken or not
 Answer: D
In recording inventories, two methods can be used, the gross
and the net method. Under gross method,
the cost of the inventory is its invoice price while under the
net method the cost of inventory is its invoice
price less the purchase discount allowable whether taken or
not. In case the purchase discount is
forfeited, a debit to purchase discount lost account should be
made.
15. The amount to be recorded as the cost of an investment property
upon initial recognition is its

a. acquisition cost
b. fair value
c. acquisition cost or fair value whichever is higher
d. acquisition cost or fair value whichever is lower
 Answer: A
According to PAS 40, investment property shall be initially
recorded at its acquisition cost.
Average
1. In contract of commodatum, this attribute of ownership is
transferred:

a. Jus abutendi c. Jus fruendi

b. Jus utendi d. Jus vindicandi
Answer : Jus utendi
2. The present obligation is not a contingent liability but should be
recognized as a provision when

a. amount is reasonably estimable and event occurs infrequently

b. amount is reasonably estimable and occurrence of event is
probable
c. event is unusual in nature and occurrence of event is probable
d. event is unusual in nature and occurs infrequently
 Answer: B
Under IAS 37, a provision is recognised when: the entity has a
present obligation as a result of
past events; it is probable (more likely than not) that a transfer of
economic benefits will be
required to settle the obligation; and a reliable estimate of the
amount of the obligation can be
made.
3. Malkova Inc. purchased ₱6,000,000 of 8%, 5-year bonds on
January 1, 2017 with interest payable on June 30 and December
31. The bonds were purchased for ₱6,200,000 plus transaction
cost of ₱110,000 at an effective interest rate of 7%.
The business model for this investment is to collect contractual
cash flows and sell the bonds in the open market. On December
31, 2017, the bonds were quoted at 106. If the entity elected the
fair value option, what total amount of income should be
recognized for 2017?
a. ₱400,000
b. ₱530,000
c. ₱640,000
d. ₱160,000
 ANSWER: C
SOLUTION:
Market value on December 31, 2017 ₱6,360,000
Acquisition cost, excluding transaction cost 6,200,000
Gain from change in fair value 160,000
Interest income (8% x 6,000,000) 480,000
Total income ₱640,000
4. A, B, C and D are partners where A, B and C contributed P1,000,000 each and D his
services. The partnership is
engaged in the manufacture and export of garments. Due to a very strong typhoon,
the entire roofing of the factory
was blown by the strong winds and if not repaired immediately would aggravate the
damage. A, B, C and D agreed on
an additional contribution of P200,000 each in order to save the business from
imminent loss. Which of these is the
correct statement?
a. D is duty bound to contribute 20% more of his time to the business of the
partnership.
b. If A no longer has money, he can be compelled to sell his interest in the
partnership to the other partners.
c. B can question the decision because he did not vote for the additional
contribution.
d. If C still has money, but refuses to make the contribution, he can be compelled to
sells his interest in the
partnership to the other partners.
 Answer : D
If C still has money, but refuses to make the contribution, he can
be compelled to sells his interest in the
partnership to the other partners.
5. In three of the following corporate proposals, a dissenting stockholder has the right
to surrender his shares of stock to
the corporation and demand for the payment of their fair market value. Which is
the exception?
a. Sale, mortgage or disposition of all or substantially all of the corporate assets
b. Shortening or extending the corporate term
c. Investment of corporate funds in another corporation or business
d. Entering into management contract with another corporation
 Answer : D
Entering into management contract with another corporation
6. A and B agreed to contribute their respective farms to form a
partnership. A immediately delivered his land. B
waited until after 2 months so he could harvest some rice in his
farm. What may the parties do?

a. B should deliver the land and the rice he harvested.

b. B is allowed to keep his land until a formal demand is made.
c. A should also be allowed to harvest any fruits in his land.
d. A should ask for a rescission of the contract of partnership.
 Answer: A
B should deliver the land and the rice he harvested.
7. Simultaneous recognition of both a revenue and an expense may
result from certain transactions or events. Anexample of an
expense so recognized may be

a. Expired portion of prepaid insurance.

b. Salespersons’ monthly salaries.
c. Transportation to customers.
d. Electricity used to light offices.
 Answer: C
Transportation to customers is correct because the revenue
transaction (sales of goods to customers) directlycauses the
incurrence of the expense (transportation to customers).
8. UVW Broadcast Co. entered into a contract to exchange unsold
advertising time for travel and lodging services with Hotel Co. As
of June 30, advertising commercials of P10,000 were used.
However, travel and lodging services were not provided. How
should UVW account for advertising in its June 30 financial
statements?
a. Revenue and expense is recognized when the agreement is
complete.
b. An asset and revenue for P10,000 is recognized.
c. Both the revenue and expense of P10,000 are recognized.
d. Not reported
 Answer: B
UVW has provided P10,000 in advertising services and has a
receivable for the travel and lodging services.
9. On January 1, 2017, Alfredo Company purchased a building
worth ₱4,000,000 to be classified as investment property. Alfredo
made a downpayment equal to 25% of the price and signed a
non-interest bearing note for the balance, due on December 31,
2021. The effective rate applicable to the note was 12%.

In relation to the purchase, Alfredo incurred ₱15,000 professional

fees for legal services and property transfer taxes amounting to
₱30,000. Also, start-up costs and operating losses incurred before
the property achieved the planned level of occupancy were
incurred amounting to ₱50,000 and ₱100,000,
respectively.
Solution:
Downpayment ₱1,000,000
Balance (₱3,000,000*0.5674) 1,702,200
Professional fees 15,000
Property transfer taxes 30,000
Capitalized cost ₱2,747,200
10.Pat Company reported the following information on December 31, 2017:
Preference share, ₱100 par ₱230,000
Share premium – Preference 80,500
Ordinary share, ₱15 par 525,000
Share premium – Ordinary 275,000
Subscribed ordinary share 5,000
Retained earnings 190,000
Notes payable 400,000
Subscription receivable – Ordinary 40,000
Legal capital is defined as the par value of all share capital issued
and subscribed.
Solution:
Preference share, ₱100 par ₱230,000
Ordinary share, ₱15 par 525,000
Subscribed ordinary share 5,000
Legal Capital ₱760,000
Difficult
1. Which of the following is true for PFRS for SMEs:

a. Under PFRS for SMEs, the use of an accrued benefit valuation

method (the projected unit credit method) for employee benefit
obligation is required for calculating defined benefit obligations.
b. Under PFRS for SMEs, Intangible assets, including goodwill
are assumed to have finite lives and are amortized.
c. Under PFRS for SMEs, Research costs and development costs
are expenses, however, development costs are capitalized if
certain criteria are met.
d. Under PFRS for SMEs, only equity method is permitted in
accounting for investment in associates.
Answer: B
2. The following is AMOR Corp.’s June 30, 2017 trial balance:
Cash overdraft ₱10,000
Accounts receivable, net ₱35,000
Inventory 58,000
Prepaid expenses 12,000
Land held for resale 100,000
Property, plant, and equipment 95,000
Accounts payable and accrued expenses 32,000
Common stock 25,000
Additional paid-in capital 150,000
Retained earnings 83,000
₱300,000 ₱300,000

Additional information:
 Checks amounting to ₱30,000 were written to vendors and recorded on June 29, 2017, resulting in
a cash overdraft of ₱10,000. The checks were mailed on July 9, 2017.
 Land held for resale was sold for cash on July 15, 2017.
 AMOR issued its financial statements on July 31, 2017.
In its June 30, 2017 balance sheet, what amount should AMOR report as current assets?
 Answer: ₱225,000
(20,000+35,000+58,000+12,000+100,000)
3. Dell Company provided the following information for the current
year:
Purchases 5,300,000
Purchase Discounts 100,000
Beginning Inventory 1,600,000
Ending Inventory 2,150,000
Freight Out 400,000
What is the cost of goods sold for the current year?
 Answer : P4,650,000
5,300,000-100,000+1,600,000-2,150,000 = P4,650,000
4. Placido, a bank depositor, left his checkbook on his desk at his house. Unknown to
him, a visitor at the time, noticing the same, took a check therefrom, filled it up in
the amount of P3,000 and succeeded in encashing the check on the same day.
Placido’s account was thereby debited in the same amount. Discovering the
erroneous debit, Placido demanded that the bank credit him with a like amount.
The bank refused on the ground that Placido was negligent in leaving his checkbook
on his desk so that he could not put up the defense of forgery or want of authority
under the Negotiable Instrument Law. The facts disclose that even to the naked eye,
there were marked differences between Placido’s signature and the one
in the check forged by the visitor. As between Placido and the bank, who should
bear the loss?
a. The bank should bear the loss because the bank warrants the genuineness of the
signature of its current depositor.
b. The bank is not liable because the sole cause of the loss is due to the negligence of
Placido in leaving his
checkbook on his desk at his house.
c. Placido must suffer the loss because he is negligence in keeping his checkbook.
d. Placido should bear the loss because the bank exercise reasonable diligence in
determining that the signature is
not forged.
 Answer : A
The bank should bear the loss because the bank warrants
the genuineness of the signature of its current depositor.
5. When funeral expenses are borne by a third person, without the
knowledge of those relatives who were obliged to give support to
the deceased, said relatives shall reimburse the third person,
should the latter claim reimbursement.
This is
Innominate quasi contract
Tie Breaker
1. Ms. Maputi agreed to live with Mr. Hukluban as the wife of the latter
without the benefit of marriage in exchange for the monthly support of
thirty thousand (P30,000.00) that Mr. Hukluban would give to Ms.
Maputi. Both Mr. Hukluban and Ms. Maputi are single, of legal age, and
there is no legal impediment for them to get married. Their parents have
no objections to the two getting married. Based on the foregoing
information, which of the following statements is true?

a. Mr. Hukluban may legally demand that Ms. Maputi live with
him as his wife.
b. Ms. Maputi may legally demand that Mr. Hukluban give her
the monthly support of P20,000 that he had promised.
c. The agreement between Mr. Hukluban and Ms. Maputi is valid
because they can legally get married if they want to.
d. The agreement between Mr. Hukluban and Ms. Maputi is void
for being contrary to morals.
 Answer : D
The agreement between Mr. Hukluban and Ms. Maputi is void for
being contrary to morals.
2. Ervin sold to Edgar his car and promised to deliver in five days
after. The next day, after the sale to Edgar, Ervin
sold the same car to Meldy and immediately effected delivery. On
the day agreed upon, Ervin did not deliver the
car to Edgar. Which is correct?
a. Edgar should make a demand to make Ervin in default
b. Ervin is liable to Edgar for damages and is in default without
need for any demand
c. Ervin is liable to Edgar for the value of the car plus damages
after Edgar makes a demand
d. Edgar can cancel the contract between Ervin and Meldy,
because the contract between Ervin and
Edgar was perfected ahead of the contract between Ervin and
Meldy

.
Answer: B. Ervin is liable to Edgar for damages and is in
default without need for any demand
3. An entity should recognize revenue over time if

a. the customer simultaneously receives and consumes all of the

benefits provided by the entity
as the entity performs
b. the entity has a present right to payment for the asset
c. the entity has transferred physical possession of the asset
d. the customer has the significant risks and rewards related to
the ownership of the asset
 Answer: A
According to paragraph 35 of IFRS 15,
An entity recognizes revenue over time if one of the following
criteria is met:
 the customer simultaneously receives and consumes all of
the benefits provided by the entity as the entity performs;
 the entity’s performance creates or enhances an asset that
the customer controls as the asset is created; or
 the entity’s performance does not create an asset with an
alternative use to the entity and the entity has an enforceable
right to payment for performance completed to date.
4. Machu Picchu reported the following data for the current year:
Net sales 9,500,000
Cost of goods sold 4,000,000
Selling expenses 1,000,000
Administrative expenses 1,200,000
Interest expense 700,000
Gain from expropriation of land 500,000
Income tax 800,000
Income from discontinued operations 600,000
Unrealized gain on equity investment at FVOCI 900,000
Unrealized loss on futures contract designated as a cash flow hedge 400,000
Increase in projected benefit obligation due to actuarial assumptions 300,000
Foreign translation adjustment – debit 100,000
Revaluation surplus 2,500,000
What net amount in OCI should be presented as “may not be recycled to profit or loss”?
Unrealized gain on equity investment at FVOCI P900,000
Actuarial loss on PBO (300,000)
Revaluation surplus 2,500,000
Net amount of OCI not reclassified to profit or loss P3,100,000
5. The partners, A and B, share profits 3:2. However, A is to receive a yearly
bonus of 20% of the profits, in addition to his profit share. The
partnership made a net income for the year of P24,000 before the bonus.
Assuming A’s bonus is computed on profit after deducting said bonus,
how much profit share will B receive?
 A B Total
Bonus to A [(24,000/120%)x20%] 4,000 4,000
Balance, 3:2 12,000 8,000 20,000
Total 16,000 8,000 24,000