Use the following information for the next five questions. 3.

3. The net amount to be recognized in 2019 profit or loss in

relation to the building is
The following information relate to an entity’s non-financial a. P150,000 c. P(100,000)
assets as of 31 December 2019: b. P 25,000 d. P( 50,000)
4. The total expense to be recognized in 2019 profit or loss
Inventory in relation to the patent is
a. P285,000 c. P260,000
The following figures relate to inventory of materials:
b. P270,000 d. P235,000
Item X Item Y 5. Which statement is incorrect?
Cost P200,000 P400,000 a. In accordance with PIC Q&A No. 2018-10, an entity
Replacement cost 180,000 370,000 should disclose write-downs of inventory held at the
Estimate costs to convert end of the reporting period.
materials b. In accordance with PIC Q&A No. 2012-02, the costs
into finished goods 100,000 200,000 incurred in relation to demolition (or the physical
Estimated selling price of 320,000 610,000 tearing down) of the old building to give way for the
finished goods construction of the replacement building should
Estimated costs to sell 10,000 15,000 preferably be capitalized as part of the cost of the
new building.
c. In accordance with PIC Q&A No. 2017-6,
Property plant and equipment collector’s items for administrative or
aesthetic purposes can be accounted for in
The entity purchased a machine for P100,000 on January 1, accordance with PAS 40.
2016, with the following additional items paid or incurred d. Subsequent expenditure on brands, mastheads,
publishing titles, customer lists and items similar in
Separation pay for laborer laid off upon substance (whether externally acquired or internally
Acquisition of new machine P1,200 generated) is always recognized in profit or loss as
Loss on sale of machine replaced 1,300 incurred.
Transportation in 1,000 6. The Fatima Corporation’s inventory at December 31,
Installation cost 4,000 2019, was P325,000 based on a physical count priced at
cost, and before any necessary adjustment for the
following:
The new machine is estimated to have a useful life of 10 years  Merchandise costing P30,000, shipped F.o.b shipping
and a residual value of P4,000. On January 1, 2019, new parts point from a vendor on December 30, 2019, was
which cost P12,600 were added to the machine so as to received on January 5, 2020.
reduce its fuel consumption, but with no change in its  Merchandise costing P22,000, shipped F.o.b
estimated life or residual value. destination from a vendor on December 28, 2019,
was received on January 3, 2020.
Investment property  Merchandise costing P38,000 was shipped to a
customer F.o.b destination on December 28, arrived
The entity has an office building used for administrative
at the customer’s location on January 6, 2020.
purposes with a depreciated historical cost of
 Merchandise costing P12,000 was being held on
P5 million. At 1 January 2019 it had a remaining life of 20
consignment by Club Company.
years. After a re-organization on 1 July 2019, the property
What amount should Fatima Corporation report as
was leased to a third party and reclassified as an investment
inventory in its December 31, 2019, statement of
property applying the entity’s policy of the fair value model.
financial position?
An independent valuer assessed the property to have a fair
a. P367,000 c. P405,000
value of
b. P427,000 d. P325000
P4.8 million at 1 July 2019, which had risen to P4.95 million at
7. The following data were taken from the books of Kanna
31 December 2019.
Co. for the current year:
Intangible asset
From cash records:
On January 2, 2018, the entity purchased a patent with a cost Cash purchases P 30,000
P940,000 a useful life of 4 years. At December 31, 2018, and Payments to trade creditors for
December 31, 2019, the company determines that impairment Credit purchases 302,600
indicators are present. The following information is available From balance sheets
for impairment testing at each year end: Accounts payable
January 1 37,50
12/31/2018 12/31/2019 0
Fair value less costs of P690,000 P420,000 December 31 43,30
disposal 0
Value-in-use P720,000 P445,000 Merchandise inventory, January 1 12,80
0
No changes were made in the asset’s estimated useful life. From other records:
QUESTIONS: Purchase returns and allowances 7,50
0
1. The entity should recognize loss on write-down of Cost of goods for the year 335,700
inventory of materials of
a. P50,000 c. P5,000 The merchandise inventory at the end of the year is
b. P30,000 d. Nile a. P16,200 c. P12,800
2. The depreciation charge on the machine for 2019 is b. P13,800 d. P23,700
a. P12,150 c. P11,900 8. Aljane Company uses the average cost retail method to
b. P12,000 d. P11,360 estimate its inventory. Data relating to the inventory at
December 31, 2019 are:
 and 2,800 in 2019. How much depletion would be
Cost Retail recorded to the gold in 2019?
Inventory, January 1 P2,000,000 P3,000,000 a. P 960,000 c. P1,200,000
Purchases 10,600,000 14,000,000 b. P1,120,000 d. P1,240,000
Net markups 1,600,000
Net markdowns 600,000 13. At the current year-end, Unice Co has undertaken
impairment tests on two machines. The following
information is relevant.
Sales 12,000,000
Estimated normal Machine 1 Machine 2
shoplifting Cost P4,50,000 P250,000
Losses 400,000 Useful life 10 years 15 years
Estimated normal Age 4 years 3 year
shrinkage is Fair value P300,000 P230,000
5% of sales Costs of disposal P15,000 P35,000
Value in use P260,000 P198,000
Aljane’s cost of goods sold for the year ended December
31, 2019 is At what carrying amount should machinery be recognized
a. P8,680,000 c. P7,700,000 in the accounts of Unice Co?
b. P9,100,000 d. P8,400,000 a. P498,000 c. P468,000
b. P470,000 d. P455,000
9. Marianne Farming Corp. has a flock of sheep, which were
shorn shortly before the year end. On November 30, 14. The Mariella Company accounts for non0current assets
2018, the time of shearing, the fair value of the wool less using the cost model. One 30 October 2019 Mariella
costs to sell was determined to be P15,000, and this value classified a non-current asset as held for sale in
had risen to P16,500 by December 31, 2018 (reporting accordance with PFRS5. At that date the asset’s carrying
date). The company estimates that it would incur P500 to amount was P15,000,000, its fair value was estimated at
transport the wool the nearest market. P11,000,000 and the cost to sell at P1,500,000. On 20
November 2019 the asset was sold for net proceeds of
On February 4, 2019, the wool was subsequently sold for P9,200,000.
P17,000 (after deducting costs to sell). How much is the
net profit recognized in 2019? In accordance with PRFRS5, what amount should be
a. P2,500 c. P1,500 included as a loss on disposal in Mariella’s statements of
b. P2,000 d. P 500 comprehensive income for the year ended 31 December
10. Jayvision Company takes a full year’s depreciation 2019?
expense in the year of an asset’s acquisition, and no a. Nil c. P5,500,000
depreciation expense in the year of disposition. Data b. P300,000 d. P5,800,000
relating to one of jayvision’s depreciable assets at
December 31, 2018 are as follows:
Use the following information for the next five questions.
Acquisition year 2016
Cost P110,000 The following information relate to an entity’s liabilities as of
Residual value 20,000 and for the year ended 31 December 2019:
Accumulated depreciation 72,000  The entity had accounts payable of P5,000,000 recorded
Estimated useful life 5 year in the general ledger as of December 31, 2019 before
consideration of the following unrecorded transactions:
Using the same depreciation method as used in 2016,
2017, and 2018, how much depreciation expense should Involve Date Date
Jayvision record in 2019 for this asset? Date Amount Shipped Received FOB terms
a. P12,000 c. 1-3-20 P400,000 12-22- 12-24- Destination
P22,000 19 19/
b. P18,000 d. P24,000 1-2-20 650,000 12-28- 1-2-20 Shipping
19/ point
11. Which is true about the revaluation model for valuing 12-26- 600,000 1-2-20 1-3-20 Shipping
plant, property, and equipment? 19 point
a. Revaluation of assets must be made on the last day of 1-10- 450,000 12-31- 1-5-20 Destination
the fiscal year. 20 19
b. Revaluation of assets must be made on the same date
each year.  On July 1, 2019, the entity purchased a noncash asset
c. There is no rule for the frequency or date of with a list price of P260,000 by issuing a
revaluation five-year noninterest-bearing note. The market or “going”
d. Revaluation of assets must be made every three to rate of interest for this note was 12%. The note will be
five years. paid in five equal annual P64,000 installments each June
30, 2020 through 2024.
12. On January 1, 2016, Claudine corp. acquired a gold mine
property for P10,000,000. In 2016 and 2017, Claudine  In order to finance the entity’s planned expansion, a 12%
spent P4,000,000 on exploration and development. It P10,000,000 face value bonds were issued for
expects to be able to mine 35,000 ounces of gold over the P10,800,000, including accrued interest of P200,000 on
10-year life of the mine. Claudine uses the output method December 1, 2016. Interest is payable every October 1
to account for its gold costs and expects to be able to sell and April 1. By the end of the 2018, the carrying amount
the property to a real estate developer for P2,000,000 at of the bounds was reported at P10,300,000. Francis uses
the end of the 10 years. It mined 3,150 ounces in 2018 the straight-line 2019, Francis decided to reacquire the
bonds at face value plus accrued interest.
 shares issued and outstanding)
 The entity was sued for P1,000,000. Lawyers have Retained earning 933,000
advised that the obligating event has occurred, but that P2,673,000
the probability of making a payout is 25%, which is
deemed not certain. It is expected to take at least 3 years Riggs’ equity transactions during 2019 were as follows:
before the lawsuit is finalize. The entity uses an 8% a. On January 31, 12,000 preference shares were issued
discount rate. in exchange for land with an appraised value of
QUESTIONS: P180,000.
b. On February 14, 6,750 ordinary shares were sold to a
15. In the December 31, 2019 statement of financial position, subscriber at P25 share.
the accounts payable should be reported in the amount of c. On December 14, Riggs purchased dissident
a. P5,000,000 c. P6,050,000 shareholder’s 6,750 shares at P27 per share. The
b. P5,400,000 d. P7,100,000 shares are to be held as treasury shares.
d. On December 20, Riggs entered into a contract for
16. In relation to the note payable, the interest expense to be the sale of 15,000 previously unissued shares at P25
recognized by the entity for the year ended December 31, per share to be issued when the purchase price is
2019 is fully paid. At December 31, only 292,500 had been
a. P27,685 c. P13,842 paid. The subscriber agreed to pay the balance on or
b. P15,600 d. Nile before January 31, 2020.
e. On December 31, Riggs retired 6,000 preference
17. What amount should the entity record as gain on early shares at P18 share.
extinguishment of debt? f. A cash dividend of P2 per share was declared on the
a. P204,000 c. P140,000 preference shares on October 15, and paid on
b. P192,000 d. P120,000 November 15.
g. A cash dividend of P1.5 per share on the ordinary
18. What amount would be recorded as a liability from shares was declared on December 15, and payable on
lawsuit? January 15, 2020.
a. P0 c. P250,000 h. Riggs’ profit for the year 2019 was P375,000.
b. P198,450 d. P314,928
The total shareholders’ equity as of December 31, 2019 is
19. Other things being equal, most managers would prefer to a. P3,115,500 c. P3,198,000
report liabilities as noncurrent rather than current. The b. P3,127,500 d. P3,210,000
logic behind this preference is that the long-term
classification permits the company to report: 22. The Retained Earnings account of Gil Corp. for the year
a. Higher working capital and a higher inventory 2019 consists of the following items:
turnover.
b. Lower working capital and a higher current ratio. Debit Credit
c. Higher working capital and a higher current Balance, January 1, 2019 P112,500
ratio. Write-off of organization P 6,000
d. Higher working capital and a lower debt to equity costs
ratio. Excess of issuing price of 24,000
share
20. The following information relate to an entity’s equity Capital over par value
transactions for the year ended 31 December 2019: Loss on the sale of 2,500
 Received P100,000 from the issuance of a call option equipment
that gives the holder the right to purchase 10,000 Correction of error of prior 10,500
shares of the entity for a fixed price of P100 per year
share. Fair value of the option at December 31 is Gain on sale of treasury 3,500
P110,000. shares
 On 31 December 2019, the entity enters into a Cash and share dividends 60,000
forward contract that requires the entity to Net income for the year 58,500
repurchase its own shares for P60,000 on December Balance, December 31, 119,500
31, 202. No consideration is paid or received at the 2019
inception of the contract. The market interest rate is P198,500 P198,5000
10% on 31 December 2019 and expected to be the
12% on 31 December 2020. The correct balance of retained earnings on December 31,
2019 is
The net increase of these transactions on the entity’s a. P119,500 c. P94,500
equity for the year ended 31 December 2019 is b. P100,500 d. P92,000

a. P40,000 c. P 55,454 23. The shareholders’ equity account balance for the Zackery,
b. P45,454 d. P100,000 Inc. on December 31, 2019 follows:

21. As of December 31, 2018, the shareholders’ equity of 12% Preference share capital, P100 par, P2,000,000
Riggs Corp. is presented below: 20,000 shares
Ordinary share capital, P25 par, 145,000 3,625,000
Cumulative preference shares (P15 shares
par value; 50,000 shares Subscribed share capital, net of
authorized, 6,000 shares issued and P500,000 subscriptions receivable 1,000,000
outstanding) Share premium 500,000
P 90,000 Retained earnings 695,500
Ordinary shares (P10 par value; 1,650,000 Treasury shares, 5,000 shares, at cost 400,000
500,000 shares authorized, 165,000
 Preference shares have a liquidation value of P110; shares depreciation for its other various business holdings. The
are cumulative, with dividends in arrears for 3 years economic life of the facility is 15 years with zero salvage
including the current year and fully payable in the event of value. Title to the facility and land will pass to Kenneth at
liquidation. The book value of an ordinary share is termination of the ease. A partial amortization schedule
a. P22.50 c. P27.78 for this lease is as follows:
b. P25.00 d. P29.00

Use the following information for the next two questions.

An entity reported the following information of January 1,

2019:
Payments Interest Amortization Balance
Ordinary share capital, P10 par, 800,000 8,000,000 1/2/1 P400,000.00
shares 8
Preference share capital, P50 par, 2,500,000 12/31 P65,098.13 P40,000.00 P25,098.13 374,901.87
50,000 shares /18
12% Bonds payable 5,000,000 12/31 65,098.1 37,490.19 27.607.94 347,293.93
19 3
The preference share capital is 10% cumulative and Dec 65,098.1 34,729.39 30,368.74 316,925.19
convertible into 100,000 ordinary shares. Dividends on 31, 3
preference shares are in arrears for two years. 2020

The total lease-related expenses recognized by the lessee

The 12% bonds are convertible into 80 ordinary shares for during 2019 is which of the following? (Rounded to the
each P1,000 bond. nearest peso.)
Unexercised share options to purchase 90,000 ordinary shares a. P64,000 c. P73,490
at P20 per share were outstanding at the beginning and b. P65,098 d. P61,490
ending of 2019. The average market price of the ordinary
share was P30 per share and the market price on December 28. Which of the following is most likely an effect of PFRS 16
31, 2019 was P40 per share. on lessor’s financial statements?
a. Increase in finance lease receivables.
May 1 Issued 60,000 ordinary shares at P25 per share. b. Increase in finance income
July 1 Purchased 100,000 ordinary shares at P15 to be held c. Increase in asset turnover.
as treasury. d. None of the above.
Oct 1 Converted bonds with face amount of P2,000,000.
Dec 31 The net income for 2019 was P2,000,000. The tax 29. Olivia Corp. began operations on January 1, 2018. For
rate is 30%. financial reporting, Olivia recognizes revenue from all sales
under the accrual method. However, in its income tax
QUESTIONS: returns, Olivia reports qualifying sales under the
24. What is the amount of basic earnings per share? installment method. Olivia’s gross profit on these
a. P2.11 c. P1.81 installment sales under each method was as follows:
b. P2.03 d. P1.74
Year Accrual method Installment method
25. What is the amount of diluted earnings per share? 2018 P1,600,000 P 600,000
a. P2.11 c. P1.81 2019 2,600,000 1,400,000
b. P2.03 d. P1.74
The income tax rate is 30% for 2018 and future years.
26. In connection with a share option plan for the benefits of There are no other temporary or permanent differences.
key employees, Jeyson Corp. intends to distribute treasury In its December 31, 2019 balance sheet, what amount
shares when the options are exercised. These shares should Olivia report as liability for deferred income taxes?
were bought in 2016 at P42 per share. On January 1, a. P360,000 c. P660,000
2019, Jeyson granted share options for 10,000 shares at b. P600,000 d. P840,000
P38 per share as additional compensation for services to
be rendered over the next three years. The options are 30. Anne Corporation leased a building and received the
exercisable during a four-year period beginning January 1, P36,000 annual rental payment on June 15, 2019. The
2022, by grantees still employed by Jeyson. Market price beginning of the lease was July 1, 2019. Rental income is
of Jeyson’s share was P47 per share at the grant date. taxable when received. Anne’s tax rate are 30% for 2019
The fair value of a similar share option with the same term and 40% thereafter. Anne had no other permanent or
was P12 at the grant date. No share options were temporary differences. Anne determined that no valuation
terminated during 2019. In Jeyson’s 2019 income allowance was needed. What amount of deferred tax asset
statement, what amount should be reported as should Anne report in its December 31, 2019 statement of
compensation expense pertaining to the options? financial position?
a. P120,000 c. P40,000 a. P5,400 c. P10,800
b. P90,000 d. P30,000 b. P7,200 d. P14,400
27. Kenneth Co. purchases land and constructs a service Use the following information for the next two questions.
station and car wash for a total of P360,000. At January
2, 2018, when construction is completed, the facility and An entity provided the following pension plan information:
land on which it was constructed are sold to a major oil
company for P400,000 and immediately leased from the
oil company by Kenneth. Fair value of the land at time of
the sale was P40,000. The lease is a 10-year,
noncancelable lease. Kenneth uses straight-line

Defined benefit obligation – January
1, 2019
Fair value of plan assets – January 1,
2019
Pension benefits paid during the year
P500,000; traceable operating expenses, P6,000,000;
3,500,000 indirect operating expenses, P2,500,000; general
corporate expenses, P90,000; interest expense P400,000;
income taxes, P1,200,000. Judy-an and all of its divisions
are engaged solely in manufacturing controllable
2,800,000 contribution. Judy-an has a reportable segment if that
segment’s operating profit is at least.
a. P150,000 c. P410,000
250,000 b. P370,000 d. P450,000

Current service cost for 2019 36. Jessa Company assigns some of its patents to other
1,750,000 enterprises under a variety of licensing agreements. In
some instances advance royalties are received when the
Past service cost for 2019 (vesting agreements are signed, and in others, royalties are
period 5 years) 425,000 remitted within sixty days after each license year-end.
The following data are included in Jessa’s December 31
Actual return on plan assets balance sheet.
180,000
2018 2019
Contribution to the plan Royalties receivable P90,000 P85,000
Unearned royalties 60,000 40,000
2,500,000 Excess of issuing price of
Decrease in defined benefit share
obligation due to changes in Capital over par value 24,000
actuarial assumptions 120,000
During 2019 Jessa received royalty remittances of
Discount or settlement rate P200,000. In its income statement for the year ended
10% December 31, 2019, Jessa should report royalty income of
a. P195,000 c. P220,000
b. P215,000 d. P225,000
QUESTIONS:
37. Mae Company acquires patent rights from other
31. What is the amount that the entity would recognize in
enterprises and pays advances royalties in some cases and
profit or loss for the current year?
a. P2,525,000 c. P1,905,000 in others, royalties are paid within ninety days after year-
b. P2,245,000 d. P1,750,000 end. The following data are included in Mae’s December
31 balance sheets:
32. What amount should be reported as accrued benefit cost
2018 2019
at December 31, 2019?
Prepaid royalties P55,000 P45,000
a. P665,000 c. P325,000
Royalties payable 80,0000 75,000
b. P425,000 d. P 85,000
During 2019 Mae remitted royalties of P300,000. In its
33. Which statement is correct regarding interim financial
income statement for the year ended December 31, 2019.
reporting?
Mae should report royalty expense of
a. PAS 34 requires interim financial reporting quarterly. a. P295,000 c. P310,000
b. PAS 34 states a presumption that anyone reading b. P305,000 d. P330,000
interim financial reports will have access to the 38. Zea Corp. reports on a calendar-year basis. Its 2018 and
records of the entity. 2019 financial statements contained the following errors:
c. If an entity does not prepare interim financial reports,
then the year-end financial statements are deemed
2018 2019
not to comply with PFRS.
Over(under)statement of P(10,000) P4,000
d. Measurements for interim reporting purposes
ending inventory
shall be made on a year-to-date basis.
Depreciation understatement 4,000 6,000
Failure to accurate salaries at 8,000 12,000
34. Jerry Corp. experienced a P50,000 decline in value of its
year end
inventory in the first quarter of its fiscal year. Jerry had
expected this decline to reverse in the third quarter, and
As a result of the above errors, 2019 net income would be
in fact, the third quarter recovery exceeded the previous
overstated by
decline by P10,000. Jerry’s inventory did not experience
a. P 4,000 c. P22,000
any other declines in value during the fiscal year. What
b. P16,000 d. P24,000
amounts of loss or gain should Jerry report in interim
financial statements for the first and third quarters?
39. Which of the following will change the net monetary
items?
1ST Quarter 3RD Quarter I. Sales on account
a. P0 P0 II. Collections of accounts receivable
b. P0 P10,000 gain III. Purchases on account
c. P50,000 loss P50,000 gain IV. Payments of account payable
d. P50,000 loss P60,000 gain V. Cash dividends declaration
VI. Payment of cash dividends payable
35. The following information pertains to Judy-an Company
and its operating segments for the current year. Sales to a. I, II, III, IV and VI c. I, III and V only
unaffiliated customers; P10,000,000, intersegment sales, b. I, II, III, IV and VI only d. II, IV and VI only
P3,000,000; interest earned on loans to other segments,
40. In its financial statements, Keith Co. discloses
supplemental information on the effects of changing
prices. Keith computed the increase in current cost of
inventory as follows:
Increase in current cost (nominal pesos) P15,000
Increase in current cost (constant pesos) P12,000
What amount should Keith disclose as the inflation
component of the increase in current cost of inventories?
a. P 3,000 c. P15,000
b. P12,000 d. P27,000
41. Which statements is correct regarding IFRS for SMEs?
a. Adoption of the IFRS for SMEs Implies that full IFRSs
are not appropriate for SMEs.
b. Determination of taxable income and determination of
distributable income are specific objectives of the
IFRS for SMEs.
c. Providing information to owner-managers to help
them make management decisions is a purpose of the
IFRS for SMEs.
d. The IFRS for SMEs is appropriate for an entity
that does not have public accountability.
42. Which of the following statements reflects the accounting
for financial instruments under the PFRS for SMEs?
a. Banks granting loans to SMEs.
b. Listed entity with less than ten employees.
c. Credit unions.
d. Sellers that receive payment in advance of
delivery of the goods or services such as utility
companies.
43. Which of the following statements reflects the accounting
for financial instruments under the PFRS for SMEs?
a. All financial instruments should be measured at fair
value.
b. Reversal of an impairment loss is not allowed.
c. All amortized cost instruments must be tested for
impairment.
d. The hedge accounting requirements of PAS 39 must be
followed in full.
44. At the beginning of year 1, an SME acquired a tract of
land for an undetermined purpose. The entity started
constructing a building on the land for use as its
administrative headquarters at the beginning of year 4.
The entity’s administrative staff moved into that building
at the beginning of year 5.
Three years later, at the beginning of year 8, the entity’s
administrative staff moved into newly acquired premises.
The old building was immediately rented to an
independent third party under an operating lease.
At the end of year 9, the entity accepted an unsolicited an
unsolicited offer from the tenant to purchase the building
from the entity with immediate effect.
The fair value of the property (land and related buildings)
can be measured reliably can be measured reliably without
under cost or effort on an ongoing basis.
The entity shall account for the tract of land and the
related building as:
a. Investment property from year 1 to year 9.
b. Investment property during year 1 to 3 and
year 8 to 9 and as property, plant and
equipment during year 4 to 7.
c. Investment property during year 1 to 3 and as
property, plant and equipment during year 4 to 9.
d. Property, plant and equipment during year 1 to 7 and
as investment property during year 8 to 9.
45. Which statement is incorrect?
a. The Board of Accountancy (BQA) is under the
supervision and administrative control of the
Professional Regulation Commission.
b. The Financial Reporting Standards Council assists the
BQA in carrying out its power and function to
promulgate accounting standards in the Philippines.
c. The Auditing and Assurance Standards Council shall
be composed of fifteen members with a chairman.
d. Commission on Audit is represented in the
Philippine Interpretations Committee.
46. An entity with total liabilities of P100 million is considered
as
a. Publicly accountable entity
b. Medium-sized entity
c. Small entity
d. Micro entity
47. Which statement is correct regarding the Conceptual
Framework for Financial Reporting?
a. Prevails in cases where there is conflict with a PFRS.
b. Its foundation is the elements of financial statements.
c. Assists users of financial statements in applying the
accounting standards.
d. It addresses the characteristics that make
financial information useful.
48. Which statement is incorrect regarding the 2018
Conceptual Framework for Financial Reporting?
a. It clarified why information used in assessing
stewardship is needed to achieved the objective of
financial reporting.
b. It clarified the roles of prudence, measurement
uncertainty and substance over form in assessing
whether information is useful.
c. The definitions of an asset and a liability have been
refined and the definitions of income and expenses
have been updated only to reflect that refinement.
d. None of the above.
49. Which statements is incorrect?
a. Prepayments occur when cash flow precedes expense
recognition.
b. Failure to record the unexpired portion of insurance
premium paid would understate profit.
c. Failure t record the unearned portion of rent received
in advance would overstate owner’s equity.
d. The adjusting entry to record the earned
portion of rent received in advance may be
reversed.
50. Lorraine Co. owns a royalty interest in an oil well. The
contract stipulates that Lorraine will receive royalty
payments semiannually on January 31 and July 31. The
January 31, payments will be for 20% of the oil sold to
jobbers between the previous June 1 and November 30,
and the July 31, payment will be for oil sold between the
previous December 1 and may 31. Royalty receipts for
2019 amounted to P80,000 and P100,000 on January 31
and July 31, respectively. One December 31, 2018,
accrued royalty income receivable amounted to P15,000.
Production reports show the following oil sales:
June 1, 2018 - November 30, 2018 P400,000
December 1, 2018 - May 31, 2019 500,000
June 1, 2019 - November 30, 2019 425,000
Dec. 1, 2019 - Dec. 31, 2019 70,000
 What amount should Lorraine report as royalty income for 5. Five hundred thousand shares of no. par ordinary shares
2019? are authorized, of which 200,000 shares have been issued
a. P179,000 c. P184,000 and are outstanding.
b. P180,000 d. P194,000
6. The land account includes P500,000 representing the cost
51. Which statement is incorrect regarding the information of the land on which the company’s office building resides.
provided by an entity’s financial statements? The remaining P250,000 is the cost of land that the
a. The information about the nature and amounts of a company is holding for investment purposes.
reporting entity’s economic resources and claims can
help users to identify the reporting entity’s financial QUESTIONS:
strengths and weaknesses. 52. the total current assets of Leinard Company as of June 30,
b. Information about the return the entity has produced 2019 is
provides an indication of how well management has a. P3,950,000 c. P3,590,000
discharged its responsibilities to make efficient and b. P3,630,000 d. P3,900,000
effective use if the reporting entity’s resources.
c. Information about a reporting entity’s past 53. The total current liabilities of Leinard Company as of June
financial performance and how its 30, 2019 is
management discharged its responsibilities is a. P2,880,000 c. P2,780,000
indicative of the entity’s future returns on its b. P2,680,000 d. P2,280,000
economic resources.
d. Changes in economic resources and claims not 54. At a minimum, the face of the Statement of Financial
resulting from financial performance are reported in Position shall include which of the following line items?
statement of Changes in equity. I. Accounts receivable
II. Biological assets
Use the following information for the next two questions. III. Machinery and equipment
IV. Provisions
Leinard Company’s June 30, 2019 post0 closing trial balance: V. Deferred tax liabilities
VI. Issued capital and reserves attributable to owners of
Account Title Debits Credits the parent
Cash P850,000
Short-term investments 630,000 a. I, II, III, IV, V and VI c. II, IV, V and VI
Accounts receivable 2,800,000 only
Prepaid expenses 320,000 b. I, II, IV and VI only d. II, IV and VI only
Land 750,000
Buildings 3,200,000 Use the following information for the next two questions.
Accumulated dep. – P1,600,000
buildings
Equipment 2,650,000 The following data were taken from the records of Jess
Accumulated dep. – 1,200,000 Company for the year 2019:
equipment
Accounts payable 1,730,000 Sales P5,590,000
Accrued expenses 450,000 Sales returns 55,000
Notes payable 1,000,000 Inventories, January 1:
Mortgage payable 2,500,000 Raw materials 131,000
Ordinary shares 1,000,000 Work in process 238,350
Retained earnings 1,720,000 Finished goods 442,000
Total P11,200,000 P11,200,000 Inventories, December 31:
Raw materials 145,500
Additional Information: Work in process 175,720
1. The short-term investments account includes P180,000 in Finished goods 412,000
treasury bills purchased in May. The bills mature in July. Direct labor 1,050,300
2. The accounts receivables account consists of the Purchases 2,051,300
following: Purchase returns 17,150
a. Amounts owed by customers P2,250,000 Purchase discounts 12,550
b. Allowance for uncollectible accounts Trade customers Freight in 8,250
(150,000) Freight out 200,000
c. Nontrade note receivable (due in three years) Allowance for doubtful accounts 25,000
650,000 Sales salaries 445,000
d. Interest receivable on note (due in four months) Office salaries 155,000
50,000 Depreciation – factory building 44,4000
Total P2,800,000 Depreciation – office equipment 44,000
Depreciation – store equipment 77,000
3. The notes payable accounts consists of two notes of Depreciation – machinery and 25,500
P500,000 each. One note is due on equipment
September 30, 2019, and the other is due on November Amortization – patents 33,000
30, 2020. Bad debts expense 20,000
Factory supplies expense 75,000
4. The mortgage payable is payable in semiannual Accrued manufacturing expenses 34,500
installment of P50,000 each plus interest. The next payable
payment is due on October 31, 2019. Interest has been Indirect labor 35,300
properly accrued and is included in accrued expenses. Interest income 116,240
Interest receivable 34,250
Factory light and power 65,000
 Property taxes and insurance – 13,200 61. At December 31, 2019, Jimwell Co. had the following
factory building balances in the accounts it maintains at
Prepaid insurance expense 18,750 First State Bank:
Royalties on production 13,200
Supervision expense 65,000 Checking account #101 P175,000
Tools expense 10,500 Checking account #201 (10,000)
Miscellaneous factory expense 51,150 Money market account 25,000
Dividends paid 70,000 90-day certificate of deposit, due 50,000
2/28/20
QUESTIONS: 180-day certificate of deposit, due 80,000
55. The cost of goods sold is 2/15/20
a. P3,588,880 c. P3,523,880
b. P3,542,680 d. P3,513,380 In its December 31, 2019 statement of financial position,
what amount should Jimwell report as cash and cash
56. The income before income taxes is equivalents?
a. P1,005,120 c. P1,114,860 a. P190,000 c. P240,000
b. P1,051,360 d. P1,121,360 b. P200,000 d. P320,000

57. The profit or loss section or the statement of profit or loss 62. The cash account shows a balance of P38,000 before
shall include line items that present the following amounts reconciliation. The bank statement does not include a
for the period: deposit of P2,300 made on the last day of the month. The
I. Finance costs bank statement shows a collection by the bank of P940
II. Depreciation and a customer’s check for P220 was returned because it
III. Share of profit or loss of associates was NSF. A customer’s check for P450 was recorded on
IV. Employee benefits the books as P540, and a check written for P79 was
V. Tax expense recorded as P97.
VI. Discontinued operations
The correct balance in the cash account is
a. I, II, III, IV, V and VI c. I, III, V and VI only a. P38,612 c. P38,648
b. I, II, III, V and VI only d. II and IV only b. P38,828 d. P40,948

58. The components of other comprehensive income include: 63. The Geraldine Manufacturing Company sells its products
I. Changes in revaluation surplus offering 30 days to its customers. Uncollectible amounts
II. Gains and losses on remeasuring held for trading are estimated by accruing monthly charge to bad debt
financial assets expense equal to 2% of credit sales. At the end of the
III. Effective portion of gains and losses on hedging year, the allowance for uncollectible accounts is adjusted
instruments in a fair value hedge based on aging of accounts receivable. The company
IV. Interest in defined benefit plans. started the current year with the following balances in its
accounts:
a. I, II, III, IV and V c. I and V only
b. I, III and IV only d. I, III and V only Accounts receivable P305,000
Allowance for doubtful accounts 25,500
59. Joyce Company has provided the following 2019 account
balances: During the year, sales on credit were P1,300,000, cash
collections from customers were P1,250,000, and actual
Jan. 1 Dec. 31 write-offs of accounts were P25,000. An aging of
Accounts receivable P1,500,000 P2,800,000 accounts receivable at the end of the year indicates a
Allowance for doubtful 200,000 400,000 required allowance of P30,000.
accounts
Prepaid insurance 600,000 450,000 Based on the foregoing, which statement is true?
Accounts payable 900,000 1,200,000 a. The balance of accounts receivable at the end of the
year is P300,000.
Joyce’s profit for 2019 was P8,000,000. The net cash b. The doubtful accounts expense for the year is
provided by operating activities is P26,000.
a. P9,550,000 c. P7,350,000 c. The adjusting entry for doubtful accounts at
b. P8,650,000 d. P7,150,000 year-end includes a credit to allowance for
doubtful accounts of P3,500.
60. In which of the following is an entity related to the d. None of the above
reporting entity?
I. An associate of a member of a group of which the 64. In July 1, 2019, Daniboy Company finished consultation
reporting entity is a member. services and accepted in exchange a promissory note with
II. A customer with whom the reporting entity transacts a face value of P300,000, a due date of June 30, 2022,
a significant volume of business resulting in economic and a stated rate of 5%, with interest receivable at the
dependence. end of each year. The fair value of the services is not
III. The entity is a post-employment defined benefit plan readily determinable and the note is not readily
for the benefit of employees of an entity related to marketable. Under the circumstances, the note is
the reporting entity. considered to have an appropriate imputed rate of interest
IV. One entity is a subsidiary of a third entity and the of 10%. The total income to be recognized in Daniboy’s
reporting entity is an associate of the third entity. 2019 profit or loss is
a. I, II, III and IV c. I and IV only
b. I, III and IV only d. II only a. P307,500 c. P275,829
b. P288,963 d. P262,694
65. On December 28, 2018 Joanna Company commits itself to
purchase a financial asset to be classified as FA@AC for
P1,000,000, its fair value on commitment (trade) date.
This security has a fair value of P1,002,000 and
P1,005,000 on December 31, 2018 (Joanna’s financial
year-end), and January 5 ,2019 (settlement date),
respectively. If Joanna applies the settlement date
accounting method to account for regular-way purchases
of its securities, the financial asset should be recognized
on January 5, 2019 at
a. P1,000,000 c. P1,005,000
b. P1,002,000 d. P 0
70. Nyll Inc. borrows P10 million from Bank A at a fixed rate
66. On December 28. 2019, Eric Company commits itself to
purchase a financial asset to be classified as held for
trading for P500,000, its fair value on commitment (trade)
date. This security has a fair value of P505,000 and
P510,000 on December 31, 2019 (Eric’s financial year-
end), and January 5, 2020 (settlement date), respectively.
If Eric applies the settlement date accounting method to
account for regular-way purchases of its securities, how
much should be recognized as fair value adjustment gain
in its 2019 profit or loss?
69. During 2019, Jacob Co. pays an insurance premium of
P31,800 on a P900,00 life insurance policy covering the
president. The cash surrender value of the policy will
increase from P165,000 to P175,200 during 2019.
Dividends received from the insurance company during
2019 total P6,300. The president died half way through
2019. The policy indicates that the cash surrender value
is P170,100 at that date and 50% of the premium us
refunded. The gain on life insurance settlement is
a. P714,000 c. P723,600
b. P729,900 d. P736,200
of 7%, payable quarterly in arrears. The prime rate is
4.5% when the loan is taken out. Nyll’s management
believes that interest rates will decline in the near future.
Accordingly, it enters into a swap agreement with Bank B.
Under the agreement, Nyll is committed to pay to Bank B
a sum equal to prime plus 2.5% on a national principal of
P10 million and Bank B is committed to pay to Nyll a sum
equal to 7% on a national principal of
P10 million, with the amounts settled on a net basis at the
end of each quarter. If the prime rate drops to 4%, what
are Nyll’s cash flows for the next quarter?

a. P15,000 c. P5,000 a. P162,500 inflow from Bank A

b. P10,000 d. Nil b. P162,500 outflow to Bank B
c. P175,000 outflow to Bank A and P12,500
67. One January 1, 2017, Jomare Company purchased equity inflow from Bank B
investment at a cost of P2,000,000. The investment is d. P175,000 outflow to Bank A and P12,500 outflow to
designated as FA@FVTOCI. The following table sets out Bank B
the changes in the fair value of the investment and the
nature of the change in each year:

Year Fair value change Nature of change

2017 P(40,000) No objective
evidence
2018 ( 80,000) Objective evidence
of impairment
2019 150,000 Objective evidence
of reversal of
impairment

How much should be recognized in profit or loss for 2017,

2018 and 2019, respectively as a result of the fair value
changes?
a. P 0; P 0; P 0
b. P 0; P(120,000); P120,000
c. P 0; P(120,000); P150,000
d. P 0; P( 80,000); P 80,000

68. Which statement is incorrect regarding investment in an

associate classified as held for sale?
a. An entity shall apply PFRS 5 to an investment, or a
portion of an investment, in an associate that meets
the criteria to be classified as held for sale.
b. Any retained portion of an investment in an associate
that has not been classified as held for sale shall be
accounted for using the equity method until disposal
of the portion that is classified as held for sale takes
place.
c. After the disposal takes place, an entity shall account
for any retained interest in the associate in
accordance with PFRS 9 unless the retained interest
continuous to be an associate, in which cast the entity
uses the equity method.
d. When an investment, or a portion of an
investment, in an associate previously
classified as held for sale no longer meets the
criteria to be so classified, it shall be accounted
for using the equity method prospectively.