Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #4) VMBM, CPA

Single Entry/ Cash & Accrual Basis

1. Marilyn Company provided the following increases in account balances that occurred during the current year:

Assets 9,000,000
Liabilities 3,000,000
Share capital 5,000,000
Share premium 500,000

Except for a P2,000,000 dividend payment, the year’s earnings and a P200,000 prior period error from
understatement of ending inventory, there were no other changes in retained earnings for the year. What is the
net income for the current year?
a. 2,500,000 b. 2,300,000 c. 2,700,000 d. 6,000,000

Understatement of ending invty=Overstatement of Net Income/Retained Earnings

Equity, end (9M-3M) 6,000,000

Dividend payment 2,000,000
Prior period error (200,000)
Share Capital (5,000,000)
Share premium (500,000)
Net income 2,300,000

2. Miralyn Company revealed the following changes in the accounts for 2014:
Increase(decrease)
During Cash 1,000,000 the current
year, the Accounts receivable, net of allowance 1,900,000 entity issued
10,000 Inventory 2,200,000 ordinary shares
of P100 par Equipment (1,500,000) value for P150
per share. Accounts payable 500,000 Dividend
of Bonds payable (2,000,000) P4,000,000 was
paid in cash during the
year. The entity borrowed P3,000,000 from the bank and made interest payment of P200,000. The bank loan is
unpaid on Dec 31 2014 and the interest payable on Dec 31 2014 was P100,000. There is no interest payable on
Jan 1 2014. Equipment with fair value of P500,000 was donated by a shareholder during the year. What is the
net income for the current year?
a. 2,000,000 b. 6,000,000 c. 4,500,000 d. 4,000,000

Net Changes in accounts

1M+1.9M+2.2M-1.5M-500k+2M 5,100,000
Dividend declared 4,000,000
Issuance of shares (1,500,000)
Increase in loan (3,000,000)
Donation (share premium) (500,000)
Interest payable (100,000)
Net income 4,000,000

3. She Company began operations on Jan 1 2013. The financial statements contained the following errors:
2013 2014
Ending inventory 800,000 under 400,000 over
Depreciation 150,000 under
Insurance expense 50,000 over 50,000 under
Prepaid insurance 50,000 under

In addition, on Dec 31 2014, a fully depreciated equipment was sold for P100,000 cash but the sale was not
recorded until 2015. Ignore income tax. What is the total effect of errors on

1. Net income for 2014?

a. 1,350,000 under b. 1,350,000 over c. 1,150,000 under d. 1,150,000 over

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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #4) VMBM, CPA

2013 2014 Retained earnings

Ending invty 800,000 (800,000)
(400,000)
Depreciation (150,000)
Insurance expense 50,000 (50,000)
Sale 100,000
Net income effects 700,000 (1,150,000) (450,000)

2. Working capital on Dec 31 2014?

a. 300,000 under b. 300,000 over c. 400,000 under d. 400,000 over

Ending inventory (400,000)

Cash 100,000
Working capital (300,000)

3. Retained earnings on Dec 31 2014?

a. 1,150,000 over b. 700,000 under c. 450,000 over d. 450,000 under

4. Debbie Company reported sales revenue of P4,600,000 in the income statement for the current year. Additional
information for the current year is as follows:
January 1 December 31
Accounts receivable 1,000,000 1,300,000
Allowance for doubtful accounts 60,000 110,000
Advances from customer 200,000 300,000
The entity wrote off uncollectible accounts totaling P50,000 during the current year. Under cash basis,
what amount should be reported as sales revenue for the current year?
a. 4,900,000 b. 4,250,000 c. 4,350,000 d. 4,400,000

ACE-(DADA-EBBE)
Sales 4,600,000
Deferred, ending 300,000
Accrued, beginning 1,000,000
Total 5,900,000
Less:
Deferred, beginning (200,000)
Accrued, ending (1,300,000)
Written off accounts (50,000)
Sales, cash basis 4,350,000

5. Faye Company has apprehensions of possible pilferage in the stock of merchandise at Dec 31 2014. The
following data were available for the current year:
January 1 December 31
Physical inventory, at cost 600,000 1,000,000
Sales 4,000,000
Cost of sales 2,400,000
Accounts receivable 1,200,000 1,850,000
Accounts payable 1,500,00 1,850,000
During the current year, accounts written off amounted to P100,000. Sales returns with credit memo were
P150,000 and purchase returns, P50,000. Cash receipts from customers after P200,000 discounts totaled
P6,000,000 while cash payments to trade creditors amounted to P4,000,000. Cash paid to customers for goods
returned was P50,000. On this transaction, accounts receivable was debited. Under accrual basis, what is the
amount of gross sales?
a. 6,600,000 b. 6,550,000 c. 6,650,000 d. 6,350,000

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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #4) VMBM, CPA

CAB (DADA-BEEB)

A/R, end 1,350,000 A/R 50,000

Written off 100,000 Cash 50,000
Cash receipts (200k+6M) 6,200,000
Error (50,000) Correct entry:
Sales returns 150,000 S/R 50,000
A/R, beg (1,200,000) Cash 50,000
Gross sales, accrual 6,550,000
AJE:
S/R 50,000
A/R 50,000

Statement of Cash flows

6. Jess Company provided the following information for the current year:
Dividend received 500,000
Dividend paid 1,000,000
Cash received from customers 9,000,000
Cash paid to suppliers and employees (6,000,000)
Interest received 200,000
Interest paid on long term debt (400,000)
Proceeds from issuing share capital 1,500,000
Proceeds from sale of long term investments 2,000,000
Income taxes paid (300,000)
What is the net cash provided by operating activities?
a. 3,300,000 b. 3,000,000 c. 2,700,000 d. 2,000,000

Determination of Profits/Losses interest received/interest paid- operating

-collection of income dividends received- operating/investing
-payment of expenses dividends paid- financing/operating
-trading securities

7. During 2014, Riza Company had the following activities related to financial operations:
Payment for the early retirement of long term bonds (4,000,000)
payable (carrying amount of bonds payable,
P5,000,000)
Payment in 2014 of cash dividend declared in 2013 (2,000,000)
Preference share capital converted into ordinary share 1,000,000
capital
Proceeds from sale of treasury shares (cost of treasury 1,500,000
shares P1,000,000)
What amount should be reported as net cash used in financing activities?
a. 4,500,000 b. 3,500,000 c. 2,500,000 d. 5,500,000

- about debt & equity

B/P 5,000,000
Cash 4,000,000
Gain 1,000,000 adjust in operating activities

8. Andrew Company had the following activities during the current year:
Acquired share capital of another entity (2,000,000)
Sold an investment with carrying amount of P2,000,000 for 1,500,000
Acquired one-year certificate of deposit from a bank. During the (5,000,000)
current year, interest of P500,000 was received from the bank
Collected Dividends on share investments 300,000
Gain on sale of equipment 60,000
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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #4) VMBM, CPA

Proceeds from sale of equipment 100,000

Purchase of bonds with face value of P2,000,000 (1,800,000)
Amortization of bond discount 20,000
Dividends declared 450,000
Dividends paid 380,000
Proceeds from sale of treasury shares (CA of treasury P650,000) 750,000
What amount should be reported as net cash used in investing activities?
a. 7,200,000 b. 7,260,000 c. 6,700,000 d. 6,400,000

Involve non-operating assets/activities (proceeds from sale/acquisition of assets)

-PPE,intangible
-investments (short/long term) excluding trading securities and cash equivalent

Discontinued Operation and Noncurrent Asset Held for Sale

9. Erica Company is a diversified entity with nationwide interests in commercial real estate development, banking,
mining, and food distribution. The food distribution division was deemed to be inconsistent with the long term
direction of the entity. On Oct 1 2014, the board of directors voted to approve the disposal of this division. The
sale is expected to occur in August 2015. The food distribution had the following revenue and expenses in 2014:
Jan 1 to Sept 30, revenue of P10,000,000 and expenses of P25,000,000; Oct 1 to Dec 31, revenue of P10,000,000
and expenses of P12,000,000. The carrying amount of the division’s assets on Dec 31 2014 was P50,000,000 and
the recoverable amount was estimated to be P55,000,000. The sale contract required the entity to terminate
certain employees incurring an expected termination cost of P1,000,000 to be paid by Dec 15, 2015. The income
tax rate is 30%. What amount should be reported as income from discontinued operations for 2014?
a. 5,600,000 b. 9,100,000 c. 4,900,000 d. 8,400,000

35M(revenues)+10M(revenues)-25M(expenses)-12M(expenses)-11M(termination cost)
=7,000,000*70%= 4,900,000 Income, net of tax

No Impairment loss= CA 50,000,000> RA 55,000,000

Non current asset or disposal group— classified as held for sale when the sale is highly probable and
the asset is available for immediate sale in the present condition, CA is recovered through a sale
If abandoned asset? – not considered held for sale, carrying amount is recovered through continuing
use

Measurement: lower of carrying amount or fair value less cost of disposal

Subsequent increase in FVLCD- gain to be included in P/L but not in excess of the cumulative
impairment loss previously recognized
When entity decides not to sell the asset but to continue use it—asset should be measured at
the lower of carrying amount on the basis that it had never been classified as held for
sale and Carrying amount

Recognition: as Current asset from reclassification date, shown separately from other assets and
Liabilities
--no depreciation of the asset while being classified as Current asset

10. Jackie Company purchased an equipment for P5,000,000 on Jan 1 2014. The equipment had a useful life of 5
years with no residual value. On Dec 31 2014, the entity classified the asset as held for sale. On such date, the
fair value less cost of disposal of the equipment was P3,500,000.

On Dec 31 2015, the entity believed that the criteria for classification as held for sale can no longer be met.
Accordingly, the entity decided not to sell the asset but to continue to use it. On Dec 31 2015, fair value less cost
of disposal of the equipment was P2,700,000.

1. What amount of impairment loss should be recognized in 2014?

a. 1,500,000 b. 1,000,000 c. 500,000 d.0

5,000,000*4/5= 4,000,000 (CA) vs 3,500,000 (FVLCD)= 500,000 impairment loss

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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #4) VMBM, CPA

2. What amount should be included in profit and loss in 2015 as a result of the reclassification of the equipment
to property, plant and equipment?
a. 800,000 gain b. 800,000 loss c. 300,000 gain d. 300,000 loss

From Jan 1, 2015-Dec 31 2015 no depreciation should be recognized,

CA, per book 12/31/15 3,500,000

New measurement 2,700,000
Loss on reclassification 800,000
01/01/14
Equipment 5,000,000
Cash 5,000,000
12/31/14
Depreciation 1,000,000
Accum. Depreciation 1,000,000

Equipment Held for sale 4,000,000

Accum. Depreciation 1,000,000
Equipment 5,000,000

Impairment loss 500,000

Equipment held for sale 500,000

12/31/15
Equipment 2,700,000
Loss on reclassification 800,000
Equipment held for sale 3,500,000

12/31/16
Depreciation 900,000
Accum. Depreciation 900,000
(2,700,000/3 rem. Yrs)

Operating Segment and Interim Reporting

11. Kath Company identified the following segment for the current year:
Segment Revenue Profit Asset
A 10,000,000 1,750,000 20,000,000
B 8,000,000 1,400,000 17,500,000
C 6,000,000 1,200,000 12,500,000
D 3,000,000 550,000 7,500,000
E 4,000,000 575,000 5,500,000
F 2,000,000 525,000 3,000,000
3,300,000 600,000 6,600,000
What are the reportable segments?
a. segments A,B,C
b. segments A,B,C, and D
c. segments A,B,C,D and E
d. segments A,B,C,D,E, and F

If 10% or more of the total Revenue, Profit/Loss*, Assets= reportable

*profit/loss= 10% or more of the greater between the combined profit of all profitable segments and combined
losses of all unprofitable segments

OVERALL SIZE TEST 75% threshold –

Total reportable segments must be 75% or more of total external revenue of the entity, if not,
use the aggregate criteria
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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #4) VMBM, CPA

Aggregate criteria (if majority)

1. Product/service 4. Customers
2. Production 5. Regulated environment
3. Marketing
Major customers- 10% or more of the combined external revenue of all segments to be reportable

12. Gabriel Company reported P950,000 net income for the quarter ended Sept 30 2014 which included the
following after-tax items:
 A P600,000 expropriation gain realized in May 2014 was allocated equally to the second, third and
fourth quarters of 2014
 A P160,000 cumulative effect loss resulting from a change in inventory valuation method was recognized
on August 31 2014.
 In addition, the entity paid P480,000 on Feb 1 2014, for 2014 calendar year real property tax. Of this
amount, P120,000 was allocated to the third quarter of 2014
What is the net income for the quarter ended Sept 30 2014?
a. 1,030,000 b. 1,110,000 c. 1,150,000 d. 910,000

Interim reporting- the same acctg principles applied as with the annual reporting
1. Income statement- income/gains recognized in the interim period earned only, and
losses/expenses recognized in the interim period incurred.
2. Expenses- direct, use cause and effect
Indirect, use systematic allocation

Net income 950,000

Expropriation gain (600,000/3 quarters) (200,000)
Cumulative loss , change in acctg policy
-should be at R/E not income statement 160,000
Adjusted net income 910,000

13. Daniel Company, a calendar year corporation, had the following income before tax provision and estimated
effective annual tax rates for the first three quarters:

Quarter Income before income tax Effective annual tax rate

First 6,000,000 40%
Second 7,000,000 40%
Third 4,000,000 45%
What is the income tax provision in the interim income statement for the third quarter?
a. 1,800,000 b. 2,450,000 c. 2,550,000 d. 7,650,000

17,000,000*45%= 7,650,000
2nd qtr recognized tax (2,400,000)
1st qtr recognized tax (2,800,000)
Tax for third quarter 2,450,000

Hyperinflation and Current Cost

14. Mercy Company provided the following information for the year ended Dec 31 2014
Net monetary assets-Jan1 800,000 * 300/100= 2,400,000
Sales 5,000,000 * 300/200= 7,500,000
Purchases 3,000,000 * 300/200= (4,500,000)
Expenses 1,000,000 * 300/200= (1,500,000)
Income tax 600,000 *300/200= (900,000)
Cash dividend 200,000 (200,000)
1,000,000 2,800,000

The sales, purchases, expenses and income tax accrued evenly during the year. Selected general price index
numbers are 100 on Jan 1 and 300 on Dec 31. What is the gain or loss on purchasing power during the year?
a. 1,800,000 gain b. 1,800,000 loss c. 1,700,000 gain d. 1,700,000 loss

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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #4) VMBM, CPA

Constant Peso Acctg- restatement of historical financial statement through use of index number
Monetary items- not restated
Gain/Loss on purchasing power (only for monetary items)= Net monetary assets, restated- Net monetary
assets @ cost

Formula for restatement:

=Index number at end of reporting period x Historical cost
Index number on acquisition date*

*All items in income statement use average index

15. Juno Company reported the following information for the current year:
Units Historical cost
Inventory- Jan 1 10,000 530,000
Purchases 45,000 2,790,000
Goods available for sale 55,000 3,320,000
Inventory- Dec 31 (15,000) (945,000)
Cost of goods sold 40,000 2,375,000
The current cost per unit was P58 on Jan 1 and P72 on Dec 31

Under current cost accounting, what is the cost of goods sold?

a. 2,600,000 b. 2,880,000 c. 2,375,000 d. 2,320,000

40,000*(58+72/2)= 2,600,000

16. Sallyneth Company acquired an equipment on Jan 1 2014 for P5,000,000. Depreciation is computed using the
straight line method. The estimated useful life of the equipment is 5 years with no residual value. A specific price
index applicable to the equipment was 150 on Jan 1 2014 and 225 on Dec 31 2014
What is the realizable holding gain on the equipment to be reported in 2014?
a. 500,000 b. 300,000 c. 250,000 d.0

225/150*5,000,000= 7,500,000

(7,500,000+5,000,000)/2=6,250,000(ave cost)/5 1,250,000 dep’n based on ave CC

(1,000,000) dep’n based on HC
250,000 realized holding gain

17. On Jan 1 2014, Harry Company purchased land for P5,000,000. On Dec 31 2014, the land has a current cost of
P5,500,000. On Dec 31 2015, the entity sold the land for P6,500,000. On such date, the current cost of the land
is P5,900,000.
What is the realized holding gain to be reported in the income statement for 2015?
a. 1,500,000 b. 1,000,000 c. 900,000 d. 400,000

CC at time of sale 5,900,000

Historical cost (5,000,000)
Realized holding gain in 2015 900,000
Less unrealized HG in 2014 (500,000)
Realized HG to be reported 400,000

Current cost accounting- restatement of historical cost in terms of current replacement cost
- recognition of holding gain/loss
Use average current cost= Cost of sales and Depreciation

Realized Holding Gains/Losses

For inventory sold= COS, at average current cost- COS, at historical cost
For depreciable property= Dep’n based on ave. current sales- Dep’n based on historical cost
For nondepreciable property= Current cost at the time of sale- Historical cost

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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #4) VMBM, CPA

Unrealized Holding Gains/Losses

For ending invty= Current cost @ end of the year-Historical cost
For depreciable property- Net Current cost (CC-accumulated Depn)-Carrying amount
For nondepreciable property= Current cost at end of the year-Historical Cost

Notes & Comprehensive Income

18. The financial statements of Troy Company were authorized for issue on March 31 2015 and the end of the
reporting period is Dec 31 2014.
On Dec 31 2014, the entity had an account receivable of P3,000,000 from a customer.
On Feb 1 2015, the liquidator of the said customer advised the entity in writing that the customer was insolvent
and that only P1,000,000 would be paid on Dec 31 2015.
-existing as of the end of the BS date, loss of P2,000,000

The entity had reported a contingent liability on Dec 31 2014 related to a court case. On March 1 2015, the
judge handed down a decision against the entity for damages amounting to P2,500,000.

What total amount should be reported as “adjusting events” on Dec 31 2014?

a. 4,500,000 b. 2,500,000 c. 5,500,000 d. 2,000,000

19. Claus Company provided the following information for the current year:

Income from continuing operations 5,000,000

Income from discontinued operations 1,000,000
Unrealized gain on financial asset at FVTPL 2,500,000
Unrealized gain on financial asset at FVTOCI 1,500,000
Unrealized gain on futures contract designated as a 500,000
cash flow hedge
Actuarial loss during the year due to increase in PBO 400,000
Foreign translation adjustment-debit 100,000
Loss on credit risk of a financial liability designated at 200,000
FVTPL
Revaluation surplus during the year 2,000,000
What amount should be reported as comprehensive income for the year?
a. 3,300,000 b. 9,300,000 c. 6,000,000 d. 9,500,000

Net income (continuing/discontinuing) 6,000,000

OCI that may be reclassified to P/L:
1. Cash flow hedge derivative 500,000
2. Translation (100,000) 400,000
OCI that may not be reclassified to P/L
1. FVTOCI 1,500,000
2. Actuarial G/L-PBO (400,000)
3. Loss – Credit risk (200,000)
4. Revaluation surplus 2,000,000 2,900,000
Total 9,300,000

SME

20. An SME prepared the following postclosing trial balance on Dec 31 2014:
Property, plant and equipment 2,300,000
Intangible assets 850,000
Investment in associate 1,100,000
Deferred tax asset 40,000
Inventory 500,000
Trade receivables 600,000
Cash on hand 1,150,000
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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #4) VMBM, CPA

Investment in nonputtable ordinary shares-listed (FV 550,000

can be measured, FVTPL)
Investment in nonconvertible nonputtable preference 500,000
shares-unlisted (FV cant be measured, cost)
Investment in term bonds 400,000
Demand deposit in bank 200,000
Loan receivable from employee-fixed term 10,000
Loan receivable from associate-on demand 300,000
Bank loans 1,100,000
Other long term employee benefits 250,000
Obligations under finance leases 400,000
Trade payables 550,000
Warranty obligation 20,000
Rent payable 10,000
Interest payable 20,000
Current tax liability 210,000
Bank overdraft – on demand 40,000
Share capital 4,000,000
Retained earnings 1,900,000
1. What is the total amount of basic financial assets?
a. 4,810,000 b. 3,710,000 c. 3,750,000 d. 3,160,000

2. What is the total amount of basic financial liabilities?

a. 2,330,000 b. 2,120,000 c. 1,720,000 d. 1,930,000
21. An SME incurred and paid the following expenditures in acquiring an administration building and the land on
which it is built during 2014:

Jan 1 20% of the price is attributable to 50,000,000

land
Jan 1 Nonrefundable transfer taxes not 1,000,000
included in the P50,000,000
purchase price
Jan 1 Legal cost directly attributable to 200,000
the acquisition
Jan 1 Reimbursing the previous owner for 100,000
prepaying the nonrefundable local
Expensed government property taxes for the
six-month period ending June 30
2014
June 30 Nonrefundable annual local govt 200,000
property taxes for the year ending
Expensed June 30 2015
During 2014 Day to day repairs and maintenance 250,000

Expensed
On Dec 31 2014, SME assessed that the useful life of the building is 40 years with residual value of P2,000,000.
On the same date, fair value less cost of disposal of the land and building is P60,000,000. What is the initial
carrying amount of the land and building, respectively?
a. 10,240,000 and 40,960,000
b. 10,200,000 and 40,800,000
c. 10,000,000 and 40,000,000
d. 12,000,000 and 48,000,000

51,200,000*80%= 40,960,000
51,200,000*20%= 10,240,000

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Father Saturnino Urios University
Accountancy Program
AIR- Cluster 1 (Drill #4) VMBM, CPA

SME- almost same with FULL PFRS

Investment property- use cost model (by circumstance)

-presented under PPE

END OF DRILL #4 

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