CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING APRIL 2023
FINAL PREBOARD EXAMINATION BATCH 93

1. Which of the following is incorrect about the Financial Reporting Standards Council (FRSC)?
a. It is the standard setting body created by the Professional Regulation Commission upon recommendation
of the Board of Accountancy.
b. Its main function is to establish and improve accounting standards that will be generally accepted in the
Philippines
c. The Chairman and members of the FRSC shall have a term of 5 years renewable for another term.
d. Currently, the FRSC is composed of 16 members, including the Chairman.
2. Which of the following is incorrect about IFRIC Interpretations?
a. They are considered authoritative.
b. They are not part of IFRS.
c. They cover newly identified financial reporting issues not specifically addressed.
d. They cover issues with conflicting interpretations.
3. A certificate of registration shall be issued to CPAs in public practice if such registrant has acquired a
minimum of how many years of meaningful experience in any area of public practice?
a. 2
b. 3
c. 4
d. 5
4. The Continuing Professional Development is required for
a. Renewal of CPA license
b. Accreditation to practice the accountancy profession
c. Both a and b
d. Neither a nor b
5. Which of the following relates to both relevance and faithful representation?
a. Comparability
b. Feedback value
c. Neutrality
d. Free from error
6. Current value includes
a. Fair value only
b. Fair value, value in use, fulfillment value and current cost
c. Fair value and current cost
d. Fair value, current cost and historical cost
7. What is the last step in the accounting cycle considering the following?
a. Journalize and post adjusting entries
b. Prepare a postclosing trial balance
c. Journalize and post closing entries
d. Prepare financial statements
8. Highly liquid investments are cash equivalents if the maturity is 90 days or less
a. From the beginning of the reporting period
b. From the date of issue of financial statements
c. From the end of the reporting period
d. From the date the investments are acquired
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9. Mint Company provided the following information on December 31, 2023:
Accounts payable and accrued expenses 1,600,000
Cash dividend payable on January 15, 2024 1,400,000
8% bonds payable 10,000,000
Discount on the bonds 1,200,000
Pretax financial income 17,000,000
Taxable income 12,000,000
The entity issued the bonds on July 1, 2023 for P8,800,000 to yield 10%. The bonds mature on June 30, 2030
and pay interest annually every June 30. The difference between pretax financial income and taxable income
is due to a P2,000,000 permanent difference and a P3,000,000 taxable temporary difference which is expected
to reverse in 2024. The income tax rate is 25% and the entity made estimated tax payments of P2,000,000
during 2023. What total amount should be reported as current liabilities on December 31, 2023?
a. 6,400,000
b. 5,150,000
c. 4,400,000
d. 8,150,000
10. Youth Company provided the following adjusted trial balance on December 31, 2023:
Sales 9,750,000
Share of profit of associate 150,000
Other income 300,000
Decrease in inventory of finished goods 250,000
Total manufacturing cost 2,500,000
Decrease in inventory of goods in process 1,000,000
Distribution cost 1,500,000
Translation gain on foreign operations 300,000
General and administrative cost 1,250,000
Finance cost 800,000
Income tax expense 900,000
Unrealized gain in forward contract designated as cash flow hedge 200,000
Which of the following is false?
a. Cost of goods sold is P3,750,000
b. Net income is P2,500,000
c. Comprehensive income is P2,500,000
d. Income before tax is P2,900,000
11. Albay Company reported net income of P5,000,000 for the current year. Depreciation expense was
P1,900,000. The following working capital accounts changed:
Accounts receivable 1,100,000 increase
Trading equity investment 1,600,000 increase
Inventory 730,000 decrease
Nontrade note payable 1,500,000 increase
Accounts payable 1,220,000 increase
What amount should be reported as net cash flows provided by operating activities?
a. 7,750,000
b. 4,690,000
c. 7,650,000
d. 6,150,000
12. After the date of acquisition, the investment account using the equity method would
a. Not be affected the share of the profit and losses of the investee.
b. Be affected by the share of the profit of the investee only.
c. Be affected by both share of profit and losses of the investee.
d. Be affected by the share of the losses of the investee only.
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13. Norway Company is completing the preparation of the draft financial statements for the year ended December
31, 2023. The financial statements are authorized for issue on March 31, 2024. On January 1, 2024, a dividend
of P6,000,000 was declared and a contractual profit share payment of P2,000,000 was made, both based on
the profit for the year ended December 31, 2023. On February 15, 2024, a customer went into liquidation
having owed the entity P1,000,000 for the past 5 months. No allowance had been made against this debt in
the draft financial statements. On March 1, 2024, a manufacturing plant was destroyed by fire resulting in a
loss of P5,000,000. What total amount should be disclosed in the notes to financial statements as nonadjusting
events?
a. 11,000,000
b. 14,000,000
c. 12,000,000
d. 13,000,000
14. Judy Company has 90,000 ordinary shares outstanding and 10,000 preference shares outstanding on January
1, 2023. The preference shares are convertible into 20,000 ordinary shares. During 2023, the entity paid
dividends of P10 per ordinary share and P24 per preference share. Net income for the year 2023 was
P2,850,000. Which of the following is true?
a. The basic EPS is P29.00 and the diluted EPS is P28.50
b. The basic EPS is P19.00 and the diluted EPS is P17.73
c. The basic EPS is P29.00 and the diluted EPS is P25.91
d. Both basic and diluted EPS are P29.00.
15. On January 1, 2023, Venus Company had 200,000 ordinary shares outstanding, 100,000, 7% P100 par
cumulative nonconvertible preference shares outstanding and share options outstanding to buy 50,000
ordinary shares at P40 per share. The market price of an ordinary share averaged P50 during 2023 and no
share options were exercised during 2023. On March 1, 2023, the entity purchased 24,000 treasury ordinary
shares and sold 8,000 treasury ordinary shares on October 1, 2023. On September 1, 2023, the entity issued
P2,000,000, 6% bonds at face amount. The bonds are convertible into 9,000 ordinary shares and none of the
bonds had been converted during 2023. The net income for 2023 was P5,400,000 and the income tax rate is
25%. What amount should be reported as diluted earnings per share?

a. 24.26
b. 24.48
c. 27.85
d. 23.83
16. On December 31, 2023, Baloney Company had the following cash balances:
Current account 2,250,000
Petty cash fund – all funds were reimbursed at year - end 62,500
Time deposit – due February 1, 2024 312,500
Saving deposit in bank closed by BSP 1,250,000
The current account included P750,000 of compensating balance against short-term borrowing arrangement.
The compensating balance is legally restricted as to withdrawal. What total amount should be reported as cash
and cash equivalents on December 31, 2023?
a. 1,875,000
b. 3,125,000
c. 1,562,500
d. 2,625,000

17. Which of the following is not capitalized into the cost of property, plant and equipment?
a. Cost of excess materials from a purchasing error
b. Cost of testing whether the asset works correctly
c. Initial delivery and handling cost
d. Cost of preparing the site for installation
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18. Polaris Company reported the following bank reconciliation for the month of November:

Balance per bank statement on November 30 4,000,000

Deposit in transit 830,000
Outstanding checks (1,260,000)
Erroneous bank credit (10,000)
Balance per book on November 30 3,560,000

For the month of December, the bank statement included deposits of P5,200,000 and disbursements of
P4,400,000. All items that were outstanding on November 30 cleared through the bank in December, including
the bank credit. Checks of P500,000 were outstanding on December 31 and the December disbursements
included service charge of P40,000. What is the adjusted cash in bank balance on December 31?

a. 4,800,000
b. 4,340,000
c. 4,300,000
d. 4,360,000

19. Admire Company established an imprest petty cash fund of P50,000. On December 31, 2023, the fund is
comprised of currencies and coins, P5,000, petty cash vouchers, P40,000 and refundable deposit for returnable
containers, P5,000. A check of P40,000 was drawn on December 31, 2023 payable to petty cash. Which of
the following is true?

a. The adjusted petty cash fund balance is P50,000

b. The adjusted petty cash fund is P5,000.
c. The entry to replenish the petty cash fund will include a credit to cash in bank of P40,000.
d. The entry to replenish the petty cash fund will include a credit to petty cash fund of P40,000.

20. At the beginning of the current year, Nostalgia Company reported allowance for doubtful accounts of
P170,000. Bad debt recoveries and bad debts written off in the current year were P30,000 and P235,000
respectively. The allowance had been previously calculated as a percentage of net sales. It was decided
however to provide for doubtful accounts commencing with the year-end adjusting entry on the basis of an
analysis of the age of accounts receivable. The following schedule was prepared:
Percent uncollectible
Not yet due 1,700,000 NIL
1-30 days past due 1,200,000 5
31 – 60 days past due 100,000 25
61 – 90 days past due 150,000 50
Over 90 days past due 120,000 100
Additional accounts to be written off 30,000
What amount should be reported as doubtful accounts expense for the current year?

a. 280,000
b. 345,000
c. 315,000
d. 355,000

21. On July 1, 2023, Bleak Company assigned P5,000,000 of accounts receivable to a bank on a nonnotification
basis in consideration for a loan. On this date the bank advanced P4,000,000 less a service charge of 2% of
the total accounts assigned. The entity signed a promissory note bearing interest at 1% per month on the
unpaid loan balance at the beginning of the month. On August 1, 2023, the entity collected P3,300,000 on
assigned accounts. The entity remitted this amount to the bank in payment first of interest and the balance to
the principal. What portion of the remittance to the bank is applied to the principal of the loan?

a. 3,300,000
b. 3,920,000
c. 3,261,000
d. 3,260,000
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22. Alexis company reported an equity investment costing P8,000,000 at its market value of P7,000,000 in its
statement of financial position on January 1, 2023. The investment is measured at fair value through other
comprehensive income. An analysis of the investment portfolio revealed the following on December 31, 2023:
Cost Market
CTV ordinary share 2,000,000 2,400,000
CMV ordinary share 5,000,000 4,000,000
AJS preference share 1,000,000 400,000
On July 1, 2024, the CMV share was sold for P4,200,000. On December 31, 2024, the CTV share and AJS
share have market values of P2,000,000 and P300,000 respectively. What is the increase in unrealized loss in
other comprehensive income for the year 2024?
a. 500,000
b. 700,000
c. 4,500,000
d. 200,000

23. On January 1, 2023, Feasible Company sold an equipment costing P5,000,000 and with accumulated
depreciation of P1,500,000 for P1,250,000 cash and a P4,000,000 noninterest bearing note due on January 1,
2026. There was no established exchange price for the equipment and the note had no ready market. The
prevailing rate of interest for this type of note on January 1, 2023 is at 12%. The present value of 1 at 12% for
three periods is 0.7118. What is the carrying amount of the note receivable on December 31, 2024?
a. 4,000,000
b. 2,847,200
c. 3,571,528
d. 3,188,864

24. On January 1, 2023, Pell Company purchased P5,000,000 face amount, 8% bonds for P4,562,000. The
business model of the entity in managing the financial asset is to collect contractual cash flows composed of
interest and principal. The bonds mature on January 1, 2029 and pay interest annually every December 31.
The amortization for the year 2023 amounted to P56,200. What is the interest income for 2023?
a. 400,000
b. 500,000
c. 343,800
d. 456,200

25. A prepaid expense can be best described as an amount

a. Paid and currently matched with earnings
b. Paid and not currently matched with earnings
c. Not paid and currently matched with earnings
d. Not paid and not currently matched with earnings

26. Baritone Company reported the inventory at P5,000,000 on December 31, 2022.

• Merchandise shipped by a vendor FOB Destination on December 26, 2023 was received on January 2,
2024. The invoice cost of P600,000 is included in the preliminary balance.
• On December 31, 2023, the entity held P500,000 of merchandise on consignment from another entity.
This merchandise is included in the preliminary balance.
• On December 29, 2023, merchandise costing P200,000 was shipped FOB shipping point and arrived at
the customer location on January 3, 2024. The merchandise is not included in the preliminary balance.
What amount should be reported as inventory on December 31, 2023?
a. 3,900,000
b. 4,400,000
c. 4,500,000
d. 2,500,000
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27. Bizarre Company provided the following data for the current year:
Cost Retail
Beginning inventory 1,200,000 1,500,000
Net purchase 4,200,000 ?
Net markups 200,000
Net markdowns 100,000
Net sales ?
The entity used the average retail inventory method to estimate ending inventory. It was determined that the
average cost of ending inventory was P1,440,000. If the entity used the FIFO retail, the cost ratio would have
been 70%. What amount should be reported as net sales?

a. 6,000,000
b. 5,900,000
c. 5,500,000
d. 3,960,000

28. During 2023, Showtime Company made the following expenditures relating to the plant building:
Continuing and frequent repairs 400,000
Repainting the plant building 100,000
Major improvements to the electrical wiring system 300,000
Partial replacement of roof tiles 150,000
What total amount should be charged to repair and maintenance expense for the year 2023?

a. 950,000
b. 800,000
c. 650,000
d. 550,000

29. On January 1, 2023, Mumbai Company acquired a new building for P10,500,000. The building had an
estimated useful life of 50 years and residual value of P500,000. Depreciation was computed on a straight-
line basis. On January 1, 2025, the entity replaced the old roof with a permanent tile roof costing P3,000,000.
The cost of the old roof was P2,500,000. The new roof did not change the residual value but was considered
a betterment. What amount should be reported as depreciation for 2025?

a. 300,000
b. 281,250
c. 212,500
d. 218,750

30. On January 1, 2020, Zee Company purchased a machine for P16,000,000. The machine has a useful life of 8
years and is depreciated using the straight-line method. During 2023, the entity concluded that the machine
suffered permanent impairment of the operational value. The reasonable estimate of the amount expected to
be recovered through the use of the machine for the period January 1, 2023 through December 31, 2027 is
P4,000,000. What should be reported as carrying amount of the machine on December 31, 2023?

a. 8,000,000
b. 3,200,000
c. 4,000,000
d. 0

31. What is the relationship between present value and liability?

a. Present value is used to measure certain liabilities.

b. Present value is not used to measure liabilities.
c. Present value is used to measure all liabilities
d. Present value is used to measure current liabilities.
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32. Wee Company constructed condominium at a total cost of P25,000,000. The property was completed and put
into service on January 1, 2023. The condominium has a useful life of 25 years and a P2,500,000 residual
value. The entity would hold the property for the purpose of earning rentals. The fair values of the property
are P27,500,000, P26,500,000 and P30,000,000 on December 31, 2023, December 31, 2024 and December
31, 2025 respectively. Which of the following is false?

a. The property is classified as investment property.

b. If Wee elected to use the cost model, the carrying amount on December 31, 2024 is P23,200,000
c. If Wee elected to use the fair value model, a gain in profit or loss of P3,300,000 is recognized in 2024
d. If the entity elected to use the fair value model, a loss in profit or loss of P1,000,000 is recognized in 2024

33. On January 1, 2023, Cityscape Company acquired property consisting of ten identical houses each with
separate legal title including the land on which its is build for P100,000,000, 20% of which is attributable to
the land. The units have a useful life of 40 years. The entity used one of the ten units to accommodate
administration and maintenance staff. The other nine units are rented out to independent parties under an
operating lease. Refundable deposits received from lessees totaled P150,000 on December 31, 2023. The fair
value of each unit is P15,000,000 on December 31, 2023. The entity elected to use the fair value model to
measure all investment properties. What amount of gain from change in fair value should be reported in 2023?

a. 44,850,000
b. 45,000,000
c. 36,000,000
d. 35,850,000

34. At the beginning of the current year, Lava Company acquired a patent costing P3,000,000. It has a remaining
useful life of 6 years and a remaining legal life of 15 years. At the middle of the year, the entity successfully
defended the patent. Legal fees of P450,000 were incurred in this action. What total amount of expense should
the entity report at the end of the current year?

a. 950,000
b. 650,000
c. 582,000
d. 230,000

35. Royal Company was granted a patent on January 1, 2020 and appropriately capitalized P900,000 of related
costs. The entity was amortizing the patent over the useful life of 15 years. During 2023, the entity paid
P300,000 in legal costs in successfully defending an attempted infringement of the patent. After the legal
action was completed, the entity sold the patent to the plaintiff for P1,500,000. The policy is to take no
amortization in the year of disposal. What amount of gain on disposal should be reported in 2023?

a. 300,000
b. 480,000
c. 540,000
d. 780,000

36. Forster Company provided the following information:

Value of biological asset at acquisition cost on December 31, 2023 12,000,000

Fair valuation surplus on initial recognition at fair value on December 31, 2023 1,000,000
Increase in fair value in 2024 due to growth and price fluctuation 1,800,000
Decrease in fair value due to harvest in 2024 200,000

What is the carrying amount of the biological asset on December 31, 2024?

a. 14,800,000
b. 14,600,000
c. 15,000,000
d. 13,00,0000
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37. On January 1, 2023, Africa Company purchased a vineyard costing P3,000,000. It was determined that the
grape vines can produce fruit for a period of 8 years. During 2023, the entity harvested grapes with a fair value
less cost of disposal of P1,000,000. On December 31, 2023, the grapes were sold for P1,750,000. The entity
also incurred operating expenses of P250,000. What amount should be reported as pretax net income?
a. 625,000
b. 1,375,000
c. 1,125,000
d. 1,500,000
38. On December 31, 2023, Brandy Company classified as held for sale an equipment with a carrying amount of
P5,000,000. On this date, the equipment is expected to be sold for P4,600,000 with disposal cost of P200,000.
On December 31, 2024, the equipment had not been sold and management after considering its options
decided to place back the equipment into operations. On December 31, 2024, the equipment is expected to be
sold at P4,300,000 with disposal cost at P50,000, and with carrying amount of P4,000,000 if the equipment
was not classified as held for sale. At what amount should the equipment be measured on December 31, 2024?
a. 4,300,000
b. 4,000,000
c. 4,400,000
d. 4,250,000
39. Debt issue cost
a. Is included in the measurement of the financial liability if measured at amortized cost.
b. Is amortized using the interest method if the financial liability is measured at amortized cost
c. Will effectively increase the market rate of interest.
d. All of these relate to debt issue cost.
40. On January 1, 2023, West Company issued 9% bonds payable with face amount of P4,000,000, which mature
on January 1, 2033. The bonds were issued for P3,756,000 to yield 10%. Interest is payable annually on
December 31 and the entity uses the interest method of amortization. Which of the following is false?
a. The bonds were issued at a discount of P244,000.
b. Interest expense for 2023 is P375,600.
c. Interest expense for 2023 is P360,000.
d. The carrying amount of the bonds on December 31, 2023 is P3,771,600.
41. On January 1, 2023, Armada Company had an overdue 10% note payable at P6,000,000 and accrued interest
of P600,000. As a result of the restructuring agreement on January 1, 2023, the creditor agreed to:

• Forgive accrued interest of P600,000.

• Reduce the principal to P4,000,000.
• Reduce the interest rate to 6% and interest is payable every December 31.
• Extend the maturity date of the note to December 31, 2025.
The entity paid P350,000 as an arrangement fee to the creditor. The prevailing market rate of interest for
similar note is 14%. The present value of the new liability based on 10% is P3,598,000 and the present value
of the new liability based on 14% is P3,237,000. What amount of gain on extinguishment or modification
should be reported for 2023?
a. 2,652,000
b. 3,002,000
c. 3,363,000
d. 3,013,000
42. A department store received cash and issued a gift certificate redeemable in merchandise. When the gift
certificate was issued
a. Deferred revenue account should be decreased
b. Deferred revenue account should be increased
c. Revenue should be decreased
d. Revenue should be increased
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43. Provisions shall be recognized for all of the following, except
a. Cleaning-up costs of contaminated land when an oil entity has a published policy that it will undertake to
clean up all contamination that it causes.
b. Restructuring costs after a binding sale agreement has been signed.
c. Rectification costs relating to defective products sold.
d. Future refurbishment costs due to introduction of a new computer system.
44. Baker Company operates a customer loyalty program. The entity grants loyalty points for goods purchased.
The loyalty points can be used by the customers in exchange for goods of the entity. The points have no
expiration date. During 2023, the entity issued 100,000 points and expected that 80% of these points shall be
redeemed. The stand-alone selling price of the points granted is P2,000,000. In 2023, the entity sold goods t
customers for a consideration of P14,000,000 based on stand-alone selling price. In 2023, 30,000 points are
redeemed. In 2024, 85% of the points are expected to be redeemed and 15,900 points are redeemed. What
amount of revenue from loyalty points should be recognized in 2024?
a. 656,250
b. 327,353
c. 288,750
d. 420,000
45. In 2023, Carpet Company began selling notebook computers that carried a two-year warranty against defects.
The entity projected the estimated warranty cost as a percentage of sales: first year of warranty, 4% and second
year of warranty, 10%. Sales in 2023 and 2024 are P2,500,000 and P4,500,000 respectively. Actual warranty
repairs in 2023 and 2024 are P100,000 and P280,000 respectively. Sales and warranty repairs are made evenly
during the year. What is the adjusted warranty liability on December 31, 2024?
a. 380,000
b. 557,500
c. 600,000
d. 587,500
46. When shares are issued for property, the best evidence of fair value may be any of the following, except
a. The price of the shares quoted on the stock exchange
b. The fair value of the property received
c. The average book value of the outstanding shares
d. The selling price of the shares in a recent transaction
47. On January 1, 2023 Ashe Company was incorporated with the following authorized capitalization:
Ordinary share capital, no par, P100 stated value 20,000,000
Preference share capital, 10%, P50 par 10,000,000
During 2023, the entity issued 150,000 ordinary shares at P120 per share and 50,000 preference shares at P60
per share. On December 20, 2023, subscriptions for 20,000 preference shares were received at P100 per share.
The subscribed shares are to be paid for on January 20, 2024. Net income for the year 2023 is P5,000,000.
What amount of total shareholder’s equity should Ashe report on December 31, 2023?
a. 28,000,000
b. 23,000,000
c. 26,000,000
d. 21,000,000
48. During 2023, Bolton Company issued convertible preference shares of P100 par value at P110 per share for a
total consideration of P3,300,000. One preference share may be converted into three ordinary shares of P25
par value at the option of the preference shareholder. On December 31, 2023, all of the preference shares were
converted into ordinary shares. On this date, the market value of the ordinary share at the conversion date is
P40. What amount of share premium - ordinary shares should be credited as a result of the conversion?
a. 750,000
b. 1,050,000
c. 300,000
d. 0
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49. On December 31, 2023, Vicar Company canceled 10,000 shares of P25 par value held in treasury at an average
cost of P130 per share. Before recording the cancellation of the treasury shares, the entity had the following
balances:
Share capital 1,250,000
Share premium – original issue 250,000
Share premium – treasury shares 150,000
Retained earnings 1,800,000
Treasury shares 1,300,000
Which of the following is true?

a. Due to the retirement of treasury shares, total equity is reduced by P1,300,000.

b. Due to the retirement of treasury shares, total equity is increased by P1,300,000.
c. Retained earnings of P850,000 is debited.
d. Share premium – original issue of P250,000 is debited.

50. Panorama company reported retained earnings of P5,000,000 on January 1, 2023. The entity provided the
following information during 2023:
Income before tax 5,000,000
Prior period error – overstatement of 2022 depreciation before tax 500,000
Cumulative increase in income from change in inventory method before tax 1,000,000
Dividend declared 2,000,000
The income tax rate is 25%. What amount of retained earnings should be reported on December 31, 2023?

a. 7,125,000
b. 8,250,000
c. 7,500,000
d. 7,875,000

51. Ames Company provided the following on December 31, 2023:

Ordinary share capital, P20 par value 4,000,000
Preference share capital, 6%, P100 par value, cumulative and participating 1,000,000
Preference dividends have been in arrears for 2021 and 2022. On December 31, 2023, the entity would like
to declare dividend in which the ordinary shareholders will receive P624,000. What total amount of dividend
must be declared to achieve this goal?

a. 840,000
b. 900,000
c. 804,000
d. 1,200,000

52. On December 31, 2023, Paranoid Company issued 2,000 ordinary shares of P100 par as share dividend. The
market value on the date of declaration is P150. The entity reported ordinary share capital at a total par value
of P2,000,000. What amount is debited to retained earnings as a result of the dividend declaration?

a. 300,000
b. 200,000
c. 100,000
d. 400,000

53. Which is not an acceptable option of reporting other comprehensive income?

a. In a statement of changes in equity

b. In the notes to financial statements
c. In a single statement of comprehensive income
d. In a separate statement of comprehensive income
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54. Adverse financial and operating circumstances warrant that Peach Company should undergo quasi-
reorganization. The following data are presented below:
Share capital, P25 par value, 200,000 shares outstanding 5,000,000
Share premium 1,500,000
Retained earnings (deficit) (2,500,000)
To accomplish the quasi-reorganization, inventory and plant assets were reduced by P500,000 and P1,700,000
respectively. What is the reduction in share capital to implement the quasi-reorganization?
a. 4,700,000
b. 2,500,000
c. 3,200,000
d. 0
55. Precise Company reported the following shareholder’s equity on December 31, 2023:
5% noncumulative and participating preference share capital, par value P100 2,500,000
Ordinary share capital, par value P30 3,750,000
Share premium 2,250,000
Retained earnings 4,000,000
Preference dividends are in arrears for 2 years. If the entity was to be liquidated, the preference shareholders
would receive par value plus a premium of P500,000. What is the book value per preference share?
a. 57.60
b. 212.00
c. 217.00
d. 192.00
56. On January 1, 2023, Morey Company granted to an employee the right to choose either:

• Share alternative equal to 50,000 shares with a par value of P25

• Cash alternative or cash payment equal to the market value of 40,000 shares
The grant is conditional upon the completion of three years of service. On January 1, 2023 the share price is
P60. After taking into account the effects of post-vesting restrictions, the entity has estimated the fair value
of the share alternative at P51 per share. The share prices are P63, P72, and P69 on December 31, 2023,
December 31, 2024 and December 31, 2025 respectively. What amount of compensation expense should be
recorded for 2024?
a. 1,970,000
b. 1,130,000
c. 1,080,000
d. 2,020,000
57. On January 1, 2023, Toy Company entered into a ten-year lease agreement with another entity for industrial
equipment. Annual lease payments of P1,000,000 are payable every December 31 of each year. The lessor
expected a 10% return on the lease, which is the implicit rate in the lease. The equipment is expected to have
an estimated useful life of 12 years. The contract contains a purchase option that is reasonably certain to be
exercised. The exercise price of the purchase option is P500,000. The present value of an ordinary annuity of
1 at 10% for 10 periods is 6.14 and the present value of 1 at 10% for 10 periods is 0.39. What amount should
be reported as lease liability on December 31, 2023?
a. 6,335,000
b. 6,140,000
c. 5,754,000
d. 5,968,500
58. An entity leased property for a period of 10 years. Lease payment dates coincide with the end of the reporting
period. How is the lease liability presented in the statement of financial position at the end of the second year?
a. Partly current liability, partly noncurrent liability
b. Entirely current liability
c. Entirely noncurrent liability
d. Entirely noncurrent asset
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59. On January 1, 2023, Lomond Company, entered into a five-year finance lease. A third party has guaranteed
the residual value of the asset under the lease to be P1,200,000 on December 31, 2027. Annual lease payments
are P1,000,000 due each December 31 beginning December 31, 2023. The remaining useful life of the asset
is six years on January 1, 2023. Both the lessor and lessee used 14% as the interest rate. The PV of 1 at 14%
for 5 periods is 0.52 and the PV of an ordinary annuity of 1 at 14% for 5 periods is 3.43. What amount should
be recognized as net lease receivable on January 1, 2023?
a. 3,430,000
b. 5,000,000
c. 4,054,000
d. 6,200,000
60. At the beginning of the current year, Dome Company sold equipment with a remaining useful life of 10 years
and immediately leased it back for 5 years. The sale price, fair value and carrying amount of the equipment
are P5,700,000, P5,000,000 and P4,500,000 respectively. The implicit rate in the lease is 10%. The rights
retained by the seller – lessee is 23.90% of the fair value of the asset. What is the gain on the right transferred
to the buyer lessor?
a. 500,000
b. 380,500
c. 800,000
d. 608,800
61. Iglesias Company reported pretax accounting income of P8,000,000 for the current year which included the
following items of income and expense:
Donation to political parties - nondeductible 1,000,000
Depreciation – 20% 1,600,000
Annual leave expense 700,000
Rent revenue 1,200,000
The income tax rate is 25%. For tax purposes, the depreciation rate is 25%, the annual leave paid is P800,000
and the rent received is P1,000,000. What is the taxable income for the current year?
a. 8,300,000
b. 9,000,000
c. 8,700,000
d. 8,500,000
62. Laughter Company provided the following assets and liabilities at year end:
Carrying amount Tax base
Accounts receivable 12,000,000 14,000,000
Motor vehicle 13,000,000 10,000,000
Warranty liability 4,000,000 0
Rent received in advance 3,000,000 0
The income tax rate is 25%. What amount should be reported as deferred tax asset at year end?
a. 750,000
b. 1,500,000
c. 2,500,000
d. 2,250,000
63. An entity shall disclose for each reportable segment all of the following specified amounts included in the
measure of profit or loss, except
a. Depreciation and amortization
b. The entity’s interest in the profit or loss of associate
c. Income tax expense
d. General corporate expense
64. Under SEC ruling, what reporting framework should micro entities use to prepare financial statements?
a. Full PFRS
b. PFRS for SMEs
c. PFRS for Small Entities or Income Tax Basis
d. None of the above
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65. Miyuki Company provided the following information pertaining to the defined benefit pension plan for the
year 2023:
Prepaid pension cost – January 1 2,000,000
Current service cost 7,200,000
Past service cost 5,000,000
Interest expense on projected benefit obligation 3,800,000
Interest income and actual return on plan assets 4,000,000
Employer contribution 4,000,000
What amount should be reported as accrued pension cost on December 31, 2023?
a. 12,000,000
b. 10,000,000
c. 8,000,000
d. 6,000,000
66. An entity incurred an inventory loss from market decline of P420,000 on June 30, 2023. What amount of
inventory loss should be recognized in the quarterly income statement for the three months ending June 30,
2023?
a. 105,000
b. 140,000
c. 210,000
d. 420,000
67. Equity – settled share-based payment transactions of a small entity are measured at
a. Net asset value
b. Fair value
c. Liquidation value
d. Assessed value
68. At the beginning of the current year, SME Company acquired 30% of the ordinary shares of an investee for
P5,000,000 plus transaction cost of P200,000. Published price quotations exist for the investment in associate.
The investee recognized a net loss of P2,000,000 for the current year and paid dividends of P500,000 during
the year. The fair value of the investment is P4,000,000 at year-end and the disposal cost is estimated at
P100,000. What is the carrying amount of the investment to be reported at year-end?
a. 4,000,000
b. 5,000,000
c. 5,200,000
d. 3,900,000
69. SME Company acquired 5,000 nonputtable ordinary shares in a listed company for P500,000. The entity also
incurred broker fees of P10,000 in connection with the purchase. At year-end, the shares are quoted at P110
per share. What amount should be recognized as change in fair value for the current year?
a. 50,000
b. 40,000
c. 25,000
d. 0

70. On January 1, 2023, an entity (SME) acquired a building for P9,000,000. The building has a useful life of 30
years and is to be held for rentals. The fair value of the building cannot be determined on an ongoing basis.
What is the carrying amount of the building on December 31, 2024?
a. 9,000,000
b. 8,700,000
c. 8,400,000
d. 9,300,000

END