Excel_Professional Services Inc.

Management Firm of Professional Review and Training Center (PRTC)

Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

OPEN Final Preboard Examination on Financial Accounting and Reporting

April 26, 2022
Suggested answers/solutions by OCAMPO/OCAMPO

Question No. 1 - B
Question No. 2 - D
Question No. 3 - A
No adjustments. All items were properly excluded.

Question No. 4 - C
Unadjusted inventory 8,800,000
Add (deduct) adjustments:
Cryptocurrencies for investment purposes (860,000)
Lubricants -
Materials in transit shipped FOB shipping point -
Finished goods in transit shipped FOB shipping point (150,000)
Advertising catalogs and shipping boxes (30,000)
Items of PPE held for sale in the ordinary course of business -
Adjusted inventory 7,760,000

Question No. 5 - B
Inventory, 12/31/21 1,280,000
Purchases (P5,640,000 + P40,000 - P80,000) 5,600,000
Cost of sales (see computation below) (5,280,000)
Estimated Inventory, 12/31/22 1,600,000
Inventory based on physical count (1,440,000)
Estimated cost of misssing inventory 160,000
Computation of cost of sales:
Accounts receivable, 12/31/22 1,200,000
Collections 7,200,000
Accounts receivable, 1/1/22 (1,000,000)
Sales on account 7,400,000
Cash sales 1,400,000
Total sales 8,800,000
x COS ratio (1 - .4) 0.60
5,280,000

Question No. 6 - C
Carrying value, Jan. 1, 2022 1,176,000
Increase in fair value due to growth and price changes 365,000
Decrease in fair value due to harvest (42,000)
Carrying value, Dec. 31, 2022 1,499,000

Question No. 7 - D
Increase in fair value due to growth and price changes 365,000
Decrease in fair value due to harvest (42,000)
Net unrealized gain on Biological Assets 323,000

Question No. 8 - B
Purchase price (P89,600 - P9,600) 80,000
Costs of transporting machine 3,000
Labor costs of installation 5,000
Labor costs of testing 4,000
Costs of safety rails and platforms surrounding machine 6,000
Costs of water devices to keep machine cool 8,000
Costs of adjustments to machine 7,500
Total cost 113,500

Notes:
1. Insurance cost is expense

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 2. Cost of training is expense

Question No. 9 - D
Depreciable amount (P2,000,000 + P70,000 - P100,000) 1,970,000
Divide by useful life 10
Depreciation for 2022 197,000

Question No. 10 - C
Fair value of asset given up (P205,000 - P60,000) 145,000
Carrying amount 168,000
Gain (loss) on exchange (23,000)

Question No. 11 - A
The depreciation method is double declining balance method.

Depreciation rate (1/8 x 2) 0.25

Cost 9,900,000
CA, 12/31/21 (P9,900,000 x .75 x .75) (5,568,750)
Acc. Dep., 12/31/21 4,331,250

Depreciation - 2022 (P5,568,750 x .25) 1,392,188

Question No. 12 - D
Revaluation surplus, 1/1 (Head Office) 1,257,000
Increase in value of head office 82,000
Revaluation surplus, 12/31 1,339,000

The impairment on factory is recognized profit or loss.

There is no credit balance in the revaluation surplus for this asset.

Question No. 13 - B
Property 1 (P350,000 - P320,000) 30,000
Property 2 (P285,000 - P305,000) (20,000)
Property 3 (P360,000 - P385,000) (25,000)
Net FV adjustment gain (loss) (15,000)

Question No. 14 - C
Research and development expense (P5,025,000 - P3,000,000) 2,025,000

Question No. 15 - C
FV of shares issued (2,500 x P9) 22,500
Cash paid 75,000
Cost of patent 97,500

Question No. 16 - C
Acquisition cost 4,500,000
Development cost - 2021 150,000
Total 4,650,000
Residual value (600,000)
Amount subject to depletion 4,050,000
Depletion - 2021 (100,000 x P4.05*) (405,000)
Remaining amount subject to depletion, 1/1/22 3,645,000
Development cost - 2022 75,000
Revised amount subject to depletion 3,720,000
Divide by revised remaining estimated reserves, 1/1/22
(925,000 - 100,000) 825,000
Depletion rate for 2020 4.51

* (P4,050,000/1,000,000)

Depletion - 2022 (150,000 tons x P4.51) 676,500

Question No. 17 - C
Carrying amount, 12/31/22 – without impairment (P6,250,000 x 7/10) 4,375,000

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 Carrying amount, 12/31/22 – before reversal of IL (P4,000,000 x 4/5) (3,200,000)
Reversal of impairment loss in profit or loss 1,175,000

Question No. 18 - B
Fair value 330,000
Carrying amount before revaluation 290,000
Revaluation increase (decrease) 40,000
The revaluation increase is recognized as income in OCI (increase in RS).

Carrying amount after revaluation 330,000

Fair value less costs to sell (P330,000 - P20,000) 310,000
Impairment loss in P/L (initial writedown to FV-CTS) 20,000

Fair value less costs to sell, 6/30/21 310,000

Fair value less costs to sell, 12/31/21 (P325,000 - P25,000) 300,000
Impairment loss in P/L (subsequent writedown to FV-CTS) 10,000

Net disposal proceeds 285,000

CA (Fair value less costs to sell), 12/31/21 300,000
Gain (loss) on disposal (15,000)

Question No. 19 - C
Question No. 20 - D
Question No. 21 - C
Specific borrowing (P150,000 x .06) 9,000
General borrowing [(P250,000 - P150,000) x .09] 9,000
Total capitalizable borrowing costs 18,000

Question No. 22 - A
Question No. 23 - C
1. Savings account at PS Bank 1,200,000
1. Checking account at PS Bank 1,800,000
4. Petty cash fund 10,000
10. Bills and coins on hand 15,000
Total 3,025,000

Other items not included in cash and cash equivalents should be presented as follows:
2. Travel advances – Trade and other receivables
3. Cash fund for retirement of long-term debt – Noncurrent investments
5. I.O.U. from a company officer – Trade and other receivables
6. Bank overdraft – Current liabilities (Short term borrowings)
7. Certificates of deposit – Other financial assets (Short term investments)
8. Check dated Jan. 2, 2023 (PDC) – Trade and other receivables
11. Cryptocurrencies – Can be treated as inventories, investments or intangible assets
in accordance with PIC Q&A No. 2019-02.

Question No. 24 - B
Balance per bank, 10/31 6,580
Deposit in transit, 10/31 (see below) 7,800
Outstanding checks, 10/31 (see below) (1,600)
Adjusted balance per bank 12,780

Deposits in transit, 10/31

Deposits in transit, 9/30 4,400
Deposits per books - October 24,600
Deposits per bank - October (21,200)
7,800
Outstanding checks, 10/31
Outstanding checks, 9/30 2,800
Checks per books - October 27,800
Checks per bank - October (29,000)
1,600

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Question No. 25 - B
Allowance for D/A, 12/31 (P240,000 x .05) 12,000
Accounts written off 7,200
Allowance for D/A, 1/1 (10,000)
Recovery of accounts written off (2,100)
Doubtful accounts expense 7,100

Question No. 26 - D
Jan. 1 to May 31 (P3M x .12 x 5/12) 150,000
June 1 to Dec. 31 (P2M x .12 x 7/12) 140,000
Interest income - 2022 290,000

Question No. 27 - C
Present value of note receivable (P300,000 x 0.7118) 213,540
Less carrying amount of machine (P500,000 - P380,000) 120,000
Gain on sale of machine 93,540
Interest income - 2022 (P213,540 x 12% x 6/12) 12,812
Total income to be recognized in 2022 profit or loss 106,352

Question No. 28 - C
Question No. 29 - D
Question No. 30 - A
Net sales proceeds (P220,000 - P3,300) 216,700
Less CA (FV on last remeasurement, 12/31/21) 208,000
Gain on sale of investment 8,700

Question No. 31 - C
Fair value, 12/31/22 505,000
Fair value, 12/28/22 (500,000)
Fair value adjustment gain (loss) 5,000

Question No. 32 - A
Acquisition cost 360,000
Share of profit (P150,000 x 30%) 45,000
Dividends received (P90,000 x 30%) (27,000)
Carrying amount, 12/31/22 378,000

Held for sale (40%):

Carrying amount (P378,000 x 40%) 151,200
Fair value less costs to sell [(P390,000 x .95) x 40%] 148,200
Amount to be reported (whichever is lower) 148,200

Question No. 33 - B
Annual premium 121,040
Increase in CSV (P189,350 - P138,030) (51,320)
Dividends received (4,210)
Life insurance expense 65,510

Question No. 34 - B
Question No. 35 - C
Question No. 36 - D
Question No. 37 - D
Projected benefit obligation, Dec. 31 (see below) 10,280,000
Less fair value of plan assets, Dec. 31 (see below) 8,870,000
Accrued (prepaid) benefit expense, Dec. 31 1,410,000

Projected benefit obligation, Jan. 1 9,000,000

Service cost 1,000,000
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 Interest on projected benefit obligation (P9,000,000 x .1) 900,000
Actuarial loss on projected benefit obligation 160,000
Benefits paid to retirees (780,000)
Projected benefit obligation, Dec. 31 10,280,000

Fair value of plan assets, Jan. 1 8,000,000

Interest on plan assets (P8,000,000 x .1) 800,000
Actuarial gain on plan assets (P850,000 - P800,000) 50,000
Employer contributions 800,000
Benefits paid to retirees (780,000)
Fair value of plan assets, Dec. 31 8,870,000

Question No. 38 - D
Cumulative expense, year 3 {167 x 100 x [(P21 x 3/3) + (P3 x 2/2)]} 400,800
Cumulative expense, year 2 {165 x 100 x [(P21 x 2/3) +(P3 x 1/2)]} (255,750)
Expense - year 3 145,050

Question No. 39 - D
Based on the given information, it is probable that the entity will successfully defend the court case.
Therefore, the entity has only a possible obligation and consequently a contingent liability.

Question No. 40 - A
Accounting profit 18,500
Reversal expenses (income) for accounting purposes:
Depreciation - motor vehicle 4,500
Depreciation - equipment 20,000
Rent revenue (16,000)
Royalty revenue (exempt from taxation) (5,000)
Doubtful debts expense 2,300
Entertainment expense (non-deductible) 1,500
Gain on sale of equip. (P19,000 - P18,000) (1,000)
Annual leave expense 5,000
Income (expenses) for tax purposes:
Depreciation - motor vehicle -
Depreciation - equipment (15,000)
Rent revenue collected (P16,000 + P2,400 - P2,800) 15,600
Royalty revenue (exempt from taxation) -
Bad debts written off (P2,500 + P2,300 - P3,000) (1,800)
Entertainment expense (non-deductible) -
Loss on sale of equip. - tax [P19,000 - (P30,000 x .7)] (2,000)
Annual leave paid (P5,000 + P6,000 - P4,500) (6,500)
Taxable profit 20,100
Tax rate 30%
Current tax expense 6,030

Question No. 41 - C

Comparison of carrying amount of asssets/liabilities and tax base

Carrying
amount Tax base Difference Remarks
Receivables 12,000 15,000 3,000 Deductible
Rent receivable 2,800 - 2,800 Taxable
Motor vehicle 2,250 - 2,250 Taxable
Equipment 40,000 55,000 15,000 Deductible
Provision for annual leave 4,500 - 4,500 Deductible
Tax base of Receivables - (P12,000 + P3,000)
Tax base of equipment - [P100,000 - (P100,000*0.15*3)]

Effect on tax
Ending Beginning Inc(Dec) expense
Deferred tax liability 1,515 2,745 (1,230) Credit
Deferred tax asset 6,750 5,550 1,200 Credit

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 Journal entry:
Deferred tax liability 1,230
Deferred tax asset 1,200
Income tax expense 2,430

Question No. 42 - A
(in millions)
Fair value, 12/31/21 (P115M + P11.6M) 126.6
Less carrying amount, 12/31/21 (P120M x 37/40) 111.0
Revaluation surplus, 12/31/21 15.6

Question No. 43 - B (in millions)

Revaluation surplus, 12/31/21 (see no. 42) 15.600
Decrease in decommissioning liability 5.000
Revaluation decrease:
Fair value, 12/31/22 (P107M + P7.2M) 114.200
Less carrying amount, 12/31/22 (P126.6M x 36/37) 123.178 (8.978)
Revaluation surplus, 12/31/22 11.622

Question No. 44 - D
June 1 (50,000 shares x P10) 500,000
June 5 600,000
June 15 [(100,000 x P15)+(5,000 x P35)] 1,675,000
June 25 -
Total shareholders' equity, 6/30/22 2,775,000

Question No. 45 - D
Share premium, 12/31/21 (P160,000 + P600,000) 760,000
April 30 - retirement of PS [1,000 x (P25 - P20)] (5,000)
July 31 - re-issuance of TS [800 x (P50 - P42.5*)] 6,000
761,000

* Cost per share of treasury shares after share split (P85/2)

Question No. 46 - D
Retained earnings, 1/1/22 112,500
Prior period error (10,500)
Cash and share dividends (60,000)
Net income (P58,500 - P6,000 - P2,500) 50,000
Retained earnings, 12/31/22 92,000

Question No. 47 - C
Total equity 8,250,000
Less preference shareholders equity:
Liquidation value (20,000 + P110) 2,200,000
PS dividend (P2M x 12% x 3) 720,000 2,920,000
Ordinary shareholders equity 5,330,000
/ Number of ordinary shares outstanding 200,000
Book value per share - ordinary 26.65

Question No. 48 - C
Profit to ordinary for 2021 (1,000,000 x P4.8) 4,800,000
Add preference share dividends in 2021 (P2,000,000 x 10%) 200,000
Profit for 2021 5,000,000
Increase in profit for 2022 (P5,000,000 x 10%) 500,000
Profit for 2022 5,500,000
Less preference share dividends 2022 (P2,000,000 x 1/2 x 10%) 100,000
Profit to ordinary for 2022 5,400,000
Divide by weighted aveg ordinary shares outs. (1 million x 3) 3,000,000
Earnings per share for 2022 1.80

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Question No. 49 - A
Question No. 50 - B
Retained earnings (P7,000 x .7) 4,900
Income tax payable 2,100
Cost of sales (Inventory, beg.) 7,000

Question No. 51 - D
Question No. 52 - D

Question No. 53 - D
Bank overdraft 50,000
Accounts receivable with credit balances 100,000
Accounts payable (P3,000,000 + P150,000 + P200,000) 3,350,000
Notes payable - current portion 500,000
Accrued expenses 300,000
Total current liabilities 4,300,000

Question No. 54 - D
Question No. 55 - C
Question No. 56 - C
Question No. 57 - D
Net sales 390,000
Cost of goods sold (227,400)
Gross profit 162,600
Selling expenses (41,600)
G & A expenses (48,600)
Operating income 72,400
Dividend income 3,600
Loss on sale of land (8,000)
Interest expense (8,200)
Profit before tax 59,800
Income tax expense (23,920)
Profit 35,880

Question No. 58 - A
Profit before income tax 880,000
Adjustments for:
Depreciation on property, plant and equipment 250,000
Provision for impairment losses 150,000
Unrealized foreign exchange gains (60,000)
Fair value adjustment gain on FA at FVTPL (130,000)
Fair value adjustment loss on investment property 190,000
Share of profit of associate (220,000)
Gain on sale of FA at AC (85,000)
Loss on sale of equipment 70,000
Gain on debt extinguishment (125,000)
Gain on distribution of non-cash assets to owners (40,000)
Interest expense 150,000
Interest income (80,000)
Operating income before changes in working capital accounts 950,000
Changes in operating assets and liabilities:
Increase in accounts receivable (350,000)
Decrease in inventory 100,000
Increase in accounts payable 300,000
Net cash generated from operations 1,000,000
Interest paid (200,000)
Interest received 90,000
Income taxes paid (160,000)
Net cash provided by operating activities 730,000

Supporting computations:
Interest expense 150,000
Interest payable, beginning of the year 100,000
Interest payable, end of the year (50,000)

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 Interest paid 200,000

Interest income 80,000

Interest receivable, beginning of the year 30,000
Interest receivable, end of the year (20,000)
Interest received 90,000

Question No. 59 - B
Minimum profit or loss to be considered as reportable (P33.2M x 10%) 3,320,000

Question No. 60 - B
Question No. 61 - B
Cash and cash equivalents 200,000
Trade and other receivables 350,000
Inventories (P500,000 x 450/400) 562,500
Prepayments (P50,000 x 450/180) 125,000
Debt investments at amortized cost 200,000
Property, plant and equipment (P1,000,000 x 450/150) 3,000,000
Accumulated depreciation (P300,000 x 450/150) (900,000)
Investment property at fair value 600,000
Total Assets 4,137,500
Trade and other payables (250,000)
Short-term borrowings (180,000)
Note payable to bank (800,000)
Equity 2,907,500
Share capital (P400,000 x 450/100) (1,800,000)
Retained earnings (Balance) 1,107,500

Question No. 62 - B
Question No. 63 - B
Question No. 64 - D
The investment is measured at fair value. See PFRS for SMEs Section 11 par. 11.14(c)(i).

Question No. 65 - B
The investment is measured at cost. See PFRS for SMEs Section 11 par. 11.14(c)(ii).

Question No. 66 - D
Question No. 67 - A
2020
RA (P204,000 - P8,000) 196,000
Cost (P200,000 + P2,000) 202,000
Impairment loss (6,000)

2021
RA (P220,000 - P8,000) 212,000

Reversal Impairment loss recognied in 2020 6,000

Dividend income (P40,000 x .3) 12,000
18,000

2022
RA (P180,000 - P8,000) 172,000
Cost (P200,000 + P2,000) 202,000
Impairment loss (30,000)

Question No. 68 - B
Question No. 69 - A Debit Credit
Cash (P5,912 + P450 - P190) 6,172
Accounts receivable (P5,240 - P450) 4,790
Supplies on hand 2,967
Furniture and equipment (P6,100 + P3,200) 9,300
Accounts payable 7,044

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 Share capital 8,000
Retained earnings 2,000
Service revenue (P5,200 + P2,025 + P80) 7,305
Office expense (P4,320 - P3,200) 1,120
Total 24,349 24,349
-
Question No. 70 - A
Service revenue (P5,200 + P2,025 + P80) 7,305
Office expense (P4,320 - P3,200) (1,120)
Net income 6,185

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