Since 1977

FAR OCAMPO/SOLIMAN/OCAMPO
FAR.2956 – Simulated Examination (DIY) OCTOBER 2020

1. Which statement is incorrect regarding the Financial Work-in-process 68,400

Reporting Standards Council (FRSC)? Finished goods 81,000
a. Established by the Board of Accountancy (BOA) to Goods shipped on consignment, at selling
assist the BoA in carrying out its power and price with 20% profit on sales 27,000
function to promulgate accounting standards in
What is the cost of inventory to be shown in the
the Philippines.
statement of financial position of Benson Mfg. Co. as
b. Has 15 members with a Chairman
of December 31, 2018?
c. FRSC members serve for a term of three years
a. P287,100 c. P268,200
renewable for another term.
b. P286,200 d. P264,600
d. Has 6 representatives from public practice.
8. On August 15, 2018, a typhoon damaged a
2. The following were created to assist the Board of
warehouse of Parlophone Merchandise Company. The
Accountancy in carrying out its powers and functions,
entire inventory and many accounting records stored
except
in the warehouse were completely destroyed.
a. Financial Reporting Standards Council
Although the inventory was not insured, a portion
b. Auditing and Assurance Standards Council
could be sold for scrap. Through the use of the
c. Education Technical Council
remaining records, the following data are assembled:
d. Accredited Professional Organization Council
Inventory, January 1 P 375,000
3. It is a “global phenomenon” intended to bring about Purchases, January 1-August 15 1,385,000
transparency and a higher degree of comparability in Cash sales, January 1-August 15 225,000
financial reporting, both of which will benefit the Collection of accounts, Jan. 1-Aug. 15 2,115,000
investors and are essential to achieve the goal of one Accounts Receivable, January 1 175,000
uniform and globally accepted financial reporting Accounts Receivable, August 15 265,000
standards. Salvage value of inventory 5,000
a. Information technology c. World Trade Gross profit percentage on sales 32%
b. Borderless accounting d. IFRS
Compute the inventory loss as a result of the typhoon.
a. P107,600 c. P102,600
4. The International Financial Reporting Standards
b. P104,200 d. P255,600
Foundation is:
a. A body which oversees the work of the IASB, IFRS
9. Martin Corp. values its inventory by using the retail
Advisory Council and IFRS Interpretations
method (FIFO basis, lower of cost or NRV). The
Committee and organizes their funding.
following information is available for the year just
b. A body which must approve all new accounting
ended:
standards before they are issued.
c. A body whose main aim is to enforce the use of Cost Retail
international GAAP throughout the world. Beginning inventory P 80,000 P140,000
d. The body which funds the development of new Purchases 297,000 420,000
IFRSs. Freight-in 4,000 -
Breakage 8,000
5. The objective of financial reporting in the Conceptual Markups (net) 10,000
Framework for Financial Reporting: Markdowns (net) 2,000
a. Is the foundation for the framework Sales 400,000
b. Includes the qualitative characteristics that make At what amount would Martin report its ending
accounting information useful. inventory?
c. Is found on the third level of the Framework. a. P112,000 c. P117,600
d. All of the choices are correct regarding the b. P113,400 d. P119,000
objective of financial reporting.
10. Tristine Dairy produces milk to sell to local and
6. Which of the following is not a primary information national ice cream producers. Tristine Dairy began
need for the ‘investor’ user group of financial operations on January 1, 2018 by purchasing 840 milk
statements? cows for P1,176,000. The company controller had the
a. Assessment of repayment ability of an entity following information available at year end relating to
b. Measuring performance, risk and return the cows:
c. Taking decisions regarding holding investments
d. Taking buy / sell decisions Carrying value, January 1, 2018 P1,176,000
Increase in fair value due to growth
7. The Benson Mfg. Co. in its statement of financial and price changes 365,000
position as of December 31, 2018 has an inventory in Decrease in fair value due to harvest 42,000
the amount of P176,000 which consists of: Milk harvested during 2018 but not yet sold 54,000

Direct materials P99,000 At December 31, 2018, what is the value of the
Direct materials purchases in transit, milking cows on Tristine Dairy’s statement of financial
FOB destination 21,600 position?
Direct materials purchases in transit, a. P1,583,000 c. P1,499,000
FOB shipping point 16,200 b. P1,553,000 d. P1,445,000
Prepaid insurance on inventory 3,600

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EXCEL PROFESSIONAL SERVICES, INC.

11. Cavern Corporation has decided to expand its What is the revaluation surplus on December 31,
operations and has purchased land for construction of 2018?
a new manufacturing plant. The following costs were a. P13,200,000 c. P13,800,000
incurred in purchasing the property and constructing b. P15,000,000 d. P14,000,000
the building:
15. Which statement is correct regarding investment
Land purchase price P 120,000
property in accordance with PAS 40?
Payment of delinquent property taxes 35,000 a. Investment property includes property occupied by
Title search and insurance 6,500 an employee paying market rent.
City improvements for water and sewer 18,000 b. Investment property does not generate cash flows
Building permit 8,000 largely independently of the other assets held by
Cost to destroy existing building on an entity.
land (P3,000 worth of salvaged c. An entity need not disclose the fact the fair value
material used in new building) 20,000 of investment property is not determined on the
Contract cost of new building 1,650,000 basis of a valuation by an independent valuer who
holds a recognized and relevant professional
Land improvements-landscaping 82,000
qualification and has recent experience in the
Sidewalks and parking lot 39,000 location and category of the investment property
Fire insurance on building - 1 year 18,000 being valued.
The depreciated value of the old building on the books d. An entity shall disclose the amounts recognized in
of the company from which the land was purchased profit or loss for direct operating expenses
was P26,000. The old building was never used by (including repairs and maintenance) arising from
Cavern. How much should be recognized as cost of investment property that did not generate rental
land? income during the period.
a. P278,500 c. P260,500
b. P178,500 d. P196,500 16. Muscat Company purchased a patent on January 1,
2015, for P3,570,000. The patent was being
12. On June 30, 2017, Rickenbacker Equipment amortized over its remaining legal life of 15 years.
purchased a precision laser-guided steel punch that During 2018 Muscat determined that the economic
has an expected capacity of 300,000 units and no benefits of the patent would not last longer than ten
residual value. The cost of the machine was P450,000 years from the date of acquisition. What amount
and is to be depreciated using the units-of-production should be reported in the statement of financial
method. During the six months of 2017, 24,000 units position as patent, net of accumulated amortization,
of product were produced. At the beginning of 2018, at December 31, 2018?
engineers estimated that the machine can realistically a. P2,618,000 c. P2,520,000
be used to produce only another 230,000 units. b. P2,448,000 d. P2,142,000
During 2018, 70,000 units were produced.
Rickenbacker would report depreciation in 2018 of: 17. Wan acquired Yang, a small company that specializes
a. P135,230 c. P108,000 in pharmaceutical drug research and development for
b. P126,000 d. P105,000 P35 million. The fair value of Yang’s net assets was
P15 million (excluding any items referred to below).
13. Rubber Soul Co. purchased equipment on 1/1/17 for Yang owns a patent for an established successful drug
P500,000, estimating a four-year useful life and no that has a remaining life of 8 years. A firm of
residual value. In 2016 and 2017, Rubber Soul specialist advisors, Tantsahan, has estimated the
depreciated the asset using the sum-of-years'-digits current value of this patent to be P10 million;
method. In 2018, Rubber Soul changed to straight- however, the company is awaiting the outcome of
line depreciation for this equipment. What clinical trials where the drug has been tested to treat
depreciation would Rubber Soul record for the year a different illness. If the trials are successful, the
2018 on this equipment? value of the drug is then estimated to be P15 million.
a. P 75,000 c. P150,000 Also included in the company’s balance sheet is P2
b. P125,000 d. P175,000 million for medical research that has been conducted
on behalf of a client.
14. The following account balances relating to property,
plant and equipment of Paperback Company appear Compute the amount of goodwill from this acquisition.
on the books on December 31, 2017: a. P8,000,000 c. P 3,000,000
b. P5,000,000 d. P20,000,000
Land P 6,000,000
Building 60,000,000 18. On January 1, 2015, Sihamoni Corp. acquired a gold
Accumulated depreciation 24,000,000 mine property for P10,000,000. In 2015 and 2016,
Plant, property and equipment have been carried at Sihamoni spent P4,000,000 on exploration and
cost since their acquisition. The land was acquired 15 development. It expects to be able to mine 35,000
years ago while the building’s construction was ounces of gold over the 10-year life of the mine.
completed on January 1, 2008. The straight line Sihamoni uses the output method to account for its
method for depreciation is used. On January 1, 2018, gold costs and expects to be able to sell the property
the company revalued property, plant and equipment. to a real estate developer for P2,000,000 at the end
On the same date, contracted professional appraisers of the
10 years. It mined 3,100 ounces in 2017 and
submitted the following: 2,800 in 2018. How much depletion would be
Fair value recorded related to the gold in 2018?
a. P 960,000 c. P1,200,000
Land P 8,000,000
Building 48,000,000 b. P1,120,000 d. P1,400,000

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EXCEL PROFESSIONAL SERVICES, INC.

19. Maharishi Corp. uses the cost model for intangible Treasury bills, purchased on 11/2/18,
assets. On April 10, 2017, Maharishi acquired assets mature on 4/30/19 3,000
for P100,000. On December 31, 2018, it was Marketable equity securities 10,200
determined that the recoverable amount for these Commercial paper, purchased on 11/2/18,
intangible assets was P80,000. mature on 1/30/19 5,000
On December 31, 2018, it was determined that the What amount will Sexy Sadie include in its year-end
intangible assets had a recoverable amount of statement of financial position as cash and cash
P84,000. What is the impairment gain or loss equivalents?
recognized in 2017 and 2018 on the income a. P9,450 c. P12,450
statement? b. P7,450 d. P19,650
2017 2018
a. P20,000 loss P16,000 loss 24. The cash account in the correct asset section of the
b. P20,000 loss P0 balance sheet of Revolution Company showed a
c. P20,000 loss P4,000 gain balance of P55,500. It was found to include the
d. P0 P0 following items:
Petty cash fund (P100 is in the form of
20. An entity is planning to dispose of a collection of paid vouchers) P 500
assets. The entity designates these assets as a Checking account balance in Philippine
disposal group. The carrying amount of these assets Trust Company, per bank statement (a
immediately before classification as held for sale was P2,500 check is still outstanding) 25,500
P20 million. Upon being classified as held for sale, the Undeposited receipts, including a post-
assets were revalued to P18 million. The entity feels dated check for P500 12,000
that it would cost P1 million to sell the disposal group. Currencies and coins awaiting deposit 5,500
How would the reduction in the value of the assets on Bond sinking fund - cash 10,000
classification as held for sale be treated in the Check drawn by management, returned
financial statements? by bank marked NSF 2,000
a. The entity recognizes a loss of P2 million
immediately before classification as held for sale The correct cash balance for Revolution Company's
and them recognizes an impairment loss of P1 balance sheet is
million. a. P43,000 c. P42,400
b. The entity recognizes an impairment loss of P3 b. P42,900 d. P40,400
million.
c. The entity recognizes an impairment loss of P2 25. You obtained the bank statement, paid checks, and
million. other memoranda relating to Lucy Company’s bank
d. The entity recognizes a loss of P3 million account for December 2018. In reconciling the bank
immediately before classifying the disposal group balance at December 31, 2018, you observed the
as held for sale. following facts:
Balance per bank statement, 12/31/18 P1,465,800
21. The Decca Company purchased a machine for P360,000 Outstanding checks, 12/31/18 624,750
on 1 January 2018 and received a government grant of Receipts of 12/31/18, deposited
P50,000 towards the capital cost. Company policy is to 1/2/19 95,550
treat the grant as a reduction in the cost of the asset. Proceeds of bank loan, 12/15/18,
The machine was to be depreciated on a straight-line discounted for 90 days at 10% per
basis over 8 years and was estimated to have a year, omitted from records 195,000
residual value of P5,000 at the end of this period. Deposit of 12/23/18, omitted from 53,000
Under PAS20 Government grants and government bank statement
assistance, what should be the carrying amount of the Check 733 of Lucky Co., charged by 82,100
machine at 31 December 2018? the bank in error to Lucy Co.
a. P315,625 c. P266,875 Proceeds of note receivable of Lucy
b. P271,250 d. P271,875 Co. collected by bank, 12/10/18, 40,300
not entered in cash records
22. Which statement is incorrect regarding capitalization (Principal, P40,000; Interest, P400;
of borrowing costs? Collection charge, P100)
a. Capitalization should commence when Erroneous debit memo of 12/31/18, to
expenditures are being incurred, borrowing costs charge company’s account with
are being incurred and activities that are settlement of bank loan, paid by 100,000
necessary to prepare the asset for its intended check no. 9344 on same date
use or sale are in progress. Deposit of another client on 12/6/18
b. Capitalization should be suspended during periods credited in error to Lucy Co. 25,000
in which active development is interrupted. The cash balance per books of Lucy Company on
c. Capitalization should cease when substantially all December 31, 2018 is
of the activities necessary to prepare the asset for a. P1,491,000 c. P961,800
its intended use or sale are complete. b. P1,146,700 d. P911,400
d. If there are minor modifications outstanding, this
indicates that substantially all of the activities are 26. Julia Bakery estimates the allowance for uncollectible
not yet complete. accounts at 3% of the ending balance of accounts
receivable. During 2018, Julia's credit sales and
23. Sexy Sadie Corporation had the following items listed collections were P125,000 and P131,000, respectively.
in its trial balance at 12/31/18: What was the balance of accounts receivable on
Currency and coins P 650 January 1, 2018, if P180 in accounts receivable were
Balance in checking account 2,600 written off during 2018 and if the allowance account
Customer checks waiting to be deposited 1,200 had a balance of P750 on 12/31/18?

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EXCEL PROFESSIONAL SERVICES, INC.

a. P 5,820 c. P31,180 31. What amount should Jennah report as unrealized

b. P31,000 d. P25,000 holding gain in its 2018 profit or loss?
a. P50,000 c. P60,000
27. During your review of the records of Maggie Mae b. P55,000 d. P65,000
Corporation for the year 2018, you noted that Maggie
Mae sold a machine with a carrying amount of 32. What amount should Jennah report as net unrealized
P640,000 (cost is P1,600,000) on June 30, 2018. loss at December 31, 2018, in accumulated other
Maggie Mae received an P800,000 non-interest comprehensive income in equity?
bearing note due in 3 years. There is no established a. P0 c. P15,000
market value for the machine. The prevailing interest b. P10,000 d. P20,000
rate for a note of this type is 12%. Maggie Mae
recorded the transaction by debiting Note Receivable 33. On January 1, 2018, Monique Corp. purchased 30
for P800,000 and crediting Machinery for P640,000 percent of the outstanding shares of Kris Corp. for
and Gain on sale of Machine for the difference. P1,500,000 cash. On that date, Kris' net assets were
Because of this, Maggie Mae’s profit for the year P3,000,000. Monique has determined that the excess
ended December 31, 2018 had been overstated by of the cost of its investment in Kris over its share of
a. P196,394 c. P125,834 Kris' net assets is attributable to equipment whose
b. P162,227 d. P 55,274 market value exceeds its carrying amount by
P1,000,000 and to an operating license whose market
28. Martha Company sold a tract of land to My Dear Co. value exceeds its carrying amount by P1,000,000.
on July 1, 2017, for P8,000,000 under an installment The remaining useful life of the equipment is ten
sale contract. My Dear Co. signed a 4-year 11% note years and the remaining useful life of the operating
for P5,600,000 on July 1, 2017, in addition to the license is 20 years.
down payment of P2,400,000. The equal annual
Kris's profit for the year ended December 31, 2018,
payments of principal and interest on the note will be
was P600,000. During 2018, Monique received
P1,805,000 payable on July 1, 2018, 2019, 2020,and
P50,000 cash dividends from Kris. There were no
2021. The land had an established cash price of
other transactions between the two companies.
P8,000,000, and its cost to the company was
P6,000,000. The collection of the installments on this Calculate the carrying amount of the investment in
note is reasonably assured. Kris Corp. as of December 31, 2018.
a. P1,585,000 c. P1,570,000
The current portion of the installment note receivable
b. P1,630,000 d. P1,620,000
on December 31, 2018 is
a. P1,805,000 c. P1,319,790
34. Upon the death of an officer, Jung Co. received the
b. P1,400,000 d. P1,189,000
proceeds of a life insurance policy held by Jung on the
officer. The proceeds were not taxable. The policy’s
29. Lakers Company provides financing to other
cash surrender value had been recorded on Jung’s
companies by purchasing their accounts receivable on
books at the time of payment. What amount of
a nonrecourse basis. Lakers charges its clients a
income should Jung report in its statements?
commission of 15% on all receivable factored. In
a. Proceeds received.
addition, Lakers withholds 10% of receivables
b. Proceeds received less cash surrender value.
factored as protection against sales returns or other
c. Proceeds received plus cash surrender value.
adjustments. Experience has led Lakers to establish
d. None.
an allowance for bad debts of 4% of all receivables
purchased.
35. All of the following statements regarding accounting
On January 15, Lakers purchased receivables from for derivatives are correct except that
Kobe Company totaling P1,500,000. Kobe had a. They should be recognized in the financial
previously an allowance for bad debts for these statements as assets and liabilities.
receivables at P35,000. By January 31, Lakers had b. They should be reported at fair value.
collected P1,200,000 on these receivables. What is c. Gains and losses resulting from hedge
the loss on factoring to be recognized by Kobe transactions are reported in different ways,
Company? depending upon the type of hedge.
a. P190,000 c. P225,000 d. Gains and losses resulting from speculation should
b. P375,000 d. P 0 be deferred.

30. On March 1, 2018, Pyne Furniture Co. acquired 36. The Generous Corporation’s president has a profit-
P700,000 of 10 percent bonds to yield 8 percent. sharing agreement with the company. The agreement
Interest is payable semiannually on February 28 and states that the president is to receive a bonus
August 31. The bonds mature in ten years. Pyne consisting of a basic amount equivalent to 10% of the
Furniture Co. is a calendar-year corporation. If the company’s net income before deduction of bonus but
bonds are not held for trading, the interest income to after deduction of income tax. In addition, the basic
be recognized in 2018 is bonus shall be increased by the company’s tax
a. P52,925 c. P58,933 savings on bonus because the total amount of bonus
b. P53,000 d. P58,333 is deductible in computing the company’s taxable
income. The company registered a net income of
Use the following information for the next two questions. P5,000,000 before deduction of the president’s bonus
and income tax. The company is subject to corporate
The following data pertains to Jennah Co.'s investments in
income tax of 30%. The total bonus due to the
marketable equity securities:
president is
Fair Value a. P522,388 c. P339,806
Cost 12/31/18 12/31/17 b. P360,825 d. P263,158
Trading P150,000 P155,000 P100,000
Available-for-sale 150,000 130,000 120,000

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EXCEL PROFESSIONAL SERVICES, INC.

37. On July 1, 2018, Chocolate Company purchased a 43. On June 30, 2016, John Corporation granted share
noncash asset with a list price of P260,000 by issuing options for 50,000 shares of its P20 par value
a five-year noninterest-bearing note. The market or ordinary shares to certain of its key employees. The
"going" rate of interest for this note was 12%. The market price of the ordinary share on that date was
note will; be paid in five equal annual P64,000 P36 per share and the option price was P30. The
installments each June 30, 2019 through 2023. The Black-Scholes option pricing model determines total
interest expense to be recognized by the entity for the compensation expense to be P600,000. The options
year ended December 31, 2018 is are exercisable beginning January 1, 2019, provided
a. P27,685 c. P13,842 those key employees are still in John’s employ at the
b. P15,600 d. Nil time the options are exercised. The options expire on
June 30, 2020.
38. On February 1, 2017, Brian Corporation sold
On January 4, 2019, when the market price of the
P300,000, 12 percent, ten-year bonds at 96 plus
share was P42 per share, all 50,000 options were
accrued interest. Interest is payable semiannually on
exercised. What should be the amount of
June 1 and December 1. The bond issue was dated
compensation expense recorded by John Corporation
December 1, 2016. On July 31, 2018, P150,000 of
for the calendar year 2018?
the issue was reacquired at 95 plus accrued interest.
a. P600,000 c. P240,000
Assuming the entity uses the straight-line b. P200,000 d. P120,000
amortization method, the gain or loss on bond
retirement to be recognized on July 31, 2018 is 44. An entity that operates ten petrol stations and owns
a. P2,415 gain c. P2,500 gain the land and buildings for those stations chooses not
b. P2,669 loss d. P2,669 gain to purchase fire insurance on those buildings but,
rather, to ‘self insure’ in case of fire loss. The entity
39. Lenny Company purchased a new machine for can estimate reliably the statistical probability of the
P8,000,000 on January 1, 2018 for the purpose of occurrence and amount of expected fire loss (loss of
leasing it. The machine has an estimated 10-year life. about P100,000 once every ten years). The entity
On April 1, 2018, Lenny leased the machine to should
Sieseybi Company for three years at a monthly rental a. Recognize a liability of P10,000 and related
of P200,000. Sieseybi Company paid the rental for expense each year for the next ten years to
one year of P2,400,000 on April 1, 2018 and reflect its expected loss.
additionally paid P600,000 to Lenny as a lease bonus b. Not recognize a liability and related expense each
to obtain the three-year lease. For 2018, Lenny year for the next ten years to reflect its expected
incurred insurance of P50,000 for the leased machine. loss.
What is Lenny’s 2018 operating profit on this leased c. Appropriate retained earnings of P100,000 for ‘self
asset? insurance’.
a. P1,100,000 c. P1,700,000 d. Appropriate retained earnings of P100,000 for
b. P1,300,000 d. P1,400,000 contingencies.

40. On January 1, 2018, North Company entered into a 45. An entity recognized a liability (provision for a lawsuit)
lease agreement with West Company for a machine at P40,000 in its statement of financial position at 31
which was carried on its accounting records at December 2017. At 31 December 2018, the entity
P3,000,000. Total payments under the lease remeasured the liability at P90,000. P3,000 of the
aggregate P5,000,000 of which P3,380,000 represents increase in the provision is attributable to the
the fair value and cost of the machine to West. unwinding of the discount (ie the increase in the
Payments of P500,000 are due on January 1 each P40,000 because it is one year closer to settlement)
year starting January 1, 2018. The interest rate of and the remainder of the increase is attributed to
10% which was stipulated in the lease is considered better information becoming available on which to
fair and adequate compensation to North for the use base the estimates. 

of its funds. West expects the machine to have a 10-
year life, no residual value and be depreciated on a Which statement is correct?
straight line basis. The lease is appropriately a. The increase of P50,000 is recognized as an
classified as a sales type lease by North. What should expense in other comprehensive income for the
be the total income before tax that is derived by North year ended 31 December 2018.
from this lease for the year ended December 31, b. The increase of P47,000 is recognized as an
2018? adjustment to retained earnings balance as of 1
a. P668,000 c. P338,000 January 2018.
b. P288,000 d. P718,000 c. The increase of P3,000 is a finance cost.
d. All the statements are incorrect.
41. In accordance with the revised PAS 19, which of the
following is reported in profit or loss? Use the following information for the next two questions.
a. Actuarial loss on defined benefit obligation The accounting profit before tax for the year ended
b. Actuarial gain on plan assets December 31, 2018 for Regiel Ltd amounted to P18,500
c. Interest on the effect of asset ceiling and included:
d. Gain or loss on routine settlements
Depreciation – motor vehicle (25%) P 4,500
Depreciation - equipment (20%) 20,000
42. In accordance with the revised PAS 19, which of the
Rent revenue 16,000
following is not reported in profit or loss?
Royalty revenue (exempt from tax) 5,000
a. Gain or loss on non-routine settlements
Doubtful debts expense 2,300
b. Past service cost if not yet vested
Entertainment expense (non-deductible) 1,500
c. Net interest on defined benefit asset.
Proceeds on sale of equipment 19,000
d. None of the above
Carrying amount of equipment sold 18,000
Annual leave expense 5,000

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EXCEL PROFESSIONAL SERVICES, INC.

The draft statement of financial position at December 31, a. P119,500 c. P94,500

2018 contained the following assets and liabilities: b. P100,500 d. P92,000
2018 2017
50. Adrian Corporation share capital currently consists of
Assets
40,000 ordinary shares issued with a par value of P5
Cash P 11,500 P 9,500
per share, and 20,000 10% preference shares issued
Receivables 12,000 14,000
at P10 each. In relation to the preference shares,
Allowance for doubtful debts (3,000) (2,500)
dividends have not been paid for the two years prior
Inventory 19,000 21,500
to the current year. The company plans to pay out
Rent receivable 2,800 2,400
P100,000 in dividends in the current period, meeting
Motor vehicle 18,000 18,000
all past obligations (where applicable) to
Acc. Dep. - motor vehicle (15,750) (11,250)
shareholders. How much should the ordinary
Equipment 100,000 130,000
shareholders receive if the preference shares are
Acc. Dep. - equipment (60,000) (52,000)
cumulative and participating?
Deferred tax asset ? 5,550
a. P80,000 c. P30,000
P135,200
b. P40,000 d. P33,333
Liabilities
Accounts payable 15,655 21,500
51. The shareholders' equity section of Brown Co.'s
Provision for annual leave 4,500 6,000
December 31, 2017 balance sheet consisted of the
Current tax liability ? 7,600
following:
Deferred tax liability ? 2,745
37,845 Ordinary share capital, P30 par,
10,000 shares authorized and
Additional information outstanding P300,000
• The company can claim a deduction of P15,000 (15%) Share premium 150,000
for depreciation on equipment, but the motor vehicle Retained earnings (deficit) (210,000)
is fully depreciated for tax purposes.
• The equipment sold during the year had been On January 2, 2018, Brown put into effect a
purchased for P30,000 two years before the date of shareholder-approved quasi reorganization by
sale. reducing the par value of the shares to P5 and
• The company tax rate is 30%. eliminating the deficit against share premium.
Immediately after the quasi reorganization, what
46. The current tax expense for 2018 is amount should Brown report as share premium?
a. P6,030 c. P7,500 a. P (60,000) c. P190,000
b. P6,930 d. P8,040 b. P150,000 d. P400,000

47. The deferred tax expense (benefit) for 2018 is 52. Christian Corp.'s current balance sheet reports the
a. P6,570 c. (P2,430) following shareholders' equity:
b. (P3,270) d. (P1,080) 5% cumulative preference share
capital, par value P100 per share;
48. The December 31, 2017, statement of financial 2,500 shares issued and P250,000
position of Norman Inc., reported total assets of outstanding
P1,050,000 and total liabilities of P680,000. The Ordinary share capital, par value P3.50
following information relates to the year 2018: per share; 100,000 shares issued
• Norman Inc. issued an additional 5,000 ordinary and outstanding 350,000
shares at P25 per share on July 1. Share premium – ordinary 125,000
• Norman Inc. paid dividends totaling P80,000. Retained earnings 300,000
• Net income for 2018 was P110,000.
• No other changes occurred in stockholders' equity Dividends in arrears on the preference shares amount
during 2018. to P25,000. If Christian were to be liquidated, the
preference shareholders would receive par value plus
The equity section of the December 31, 2018 a premium of P50,000. The book value per share of
statement of financial position would report a balance ordinary share is
of a. P7.75 c. P7.25
a. P400,000 c. P685,000 b. P7.50 d. P7.00
b. P525,000 d. P835,000
53. Richard, controller at Pharmaceutical Industries, a
49. The Retained Earnings account of Lester Corp. for the public company, is currently preparing the calculation
year 2018 consists of the following items: for basic and diluted earnings per share and the
Debit Credit related disclosure for the entity's external financial
Balance, January 1, 2018 P112,500 statements. Below is selected financial information
Write-off of organization costs P 6,000 for the year ended December 31, 2018.
Excess of issuing price of share Long-term debt
capital over par value 24,000 Notes payable, 10% P 1,000,000
Loss on the sale of equipment 2,500 7% convertible bonds payable 5,000,000
Correction of error of prior year 10,500 10% bonds payable 6,000,000
Gain on sale of treasury shares 3,500 Total long-term debt P12,000,000
Cash and share dividends 60,000 Shareholders' equity
Net income for the year 58,500 Preference share capital, 8.5%
Balance, December 31, 2018 119,500 . cumulative, P50 par value,
P198,500 P198,500 100,000 shares authorized,
25,000 shares issued and
The correct balance of retained earnings on December
outstanding P 1,250,000
31, 2018 is

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EXCEL PROFESSIONAL SERVICES, INC.

Ordinary share capital, P1 par, a. P39,224 c. P41,912

2,000,000 shares authorized, b. P41,384 d. P44,072
1,000,000 shares issued and
outstanding 1,000,000 55. The trial balance of Snookeroo Corporation does not
Share premium 4,000,000 balance.
Retained earnings 6,000,000 Debit Credit
Total shareholders' equity P12,250,000
Cash P 5,912
The following transactions have also occurred. Accounts Receivable 5,240
a. Options were granted in 2016 to purchase Supplies on Hand 2,967
100,000 shares at P15 per share. Although no Furniture and Equipment 6,100
options were exercised during 2018, the average Accounts Payable P 7,044
price per ordinary share during year 2018 was Share capital 8,000
P20 per share. The market price per ordinary Retained Earnings 2,000
share on December 31, 2018 was P25. Service Revenue 5,200
b. Each bond was issued at face value. The 7% Office Expense 4,320 _______
convertible debenture will convert into 50 ordinary P24,539 P22,244
shares per P1,000 bond. It is exercisable after 5
years and was issued in 2017. An examination of the ledger shows these errors.
c. The 8.5% preference shares were issued in 2016. 1. Cash received from a customer on account was
d. No preference share dividends were declared in recorded (both debit and credit) as P1,380 instead
2017 and 2018. of P1,830.
e. The 1,000,000 ordinary shares were outstanding 2. The purchase on account of a computer costing
during 2018. P3,200 was recorded as a debit to Office Expense
f. Profit for the year 2018 was P1,500,000, and the and a credit to Accounts Payable.
average income tax rate is 40%. 3. Services were performed on account for a client,
P2,250, for which Accounts Receivable was
For the year ended December 31, 2018, calculate the debited P2,250 and Service Revenue was credited
diluted earnings per share for Pharmaceutical P225.
Industries. 4. A payment of P95 for telephone charges was
a. P1.37 c. P1.26 entered as a debit to Office Expenses and a debit
b. P1.32 d. P1.24 to Cash.
5. The Service Revenue account was totaled at
54. Presented below is the December 31 trial balance of P5,200 instead of P5,280.
Corinthians Company.
The corrected trial balance of the company should
Corinthians Company
show total debits of
Trial Balance
a. P24,593 c. P24,444
December 31, 2018
b. P24,539 d. P24,349
Debit Credit
Cash P 14,800
56. For a given year, beginning and ending total liabilities
Accounts Receivable 33,600
were P168,000 and P200,000, respectively. At year-
Allow. For Doubtful
end, owners' equity was P520,000 and total assets
Accounts P 2,160
were P40,000 larger than at the beginning of the
Inventory, January 1 62,400
year. If new share capital issued exceeded dividends
Furniture and Equipment 67,200
by P48,000, profit or (loss) for the year was
Accumulated Depreciation,
apparently
January 1 26,880
a. (P56,000) c. (P40,000)
Prepaid Insurance 4,080
b. P56,000 d. P 8,000
Notes Payable 22,400
Owner, Capital 72,000
57. Jia Co. frequently borrows from the bank to maintain
Sales 480,000
sufficient operating cash. The following loans were at
Purchases 320,000
a 12% interest rate, with interest payable at maturity.
Sales Salaries Expense 40,000
Jia repaid each loan on its scheduled maturity date.
Advertising Expense 5,360
Administrative Salaries Date of Loan Amount Maturity Date Term
Expense 52,000 11/1/17 P10,000 10/31/18 1 year
Office Expense 4,000 2/1/18 30,000 7/31/18 6 months
P603,440 P603,440 5/1/18 16,000 1/31/19 9 months

Information necessary for the preparation of adjusting Jia records interest expense when the loans are
journal entries: repaid. Accordingly, an interest expense of P3,000
a) Adjust the Allowance for Doubtful Accounts to 8 was recorded in 2018. If no correction is made, by
percent of the accounts receivable. what amount would 2018 interest expense be
b) Furniture and equipment is depreciated at 20 understated?
percent per year. a. P1,080 c. P1,280
c) Insurance expired during the year, P2,040. b. P1,240 d. P1,440
d) Interest accrued on notes payable, P2,688.
e) Sales salaries incurred but not paid, P1,920. 58. Upon inspection of the records of Blue Jay Way's
f) Advertising paid in advance, P560. Company, the following facts were discovered for the
g) Office supplies on hand, P1,200, charged to Office year ended December 31, 2018:
Expense when purchased. • A fire premium of P4,000 was paid and charged as
h) Inventory on December 31, P64,000. insurance expense in 2018. The fire insurance
policy covers one year from April 1, 2018.
Disregarding income taxes, the adjusted profit is

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EXCEL PROFESSIONAL SERVICES, INC.

• Inventory on January 1, 2018 was understated by How much should be reported as loss from
P8,000. discontinued operations in 2018?
• Inventory on December 31, 2018 was understated a. P39,000 c. P117,000
by P12,000. b. P78,000 d. P180,000
• Business taxes of P5,500 for the fourth quarter of
2018 were paid on January 20, 2019 and charged 62. An analyst compiled the following information for
as expense in 2019. Dominic, Inc. for the year ended December 31, 2018:
• On December 5, 2018, a cash advance of P10,000 • Net income was P1,700,000.
by a customer was received for goods to be • Depreciation expense was P400,000.
delivered in January 2019. The P10,000 was • Interest paid was P200,000.
credited to sales. The company's gross profit on • Income taxes paid were P100,000.
sales is 40%. • Common stock was sold for P200,000.
• The net income of Blue Jay Way's Company on the • Preferred stock (eight percent annual dividend)
income statement for the year ended December was sold at par value of P250,000.
31, 2018, before any adjustments for the above • Common stock dividends of P50,000 were paid.
information, is P155,000. • Preferred stock dividends of P20,000 were paid.
• Equipment with a book value of P100,000 was
What is the adjusted net income of Blue Jay Way’s
sold for P200,000.
Company for the year ended for the December 31,
2018? Using the indirect method, what was Dominic, Inc.'s
a. P136,500 c. P144,500 net cash flow from operating activities for the year
b. P142,500 d. P150,500 ended December 31, 2018?
a. P1,630,000 c. P1,900,000
b. P1,700,000 d. P2,000,000
Use the following information for the next two questions.
63. Joshuarey Co. provided the following information on
For the purpose of stating the working capital of
selected transactions during 2018:
COPERNICUS Corporation on December 31, 2018, the
following data are submitted: Purchase of land by issuing bonds P250,000
Proceeds from issuing bonds 500,000
Cash on hand and in bank, net of bank of Purchases of inventory 950,000
overdraft of P5,000 P 56,000 Purchases of treasury shares 150,000
Petty cash (unreplenished petty cash Loans made to affiliated corporations 350,000
expenses, P400) 1,000 Dividends paid to preference shareholders 100,000
Notes receivable, including discounted notes Proceeds from issuing preference share 400,000
of P25,000 75,000 Proceeds from sale of equipment 50,000
Accounts receivable, including accounts with
credit balance of P10,000 110,000 The net cash provided by financing activities during
Merchandise inventory, including goods held 2018 is
on consignment of P18,000 148,000 a. P550,000 c. P800,000
Prepaid expenses 9,000 b. P650,000 d. P900,000
Total current assets P399,000
64. Which of the following statements about the financial
Accounts payable, including accounts with
statements of entities is incorrect according to
debit balance of P5,000 P 60,000
Philippine Financial Reporting Standards?
Notes payable in annual installment at
a. In preparing a statement of cash flows, either the
P100,000 payable every May 31 200,000
direct or the indirect method may be used. Both
Accrued expenses 8,000
lead to the same figure for net cash from
Total current liabilities P268,000
operating activities.
59. How much is the total current assets of COPERNICUS b. Loan notes can be classified as current or non-
Corp. on December 31, 2018? current liabilities.
a. P370,600 c. P365,600 c. Financial statements must disclose an entity’s
b. P375,600 d. P360,600 total expense for depreciation, if material.
d. An entity must disclose by note details of all
60. How much is the total current liabilities of adjusting events allowed for in the financial
COPERNICUS Corp. on December 31, 2018? statements.
a. P178,000 c. P188,000
b. P183,000 d. P173,000 65. Which of the following best describes the purpose of
disclosure notes in the financial statements?
61. On November 30, 2018, ARA Company announced its a. To provide more detail for the users of accounts
plans to discontinue the operations of Division C (a about the information in the main financial
component of the company) by selling the division. statements.
On December 31, 2018, Division C had not yet been b. To allow companies to present their financial
sold and was classified as held for sale. On this date, results in a more favorable way by only disclosing
Division C had assets with a carrying amount some things in the notes and not on the main
P920,000 and liabilities of P610,000. ARA company financial statements.
estimates that the fair value of Division C on this date c. To give all the detail of all the transactions that
is P190,000. During 2018, Division C earned occurred during the period because the main
revenues of P920,000 and incurred expenses of financial statements only present a summary.
P980,000. ARA Company is subject to a 35% income d. To explain the accounting treatment adopted
tax rate. where management have chosen not to apply
accounting standards.

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EXCEL PROFESSIONAL SERVICES, INC.

66. Which of the following is considered a non-adjusting average index was 290. The building was purchased
event under PAS 10? for P1,000,000 on January 1, 2014 when the index
a. Decline in market value of investments between was 150. The machinery, which originally cost
the end of the reporting period and the date when P500,000, was acquired on January 1, 2016, when the
the financial statements are authorized for issue. index was 200.
b. To receipt of information after the reporting period
Determine the total restated amount of assets that
indicating that an asset was impaired at the end
will be shown on a constant peso statement of
of the reporting period, or that the amount of a
financial position at December 31, 2018.
previously recognized impairment loss for that
a. P2,528,000 c. P3,168,000
asset needs to be adjusted.
b. P2,524,000 d. P3,164,000
c. The determination after the reporting period of
the cost of asset purchased, or the proceeds from
71. Which statement is incorrect regarding interim
assets sold, before the end of the reporting
financial reporting in accordance with PAS 34?
period.
a. This Standard does not mandate which entities
d. The determination after the reporting period of
should be required to publish interim financial
the amount of profit-sharing or bonus payments,
reports.
if the entity had a present legal or constructive
b. The IASB encourages publicly traded entities to
obligation at the end of the reporting to make
provide interim financial reports at least at the
such payments as a result of events before that
end of the half year and within 45 days of the end
date.
of the interim period.
c. The year-end financial statements' compliance
67. Kristine Company discloses segment information.
with PFRS is not affected even if an entity does
Kristine Company has three segments, namely
not prepare interim financial reports.
Segment Uno, Segment Dos and Segment Tres. For
d. Measurements for interim reporting purposes shall
the year ended December 31, 2018, Segment Uno,
be made on a year-to-date basis.
Dos and Tres, respectively reported sales and
traceable operating costs of P5,000,000 and
72. A non-publicly accountable entity with total assets of
P3,000,000, P10,000,000 and P7,000,000,
P300 million and total liabilities of P200 million should
P15,000,000 and P8,000,000. During 2018, Kristine
apply what financial reporting framework?
Company incurred P4,500,000 operating costs that
a. Full PFRS
were not directly traceable to any of the segments. In
b. PFRS for SMEs
addition, Kristine incurred P1,500,000 general
c. Another acceptable basis of accounting
corporate expenses, including interest of P300,000.
d. Any of the above
Appropriate common expenses are allocated to
segments based on the ratio of segment’s sales to
73. An SME must measure its investment property after
total sales. What was Segment Tres’ operating profit
initial recognition:
for 2018?
a. Either at fair value or using the cost-depreciation-
a. P4,750,000 c. P4,150,000
impairment model (same accounting policy for all
b. P4,000,000 d. P7,000,000
investment property).
b. Either at fair value or using the cost-depreciation-
68. If revenues from transactions with a single external
impairment model (elected item by item).
customer amount to 10 per cent or more of an entity’s
c. At fair value.
revenues, the entity shall disclose
d. At fair value, for those properties that fair value
a. The identity of a major customer.
can be measured reliably without undue cost or
b. The amount of revenues that each segment
effort on an ongoing basis, with all other
reports from a major customer.
investment property accounted for using the cost-
c. Both a and b
depreciation-impairment model in Section 17.
d. Neither a nor b
74. A small and medium-sized entity may report which of
69. Under PAS 24, all of the following are considered to be
the following assets in its statement of financial
NOT necessarily related parties of the reporting entity,
position?
EXCEPT
a. Internally generated intangible assets.
a. Post-employment benefit plans
b. Non-current assets held for sale.
b. Providers of finance
c. Intangible assets at revalued amount.
c. Public utilities
d. Investment in associate at cost.
d. Trade unions
75. Which of the following is not a difference between full
70. The Karen Company's nominal peso statement of
PFRSs (PFRS 3 and PAS 38) and Section 19 of the
financial position at December 31, 2018 showed the
PFRS for SMEs?
following assets:
a. PAS 38 does not require amortization of goodwill.
Cash P 58,000 Section 19 does.
Accounts receivable 116,000 b. PAS 38 requires goodwill to be tested for
Inventory 224,000 impairment at least annually. Section 19 requires
Building (net) 800,000 impairment test only when there is an indication
Machinery (net) 340,000 of impairment.
Total assets P1,538,000 c. PFRS 3 does not include acquisition-related costs
The general price-level index at December 31, 2018 is from the computation of goodwill. Section 19
300. Inventory cost is computed on a FIFO basis. does.
The December 31, 2018 inventory was purchased d. PAS 38 allows recognition of internally generated
over the last six months of 2018, when the index goodwill. Section 19 does not.
averaged 280. Accounts receivable arose from credit
sales in the last three months of 2018 when the J - end of FAR.2956 - J

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