Accounting Exams

PROBLEM 1-1
The cash account of the Mapagkumbaba Inc. as of December 31, 2017 consists of the following:
On deposit in current account with Real Bank P
900,000
350,00
Cash collection not yet deposited to the bank
0
A customer’s check returned by the bank for insufficient Fund 150,00
0
A check drawn by the Vice-President of the Corporation
70,00
dated January 15, 2013
0
A check drawn by a supplier dated December 28, 2017 for
60,00
0
goods returned by the Corporation
A check dated May 31,2017 drawn by the Corporation

against the Piggy Bank in payment of customs duties.
Since the importation did not materialize, the check was
returned by the customs broker. This check was an
outstanding check in the reconciliation of the Piggy
410,00
Bank account 0
Petty Cash fund of which P5,000 is in currency; P3,600 in

form of employees’ I.O.U. s; and P1,400 is supported by
approved petty cash vouchers for expenses all dated
10,00
prior to closing of the books on December 31, 2017
0
P1,950,0
Total 00
Less: Overdraft with Piggy Bank secured by a Chattel ( 300,000)
Balance per ledger P1,650,000
At what amount will the account “Cash” appear on the December 31, 2017 balance sheet?
a. P1,425,000
b. P1,495,000
c. P1,315,000
d. P1,725,000
Solution: Answer (a)

Current account with Real Bank P
900,000
350,00
Undeposited collection
0
60,00
Supplier's check for goods returned by the Corporation
0
Unexpended petty cash 5,000
110,00
Current account with Piggy Bank (P410,000 - P300,000)
0
P1,425,0
Total
00
Coins and currencies P5,000

48,00
Replenishment check 43,000
0
P4,248,0
Total 00
PROBLEM 1-2
In the course of your audit of the Mabait Corporation, its controller is attempting to determine the
amount of cash to be reported on its December 31, 2017 balance sheet. The following information is
provided:
a. Commercial savings account of P1,200,000 and a commercial checking account balance of

P1,800,000 are held at PS Bank.
b. Travel advances of P360,000 for executive travel for the first quarter of the next year (employee
to reimburse through salary deduction).
c. A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long term
debt.
d. Petty cash fund of P10,000.
e. An I.O.U. from a company officer in the amount of P40,000.
f. A bank overdraft of P250,000 has occurred at one of the banks the company uses to deposit its
time, the cash receipts. At the present company has no deposits at this bank.
g. The company has two certificates of deposit, each totaling P1,000,000. These
certificates of deposit have maturity of 120
days.
h. Las Conde has received a check dated January 2, 2013 in the amount of P150,000.
i. Las Conde has agreed to maintain a cash balance of P200,000 at all times at PS Bank to ensure
future credit availability.
j. Currency and coin on hand amounted to P15,000.
Based on the above and the result of your audit, how much will be reported as cash and cash
equivalent at December 31, 2017?
a. P2,075,000
b. P3,025,000
c. P2,825,000
d. P5,025,000
Solution: Answer (b)
Savings account at PS Bank P1,200,000
Checking account at PS Bank 1,800,000
Petty cash fund 10,000
Currency and coin 15,000
Total P3,025,000
PROBLEM 1-3
You noted the following composition of Maragondon Company’s “cash account” as of December 31,
2017 in connection with your audit:
Demand deposit account P2,000,000
Time deposit – 30 days 1,000,000

NSF check of customer 40,000
Money market placement (due June 30, 2013) 1,500,000
Savings deposit in a closed bank 100,000
IOU from employee 20,000
Pension fund 3,000,000
Customer’s check dated January 1, 2013 50,000
Customer’s check outstanding for 18 months 40,000 Total

P7,760,000
Additional information follows:
a) Check of P200,000 in payment of accounts payable was recorded on December 31, 2017 but
mailed to suppliers on January 5, 2013.
b) Check of P100,000 dated January 15, 2013 in payment of accounts payable was recorded
and mailed on December 31, 2017.
c) The company uses the calendar year. The cash receipts journal was held open until January
15, 2013, during which time P400,000 was collected and recorded on December 31, 2017.
The cash and cash equivalents to be shown on the December 31, 2017 balance sheet
is
a. P3,310,000
b. 1,910,000
c. P2,910,000
d. P4,410,000
Solution: Answer (c)
Demand deposit account as adjusted:
Demand deposit account per books P2,000,000
Undelivered check 200,000
Postdated check issued 100,000
Window dressing of collection (400,000)

Total P1,900,000
Time deposit - 30 days 1,000,000
Cash and cash equivalents P2,910,000 BANK

RECONCILIATION (PROBLEMS)
1. Emily Company provided the bank statement for the month of December which included the
following information:
Ending balance, December 31 2,800,000
Bank service charge for December 12,000
Interest paid by bank to Emily Company for December 10,000
In comparing the bank statement to its own cash records, the entity found the following:
Deposits made but not yet recorded by the bank 350,000
Checks written and mailed but not yet recorded by the bank 650,000
In addition, the entity discovered that it had drawn and erroneously recorded a check for P46,000 that
should have been recorded for P64,000. What is the cash balance per ledger on December 31?
a. 2,500,000
b. 2,800,000
c. 2,520,000
d. 2,540,000

Balance per bank P2,800,0
00
Deposits in transit 350,000
( 650,000
Outstanding checks
)
P2,500,0
Adjusted bank balance
00
Balance per ledger (SQUEEZE) 2,520,000
Unrecorded customer check 10,000

Bank service charge ( 12,000)
NSF check ( 18,000)

Adjusted book balance P2,500,000
2. The bank statement of Maloko Corporation for April, 2013 showed an ending balance of
P169,263. Deposit in transit on April 30 was P18,200. Outstanding checks as of April 30 were
P59,435. During the month of April, the bank charged back NSF checks in the amount of P3,435 of
which P1,835 had been redeposited by April 30. The company made no entry for the return and for
the redeposit of the checks.
On April 23, the bank charged Maloko Corporation’s account for a P2,200 item which should have
been charged against the account of Maloka Corporation; the error was not detected by the bank.
During April, the proceeds from notes collected by the bank for Maloko Corporation were P7,548 and
bank charges for this service were P180.
What is the unadjusted book balance for “Cash” of Maloko Corporation at April 30, 2013?
a. 132,008
b. 126,295
c. 124,460
d. 124,310
Balance per bank statement P169,263

Deposit in transit, April 30 18,200
Outstanding checks, April 30 ( 59,435)
Erroneous charge by bank 2,200
NSF checks not yet redeposited (3,435 – 1,835) 1,600
Proceeds of note collected by bank ( 7,548) Bank service
charge 180
Unadjusted book balance for cash, April 30, 2013 P 124,460
3. On June 30, 2013, the bank statement of Bongangbongga Company had an ending balance
of P3,735,000. The following data were assembled on the course of reconciling the bank balance:
• The bank erroneously credited Bongangbongga Company for P21,000 on June 22

• During the month, the bank charged back NSF checks amounting to P23,000 of which
P8,000 had been redeposited by June 25
• Collection for June 30 totaling P103,000 was deposited the following month
• Checks outstanding on June 30 amounted to P302,000
• Note collected by the bank for Bongangbongga Company was P80,000 and the
corresponding bank charge was P5,000.
What is the unadjusted cash in bank per ledger on June 30, 2013?
a. 3,515,000
b. 3,557,000
c. 3,455,000
d. 3,497,000
Balance per bank P3,735,000

Erroneous bank credit ( 21,000) Deposit in transit 103,000
Outstanding checks ( 302,000)
Adjusted bank balance P3, 515,000
Balance per book (SQUEEZE) P3,455,000

NSF checks (23,000 – 8,000) ( 15,000)
Note collected by bank 80,000
Service charge ( 5,000)
Adjusted book balance P3,515,000

ACCOUNTS RECEIVABLE (PROBLEMS)
PROBLEM 1-1
The Creamers Corporation starts operations in Year One and makes gross sales of P740,000 per
year, incurring P240,000 cost of expense; while collecting cash of only P200,000 per year. During
each year, P15,000 in accounts are judged to be uncollectible. The company estimates that 8
percent of its credit sales will eventually prove to be worthless.
In addition to that, the entity wrote off P24,000 during the year. There were no collection of accounts
written off.
The Accounts Receivable has an ending balance of 100,000.
What is reported as the allowance for doubtful accounts on the company’s balance
sheet at the end of Year Two
a. P15,000
b. P40,000
c. P24,000
d. P30,000
Net Sales (740,000-240,000) P500,000

x 8%
Doubtful Accounts Expense P40,000
PROBLEM 1-2
A company has the following unadjusted account balances at December 31 of the current year.
Accounts Receivable of P185,700 and Allowance for Doubtful Accounts of P1,600 (credit balance).
This company uses the aging of accounts receivable to estimate its bad debts. The following aging
schedule reflects its accounts receivable at the current year-end:
Account Age Age Group Estimated

Balance Uncollectible
Percentage
Current (not yet due) P96,000 1.5%
1-30 days past due 64,000 4.0
31-60 days past due 16,000 10.0
61-90 days past due 6,400 40.0
Over 90 days past due 3,200 65.0
Total P185,600
What is the Doubtful Accounts Expense that should appear on December 31 of the current year? a.
8,640
b. 8,600
c. 7,240
d. 8,200
P96,000 x 0.015 = P1,440
64,000 x .04 = 2,560
16,000 x .10 = 1,600
6,400 x .40 = 2,560
3,200 x .65 = 2,080
Total P10,240
Required Allowance P10,240
Allowance for Doubtful Accounts (credit) (1,600)
Doubtful Accounts Expense 8,640 PROBLEM

1-3
Kangkungan Co. reported the following information after adjustments at year-end:
2013 2017
6,900,00
Accounts Receivable 7,100,000
0
5,800,0
Net Realizable Value 6,250,000 00
During 2017, the entity wrote off accounts totaling P330,000 and collected P207,000 on accounts
written off. What amount should be recognized as doubtful accounts expense for the year ended
December 31,2017? a. 850,000
b. 473,000
c. 1,430,000
d. 373,000
Solution: Answer (d)
Allowance- 2013 (7,100,00-6,250,000) P850,000
Recovery of accounts written off 207,000
Doubtful accounts expense for 2016 (SQUEEZE) 373,000
Total P1,430,000
Accounts written off in 2017 (330,000)

Allowance- 2017 (6,900,000-5,800,000) P1,100,000
RECEIVABLE FINANCING ( PLEDGE, FACTORING, ASSIGNMENT)
PROBLEM 1
Mulagat Company factored P7,980,000 accounts receivable to a finance entity on August 1,

2015.The factor was assessed a fee of 5% and reserve a holdback of 6% of the accounts receivable.
Mulagat Company also did surrender the control. In line with this, the factor charged 10% interest on
a weighted average time to maturity of the accounts receivable of 69 days.
1. What is the amount of cash initially received from the factoring?
a. 6, 305, 000
b.6, 704, 000
c.6, 952, 145
d.7, 980, 000
2. What is the cost of factoring of the accounts receivable if all accounts are collected? a. 399, 000
b. 798,000
c. 549, 855
d.1, 027, 855
Accounts Receivable P7, 980, 000
Factor’s Holdback (7, 980, 000 x 6%) (478, 800) Factoring Fee (7, 980,
000 x 5%) (399, 000)
Interest (7, 980, 000 x 10% x69/365) (150,855)
Cash initially received from factoring P 6, 952, 145

Factoring Fee P399, 000
Interest 150,855
Total cost of factoring P549, 855
PROBLEM 2
Sinigang Company during its third year of operations found itself at financial difficulties. With this, the
entity decided to use its accounts receivable as a means of obtaining cash to continue operations.
On July 1, 2015, the entity sold P 2, 150, 000 of accounts receivable for cash proceeds of P2, 000,
000. No bad debt allowance was associated with these accounts.
On December 15, 2015 the entity assigned the remainder of its accounts receivable, P4,000,000 as
of the date, as collateral on a P 2,550, 000, with 10% annual interest rate loan from Sinangag
Company. The entity received P 2,500, 000 less a 3% finance charge. None of the assigned
accounts had been collected by the end of the year.
Allowance for bad debts before adjustment, 12/31/15 75, 000
Estimated uncollectible, 12/ 31/15 3% of accounts receivable
Accounts receivable excluding factored
and assigned accounts, 12/31/15 1,550,000 What amount
should be recognized as Bad debt expense for 2015? a. 159, 000
b. 166, 500
c. 241, 500
d.550, 000
Accounts receivable- unassigned P 1,550,000
Accounts receivable-assigned 4,000,000
Total Accounts Receivable P 5, 550, 000
Required Allowance- 12/31/15 (3% x 5, 550, 000) P166, 500

Add: Allowance for Bad debts before adjustment 75, 000
Bad debt expense for 2015 P241, 500
6. Lucian Company factored P 4,900, 000 of accounts receivable without guarantee for a finance
charge of 3%. The finance entity retained an amount equal to 8% of the accounts receivable for
possible adjustments. What should be recorded as gain or loss on the transfer of accounts
receivable?
a.490, 000
b.147, 000
c.392, 000
d.539, 000
Solution: Answer (c )
Loss in Factoring- Equal to finance fee( 3% x 4, 900 ,00) P 147, 000 PROBLEM 3
On December 1, 2017, Salumbaba Company assigned specific accounts receivable totaling P3, 100,
000 as collateral on a P2, 500, 000, 12% note from a certain bank. The entity will continue to collect
the assigned accounts receivable. In addition to the interest on the note, the bank also charged a 5%
finance charge deducted in advance on the P2, 500, 000 value of the note. The December
collections of assigned accounts receivable amounted to P1, 000, 000 less cash discounts of P50,
000. On December 31, 2017, the entity remitted the collections to the bank in payment for the
interest accrued on December 31, 2017 and the note payable.
1. What amount of cash was received from the assignment of accounts receivable on December 1,
2017?
a. 2, 375, 000
b.2, 150, 000
c.2, 000, 000
d.3, 100, 000
2. What is the carrying amount of note on December 31, 2017?
a.1, 550, 000
b.1, 575, 000
c. 1, 600, 000
d.1, 757, 000

3. What amount should be disclosed as the equity of Salumbebe Company in assigned accounts on
December 31, 2017?
a.475,000
b. 425, 000
c.495, 000
d.525, 000
Solution:
Question 1: Answer (a)
Note Payable P2, 500,

000
Finance Fee (5% x 2, 500, 000) (125, 000)
P2, 375,
Cash received on December 1
000
Question 2: Answer (b)

P2, 500,
Note Payable
000
Principal Payment:
Remittances P950,000
Interest (2,500, 000 x 12% x 1/12) 950,000 25, 000 925, 000
P1, 575,
Note Payable- 12/31/14
000
Question 3: Answer (b)
P2, 000,
Accounts Receivable- assigned(3, 000, 000- 1, 000, 000)
000
Note Payable 1, 575, 000
Equity of Salumbebe Company in assigned accounts P 425,000
NOTES RECEIVABLE (PROBLEMS)
PROBLEM 1
On January 1, 2013, Deboto Company sold a building and received as consideration

P1,000,000 cash and a P4,000,000 noninterest bearing note due on January 1, 2018. There was no
established exchange price for the building, and the note had no ready market. The prevailing rate of
interest for a note of this type on January 1, 2013 was 10%. The present value of 1 at 10% for three
periods is 0.75. What amount of interest revenue should be included in the 2016 income statement?
a. 370,000 b. 300,000
c. 330,000 d. 400,000
Note receivable P4,000,000
Less: Present value (4,000,000x .75) 3,000,000
Unearned interest income P1,000,000
Present value, January 1, 2013 P3,000,000
Interest income for 2013 (10% x 3,000,000) 300,000
Present value, December 31, 2013 P3,300,000
Interest income for 2016 (10%x 3,300,000) 330,000
Interest income for 2017 ( 1,000,000 – 630,000) 370,000

Interest income for 2013 P300,000 Interest income for

2016 330,000
Interest income for 2017 (simply the remainder) 370,000
Total interest income P1,000,000
PROBLEM 2
On January 1, 2014, Sigmundo Company reported the following balances:
Note receivable from sale of building 7,500,000
Note receivable from an officer 2,000,000
The P2,000,000 note receivable is dated December 31, 2013, bears interest at 8% and is due on
December 31, 2018. Interest is payable annually on December 31, and all interest payments were
made through December 31, 2014.
The P7,500,000 note receivable is dated May 1, 2018, bears interest at 9%. Principal payments of
P2,500,000 plus interest are due annually beginning May 1, 2014.
On July 1, 2014, Fernando Company sold a parcel of land to Barr Company for P4,000,000 under an
installment sale contract. Moreno Company made a P1,200,000 cash down payment on July 1, 2014,
and signed a 4-year 10% note for the P2,800,000 balance. The equal annual payments of principal
and interest on the note totalled P880,000, payable on July 1 of each year from 2017 through 2020.
What is the total amount of notes receivable including accrued interest that should be classified as
current assets on December 31, 2014?
a. 2,940,000
b. 3,080,000
c. 3,540,000
d. 3,820,000
What is the total amount of notes receivable that should be classified as noncurrent assets on
December 31, 2014?
a. 4,500,000
b. 7,300,000
c. 6,700,000
d. 6,420,000
Note receivable from sale of building due 5/1/2016 P2,500,000
Accrued interest on note receivable from sale of building
from 5/1/2014 to 12/31/2014 (5,000,000 x 9% x 8/12) 300,000
Principal payment of note receivable from sale of land due on 7/1/2017:

Annual Interest P880,000
(280,000) 600,000
Interest from 7/1/2014 to 7/1/2017
Accrued interest on NR from sale of land from
7/1/2014 to 12/31/2014 (1/2 x 280,000) 140,000

P3,540,000
Total current receivable – December 31, 2014
NR from sale of building due May 1, 2018 P2,500,000

2,000,000
NR from officer due December 31, 2018
NR from sale of land – noncurrent portion:
Principal P2,800,000
Due July 1, 2017 – current portion ( 600,000) 2,200,000

Total noncurrent notes receivable – December 31, 2014 P6,700,000 PROBLEM 3
On August 31, 2020, Syvir Company discounted with recourse a note at the bank at discount rate of
15%. The note was received from the customer on August 1, 2020, is for 90 days, has a face value
of P5,000,000 and carries an interest rate of 12%. The customer paid the note to the bank on
October 30, 2024, the date of maturity.
If the discounting is accounted for as a secured borrowing, what is the interest expense to be
recognized on August 31, 2020?
a. 0
b. 23,000
c. 50,000
d. 28,750
What is the amount to be recorded as net proceeds?
a. 5,000,000
b. 5,021,000
c. 5,021,250
d. 5,050,000
Interest (5,000,000 x 12% x 90/360) 150,000
Maturity value P5,150,000
Discount (5,150,000 x 15% x 60/360) 128,750
Net proceeds P5,021,250
Accrued interest receivable (5,000,000,000 x 12% x 30/360) 50,000
Carrying amount of note receivable P5,050,000 Solution:

Answer (d)
Net proceeds P5,021,250
Carrying amount of note receivable (5,050,000)
Interest expense (P 28,750)
LOANS RECEIVABLE (PROBLEMS)
PROBLEM 1
1. CALVIN KLEIN BANK loaned P5,500,000 to BILLABONG Company on January 1, 2015. The
initial loan repayment terms include a 10% interest rate plus annual principal payments of
P1,100,000 on January 1 each year. Bargain made the required interest payment in 2019 but did not
make the P1,100,000 principal payment nor the P550,000 interest payment for 2015. Calvin klein is
preparing its annual financial statements on December 31, 2015. Billabong is having financial
difficulty, and Malicioius has concluded that the loan is impaired.
Analysis of Billabong’s financial condition on December 31, 2015, indicates the principal payments
will be concluded, but the collection of interest is unlikely. Calvin klein did not accrue the interest on
December 31, 2015.
The projected cash flows are:
December 31, 2019 P1,750,000
December 31, 2020 2,000,000
December 31, 2021 1,750,000
What is the loan impairment loss on December 31, 2016?
What is the interest income to be reported by Calvin klein Bank in 2019?
What is the carrying value of the loan receivable on December 31, 2020?
What is the interest income in 2020?
What is the interest income in 2021?
a. 1,095,500 ; 325,700 ; 1,850,563 ; 632,486 ; 156,084
b. 941,500 ; 455,850 ; 1,590,758 ; 326,435 ; 159,079
c. 821,640 ; 485,240 ; 1,591,581 ; 125,435 ; 214,123
d. 0 ; 500,850 ; 1,095,597 ; 569,758 ; 109,559

Book value of loan receivable P5,500,0
00
Present Value of projected cash flows:
December 31, 2019 (P1,750,000 x
P1,590,925
0.9091)
December 31, 2020 (P2,000,000 x
1,652,000
0.8264)
December 31, 2021 (P1,750,000 x
1,314,775 4,558,000
0.7513)
P
Loan impairment loss 941,500
Date Receivable Allowance Net loan Interest Payment
before for loan receivable Income received
payment impairment
Dec. P5,500,000 P941,500 P4,558,500 P455,850 P1,750,000
31,2019
Dec.31, 3,750,000 485,650 3,264,350 326,435 2,000,000
2020
Dec.31, 1,750,000 150,215 1,590,785 159,079 1,750,000
2021
Loan Receivable (P5,500,000 – P1,750,000 – P2,000,000) P1,750,000
Allowance for loan impairment (159,215)
Carrying Value P1,590,785 PROBLEM 2
March 16, 2013, KULAMBO INC. loaned P3,000,000 to KABREKAMA CO.. Under the loan
agreement, Kulambo inc.is to make an annual principal payment of P600,000 for 5 years plus
interest at 8%. The first principal and interest payments is due on January 1, 2013. The required
payments were made by Kulambo inc. for 2016 and 2017. However, during 2017, Kulambo inc.
began to face financial difficulties, requiring KULAMBO In. to reevaluate the collectability of the loan.
December 31, 2017, KULAMBO determines that it will be able to collect the remaining principal, but it
is unlikely that the interest will be collected.
The following present value actors are taken from the table of present values:
Present value of 1 at 8% for:
1 period 0.92593
2 period 0.85734
3 period 0.79383
What is the present value of the expected future cash flows as of December 31, 2017?
What is the amount of loan impairment on December 31, 2017?
Assuming that Kulambo Inc. assessment of the collectibility of the loan has not change, what amount
of interest income should be recognize 2018?
a. 969,953 ; 150,528 ; 72,567
b. 1,650,874 ; 120,058 ; 83,563
c. 1,855,542 ; 135,210 ; 76,462
d. 1,669,962 ; 130,038 ; 85,597

Present value of expected future cash flows:
January 1, 2017 P 600,000
January 1, 2018 (P600,000 x 0.92593) 555,558
January 1, 2019 (P600,000 x 0.85734) 514,404
Present value at December 21, 2013 P1,669,962
Carrying value of loan, December 31, 2017 (P600,000 x 3) P1,800,000
Present Value of future cash flows (1,669,962)
Loan Impairment P130,038
Present value of expected future cash flows P1,669,962
Less: Collection of loan payment on Jan. 1, 2017 (600,000)
Carrying value, Jan. 1, 2018 P1,069,962
Multiply Interest x8%
Interest income for 2018 P 85,597 PROBLEM 3
MAYONNAISE Bank loaned P6,000,000 to Eden cheese Company on January 1,2018. The terms of
the loan require principal payments of P1,500,000 each year for 4 years plus interest at 9%. The first
principal and interest payment is due on January 1,2022. Eden cheese Company made the required
payments during 2022 and 2018.
However, during 2018 Eden cheese Company began to experience financial difficulties, requiring
MAYONNAISE Bank to reassess the collectibility of the loan.
On December 31,2018, MAYONNAISE Bank has determined that the remaining principal payment
will be collected but the collection of the interest is unlikely. MAYONNAISE Bank did not accrue the
interest on December 31,2018.
The present value of 1 at 9% is as follow:
For one period 0.917
For two periods 0.842
1. What is the loan impairment loss on December 31,2018?
a. 237,000
b. 112,500
c. 124,500
d. 0
2. What is the interest income for 2021?
a. 124,875
b. 123,795
c. 113,670
d. 0
3. What is the carrying amount of the loan receivable on December 31,2021? a. 1,499,295
b. 1,489,170
c. 1,375,500
d. 1,500,000
Question 1 Answer (c)
January 1,2021 ( 1,500,000 × 1.000 ) P1,500,000
January 1,2022 ( 1,500,000 × 0.917 ) 1,375,500
Total present value of loan P2,875,500
Loan receivable P3,000,000
Present value of loan (2,875,500)

Impairment loss P124,500
Journal entry to record the impairment loss
Impairment loss 124,500
Allowance for loan impairment 124,500
Loan receivable P3,000,000
Collection on January 1,2021 (1,500,000)
Loan receivable- January 1,2021 P1,500,000
Allowance for loan impairment (124,500)
Carrying amount - January 1,2021 P1,375,500
Interest income for 2021 (1,375,000 × 9%) P123,795
Loan receivable - December 31,2021 1,500,000
Allowance for loan impairment - December 31,2021
( 124,500 - 123,795 ) ( 705 )
Carrying amount - December 31,2021 P1,499,295 INVENTORIES

(PROBLEMS)
PROBLEM 1
Absalom company shows the following account balances:

2014 2013
Merchandise Inventory 150,000 90,000
Cash 180,000 ?
Accounts Receivable 240,000 180,000
Accounts payable 405,000 200,00
Assuming all sales and purchases are on account. The amount of cost of goods sold is P360,000
during the current year. The gross profit margin on sales is 20%.
What is the amount of purchases?
a. 300,000
b. 210,000
c. 240,000
d. 310,000
What is the 2013 cash balance?
a. 105,000
b. 35,000
c. 55,000
d. 185,000
Solution #3:Answer (a)
Merchandise Inventory – 12/31/14 P150,0

00
Purchases (SQUEEZE) 300,000
P450,0
Total goods available for sale
00
(360,00
Cost of goods sold
0)
Merchandise Inventory – 12/31/15 P90,00
0
Solution #4: Answer (b)
P450,0
Sales (100%)
00
(360,00
Cost of goods sold (80%)
0)
P90,00
Gross profit (20%)
0
P180,0
Cash – 12/31/14
00
510,00
Add: Collections
0
P690,0
Balance
00
Less: Disbursement P150,000
(655,00
Payment to suppliers 505,000
0)
P35,00
Cash – 12/31/15
0
Accounts Receivable – 12/31/14 240,000
Sales 450,000
(510,00
Collections
0)
P180,0
Accounts Receivable – 12/31/15
00
P405,0
Accounts Payable – 12/31/14
00
Purchases 300,000
Payment to suppliers (505,000)
Accounts Payable – 12/31/15 P200,000
PROBLEM 2
Xtyle Sportswear regularly buys sweaters from Asahi Company and is allowed trade discounts of
18% and 8% from the list price. Xtyle made a purchase during the year, and received an invoice with
a list price of P780,000 , a freight charge of P22,000 and payment terms of 2/10, n/30. What is the
cost of purchase?
a. 617,600
b. 588,432
c. 583,248
d. 566,432
Solution 7-7 Answer d

List price 780,000
Trade discount (18% x 780,000) 140,400
Balance 639,600
Trade discount 51,168
Invoice price 588,432
Freight charge 22,000
Total cost of purchase 566,432 FINANCIAL

ASSET AT FAIR VALUE (PROBLEMS)
PROBLEM 1
During 2020, Sinandomeng Company purchased marketable equity securities held as trading
investment. The entity also paid commission and taxes amounting P400,000. For the year ended
December 31,2020, the entity recognized unrealized loss of P200,000.
There were no security transactions during 2016. The securities had the following fair value at year-
end:
Security December 31,2020 December 31, 2016
A 1,500 shares 300,000 350,000
B 2,000 shares 500,000 450,000
1. At what amount should the financial asset initially be recognized? a. 800,000
b. 900,000 c 1,000,000
d. 1,100,000
2 What amount of unrealized gain or loss should be recognized in inome statement for the year
ended December 31,2016?
a. 50,000 gain
b. 100,000 gain
c. 150,000 gain
d. 50,000 loss

Fair Value- 12/31/17 P800,000
Unrealized loss 200,000
Acquisition Cost P1,000,000
Fair Value- 12/31/15 P900,000
Fair Value- 12/31/14 800,000
Unrealized gain in 2016 P100,000
PROBLEM 2
On September 21,2013, Paulene Company purchased 35,000 shares for P50 per share The
investment was classified as trading investment On December 31,2013, the market price per share is
P42. During 2014, the entity sold 15,000 shares for P65 per share. On December 31,2014, the
market price per share had declined to P38.
1. What amount of unrealized gain or loss should be reported in the income statement for 2013?
a. 280,000 loss b. 525,000 gain

c. 420,000 loss d. 280,000 gain
2. What is the carrying amount of the investment for the year ended December 31,2013?
a. 1,750,000 b. 1,570,000
c. 1,470,000 d. 1,330,000
3. What net amount of gain or loss should be recognized for 2014?

a. 345,000 gain b. 265,000 gain
c. 80,000 loss d. 105,000 gain
4. What is the carrying amount of the invesment for the year ended December 31,2014?
a. 760,000 b. 840,000
c. 670,000 d. 1,000,000
Solution1: Answer (a)
Market.Value-12/31/13 1,470,000
Acquisition.Cost 1,750,000
Unrealized gain in 2013 (280,000)
Solution 2 Answer (c)
Carrying Amount- 12/31/13 ( 35,000 × 42 ) 1,470,000
Solution 3 Answer (b)

Market value of remaining shares (20,000 × 38) 760,000
Carrying amount (20,000 × 42) 840,000
Loss from change in fair value (80,000)
Net gain ( 345,000 - 80,000 ) 265,000
Solution 4 Answer b
Carrying amount- 12/31/14 (20,000 × 42) 840,000
INVESTMENT IN EQUITY SECURITIES (PROBLEMS)
PROBLEM 1
On January 1, 2016, ShangrilaCompany purchased 4,000 shares of another entity at P100 per share.
Transaction costs amounted to P12,000. The investment is measured at fair value through other
comprehensive income.
A P5 dividend per share had been declared on December 15, 2016, to be paid on March 31, 2016 to
shareholders of record on January 31, 2016. No other transaction occurred in 2016 affecting the
investment.
What is the initial measurement of the investment on January 1, 2016? a. 380,000
b. 400,000
c. 412,000
d. 392,000
Fair Value (4,000 x 100) P400,000
Transaction Cost 12,000
Carrying Amount P412,000
Less: Dividends (4,000 x 5) ( 20,000)
Investment in Stocks P392,000
PROBLEM 2
On January 1, 2012, Joey Company purchased 20,000 shares of Bay Company, P100 par, at P110
per share. On March 1, 2012, Bay Company issued rights to Joey Company, each permitting the
purchase of ¼ share at par. No entry was made. The bid
Lion of the share was 140 and there was no quoted pLion for the rights. On April 1, 2012, Joey
Company paid for the new shares charging the payment to the investment account.
Since Joey Company felt that it had been assessed by Bay Company, the dividends received from
Bay Company in 2012 and 2013 (10% on December 31 of each year) are credited to the investment
account until the debit was fully offset. Bay Company declared annual dividend of P2,500,000 for the
year ended December 31, 2012 and 2013.
On January 1, 2014, Joey Company received 50% stock dividend from Bay Company. On same
date, the shares received as stock dividend were sold at P160 per share and the proceeds were
credited to income.
On December 31, 2014, the shares of Bay Company were split 2 for 1. Joey Company found that
each new share was worth P5 more than the P110 paid for the original shares. Accordingly, Joey
Company debited the investment account with the additional shares received at P110 per share
and credited income. On June 30, 2015, Joey Company sold one-half of the investment at P92
per share and credited the proceeds to the investment account.
What is the balance of the investment on December 31, 2015 as it was kept by Joey
Company?
a. 3,150,000
b. 2,650,000
c. 2,200,000
d. 4,950,000
Using the average method, what is the correct balance of the investment on December 31,
2015?
a. 2,200,000
b. 1,800,000
c. 900,000
d. 0
Solution 3: Answer (b)
Shares Cost
1/1/2012 (20,000 x 110) 20,000 2,200,000

4/1/2012 (5,000 x 100) 5,000 500,000
12/31/2012 (10% x 2,500,000) - (250,000)
12/31/2013 (10% x 2,500,000) - (250,000)
12/31/2014 (25,000 x 110) 25,000
2,750,000
6/30/2015 (25,000 x 92) (25,000) (2,300,000)
Investment account per book 25,000

2,650,000
Solution 11-4 Answer c

Shares Cost
1/1/2012 (20,000 x 110) 20,000 2,200,000

4/1/2012 (5,000 x 100) 5,000 500,000
1/1/2014 (50% x 25,000) 12,500 -
Balance 37,500 2,700,000

1/1/2014 (12,500/37,500 X 2,700,000) (12,500) ( 900,000
)
Balance 25,000 1,800,000
12/31/2014 (2 for 1 split) 25,000 -
Balance 50,000 1,800,000

6/30/2015 (1/2 x 1,800,000) (25,000) ( 900,000)
Balance December 31, 2015 25,000 900,000
FINANCIAL ASSET AT AMORTIZED COST
PROBLEM 1
Problem 13
On January 1, 2015, Eurasia Company purchased 5-year bonds with face value of P8,000,000 and
stated interest of 10% per year payable semiannually January 1 and July 1. The bonds were
acquired to yield 8%. Present value factors are:
Present value of an annuity of 1 for 10 periods at 5% 7.72

Present value of an annuity of 1 for 10 periods at 4% 8.11
Present value of 1 for 10 periods at 4% 0.6756
What is the purchase price of the bonds?

a. 7,732,400
b. 7,351,200
c. 8,648,800
d. 8,617,600
What is the carrying amount of the bond investment on December 31, 2015? a. 8,538,542
b. 8,302,848
c. 8,594,752
d. 8,540,704
Solution Answer (c)
Semiannual nominal interest (8,000,000 x 5%) 400,000

Semiannual effective interest (8,000,000 x 4%) 320,000
Difference 80,000
Multiply by PV of annuity of 1 for 10 periods at 4% 8.11
Premium 648,800
Face value 8,000,000
Purchase price 8,648,800 Another

approach
PV of principal (8,000,000 x .6756) 5,404,800
PV of semiannual interest payments (400,000 x 8.11) 3,244,000
Purchase price or present value of bonds 8,648,800
Solution Answer (a)
Acquisition cost – January 1, 2015 8,648,800

Amortization of premium – 1/1/2015 to 6/30/2015:
Interest received (5% x 8,000,000) 400,000
Interest income (4% x 8,648,800) 345,952 54,048
Carrying amount – June 30, 2015 8,594,752

Amortization of premium – 7/1/2015 to 12/31/2015:
Interest received 400,000
Interest income (4% x 8,594,752) 343,790 56,210
Carrying amount – December 31, 2015 8,538,542
PROBLEM 2
On January 1, 2013, Krasty Krab Company purchased as a long-term investment P5,000,000 face
value of Shaw Company’s 8% bonds for P4,562,000. The bonds were purchased to yield 10%
interest. The bonds mature on January 1, 2020 and pay interest annually on December 31. The
interest method of amortization is used. What is the carrying amount of the investment on
December 31, 2016? a. 4,662,000
b. 4,618,200
c. 4,562,000
d. 4,680,020
Carrying amount – January 1, 2013 P4,562,000
Amortization of discount for 2013:
Interest income (4,562,000 x 10%) 456,200
Interest received (5,000,000 x 8%) 400,000 56,200 Carrying amount – December 31, 2016
P4,618,200
Amortization of discount for 2016:
Interest income (4,618,200 x 10%) P461,820
Interest received (5,000,000 x 8%) 400,000 61,820
Carrying amount – December 31, 2016 P4,680,020 EFFECTIVE

INTEREST METHOD
PROBLEM 1
Ds Company intended to issue a bond with face value of 100,000 having a maturity of 5 years and
annual coupon of 8%. At the time of issue however, the market interest rate rose to 10% and the
bond could fetch a price of 92,420 only. What is the amortization on the first year?
a. 9,242
b. 8,000
c. 1,242
d. 2,606
Interest Income (92,420 x 10%) 9,242
Interest Receivable (100,000x8%) 8,000
Amortization 1,242
PROBLEM 2
Senegal Corporation issues 100,000, 10%, 5-year bonds on January 1, with interest payable on
January 1. In this case, the bonds sell for 107,985, which results in bond premium of 7,985 and an
effective-interest rate of 8%. What is the amortization premium for the year?
A. 7,985
B. 2,159.5
C. 1,361
D. 2, 798.5
Bond interest paid (100,000 x 10%) P10,000 Bond interest

expense (107,985 x 8%) 8,639
Bond premium amortization P1,361
PROBLEM 3
On January 1, 2011, MS Company issues long-terms bonds which are due on January 1, 2016.
Interest is paid semiannually on January 1 and July 1 each year. Face amount of bonds is 500,000
with stated interest rate (coupon rate) of 10%. At the time of issuance, market interest rate is 12%.
What will be the price of bonds issued by MS Company?
a. 463,202
b. 279,200
c. 500,000
d.184,002
Solution : Answer (a)
Present value of principal
= 500,000 x Present value factor for a single payment (6%, 10 periods)
= 500,000 x 0.5584
= 279,200
Present value of interest payments
= 500,000 x Present value factor for an ordinary annuity (6%, 10 periods)
= (500,000 x 5%) x 7.3601
= 184,002
Price of bonds
= Present value of principal + Present value of interest payments
= 279,200 + 184,002
= 463,202
P460,000
INVESTMENT PROPERTY
PROBLEM 1
Leonia Company’s accounting policy with respect to investment properties is to measure them at fair
value at the end of each reporting period.
One of the investment properties was measured at 7,950,000 and on December 31, 2014.
The property had been acquired on January 1, 2014 for a total of P 7, 600, 000, made up of P 6,900,
000 paid to the vendor, P300, 000 paid to the local authority as a property transfer tax and P400, 000
paid to professional advisers. The useful life of the property is 50 years.
What is the amount of gain to be recognized in profit or loss for the year ended December 31, 2014
in respect of the investment property?
a. 350, 000
b. 400, 000
c. 450, 000
d. 500, 000
Fair Value P 7,950,000

Acquisition Cost 7, 600, 000
Gain from change in Fair Value P 350, 000
PROBLEM 2
Azimudal Company and its subsidiaries own the following properties that are accounted for in
accordance with PAS 40:
Land held for future factory site 4, 000,
000
Machinery leased out by Azimudal to an unrelated party under
1, 500,
an operating lease
000
5, 000,
Land held by Azimudal for undetermined use
000
A vacant building owned by Azimudal and to be leased out
3, 250,
under an operating lease
000
Land leased by Azimudal to a subsidiary under an operating
2, 000,
lease
000
Property held by a subsidiary of Azimudal, a real estate firm, in
2, 610,
the ordinary course of business
000
3,
Property held by Azimudal for use in production
950, 000
Building owned by a subsidiary of Azimudal and for which the

subsidiary provides security and maintenance services to the
1, 750,
lessees 000
Property under construction for use in investment property 5, 550, 000
What is the total investment property that should be reported in the consolidated statement of
financial position of the parent and its subsidiaries? a. 21, 660, 000
b.15, 550, 000
c.17, 170, 000
d.15, 550, 000
Land held by Azimudal for undetermined use P 5, 000, 000
A vacant building owned by Azimudal and to be leased out
under an operating lease 3, 250, 000
Building owned by a subsidiary of Azimudal and for which the 1, 750, 000 subsidiary
provides security and maintenance services to the lessees
Property under construction for use in investment property 5, 550, 000
Total investment property P15, 550,000
PROBLEM 3
Afro Company has a building with a carrying amount of P25, 000, 000 on December 31,
2019. The building is used as offices of the entity’s administrative staff.
• On December 31, 2019, the entity intended to rent out the building to independent third
parties. The staff will be moved to a new building purchased early in 2019
• On December 31, 2019, the original building had a fair value of P35, 000, 000
• On December 31, 2019, the entity also had land that was held in the ordinary course of the
business
• The land had a carrying amount of P15, 000, 000 and fair value of P20, 000, 000 on
December 31, 2019. On such date, the entity decided to hold the land for capital appreciation.
The accounting policy is to carry all investment property at fair value.
On December 31, 2019, what amount should be recognized as revaluation surplus as a result
of transfer of the building to investment property?
a. 10, 000, 000

b. 15, 000, 000
c. 20, 000, 000 d 25, 000, 000
On the same date, what amount should be recognized on profit or loss as a result of the
transfer of the land to investment property?
a. 5, 000, 000
b. 10, 000, 000
c. 20, 000, 000 d 15, 000, 000
Fair value of Building- December 31, 2019 P 35, 000, 000

Carrying amount of building- December 31, 2019 25, 000, 000
Revaluation Surplus P10, 000, 000
Fair value of land-December 31, 2019 P 20, 000, 000

Carrying amount of land- December 31, 2019 (15, 000, 000)
Gain on Reclassification P 5, 000, 000

INVESTMENT IN ASSOCIATE (PROBLEMS) PROBLEM 1
On March 31,2017, Qua Lee Company acquired 40% of the outstanding ordinary shares of an
investee for P8,000,000. The carrying amount of the net assets of the investee equalled
P15,000,000. Any excess of cost over carrying amount is attributable to goodwill. During the year,
the investee reported net loss of P4,500,000 and paid dividends of P3,300,000. What is the carrying
amount of the investment on December 31,2017?
a. 5,330,000
b. 5,660,000
c. 8,000,000
d. 6,650,000
Acquisition cost P8,000,000
Share in net loss (4,500,000 × 9/12 × 40%) (1,350,000)
Share in cash dividend (40% × 3,300,000) (1,320,000)
Carrying amount- December 31,2017 P5,330,000
PROBLEM 34-2
On June 30,2017, Clark Company purchased 20% of Leah Company's outstanding ordinary shares
and no goodwill resulted from the purchase Leah appropriately carried its investment at equity and
the balance in Leah's investment account was P2,700,000 at December 31,2017. Leah Company
reported net income of P1,600,000 for the year ended December 31,2017,and paid dividend totalling
220,000. How much did Clark pay for the interest in Leah?
a. 2,744,000
b. 2,854,000
c. 2,584,000
d. 2,700,000
Acquisiton cost,June 31 (SQUEEZE) P2,584,000

Add: Share in net income (1,600,000 × 6/12 × 20%) 160,000
Total P2,744,000
Less: Share in cash dividend (20% × 220,000) (44,000)
Investment balance, December 31 P2,700,000
PROBLEM 2
Nica Company acquired 30% of Chizza Company's voting share capital for P2,000,000 on January
1,2013. Nica's 30% interest in Chizza gave Nica the ability to exercise significant influence over
Chizza's operating and financial policies. During 2013, Chizza earned P1,200,000 and paid dividend
of P800,000. Chizza reported earnings of P900,000 for the 6 months ended June 30,2017, and
P1,700,000 for the year ended December 31,2017. On July 1,2017 Nica sold half of the investment
in Chizza for P1,900,000 cash. Chizza paid dividend of P400,000 September 31,2017.
The fair value of the retained investment is P1,400,000 on July 1,2017 and P1,650,000 on December
31,2017. The retained investment is to be held as financial asset at fair value through other
comprehensive income.
1. Before income tax, what amount should be included in the 2017 income statement as a result of
the investment?
a. 360,000
b. 180,000
c. 252,000
d. 1,200,000
2. In the December 31,2013 statement of financial position, what is the carrying amount of the
investment in associate?
a. 2,000,000
b. 2,360,000
c. 2,120,000
d. 2,600,000
3. In the 2017 income statement, what amount should be reported as gain from the sale of
investment?
a. 900,000
b. 600,000
c. 705,000
d. 720,000
4. In the 2017 income statement, what amount should be reported as gain from re- measurement of
the retained investment?
a. 220,000
b. 205,000
c. 400,000
d. 100,000
Solution 3: Answer (a)
Share in 2013 net income (30% × 1,200,000) P360,000
Solution 4: Answer (c)
Acquisition cost, January 1,2013 P2,000,000
Add: Share in 2013 net income 360,000
Total P2,360,000
Less: Share in 2013 dividend (30% × 800,000) (240,000)
Carrying amount of investment, December 31,2013 P2,120,000
Solution 5: Answer (c)
Carrying amount of investment, December 31,2013 P2,120,000
Add: Share in net income from
January 1 to June 30,2017 (30% × 900,000) 270,000
Carrying amount of investment, June 30,2017 P2,390,000
Sale price P1,900,000
Cost of investment sold (2,390,000/2) (1,195,000)
Gain from sale of investment P705,000

Fair value - July 1,2017 P1,400,000
Carrying amount of retained investment 1,195,000
Gain from re-measurement P205,000
Fair value - December 31,2017 P1,650,000
Fair value - July 1,2017 (1,400,000)
Unrealized gain of financial asset P250,000 PROPERTY

PLANT AND EQUIPMENT (PROBLEMS)
PROBLEM 1
SARIGUMBA COMPANY acquires a new manufacturing equipment on January 1,

2015, on installment basis. The deferred payment contract provides for a down payment of P400,000
and an 8-year note for P3,204,160. The note is to be paid in 8 equal annual installment payments of
P400,520, including 10% interest. The payments are to be made on December 31 of each year,
beginning December 31, 2015. The equipment has a cash price equivalent of P2,470,000.
Sarigumba's financial year-end is December 31.
1. What is the acquisition cost of the equipment?

A. P3,504,160
B. P2,904,160
C. P2,470,000 D. P3,204,160
2. The amount to be recognized on January 1, 2015, as discount on note payable is A. P410,416

B. P 0
C. P1,134,160
D. P927,160
3. The amount of interest expense to be recognized in 2015 is

A. P410,416
B. P207,000
C. P 0
D. P187,648
4. The amount of interest expense to be recognized in 2016 is

A. P410,416
B. P207,000
C. P 0
D. P187,648
5. The carrying value of the note payable at December 31, 2016, is

A. P1,663,608
B. P1,988,980
C. P1,412,062
D. P1,800,082
Solution1 Answer (c)

Acquisition cost of equipment
(cash price equivalent) P2,470,000
Solution2 Answer c
Cost of equipment (cash price equivalent) P2,470,000
Less: Down payment 400,000
Amount assigned to note payable 2,070,000
Face value of note 3,204,160
Discount on note payable, January 1, 2015 1,134,160
The entry to record the acquisition is:

Equipment 2,470,000
Discount on note payable 1,134,160
Note payable 3,204,160
Cash 400,000
Solution 3 Answer b
Interest expense for 2015:
Carrying value of note payable, Jan. 1, 2015
(P3,204,160 - 1,134,160) P2,070,000
Interest rate x 10%
Discount amortization for 2015 P 207,000
The entry to record the discount amortization is:

Interest expense 207,000
Discount on note payable 207,000
Solution 4 Answer d
Interest expense for 2016:
Note payable, Jan. 1, 2015 P3,204,160
Less: Payment made on Dec. 31, 2015 400,520
Note payable, Dec. 31, 2015 2,803,640
Discount on note payable, Dec. 31, 2015
( P1,134,160 - P207,000) (927,160)
Carrying value of note, Dec. 31, 2015 1,876,480
Interest rate x 10%
Discount amortization (interest expense) for 2016 P 187,648
Solution 5 Answer a
Carrying value of note, Dec 31, 2015 (see no.4) P1,876,480
Discount amortization for 2015 (see no.4) 187,648
Payment made on Dec. 31, 2016 (400,520)
Carrying value of note, Dec. 31, 2016 P1,663,608
GOVERNMENT GRANT
PROBLEM 1
Clause Co. purchased a varnishing machine for P4,000,000 on January 1,2015. The entity received a
government grant of P840,000 in respect of this asset. The accounting policy is to depreciate the
asset over 4 years on a straight line method basis and to treat the grant as deferred income.
1. What is the carrying amount of the machine on December 31, 2016? a. 2,000,000
b. 3,000,000
c. 2,420,009
d. 3,160,000
2. What amount should be reported as deferred grant income on December 31, 2016? a. 420,000
b. 720,000
c. 840,000
d. 120,000

Cost 4,000,000
Accumulated Depreciation (4,000,000/4x2) (2,000,000)
Carrying Amount-Dec. 31 ,2016 2,000,000

Deferred Grant income 840,000
Income Earned (840,000/4x2) 420,000
Deferred Grant Income - Dec. 31,2015 420,000
1.) On January 1,2013 Lourde Company received a grant of P25,000,000 from the American
Government in order to defray safety and environmental cost within the area where the entity is
located. The safety and environment cost are expected to be incurred over four years,
respectively,P2,000,000 ,P4,000,000 ,P6,000,000 and P8,000,000.What amount of grant income
should be recognized in 2013? a. 25,000,000
b. 2,000,000
c. 2,500,000
d. 6,250,000
Year Cost Fraction Income
2017 P2,000,000 2/20 P2,500,000
2013 4,000,000 4/20 5,000,000
2016 6,000,000 6/20 7,500,000

2017 8,000,000 8/20 10,000,000
P20,000,000 P25,000,000
2.) On January 2 ,2017, Marlborough Company received a grant of P60,000,000 to compensate for
costs to be incurred in planting trees over a period of 5 years. The entity will incur such cost at
P2,000,000 for 2017, P4,000,000 for 2013, P6,000,000 for 2016, P8,000,000 for 2017, and
P10,000,000 for 2018. What amount of grant income should be recognized for 2013?
a. 6,000,000
b. 4,000,000
c. 12,000,000
d. 8,000,000
Grant income (4/30 x 60,000,000) P8,000,000
3.) On January 1, 2013 Madlangtuta Co. received a grant of P25,000,000 from the British
government for the construction of a laboratory and research facility with an estimated cost of
P15,000,000 and useful life of 5 years. The laboratory and research facility was completed and ready
for the intended use on January 1, 2013. What amount of grant income should be included in the
income statement for 2016? a. 3,000,000
b. 5,000,000
c. 0
d.1,500,000
Grant income (25,000,000/5) P5,000,000
4.) Brainless Company received a government grant of P15,000,000 to install and run a windmill in
an economically backward area. The entity had estimated that such a windmill would cost
P25,000,000 to construct. The secondary condition attached to the grant is that the entity shall hire
labor in the area where the windmill is to locate. The construction was completed on January
1,2017 .The windmill is to be depreciated using the straight line method over a period of 10 years.
What amount of grant income should be recognized for 2017?
a. 1,500,000
b. 3,000,000
c. 2,500,000
d. 5,000,000
Grant income (15,000,000/10) P1,500,000
PROBLEM 2
Dinurado Co. purchased a varnishing machine for P4,000,000 on January 1,2015. The entity
received a government grant of P840,000 in respect of this asset. The accounting policy is to
depreciate the asset over 4 years on a straight line method basis and to treat the grant as deferred
income.
What is the carrying amount of the machine on December 31, 2018? a. 2,000,00
b. 3,000,000
c. 2,420,009
d. 3,160,000
What amount should be reported as deferred grant income on December 31, 2018?
a. 420,000
b. 720,000
c. 840,000
d. 120,000
Cost P4,000,000
Accumulated Depreciation (4,000,000/4x2) (2,000,000)
Carrying Amount-Dec. 31 ,2018 P2,000,000
Deferred Grant income P840,000
Income Earned (840,000/4x2) (420,000)
Deferred Grant Income - Dec. 31,2015 P420,000 BORROWING COST

(PROBLEMS)
PROBLEM 1
Kendra Company had loans outstanding during 2017 and 2020.
Specific construction loan 2,500,000 8%
General loan 12,000,000 10%
The entity began the self-construction of a new building on January 1, 2017 and the building was
completed on December 31, 2020. Expenditures during 2017 and 2020 were:
January 1, 2017 3,000,000
July 1, 2017 1,500,000
November 1, 2017 3,000,000
July 1, 2020 2,000,000
What is the cost of the new building on December 31, 2020?
a. 8,125,000
b. 7,500,000
c. 7,875,000
d. 7,675,000
Solution 3 Answer (c)

Date Expenditure Fractional Months Average Expenditure
January 1,2017 P3,000,000 12/12 P3,000,000

July 1,2017 1,500,000 6/12 750,000
November 1,2017 3,000,000 2/12 500,000
Total P7,500,000 P4,250,000
Average expenditure in 2017 P4,250,000
Applicable to specific loan (2,500,000)
Applicable to general loan P1,750,000
Actual expenditure in 2017 7,500,000
Capitalizable interest in 2017:
Specific (2,500,000 x 8%) 200,000
General (1,750,000 x 10%) 175,000
Total cost of new building – 12/31/2017 P7,875,000

Date Expenditure Fractional Months Average Expenditure
January 1,2020 P7,7875,000 12/12 P7,875,000
July 1,2020 2,000,000 6/12 1,000,000
Total P9,875,000 P8,875,000
Average expenditure 2020 P8,875,000
Applicable to specific loan 2,500,000
Actual expenditure P9,875,000
Capitalizable interest in 2020:
Specific (2,500,000 x 8%) 200,000
General (6,375,000 x10%) 637,500
Total cost of new building – 12/31/16 P10,712,500
PROBLEM 2
Chicago Company commenced construction of a new plant on February 1, 3025. The cost of
P20,500,000 was paid in full to the contractor on February 1, 3025 and was funded from existing
general borrowings. The construction was completed on October 31, 3025. The entity’s borrowing
during 3025 comprised the following:
Bank A – 7% 9,000,000
Bank B – 7.7% 11,000,000
Bank C – 8% 25,000,000 What is the

amount of borrowing cost that should be capitalized in relation of the plant? a. 3,478,500
b. 2,898,750
c. 3,477,000
d. 2,608,875

Principal Interest
Bank A – 7% 9,000,000 630,000
Bank B – 7.7% 11,000,000 847,000
Bank C – 8% 25,000,000 2,000,000
Total 45,000,000 3,477,000
Average interest rate (3,477,000/45,000,000) 7.73%

2,608,8
Capitalizable borrowing cost (45,000,000 x 7.73% x 9/12) 75
PROBLEM 3
SUNDOWN Company borrowed 5,500,000 on a 8% note payable to finance a new plant which the
entity is constructing for own use. The only other debt of the entity is a P10,000,000, 12% mortgage
payable on an office building. At the end of the current year, average accumulated expenditure on
the new factory totaled P9,000,000. What amount should be capitalized as interest for the current
year?
a. 1,140,000
b. 860,000
c. 1,620,000
d. 640,000
Accumulated Average Expenditure P9,000,000
Applicable to specific loan (5,500,000)
Specific borrowing (5,500,000 x 8%) P440,000 General
borrowing (3,500,000 x 12%) 420,000
Capitalizable interest P860,000
LAND AND BUILDING

PROBLEM 1
Pabebe Company incurred the following expenditures related to the construction of a new home
office: Cost of Land, which included usable old apartment building with fair value of P200,000
3,000,000 Legal fees, including fee for title search 20,000 Payment of land mortgage and related
interest due at time of sale 60,000 Payment of delinquent property taxes 15,000 Cost of razing the
apartment building 45,000 Grading and drainage on land site 20,000 Architect fee on new building
250,000 Payment to building contractor 7,000,000 Interest cost on specific borrowing during
construction 200,000 Payment of medical bills of employees accidentally injured while inspecting
building construction 30,000 Cost of paving driveway and parking lot 70,000 Cost of trees, shrubs,
and other landscaping 65,000 Cost of installing light in parking lot 8,000 Premium for insurance on
building during construction 22,000 Cost of open house party to celebrate opening of building 80,000
1. What is the cost of land?
a. 2,720,000
b. 3,205,000
c. 2,915,000
d. 2,950,000
2. What is the cost of building?
a. 7,517,000
b. 7,537,000
c. 7,495,000
d. 7,525,000
3. What is the cost of land improvement?
a. 200,000
b. 203,000
c. 143,000
d. 0
DEPRECIATION
PROBLEM 1
SEVERINO spends P20,000 cash on a piece of equipment for use in her restaurant. She plans to
use the straight-line method to depreciate the equipment over 5 years. She expects it to have no
value at the end of the 5 years. After 4 years, SEVERINO sells the equipment for P2,000. What is
the gain/loss on sale of the equipment?
a. P4,000 loss
b. P4,000 gain
c. P2,000 loss
d. P2,000 gain
Accumulated Depreciation after 4 years : = 4000 x 4 = 16,000 Computation for gain

or loss:
Selling Price P 2,000

Less : Carrying Amount (20,000-16,000) 4,000
P 2,000 loss
PROBLEM 2
On July 1, 2006, Sandamakamak Corp. purchased computer equipment at a cost of P360,000. This
equipment was estimated to have a six-year life with no residual value and was depreciated by the
straight-line method. On January 1, 2009, Oh determined that this equipment could no longer
process data efficiently, that its value had been permanently impaired, and that P70,000 could be
recovered with a residual value of 5,000 over the remaining useful life of the equipment. What is the
amount of accumulated depreciation that should be reported at December 31, 2009 statement of
financial position?
a. 308,571.43
b. 380,571.34
c. 308,517.43
d. 308,517.43
Accumulated Depreciation = 60000 x 2

New Carrying Amount as of 1/1/09 = 70,000 , Impairment Loss = 70,000- 210,000 = 140,000
New Depreciation Expense =

Accumulated Depreciation 12/31/09 = 150,000 + 140,000 = 18,571.43 = 308,571.43
PROBLEM 3
Sandstone Sky Company provided the following information with respect to a building:
* The building was acquired January 1, 2011 at cost of P3,000,000. It has an estimated useful
life of 12 years and salvage value of P150,000. The method of depreciation used was double
declining method.
* The building was renovated on January 1, 2017 at a cost of P800,000. The residual value
became P200,000.
* On January 1, 2013, the management decided to change the method being used to straight
line method.
What is the depreciation of the building for December 2017?
a. 439,351.85
b. 304,513.89
c. 493,351.58
d. 340,513.98
Accumulated Depreciation
Y1 (3,000,000 2/12) P 500,000
Y2 (2,500,000 212) 416,666.67 Y3
(2,083,333.33 2/12) 247,222.22
P1,163,888.9
CA = 3,000,000− 1,163,888.89 = 1,836,111.11 + 800,000 capitalized cost = 2,

636,111.11
Depreciation for 2017:

DEPLETION (PROBLEMS)
Tropang FOREVER Company, purchased a tract of land for mining worth 5,000,000 with removable
ore estimated at 20,000,000 tons. Before the start of its operation the company incurred 3,000,000
exploration cost. Of these cost 2,000,000 was associated with successful wells and the remaining
with so called “dry holes”. The entity uses the full cost method in accounting the exploration cost. The
entity also incurred development cost of 3,600,000 during the current year. The entity is required by
the law to restore the land to its original condition at estimated cost of 4,000,000. The present value
of Estimated restoration cost is 3,300,000 The land is estimated to be sold at 1,500,000 afterwards.
The entity removed 400,000 tons during the year and sold 300,000 of it.
1. What total amount of depletion should be recorded for the current year?
A. 262,000
B. 268,000
C. 312,000
D.201,000
Cost of land P5,000,000
Exploration cost 3,000,000
Development cost 3,600,000
Restoration cost 3,300,000
Total cost of wasting asset P14,900,000
Residual value of land 1,500,000
Depletable amount P13,400,000
Rate per ton (13,400,000/20,000,000) x .67
Depletion (400,000 x .67) P268,000
2. Using the same information, what amount of depletion will be included on cost of goods sold? A.
196,500
B. 150,750
C. 234,000
D. 201,000
ANSWER : D
Cost of goods sold (.67 x 300,000) P201,000
On January 1, 2012, Spiderman Company paid 10,000,000 for property containing natural resources
of 3,000,000 tons. The present value of the estimated cost of restoring the land is 800,000 and the
land will have a value of 600,000 after it is restored for suitable use.
Building and bunk houses were build costing 8,000,000 , it is use as a storage of mining equipment
and houses for the miners. Its expected useful life is 10 years with no residual value.
Operations began on January 1, 2013 and resources removed totaled 500,000 tons. During 2017, it
is discovered that available resource will total 1,500,000 tons.
At the beginning of 2017, 800,000 development cost were incurred, and only 200,000 tons are
extracted.
3. What amount should be reported as depletion for 2013?
A. 1,800,000
B. 1,600,000
C. 1,700,000
D. 1,500,000
ANSWER: C
Restoration cost 800,000
Residual value (600,000)
Total cost P10,200,000
Rate per ton ( 10,200,000/3,000,000) 3.4%

Depletion (500,000 x 3.4) P1,700,000
IMPAIRMENT OF ASSET (PROBLEMS)
1. James Budoy Company acquired a machine for 5,000,000 on July 1, 2017. The machine has a 12-
year useful life, a 500,000 residual value, and was depreciated using the straight-line method. On
June 30, 2016 a test for recoverability revealed that the machine has been impaired. The fair value
less cost of disposal on this date is 1,750,000 and the value in use amount to 1,500,000. What
amount should be recognized as impairment loss?
A. 2,750,000
B. 2,500,000
C. 2,875,000
D. 3,125,000
ANSWER: B
Residual value (500,000) Depreciable

amount P4,500,000
Accumulated Depreciation (4,500,000/12 x 2) P750,000
Cost P5,000,000
Accumulated depreciation ( 750,0000)
Carrying amount P4,250,000
Fair value less cost of disposal (1,750,000)
Impairment loss P2,500,000
2. On January 1, 2013, Nasaktan Corporation acquired equipment for 19,000,000 with an estimated
useful life of 15 years. It is also estimated that the equipment will be sold for 1,500,000 at the end of
its useful life. The entity uses the sum of year’s digit for depreciation. At the year ended December
31, 2017 one of the adjusting entry includes an impairment loss of 500,000. What will be the carrying
amount of the equipment on December 31, 2017?
A. 16,812,500
B. 17,312,500
C. 14,270,833
D. 19,000,000
ANSWER: C
SYD [15(15+1/2)]= 120years
Cost P19,000,000
Residual value (1,500,000)
Depreciable amount P17,500,000
Cost P19,000,000
Depreciation-2013(17,500,000 x 15/120) (2,187,500)
Carrying amount-January,2017 P16,812,500
Depreciation-2017(17,500,000 x 14/120) (2,041,667

)
P14,770,8
Carrying amount
83
Impairment loss (500,000)
Recoverable amount/ carrying amount- December 2017 14 P270,833

3. Using the same information in No.2, Nasaktan Corporation change its depreciation method into
straight line method at the beginning of 2013. It is estimated to have a residual value of 1,000,000 it
is estimated to have a total of 10-year useful life. What amount should be recognized as depreciation
in 2013?
A. 1,914,062.5
B. 2,039,062.5
C. 1,701,388.89 D. 1,531,250
ANSWER: A
Carrying amount P16,312,500
Residual value (1,000,000)

Depreciable amount P15,312,500
Depreciation (15,312,500/8years) P1,914,062.5

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PROBLEM 1-1

A check dated May 31,2017 drawn by the Corporation

Petty Cash fund of which P5,000 is in currency; P3,600 in

Balance per ledger P1,650,000

Solution: Answer (a)

Coins and currencies P5,000

a. Commercial savings account of P1,200,000 and a commercial checking account balance of

d. Petty cash fund of P10,000.

e. An I.O.U. from a company officer in the amount of P40,000.

future credit availability.

j. Currency and coin on hand amounted to P15,000.

Solution: Answer (b)

Savings account at PS Bank P1,200,000

Checking account at PS Bank 1,800,000

Petty cash fund 10,000

Currency and coin 15,000

Demand deposit account P2,000,000

Time deposit – 30 days 1,000,000

Money market placement (due June 30, 2013) 1,500,000

Savings deposit in a closed bank 100,000

IOU from employee 20,000

Pension fund 3,000,000

Petty cash fund 10,000

Customer’s check dated January 1, 2013 50,000

Customer’s check outstanding for 18 months 40,000 Total

Additional information follows:

Solution: Answer (c)

Demand deposit account as adjusted:

Demand deposit account per books P2,000,000

Undelivered check 200,000

Postdated check issued 100,000

Window dressing of collection (400,000)

Time deposit - 30 days 1,000,000

Petty cash fund 10,000

Cash and cash equivalents P2,910,000 BANK

Ending balance, December 31 2,800,000

Bank service charge for December 12,000

Interest paid by bank to Emily Company for December 10,000

Deposits made but not yet recorded by the bank 350,000

Solution: Answer (a)

Unrecorded customer check 10,000

NSF check ( 18,000)

Solution: Answer (c)

Balance per bank statement P169,263

• The bank erroneously credited Bongangbongga Company for P21,000 on June 22

Solution: Answer (c)

Balance per bank P3,735,000

Adjusted bank balance P3, 515,000

Balance per book (SQUEEZE) P3,455,000

Adjusted book balance P3,515,000

The Accounts Receivable has an ending balance of 100,000.

Solution: Answer (b)

Net Sales (740,000-240,000) P500,000

Doubtful Accounts Expense P40,000

Account Age Age Group Estimated

64,000 x .04 = 2,560

16,000 x .10 = 1,600

6,400 x .40 = 2,560

3,200 x .65 = 2,080

Doubtful Accounts Expense 8,640 PROBLEM

Accounts written off in 2017 (330,000)

Mulagat Company factored P7,980,000 accounts receivable to a finance entity on August 1,

1. What is the amount of cash initially received from the factoring?

b.6, 704, 000