PROFESSIONAL REVIEW and TRAINING CENTER, INC.

Accounting Olympiad Level 2

PUP - Manila

EASY

1. Appetizer Corp. has a product warranty liability amounting to P10,000. The product warranty costs
are not tax deductible until paid out to customers. The company tax rate is 30%. The company has:
a. a deductible temporary difference of P10,000;
b. an assessable temporary difference of P10,000;
c. a tax base of P10,000;
d. a future deductible amount of P0.

2. In relation to a defined benefit plan, this arises when an entity changes the benefits attributable to
past service so that the present value of the defined benefit obligation decreases.
a. Past service cost
b. Negative past service cost
c. Curtailment
d. Actuarial loss

3. Which of the following statements is correct regarding substance over form?

a. Substance over form is an ingredient of relevance.
b. If information is to be reliable, the transactions and other events should be accounted for and
presented in accordance with their legal form.
c. The substance of transactions or other events is always consistent with that which is apparent
from their legal or contrived form.
d. According to substance over form principle, the party which bears the risks and rewards of
ownership of any asset is the party which has to account for the asset regardless of whether it is
the legal owner of the asset or not.

4. Which of the following is incorrect regarding accounting for distributions of non-cash assets to
owners?
a. The liability to pay a dividend shall be recognized when the dividend is appropriately authorized
and is no longer at the discretion of the entity.
b. An entity shall measure a liability to distribute non-cash assets as a dividend to its owners at the
fair value of the assets to be distributed.
c. When an entity settles the dividend payable, it shall recognize the difference, if any, between the
carrying amount of the assets distributed and the carrying amount of the dividend payable in
profit or loss.
d. None of the above.

5. Which of the following is incorrect regarding an entity that, in the course of its ordinary activities,
routinely sells items of property, plant and equipment that it has held for rental to others?
a. The entity shall transfer such assets to inventories at their carrying amount when they cease to
be rented and become held for sale.
b. The proceeds from the sale of such assets shall be recognized as revenue.
c. PFRS 5 applies when assets that are held for sale in the ordinary course of business are
transferred to inventories.
d. All of the above.

6. The following transfers/reclassifications of financial assets are permitted, except

a. Transfer from held-to-maturity investments to available-for-sale category.
b. Reclassification of non-derivative financial assets out of the fair value through profit or loss
category if the financial asset is no longer held for the purpose of selling it in the near term in
particular circumstances.
c. Reclassification of non-derivative financial assets designated at fair value through profit or loss by
the entity upon initial recognition out of the fair value through profit or loss category.
d. Transfer from the available-for-sale category to the loans and receivables category a financial
asset that would have met the definition of loans and receivables (if the financial asset had not
been designated as available-for-sale), if the entity has the intention and ability to hold that
financial asset for the foreseeable future.

7. The following are examples of investment property, except

a. Land held for undetermined future use
b. Property that is being constructed or developed for use as an investment property.
c. Existing investment property that is being redeveloped for continuing use as investment property.
d. None of the above.

8. Which of the following is an inappropriate combination of a biological asset and its agricultural
produce?

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Biological assets Agricultural produce

a. Sheep Wool
b. Trees in a plantation forest Logs
c. Dairy cattle Milk
d. Pigs Carcass

9. Which statement is correct regarding initial recognition of research and development costs?
a. All research costs should be charged to expense.
b. All development costs should be capitalized.
c. If an enterprise cannot distinguish the research phase of an internal project to create an
intangible asset from the development phase, the enterprise treats the expenditure for that
project as if it were incurred in the development phase only.
d. A research and development project acquired in a business combination is not recognized as an
asset.

10. When an internally generated asset meets the recognition criteria, the appropriate treatment for
costs previously expensed is:
a. Reinstatement.
b. No adjustment as these amounts may not be reinstated.
c. Include in the cost of the development of the asset.
d. Capitalize into the cost of the asset and adjust the opening balance of retained earnings.

AVERAGE

1. On November 15, 2008, Socrates entered in to a commitment to purchase 200,000 units of raw
material X for P8,000,000 on March 15, 2009. Socrates entered into this purchase commitment to
protect itself against the volatility in the price of raw material X. By December 31, 2008, the
purchase price of material X had fallen to P35 per unit. However, by March 15, 2009, when
Socrates took delivery of the 200,000 units, the price of the material had risen to P42 per unit.
How much will be recognized as gain on purchase commitment on March 15, 2009?
a. P1,400,000 c. P400,000
b. P1,000,000 d. P 0

2. John Corp. has the following data relating to accounts receivable for the year ended December 31,
2008:
Accounts receivable, January 1, 2008 P480,000
Allowance for doubtful accounts, January 1, 2008 19,200
Sales during the year, all on account, terms 2/10, 1/15, n/60 2,400,000
Cash received from customers during the year 2,560,000
Accounts written off during the year 17,600

An analysis of cash received from customers during the year revealed that P1,411,200 was received
from customers availing the 10-day discount period, P792,000 from customers availing the 15-day
discount period, P4,800 represented recovery of accounts written-off, and the balance was received
from customers paying beyond the discount period.

The allowance for doubtful accounts is adjusted so that it represents certain percentage of the
outstanding accounts receivable at year end. The required percentage at December 31, 2008 is
125% of the rate used on December 31, 2007.

The doubtful accounts expense for the year ended December 31, 2008 is
a. P6,880 c. P8,720
b. P7,120 d. P8,960

3. On December 31, 2008, Merciful Bank entered into a debt restructuring agreement with Miserable
Corp., which was experiencing financial difficulties. A note for P1,000,000 and one year's accrued
interest was due on this date from Miserable. The note receivable from Miserable was restructured
as follows:
reduced the principal obligation to P700,000.
forgave the P120,000 of accrued interest for 2008.
extended the maturity date to December 31, 2011.
reduced the interest rate to 8%.
Interest is payable annually on December 31, beginning 2009. In accordance with the agreement,
Miserable made payments to Merciful Bank on December 31, 2009, 2010 and 2011.

The loan impairment loss to be recognized in Merciful Banks 2008 profit or loss is (Round off
present value factors to four decimal places)
a. P477,422 c. P487,239

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b. P420,000 d. P 0

4. At reporting date, the carrying amount of a cash-generating unit was considered to be have been
impaired by P1,000,000. The unit included the following assets: Land P3,000,000; Building
P2,000,000; Goodwill P500,000. The fair value of land is reliably determined to be P2,800,000.
The carrying amount of land after the impairment loss is allocated, is:
a. P3,000,000 c. P2,700,000
b. P2,800,000 d. P2,727,300

5. On September 30, 2008, the company completed the construction of a new warehouse. The
construction was achieved using the companys own resources as follows:
Purchased materials P150,000
Direct labor 800,000
Supervision 65,000
Design and planning costs 20,000
Included in the above figures are P10,000 for materials and P25,000 for labor costs that were
effectively lost due to the foundations being too close to a neighboring property. All the above
costs are included in cost of sales. The building was brought into immediate use upon completion
and has an estimated useful life of 20 years (straight-line depreciation). The companys policy for
all depreciation is that it is charged to cost of sales and a full years charge is made in the year of
acquisition or completion and none in the year of disposal.
The carrying amount of the new warehouse as of December 31, 2008 is
a. P1,000,000 c. P950,000
b. P 869,250 d. P987,500

6. On January 1, 2007, Citimart Inc. was granted 5,000 acres of land in a village, located near the
slums outside the city limits, by a local government authority. The condition attached to this grant
was that the company should clean up this land and lay roads by employing laborers from the
village in which the land is located. The government has fixed the minimum wage payable to the
workers. The entire operation will take three years and is initially estimated to cost P160 million.
The fair value of this land on the date of grant was P240 million and is expected to increase by at
least 20% annually because of the improvements to be done by the company. In relation to the
attached condition, the company incurred costs of P80 million in 2007 and P70 million in 2008. On
December 31, 2008, the company estimated that it will incur additional cost of P30 million in 2009.

How much should be recognized as income from government grant for the year ended December
31, 2008?
a. P120,000,000 c. P80,000,000
b. P105,000,000 d. P70,000,000

7. Towsey Manufacturing acquired a new milling machine on April 1, 2002. The machine has a special
component that requires replacement before the end of the useful life. The asset was originally
recorded in two accounts, one representing the main unit and the other for the special component.
Depreciation is recorded by the straight-line method to the nearest month, residual values being
disregarded. On April 1, 2008, the special component is scrapped and is replaced with a similar
component. This component is expected to have a residual value of approximately 25% of cost at
the end of the useful life of the main unit, and because of its materiality, the residual value will be
considered in calculating depreciation. Specific asset information is as follows:

Main milling machine

Purchase price in 2002 P62,400
Residual value P4,400
Estimated useful life 10 years
First special component:
Purchase price P10,000
Residual value P250
Estimated useful life 6 years
Second special component:
Purchase price P15,250
What is the depreciation charge to be recognized for the year 2008?
a. P8,801 c. P5,930
b. P6,775 d. P9,099

8. On January 15, 2006, Alaturka Company paid P5,400,000 for property containing natural resource
of 2,000,000 tons of ore. The entity is legally required to restore the site after mining operations.
The estimated cost of restoring the land after the resource is extracted is P450,000 and the land
will have a value of P650,000 after it is restored for suitable use. Tunnels, bunk houses and other
fixed installations are constructed at a cost of P8,000,000 and such expenditures are charged to
mine improvements.

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Operations began on January 1, 2007 and resources removed totaled 600,000 tons. During 2008,
a discovery was made indicating that available resource after 2008 will total 1,875,000 tons. At the
beginning of 2008, additional bunk houses were constructed in the amount of P770,000. In 2008,
only 400,000 tons were mined because of a strike.
Alaturka Company should report depletion for 2008 at
a. P1,560,000 c. P640,000
b. P1,040,000 d. P776,000

9. Worn Company had purchased equipment for P10,000,000, on January 1, 2006. The equipment
had a 5-year life and a salvage value of 10%. Worn Company depreciated the equipment using the
straight line method. On December 31, 2008, Worn had doubts on the recoverability of the
carrying amount of this equipment. On December 31, 2008, the discounted expected net future
cash inflows related to the continued use and eventual disposal of the equipment totaled
P4,300,000. The equipments fair value less costs to sell on December 31, 2008 is P4,500,000.
After any loss on impairment has been recognized, what is the carrying amount of the equipment?
a. P4,000,000 c. P4,500,000
b. P4,300,000 d. P4,600,000

10. The draft balance sheet of JJ Rapids Corporation as of December 31, 2008 reported the net
property, plant and equipment at P4,200,000. Details of the amount follow:
Land at cost P1,000,000
Building at cost P4,000,000
Less accumulated
depreciation at 12/31/07 ( 800,000) 3,200,000
P4,200,000
At the beginning of the current year, the company had an open market basis valuation of its
properties. Land was valued at P1.2 million and the building at P4.8 million. The directors wish
these values to be incorporated into the financial statements. The building had an estimated
remaining life of 20 years at the date of the valuation (straight-line depreciation is used). The
company makes a transfer to retained earnings in respect of the excess depreciation on revalued
assets.
The revaluation surplus as of December 31, 2008 is
a. P1,720,000 c. P1,800,000
b. P1,710,000 d. P 960,000

DIFFICULT

1. Total debits and total credits in selected accounts of Brahe Company, after closing entries were
posted on December 31, 2007 are given below.
Debits Credits
Materials P 600,000 P 200,000
Goods in process 500,000 300,000
Material purchases 2,500,000 2,500,000
Purchase discounts 100,000 100,000
Transportation in 200,000 200,000
Direct labor 3,000,000 3,000,000
Manufacturing overhead 1,500,000 1,500,000
Finished goods 700,000 400,000
Cost of goods manufactured was
a. P7,100,000 c. P6,900,000
b. P7,000,000 d. P7,400,000

2. On December 31, 2008, Lakeside Co. shows the following account for machinery it had assembled
for its own use during 2008:

Account: MACHINERY (Job Order #14344)

Item Debit Credit
Cost of dismantling old machine P14,480
Cash proceeds from sale of old machine P12,000
Raw materials used in construction of new machine 76,000
Labor on construction of new machine 49,000
Cost of installation 11,200
Materials spoiled in machine trial runs 2,400
Profit on construction 24,000
Purchase of machine tools 13,000
An analysis of the details in the account disclosed the following:

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a. The old machine, which was removed before the installation of the new one, had been fully
depreciated.
b. Cash discounts received on the payments for materials used in construction totaled P3,000, and
these were reported in the purchase discounts account.
c. The factory overhead account shows a balance of P292,000 for the year ended December
31,2008; this balance exceeds normal overhead on regular plant activities by approximately
P16,900 and is attributable to machine construction.
d. A profit was recognized on construction for the difference between costs incurred and the price
at which the machine could have been purchased.
The adjusted cost of the machinery is
a. P165,500 c. P150,100
b. P133,200 d. P152,500

3. Jumong Company bought 20% of Sosimo Corporations ordinary shares on January 1, 2008 for
P11,400,000. Carrying amount of Sosimos net assets at purchase date totaled P50,000,000. Fair
value and carrying amounts were the same for all items except for plant and inventory, for which
fair values exceed their carrying amounts by P10,000,000 and P2,000,000 respectively. The plant
has a 5-year life. All inventory was sold during 2008. During 2007, Sosimo reported net income of
P30,000,000 and paid a P10,000,000 cash dividend. What amount should Jumong report as net
income related to this investment in 2008?
a. P5,200,000 c. P5,400,000
b. P6,200,000 d. P4,200,000

4. On January 1, 2008, Choson Corporation purchased P4,000,000 10% bonds for P3,711,520.
Choson plans to hold the investment in bonds to maturity. However, if market interest rates fall
sufficiently, Choson will consider selling the investment in bonds to realize associated gain. The
bonds were purchased to yield 12%. Interest is payable annually every December 31. The bonds
mature on December 31, 2012. On December 31, 2008 the bonds were selling at 99. On
December 31, 2009, Choson sold P2,000,000 face value bonds at 101, which is the fair value of the
bonds on that date, plus accrued interest. The unrealized gain to be recognized as component of
equity on December 31, 2008 is
a. P203,098 c. P152,270
b. P248,480 d. P 0

5. On December 1, 2007, Dragon Company, a calendar-year-end firm, enters into a derivative

contract designed to hedge the risk of cash flows associated with the forecast future sale of
300,000 bushels of wheat. The anticipated sales date is February 1, 2008. The notional amount of
the derivative contract is 300,000 bushels, the underlying is the price of the same variety and
grade of wheat that Dragon expects to sell, and the settlement date of the derivative is February 1,
2008. The fair value of the derivative contract on December 31, 2007 increased by P30,000, an
amount equal to the decrease in the fair value of the wheat. The fair value of the derivative
contract had increased by an additional P25,000 on February 1, 2008, also an amount equal to the
decrease in the fair value of the wheat. On February 1, the wheat was sold and the derivative
contract was settled. The gain attributable to the increase in the fair value of the derivative that
should be recognized in 2008 earnings is
a. P55,000 c. P25,000
b. P30,000 d. P 0

6. Dingalan Corporations investment properties included the following items:

Land held as potential plant site, P5,000,000.
A vacant building to be leased out under an operating lease, P20,000,000.
Property held for sale in the ordinary course of its business, P30,000,000.
Property held for administrative purposes, P10,000,000.
A hotel owned and managed, P50,000,000.
A building being leased out to a subsidiary, P8,000,000.
A building, which cannot be sold or leased out separately, used in the production of goods and
around 2% of the area being leased out to canteen operators, P2,000,000.
How much will be reported as investment properties in Dingalan Corporations separate financial
statements?
a. P20,000,000 c. P25,000,000
b. P28,000,000 d. P33,000,000

7. In 2003, Chain, Inc. purchased a P1 million life insurance policy on its president, of which Chain is
the beneficiary. Information regarding the policy for the year ended December 31, 2008 follows:
Cash surrender value, 1/1/08 P87,000
Cash surrender value, 12/31/08 108,000
Annual advance premium paid 1/1/08 40,000
During 2008, dividends of P6,000 were applied to increase the cash surrender value of the policy.
What amount should Chain report as life insurance expense for 2008?
a. P40,000 c. P19,000

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b. P21,000 d. P13,000

8. Cookie Company is negotiating a loan with Excel Bank. Cookie needs P3,600,000. As part of the
loan agreement, Excel Bank will require Cookie to maintain a compensating balance of 15% of the
loan amount on deposit in a checking account at the bank. Cookie currently maintains a balance of
P200,000 in the checking account. The interest rate Cookie is required to pay on the loan is 12%.
Excel Bank pays 1% interest on checking accounts. The amount of the loan is
a. P4,000,000 c. P3,600,000
b. P3,800,000 d. P3,400,000

9. The following segments have been identified for a business, along with their sales. No segment
qualifies on any other criterion for determining reportable segments except possibly for revenue.
Sales for each segment, and the total for the company follow:

Segment Sales
1 P 500,000
2 200,000
3 100,000
4 800,000
5 150,000
6 200,000
7 175,000
P2,125,000 (total company sales)

What is the minimum number of reportable segments for this company?

a. 5 c. 3
b. 4 d. 2

10. The following information pertains to Yellow Company for 2008:

a. The company had net monetary items of P80,000 on January 1.
b. Sales of P300,000 and purchases of P120,000 were made evenly throughout the year
c. Operating expenses of P90,000 and income tax expense of P60,000 were incurred evenly
throughout the year
d. Cash dividends of P20,000 were declared on December 31. Selected values of the CPI-U during
2008 appear below:

Jan. 1 110.0
Average for year 121.0
Dec. 31 133.1

The purchasing power gain or (loss) for 2008 expressed in constant year-end pesos is
a. P19,800 c. P(19,800)
b. P18,000 d. P(18,000)

TIE BREAKER

1. Castagno Corporation has decided to expand its operations and has purchased land in Grantsville
for construction of a new manufacturing plant. The following costs were incurred in purchasing the
property and constructing the building:
Land purchase price P 120,000
Payment of delinquent property taxes 35,000
Title search and insurance 6,500
City improvements for water and sewer 18,000
Building permit 8,000
Cost to destroy existing building on land (P3,000 worth of salvaged
material used in new building) 20,000
Contract cost of new building 1,650,000
Land improvements-landscaping 82,000
Sidewalks and parking lot 39,000
Fire insurance on building - 1 year 18,000
The depreciated value of the old building on the books of the company from which the land was
purchased was P26,000. The old building was never used by Castagno. How much should be
recognized as cost of land?
a. P278,500 c. P260,500
b. P178,500 d. P196,500

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2. On December 31 of the current year, Holmgren Company's bookkeeper made an entry debiting
Supplies Expense and crediting Supplies on Hand for P12,600. The Supplies on Hand account had a
P15,300 debit balance on January 1. The December 31 balance sheet showed Supplies on Hand of
P11,400. Only one purchase of supplies was made during the month, on account. The entry for
that purchase was
a. debit Supplies on Hand, P8,700 and credit Cash,
P8,700.
b. debit Supplies Expense, P8,700 and credit
Accounts Payable, P8,700.
c. debit Supplies on Hand, P8,700 and credit
Accounts Payable, P8,700.
d. debit Supplies on Hand, P16,500 and credit
Accounts Payable, P16,500.

3. X Company sells goods with a cost of P100,000 to Y Company for P140,000 and a credit period of
six months. X Companys normal cash price would have been P125,000 with a credit period of one
month or with a P5,000 cash discount for cash on delivery. How much should X Company
recognize as revenue?
a. P140,000 c. P125,000
b. P120,000 d. P135,000

4. The general ledger trial balance of Rodman Limited includes the following accounts at December 31,
2008:
Sales revenue P975,000
Interest income 20,000
Share of profit of associates 15,000
Other income 8,000
Decrease in inventories of finished goods 25,000
Raw materials and consumables used 350,000
Employee benefit expenses 150,000
Loss on translation of foreign operations 30,000
Depreciation of property and equipment 45,000
Impairment of property 80,000
Finance costs 35,000
Other expenses 45,000
Income tax expense 75,000
How much should be reported as profit for the year ended December 31, 2008?
a. P288,000 c. P263,000
b. P213,000 d. P183,000

5. The liability section of the balance sheet of Bird Co. on December 31, 2008 showed:
Share dividends declared but not yet paid P50,000
Dividends in arrears on preference shares 25,000
Income tax withheld 1,500
Deferred income tax payable 10,000
Accounts payable, net of P5,000 debit
balance in two suppliers account 55,000
Bank overdraft with Metro Bank 12,000
Mortgage loans incurred in 2008 payable in
ten annual installments starting July 1,
2009 500,000
At what amount should the total current liabilities be shown?
a. P 18,500 c. P173,500
b. P123,500 d. P653,500

6. The following pertains to Malpighi, Inc. on April 30, 2008: Correct cash balance in a general
checking account with PCI Bank P32,000; overdraft in a special checking account with Family
Bank (Malpighi does not have another account with Family Bank) P2,000; Cash accumulated in a
special fund that will be used for plant expansion in five years P15,000; cash surrender value of
life policy P3,200; cash travel advances in the hands of sales personnel- P1,200; currency and
coins in a petty cash fund (the company has not replenished the fund to the imprest amount of
P2,000) P58. How much cash should Malpighi report as cash on the balance sheet?
a. P33,258 c. P32,200
b. P32,058 d. P30,200

7. You obtained the bank statement, paid checks, and other memoranda relating to Emerson
Companys bank account for December 2008. In reconciling the bank balance at December 31,
2008, you observed the following facts:
Balance per bank statement, 12/31/08 P1,465,800
Outstanding checks, 12/31/08 624,750

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Receipts of 12/31/08, deposited 1/2/09 95,550

Proceeds of bank loan, 12/15/08,
discounted for 90 days at 10% per
year, omitted from records 195,000
Deposit of 12/23/08, omitted from bank
statement 53,000
Check 733 of Ralph Waldo, charged by
the bank in error to Emerson Co. 82,100
Proceeds of note receivable of Emerson
Co. collected by bank, 12/10/08, not
entered in cash records (Principal,
P40,000; Interest, P400; Collection
charge, P100) 40,300
Erroneous debit memo of 12/31/08, to
charge companys account with
settlement of bank loan, paid by check
no. 9344 on same date 100,000
Deposit of Ralph Waldo of 12/6/08
credited in error to Emerson Co. 25,000
The cash balance per books of Emerson Company on December 31, 2008 is
a. P1,491,000 c. P961,800
b. P1,146,700 d. P911,400

8. On December 1, 2008, Money Co. gave Home Co. a P200,000, 11% loan. Money paid proceeds of
P194,000 after the deduction of a P6,000 nonrefundable loan origination fee. Principal and interest
are due in 60 monthly installments of P4,310, beginning January 1, 2009. The repayments yield an
effective interest rate of 11% at a present value of P200,000 and 12.4% at a present value of
P194,000. What amount of income from this loan should Money report in its 2008 income
statement?
a. P 0 c. P2,005
b. P1,833 d. P7,833

9. On January 1, 2008, the lending company made a P200,000, 8% loan. The interest is receivable at
the end of each year, with the principal amount to be received at the end of 5 years. As of
December 31, 2008, the interest for the current year has not yet been received nor recorded
because the borrower is experiencing financial difficulties. The lending company negotiated a
restructuring of the loan. The payment of all of the interest based on the original principal will be
delayed until the end the 5-year loan term. In addition, the amount of principal repayment will be
dropped from P200,000 to P100,000. The prevailing interest rate for similar type of loan as of
December 31, 2008 is 10%. (Round off present value factors to four decimal places)
The loan impairment loss to be recognized in 2008 profit or loss is
a. P67,700 c. P77,492
b. P73,506 d. P 0

10. Seller Co. is a calendar-year retailer. Its year-end physical count of inventory on hand did not
consider the effects of the following transactions:
Goods with a cost of P50,000 were shipped by Seller FOB shipping point on December 30 and
were tendered to and accepted by the buyer on January 4.
Goods with a cost of P40,000 were shipped FOB destination by a vendor on December 30 and
were tendered to and accepted by Seller on January 4.
Goods were sold on the installment basis by Seller. Installment receivables representing sales of
goods with a cost of P30,000 were reported at year-end. Seller retains title to such goods until
full payment is made.
Goods with a cost of P20,000 were held on consignment for a vendor. These goods were
excluded from the count although they were sold in January.
If inventory based solely on the physical count of items on hand equaled P1 million. Seller should
report inventory at year-end of
a. P1,000,000 c. P1,040,000
b. P1,070,000 d. P1,020,000

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