Since 1977

FAR OCAMPO/OCAMPO
First Pre-board (SET A) October 2019

1. The purpose of the IFRS Advisory Council is to: b. Verifiability, neutrality, and representational
a. Police the application of International Accounting faithfulness.
Standards. c. Predictive value and confirmatory value.
b. Monitor international adoption of International d. Comparability and timeliness.
Accounting Standards.
c. Represent users and preparers of accounts and so 8. Non-current assets should be measured at cost less
influence the IASB in their agenda decisions. depreciation rather than enforced sales value. The
d. Organize the funding of the IASB. concept applied in this statement is:
a. Going concern c. Comparability
2. This organization is dedicated to ensuring that the b. Relevance d. Understandability
global markets can operate in an efficient and effective
basis 9. Under IFRS, LIFO is not permitted for financial
a. International Financial Reporting Standards reporting purposes. Why?
Foundation a. The use of LIFO is not permitted in the United
b. International Accounting Standards Board States.
c. Financial Accounting Standards Board b. The use of LIFO may not match the costs of
d. International Organization of Securities recently purchased inventory with current prices.
Commissions c. The use of LIFO results in inventories being
recognized in the statement of financial position at
3. Lakers Company received P12,000 from a tenant on amounts that may bear little relationship to recent
December 1 for four months' rent of an office. This cost levels of inventories.
rent was for December, January, February, and March. d. The use of LIFO results in a measurement of profit
If Lakers debited Cash and credited Rental Income for or loss for the period that is consistent with the
P12,000 on December 1, the necessary adjustment measurement of inventories in the statement of
December 31 would include financial position.
a. A debit to Rental Income of P3,000
b. A credit to Rental Income of P3,000 10. When a decline in the price of materials indicates that
c. A debit to Unearned Rental Income of P9,000 the cost of the finished products exceeds net realizable
d. A credit to Unearned Rental Income of P9,000 value, the materials are written down to net realizable
value. In such circumstances, which of the following is
4. The Supplies on Hand account balance at the the best available measure of the net realizable value
beginning of the period was P6,600. Supplies totaling of materials?
P12,825 were purchased during the period and debited a. The replacement cost.
to Supplies on Hand. A physical count shows P3,825 b. General selling prices.
of Supplies on Hand at the end of the period. The c. Fair value less costs to sell.
proper journal entry at the end of the period d. Quoted prices in an active market for identical
a. debits Supplies on Hand and credits Supplies assets.
Expense for P9,000.
b. debits Supplies Expense and credits Supplies on 11. In your review of Hug Company, you find that a
Hand for P15,600. physical inventory on December 31, 2019, showed
c. debits Supplies Expense and credits Supplies on merchandise with a cost of P441,000 was on hand at
Hand for P12,825. that date. You also discover the following items were
d. debits Supplies on Hand and credits Supplies all excluded from the P441,000.
Expense for P15,600. a. Merchandise of P61,000 which is held by Hug on
consignment. The consignor is Kisses Company.
5. Which statement is incorrect regarding the Conceptual b. Merchandise costing P38,000 which was shipped
Framework? by Hug f.o.b. buyer to a customer on December
a. It establishes the concepts that underlie financial 31, 2019. The customer was scheduled to receive
reporting. the merchandise on January 2, 2020.
b. It is a coherent system of concepts that flow from c. Merchandise costing P46,000 which was shipped
an objective. by Hug f.o.b. shipping point to a customer on
c. It is based on individual concepts developed by December 29, 2019. The customer was scheduled
each member of the IASB. to receive the merchandise on January 2, 2020.
d. None of the above. d. Merchandise costing P83,000 shipped by a vendor
f.o.b. buyer on December 30, 2019, and received
6. Which of the following groups of users of accounts is by Hug on January 4, 2020.
interested primarily in the efficiency of a company? e. Merchandise costing P51,000 shipped by a vendor
a. Management c. Investors f.o.b. buyer on December 31, 2019, and received
b. Customers d. Lenders by Hug on January 5, 2020.

7. According to the Conceptual Framework, the The adjusted cost of Hug Company's inventory at
fundamental qualitative characteristic of relevance December 31, 2019 should be
includes a. P538,000 c. P479,000
a. Predictive value and feedback value. b. P530,000 d. P441,000

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12. On August 1, Miami Company recorded purchases of December 26 23,000

inventory of P80,000 and P100,000 under credit terms December 28 8,000
of 2/15, net 30. The payment due on the P80,000
purchase was remitted on August 14. The payment Purchases:
due on the P100,000 purchase was remitted on August Placed in stock 120,000
29. Under the net method and the gross method, these In transit, FOB shipping point 50,000
purchases should be included at what respective net In transit, FOB destination 33,000
amounts in the determination of cost of goods
available for sale? The inventory as of December 31, 2019 is
Net Method Gross Method a. P1,675,800 c. P1,663,000
a. P178,400 P176,400 b. P1,657,000 d. P1,668,667
b. P176,400 P180,000
c. P176,400 P178,400 16. An entity (a pet shop) purchases dogs from breeders
d. P180,000 P176,400 that it then sells. The dogs should be measured at
a. Cost
13. In November 2019, Detroit Company entered into a b. Lower of cost or net realizable value
non-cancellable contract to purchase inventory for c. Fair value less costs to sell
P120,000 in March 2020. The value of the inventory d. Cost less accumulated depreciation and
was expected to be worth P130,000 at the time of accumulated impairment losses
purchase. On December 31, 2019, the market value
of the inventory was P100,000. Which of the following 17. The following figures relate to inventory held at 31
items would be reported in the 2019 comprehensive December 2018:
income statement?
a. P100,000 included in cost of goods sold Cost of materials P100,000
b. P20,000 gain on purchase commitments Net realizable value of materials 90,000
c. P20,000 loss on purchase commitments
 Estimated costs to convert materials
d. Nothing would be reported on the comprehensive into finished goods 50,000
income statement Estimated selling price of finished goods 160,000
Estimated costs to sell 5,000
14. A physical inventory taken on December 31, 2019
resulted in an ending inventory of P1,440,000. Circus The entity should recognize loss on write-down of
Company suspects some inventory may have been inventory of materials of
taken by employees. To estimate the cost of missing a. P15,000 c. P5,000
inventory, the following were gathered: b. P10,000 d. Nil
Inventory, Dec. 31, 2018 P1,280,000
Purchases during 2019 5,640,000 18. Which statement is incorrect regarding gains and
Cash sales during 2019 1,400,000 losses on biological assets?
Shipment received on December 26, a. A gain may arise on initial recognition of a
2019, included in physical inventory, 40,000 biological asset.
but not recorded as purchases b. A loss may not arise on initial recognition of a
Deposits made with suppliers, entered biological asset.
as purchases. Goods were not 80,000 c. A gain or loss on biological assets measured at fair
received in 2019 value less costs to sell shall be included in profit or
Collections on accounts receivable, 7,200,000 loss for the period in which it arises.
2019 d. None of the above.
Accounts receivable, January 1, 2019 1,000,000
Accounts receivable, Dec. 31, 2019 1,200,000 Use the following information for the next three questions.
Gross profit percentage on sales 40% A public limited company, Cromwell Dairy Products,
produces milk on its farms. As of January 1, Cromwell has
At December 31, 2019 what is the estimated cost of a stock of 1,050 cows (average age, 2 years old) and 150
missing inventory? heifers (average age, 1 year old). Cromwell purchased
a. P200,000 c. P240,000 375 heifers, average age 1 year old, on July 1. No animals
b. P160,000 d. P320,000 were born or sold during the year. The unit values less
estimated costs to sell were
15. The physical inventory of Golden State Company as of
December 26, 2019 totaled P1,965,000. In trying to 1 - year old animal at December 31 P4,800
establish the December 31 inventory, the accountant 2 - year old animal at December 31 6,750
noted the following transactions from December 27 to 1.5 - year old animal at December 31 5,400
December 31, 2019. 3 - year old animal at December 31 7,500
1 - year old animal at Jan. 1 and July 1 4,500
Sales (20% markup on cost) P 600,000 2 - year old animal at January 1 6,000
Credit memos issued:
For goods returned on: 19. The increase in value of biological assets in the current
December 15 27,000 period due to price changes is
December 20 35,000 a. P2,250,000 c. P945,000
December 29 36,000 b. P 832,500 d. P690,000
For goods delivered to
customers not in accordance 9,500 20. The increase in value of biological assets in the current
with specifications period due to physical changes is
Credit memos received: a. P 885,000 c. P1,305,000
For goods returned on: b. P1,080,000 d. P1,170,000
December 10 17,000

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21. The carrying amount of the biological assets as of QUESTIONS:

December 31 is Determine the adjusted balance of the following as of
a. P10,987,500 c. P10,912,500 December 31, 2019 in accordance with PIC Q&A 2012-02:
b. P10,237,500 d. P 9,225,000 22. Land
a. P9,800,000 c. P10,500,000
Use the following information for the next five questions. b. P9,590,000 d. P13,790,000
Presented below is the Property, Plant and Equipment
section of New-Look Company’s statement of financial 23. Buildings
position as of December 31, 2018: a. P9,450,000 c. P9,750,000
b. P9,240,000 d. P8,540,000
Land P 700,000
Buildings 5,600,000 24. Leasehold improvements
Leasehold improvements 3,500,000 a. P4,550,000 c. P4,480,000
Machinery and equipment 4,200,000 b. P4,025,000 d. P4,760,000

The following transactions occurred during 2019: 25. Machinery and equipment
a. P5,449,500 c. P5,540,500
 Land site number 102 was acquired for P7,000,000. b. P5,425,000 d. P5,439,000
Additionally, to acquire the land the entity paid a
P420,000 commission to a real estate agent. Costs of 26. In accordance with PIC Q&A No. 2012-02, it is
P105,000 were incurred to clear the land. During the appropriate for an entity to account for the carrying
course of clearing the land, timber and gravel were value of the old building as part of the cost of the new
recovered and sold for P35,000. building (constructed for rental to others), in which of
the following?
 A second tract of land (site number 103) with a a. An entity acquired a piece of land with existing
building was acquired for P2,100,000. Based on building with the intention to demolish the old
reliable information at the time of acquisition, fair building right away in order to construct a new
value of land is P1,400,000 and the building P700,000. building on its site as part of its planned
Shortly after acquisition, the building was demolished redevelopment.
at a cost of P210,000. A new building was constructed b. An entity acquired a piece of land with existing
for P2,800,000 plus the following costs: building with the intention to initially use the old
building as an owner-occupied property and then
Excavation fees P 77,000 demolish it in a future period and replace it with a
Architectural design fees 56,000 new building.
Building permit fee 7,000 c. Both a and b.
d. Neither a nor b.
The building was completed and occupied on
September 1, 2019. 27. A non-current asset was purchased on the first day of
an accounting period, 1 January 2017 for P34,000 and
 A third tract of land (site number 104) was acquired depreciated by 20% per annum using the reducing
for P4,200,000. The entity is undecided regarding its balance method. On 30 June 2019 the asset was sold,
future use. realizing a loss on disposal of P2,100. What were the
proceeds of sale?
 Extensive work was done to a building occupied by the a. P14,900 c. P19,660
entity under a lease agreement. The total cost of the b. P17,484 d. P21,684
work was P875,000, which consisted of the following:
28. The carrying value of company’s property and
Particulars Amount Useful life equipment was P200,000 at 1 August 2018. During
Painting of ceilings P 70,000 One year the year ended 31 July 2019, the company sold
Electrical work 245,000 Ten years equipment for P25,000 on which it made a loss of
Construction of extension 560,000 Thirty P5,000. The depreciation charge for the year was
to current working area years P20,000. What was the carrying value of property and
equipment at 31 July 2019?
The lessor paid one-half of the costs incurred in a. P150,000 c. P160,000
connection with the extension to the current working b. P155,000 d. P180,000
area.
29. Bubblegum Company takes a full year’s depreciation in
 During December 2019, costs of P455,000 were the year of an assets acquisition, and no depreciation
incurred to improve leased office space. The related in the year of disposition. Data relating to one
lease will terminate on December 31, 2021, and is not depreciable asset acquired in 2017, with residual value
expected to be renewed. of P400,000 and estimated useful life of 8 years, at
December 31, 2018 are:
 A group of new machines was purchased under a
royalty agreement which provides for payment of Cost P5,400,000
royalties based on units of production for the Accumulated depreciation 2,362,500
machines. The invoice price of the machines was
P525,000, freight costs were P14,000, unloading Using the same depreciation method in 2017 and
charges were P10,500, and royalty payments for 2019 2018, how much depreciation should Bubblegum
were P91,000. record in 2019 for this asset?
a. P625,000 c. P659,375
b. P703,125 d. P759,375

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Use the following information for the next five questions. recognized and relevant professional qualification and
On 1 January 2018, Kalipay Corporation acquired two has recent experience in the location and category of
assets within the same class of plant and equipment. the investment property being valued?
Information on these assets follows: a. An entity is encouraged, but not required, to
measure the fair value of investment property on
Cost Expected useful life that basis.
Machine A P200,000 5 years b. An entity shall disclose the extent to which the fair
Machine B 120,000 3 years value of investment property is determined on that
basis.
The machines are expected to generate benefits evenly c. An entity need not disclose the fact the fair value
over their useful lives. The class of plant and equipment is of investment property is not determined on that
measured using the revaluation model. basis.
d. None of the above.
At 31 December 2018, information about the assets
follows: 37. On 1 January 2018 Kabila Corporation acquired an
investment property (building) in a remote location for
Fair value Expected useful life P100,000. After initial recognition, the entity
Machine A P168,000 4 years measures the investment property using the cost-
Machine B 76,000 2 years depreciation-impairment model, because its fair value
cannot be measured reliably without undue cost or
On 1 July 2019, machine B was sold for P64,000 cash. On effort on an ongoing basis.
the same day, Kalipay Corporation acquired machine C for
P160,000 cash. Machine C has expected useful life of four At 31 December 2018, management:
years.  assessed the building’s useful life at 50 years from
the date of acquisition
At 31 December 2019, information on the machines  presumed the residual value of the building to be
follows: nil (given that the fair value cannot be determined
reliably)
Fair value Expected useful life  assessed that the entity will consume the building’s
Machine A P122,000 3 years future economic benefits evenly over 50 years
Machine C 137,000 1.5 years from the date of acquisition
 declined an unsolicited offer to purchase the
QUESTIONS: building for P130,000. This is a ‘one-off’ offer that
is unlikely to be repeated in the foreseeable future.
30. The amount to be recognized in 2018 profit or loss
related to the revaluation of the assets is The entity should measure the carrying amount of the
a. P8,000 c. (P4,000) building on 31 December 2018 at:
b. P4,000 d. P0 a. P 98,000 c. P130,000
b. P100,000 d. P127,400
31. The amount to be recognized in 2018 comprehensive
income related to the revaluation of the assets is 38. PAS 38 applies to all intangible assets other than:
a. P8,000 c. (P4,000) I. financial assets
b. P4,000 d. P34,000 II. exploration and evaluation assets
III. expenditure on the development and extraction of
32. The gain or loss on sale of Machine B is minerals, oil, natural gas, and similar resources
a. P26,000 gain c. P 666 gain IV. intangible assets arising from insurance contracts
b. P 7,000 gain d. P12,000 loss issued by insurance companies
V. intangible assets covered by another PFRS, such as
33. The total depreciation for the year 2019 is intangibles held for sale, deferred tax assets, lease
a. P81,000 c. P128,333 assets, assets arising from employee benefits, and
b. P62,000 d. P101,000 goodwill

34. The amount to be recognized in 2019 profit or loss a. I, II, III, IV & V c. I, II, IV & V
related to the revaluation of the assets is b. I, II, III, & IV d. None of the choices
a. (P7,000) c. (P1,000)
b. (P3,000) d. P0 39. PAS 38 requires an entity to recognize an intangible
asset, whether purchased or self-created (at cost) if,
35. Which of the following distinguishes investment and only if: it is probable that the future economic
property from owner occupied-property? benefits that are attributable to the asset will flow to
a. Investment property is held to earn rentals. the entity; and the cost of the asset can be measured
b. Investment property is normally classified as a reliably. Which of the following statement is incorrect
noncurrent asset. a. PAS 38 recognition requirement applies whether an
c. Investment property generates cash flows largely intangible asset is acquired externally or generated
independently of the other assets held by an internally. PAS 38 includes additional recognition
entity. criteria for internally generated intangible assets.
d. Investment property does not generate cash flows b. The probability of future economic benefits must
largely independently of the other assets held by be based on reasonable and supportable
an entity. assumptions about conditions that will exist over
the life of the asset.
36. Which statement is incorrect regarding measurement c. The probability recognition criterion is not always
of fair value of investment property on the basis of a considered to be satisfied for intangible assets that
valuation by an independent valuer who holds a

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are acquired separately or in a business Purchase of all of the outstanding ordinary 5,000,000
combination. shares of an acquire. On the date of
d. If an intangible item does not meet both the purchase, the acquire had total assets of
definition of and the criteria for recognition as an P6,000,000 at fair value and total
intangible asset, PAS 38 requires the expenditure liabilities of P2,200,000 at fair value.
on this item to be recognized as an expense when
it is incurred. What total amount should be reported as intangible
assets?
40. Which of the following statements about intangible a. P1,950,000 c. P2,050,000
assets is true? b. P1,960,000 d. P2,350,000
a. An intangible asset must be separable.
b. An intangible asset may be revalued where a fair 44. An entity purchases the brand name of a product on 1
value can be established through use of an expert January 2019 for P30 million. The management feels
valuer. that the brand has an indefinite useful life and have
c. Goodwill can never be revalued. therefore not charged any amortization in the year
d. Development costs may be capitalized if the ended 31 December 2019. Which of the following is
criteria laid down in PAS 38 are met. true?
a. Amortization should be charged based on an
41. Which of the following are conditions which must be assumed maximum useful life of 20 years.
met in order to capitalize development costs according b. Amortization should be charged based on an
to PAS 38? assumed maximum useful life of 50 years.
I. Resources are available to complete the project c. There is no requirement to charge amortization,
II. There is a contract to sell or written commitment however the brand must be tested for impairment
to use the item under development when indications of impairment arise.
III. Completion of the asset is technically feasible d. There is no requirement to charge amortization,
however the brand must be tested for impairment
a. III only c. I and III only each year and in addition, whenever there are
b. I and II only d. I, II and III indications of impairment.

42. Miya Company incurred the following costs during the 45. Granger Company acquired a patent for a drug with a
current year: remaining legal and useful life of six years on January
1, 2017 for P5,400,000. On January 1, 2019, a new
Laboratory research aimed at discovery patent is received for an improved version of the same
of new knowledge P 750,000 drug. The new patent has a legal and useful life of
Design of tools, jigs, molds and dies twenty years. What is the amortization expense for
involving new technology 220,000 2019?
Quality control during commercial a. P900,000 c. P180,000
production including routine testing 350,000 b. P200,000 d. P300,000
Equipment acquired two years ago,
having an estimated useful life of 5 46. Layla Company is interested in computing the goodwill
years with no residual value, used in to be recognized in the purchase of ABC Company in
various R and D projects 1,500,000 January 2019. The following information was taken
Research and development services from the records of ABC.
performed by Stone Company for
Metal Company 230,000 Net income Net assets
Research and development services 2014 P 360,000 P1,600,000
performed by Miya Company for Kaye 2015 388,000 1,800,000
Company 20,000 2016 288,000 1,900,000
2017 380,000 2,000,000
What amount of research and development expense 2018 394,000 2,100,000
should be reported in the current year? P1,810,000 P9,400,000
a. P1,200,000 c. P1,870,000
b. P1,500,000 d. P2,170,000 Goodwill is measured by capitalizing excess earning at
40% with normal return on average net assets at
43. Lesley Company commenced operations in the current 10%. What is the acquisition cost of ABC Company?
year. A number of expenditures were made during the a. P2,535,000 c. P2,315,000
current year that were debited to one account b. P2,100,000 d. P2,305,000
intangible assets.
47. Which of the following statement is correct
State incorporation fees and legal costs a. An entity adopting PFRS 6 shall not continue to use
related to Organizing the corporation P 100,000 the accounting policies applied immediately before
Fire insurance premium for three-year adopting the PFRS.
period 60,000 b. PFRS 6 effectively modifies the application of PAS
Purchase of a copyright 200,000 36 to exploration and evaluation assets recognized
Legal fees for filing a patent on a new by an entity under its accounting policy.
product resulting from an R&D project 50,000 c. An entity treats exploration and evaluation assets
Legal fees for successful defense of the as addition to property, plant and equipment or
patent developed from the project 10,000 intangible assets of assets and make the
Entered into a 10-year franchise disclosures required by either PAS 16 or PAS 38
agreement with a franchisor 500,000 consistent with how the assets are classified.
Advertising cost 150,000 d. All of the statements are correct

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Use the following information for the next four questions. 53. To the extent that the benefit is improved access to
In 2014, Washington Corporation acquired a mine. ore, the entity shall recognize production stripping
Because the mine is located deep in the mountains, costs as
Washington was able to acquire the mine for the low price a. Inventory
of P50,000. In 2015, Washington constructed a road to b. Stripping activity asset
the silver mine costing P5,000,000. Improvements to the c. Exploration and evaluation asset
mine made in 2015 cost P750,000. Because of the d. Any of the above
improvements to the mine and the surrounding land, it is
estimated that the mine can be sold for P600,000 when Use the following information for the next four (4)
the mining activities are complete. questions:
In 2015, Hanabi Company acquired a silver mine in
During 2016, five buildings were constructed near the Eastern Mindanao. Because the mine is located deep in the
mine site to house the mine workers and their families. Mindanao frontier, the entity was able to acquire the mine
The total cost of the five buildings was P1,500,000. for the low price of P50,000.
Estimated residual value is P250,000. In 2014, geologists
estimated 4 million tons of ore could be removed from the In 2016, the entity constructed a road to the silver mine
mine for refining. During 2017, the first year of costing P5,000,000. Improvements and other development
operations, only 5,000 tons of ore were removed from the costs made to 2016 cost of P750,000.
mine. However, in 2018, workers mined 1 million tons of
ore. During that same year, geologists discovered that the Because of the improvements to the mine and to the
mine contained 3 million tons of ore in addition to the surrounding land, it is estimated that the mine can be sold
original 4 million tons. Improvements of P275,000 were for P600,000 when mining activities are complete.
made to the mine early in 2018 to facilitate the removal of
the additional ore. Early in 2018, an additional building During 2017, a building was constructed near the mine site
was constructed at a cost of P225,000 to house the to house, the mine workers and their families.
additional workers needed to excavate the added ore. This
building is not expected to have any residual value. The total cost of the building was P2,000,000. Estimated
residual value is P200,000.
In 2019, 2.5 million tons of ore were mined and costs of
P1,100,000 were incurred at the beginning of the year for Geologists estimated that 4,000,000 tons of silver ore
improvements to the mine. could be removed from the mine for refining.

QUESTIONS: During 2018, the first year of operations, only 500,000

(Round off depletion and depreciation rates to two decimal tons of silver ore were removed from the mine.
places)
48. Depletion for 2018 However, in 2019, workers mine, 1,000,000 tons if silver.
a. P1,300,000 c. P1,820,000
b. P 780,000 d. P 870,000 During that same year, geologists discovered that the
mine contained 3,000,000 tons of silver ore in the addition
49. Depreciation for 2018 to the original 4,000,000 tons.
a. P250,000 c. P490,000
b. P180,000 d. P210,000 Development costs of P1,300,000 were made to the mine
early in 2019 to facilitate the removal of the additional
50. Depletion for 2019 silver.
a. P1,950,000 c. P2,150,000
b. P2,425,000 d. P2,275,000 Early in 2019, an additional building was constructed at a
cost of P375,000 to house the additional workers needed
51. Depreciation for 2019 to excavate the added silver. This building is not expected
a. P 525,000 c. P625,000 to have any residual value.
b. P1,225,000 d. P450,000
54. What is depletion for 2018?
52. Irethel Company acquired a tract of land containing an a. P718,750 c. P725,000
extractable natural resource. The entity is required by b. P650,000 d. P643,750
the purchase contract to restore the land to a condition
suitable for recreational use after it has extracted the 55. What is the depletion for 2019?
natural resource. a. P1,300,000 c. P900,000
b. P1,525,000 d. P700,000
Geological survey indicated that the recoverable
reserves would be 2,500,000 tons and that the 56. What is the depreciation of building for 2018?
extraction will be completed in five years. a. P250,000 c. P318,750
b. P225,000 d. P343,750
Relevant cost information follows:
Land P9,000,000 57. What is the depreciation of building for 2019?
Exploration and development cost 1,000,000 a. P300,000 c. P500,000
Expected cash flow for restoration cost 1,500,000 b. P450,000 d. P290,000
Credit-adjusted risk free interest rate 10%
PV of 1 at 10% for 5 periods 0.62 58. Roger Mining Company constructed a building costing
P2,800,000 on the mine property. The estimated
What is the depletion charge per ton of extracted residual value will not benefit the entity and will be
material? ignored for purposes of computing depreciation.
a. P4.00 c. P3.97
b. P4.37 d. P3.60

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The building has an estimated life of 10 years. The III. An impairment loss relating to goodwill cannot be
total estimated recoverable output from the mine is reversed.
500,000 tons. The production of the first four years of
operations was: a. III only c. I, II and III
b. I and II only d. None of them
First year 100,000 tons
Second year 100,000 tons 63. Karrie Company has two cash generating units. At
Third year Shut down, no output year-end, the carrying amounts of the assets of one
Fourth year 100,000 tons cash generating unit are:

What is the depreciation for the fourth year? Inventory 200,000

a. P490,000 c. P210,000 Accounts receivable 300,000
b. P560,000 d. P336,000 Plant and equipment 6,000,000
Accumulated depreciation 2,600,000
59. Which of the following statement is correct in Patent 850,000
identifying an asset that may be impaired Goodwill 100,000
a. At the end of each reporting period, an entity may
not assess whether there is any indication that an The accounts receivable are regarded as collectible.
asset may be impaired (i.e. its carrying amount The fair value less cost of disposal of the inventory is
may be higher than its recoverable amount). equal to the carrying amount. The patent has a fair
b. PAS 36 has a list of external and internal indicators value less cost of disposal of P750,000. At year-end,
of impairment. If there is no indication that an the entity undertook impairment testing of the cash
asset may be impaired, then the asset's generating unit and determined the value in use of the
recoverable amount must be calculated. unit at P4,050,000.
c. The recoverable amounts of the following types of
intangible assets (an intangible asset with an What is the impairment loss allocated to the plant and
indefinite useful life, an intangible asset not yet equipment?
available for use and goodwill) are measured a. P800,000 c. P600,000
annually only when there is any indication that it b. P700,000 d. P560,000
may be impaired.
d. In some cases, the most recent detailed calculation Use the following information for the next two (2)
of recoverable amount made in a preceding period questions:
may be used in the impairment test for that asset On January 1, 2018, Warrior Company purchased
in the current period equipment with cost of P11,000,000, useful life of 10 years
and residual value. The entity used straight line
Use the following information for the next two (2) depreciation.
questions:
Kimmy Company purchased four convenience store On December 31, 2018 and December 31, 2019, the entity
buildings on January 1, 2013 for a total of P25,000,000. determined that impairment indicators are present. There
The buildings have been depreciated using the straight-line is no change in the useful life or residual value.
method with a 20-year useful life and 10% residual value. December 31, December 31,
2018 2019
On January 1, 2019, the entity has converted the buildings Fair value less cost of
into a hotel and restaurant. Because of the change in the disposal P8,100,000 P8,400,000
use of the buildings, the entity is evaluating the buildings Value in use 8,550,000 8,200,000
for possible impairment.
64. What is the impairment loss for 2018?
The entity estimated that the buildings have a remaining a. P1,800,000 c. P2,450,000
useful life of 10 years, that their residual value will be b. P1,350,000 d. P0
zero, that undiscounted net cash inflows from the buildings
will total P1,500,000 per year, and that the current fair 65. What is the gain on reversal of impairment for 2019?
value of the four buildings totals P10,000,000. a. P400,000 c. P800,000
b. P250,000 d. P0
The appropriate discount rate is 12%. The present value of
an ordinary annuity of 1 at 12% for 10 periods is 5.65. 66. On December 31, 2018, Elite Company acquired the
following three intangible assets:
60. What amount of impairment loss should be recognized
for 2019? A trademark for P3,000,000. The trademark has 4
a. P8,250,000 c. P7,500,000 years remaining in its legal life. It is anticipated that
b. P9,775,000 d. P0 the trademark will be renewed in the future
indefinitely.
61. What amount should be recorded as depreciation for
2019? Goodwill for P500,000.
a. P1,000,000 c. P847,500
b. P900,000 d. P762,750 A customer list for P2,100,000. By contract, the entity
has exclusive use of the list for five years. However, it
62. Which of the following statements is/are true? is expected that the list will have an economic life of 3
I. An impairment loss relating to a CGU is allocated years.
to goodwill in the first instance.
II. Corporate assets must always be allocated to On December 31, 2019, before any adjusting entries
individual CGUs. for the year were made, the following information was
assembled:

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EXCEL PROFESSIONAL SERVICES, INC.

 Because of a decline in the economy, the from China. The assets that it wanted to sell had the
trademark is now expected to generate cash flows following carrying amounts:
of just P105,000 per year. Factory P22,000,000
Accumulated depreciation (14,000,000)
 The cash flow expected to be generated by the Raw materials 3,800,000
cash generating unit to which the goodwill is Spare parts 2,200,000
related is P200,000 per year for the next 20 years.
The carrying amounts of the assets and liabilities The management of CDO calculated the fair value less
of the cash generating unit are: costs to sell of the disposal group to be P14,400,000.
The assets were sold on February 15, 2019 for
Identifiable assets P3,500,000 P15,400,000, with selling costs amounting to
Goodwill 500,000 P700,000.
Liabilities 1,100,000
Before income taxes, how much should be recognized
It is reliably determined that the cash flows of the as gain (loss) on sale of the disposal group?
cash generating unit cannot be computed without a. P300,000 c. P1,000,000
consideration of the liabilities. b. P700,000 d. (P1,300,000)

 The cash flows expected to be generated by the 69. On April 1, 2019, Nana Company has a piece of
customer list are, P800,000 in 2020 and P500,000 machinery with a cost of P1,000,000 and accumulated
in 2021. depreciation of P750,000. On April 1, Nana decided to
sell the machine within 1 year. As of April 1, 2019, the
Assuming the appropriate discount rate is 6%. What is machine had an estimated selling price of P100,000
the impairment loss allocated to identifiable assets of and a remaining useful life of 2 years. It is estimated
the CGU? (Round-off present value factors to two that selling costs associated with the disposal of the
decimal places) machine will be P10,000. On December 31, 2019, the
a. P110,000 c. P500,000 estimated selling price of the machine had increased to
b. P610,000 d. P0 P105,000, with estimated selling costs increasing to
P16,000. The gain on reversal of impairment loss on
67. Held-for-sale classification is the assets need to be December 31, 2019 is
disposed of through sale. Therefore, operations that a. P160,000 c. P44,000
are expected to be wound down or abandoned would b. P 50,000 d. P 0
not meet the definition (but may be classified as
discontinued once abandoned). 70. Which statement is incorrect regarding government
assistance for purposes of PAS 20?
An entity that is committed to a sale involving loss of a. Government assistance is action by government
control of a subsidiary that qualifies for held-for-sale designed to provide an economic benefit specific to
classification under PFRS 5 classifies all of the assets an entity or range of entities qualifying under
and liabilities of that subsidiary as held for sale, even if certain criteria.
the entity will retain a non-controlling interest in its b. Government assistance not in the form of transfers
former subsidiary after the sale. of resources to an entity in return for past or
future compliance with certain conditions relating
A 'disposal group' is a group of assets, possibly with to the operating activities of the entity are called
some associated liabilities, which an entity intends to government grants.
dispose of in a single transaction. c. All government assistance are government grants.
d. Government assistance include benefits provided
a. True; True; True c. False; False; True only indirectly through action affecting general
b. True; True; False d. False; False; False trading conditions, such as the provision of
infrastructure in development areas or the
68. On January 1, 2019, Master Corporation determined to imposition of trading constraints on competitors.
sell a group of assets within its shoe manufacturing
division, as it believed it was cheaper to buy the parts

- end -

Page 8 of 8 www.prtc.com.ph FAR.SET A

 Since 1977

FAR OCAMPO/CABARLES/SOLIMAN/OCAMPO
FINAL PREBOARD EXAM SET B

1. Which of the following statements is incorrect a. The use of LIFO is not permitted in the United
regarding the due process for projects of FRSC? States.
a. Issuing for comment an exposure draft approved b. The use of LIFO may not match the costs of
by a majority of the FRSC members; comment recently purchased inventory with current prices.
period will be at least 30 days, unless a shorter c. The use of LIFO results in a measurement of profit
period (not less than 15 days) is considered or loss for the period that is consistent with the
appropriate by the FRSC. measurement of inventories in the statement of
b. Consideration of all comments received within the financial position.
comment period and, when appropriate, preparing d. The use of LIFO results in inventories being
a comment letter to the IASB. recognized in the statement of financial position at
c. Submission by the FRSC of the new/amended PFRS amounts that may bear little relationship to recent
to the Professional Regulation Commission (PRC) cost levels of inventories.
through the BOA for approval.
d. None, all statements is correct. 6. The following figures relate to inventory held at 31
December 2019:
2. Which statement is correct?
Cost of materials P100,000
a. FINEX is the accredited professional organization of
Net realizable value of materials 90,000
CPAs by the PRC.
Estimated costs to convert materials
b. The Bangko Sentral ng Pilipinas is not represented
into finished goods 50,000
in the AASC.
Estimated selling price of finished goods 160,000
c. The chairman of the FRSC should have been or
Estimated costs to sell 5,000
presently a senior practitioner in public
accountancy. The entity should recognize loss on write-down of
d. The Insurance Commission is not represented in inventory of materials of
the FRSC. a. P15,000 c. P5,000
b. P10,000 d. Nil
3. Which statement is correct?
a. The Board of Accountancy is composed of six (6) 7. On August 1, Lakers Company recorded purchases of
members with a chairman appointed by the inventory of P240,000 and P300,000 under credit
President of the Philippines. terms of 3/15, net 30. The payment due on the
b. The PICPA is not the accounting standard setting P240,000 purchase was remitted on August 15. The
body in the Philippines. payment due on the P300,000 purchase was remitted
c. The Chairman and members of the FRSC are on August 29. Under the net method and the gross
appointed by the BOA upon the recommendation of method, these purchases should be included at what
the PRC in coordination with the accredited respective net amounts in the determination of cost of
professional organization (APO) of CPAs. goods available for sale?
d. The principal objective of the Philippine Net Method Gross Method
Interpretations Committee is to issue PFRSs. a. P532,800 P523,800
b. P523,800 P540,000
4. The inventory on hand at December 31 for Hanabi c. P523,800 P532,800
Company valued at a cost of P1,895,600. The d. P540,000 P523,800
following items were not included in this inventory
amount: 8. In November 2019, Toronto Company entered into a
a. Purchased goods, in transit, shipped FOB buyer non-cancellable contract to purchase inventory for
invoice price P64,000 which included freight P120,000 in March 2020. The value of the inventory
charges of P3,200. was expected to be worth P130,000 at the time of
b. Goods held on consignment by Hanabi Company at purchase. On December 31, 2019, the market value
a sales price of P56,000, including sales of the inventory was P100,000. Which of the following
commission of 20% of the sales price. items would be reported in the 2019 profit or loss
c. Goods sold to Hanzo Company, under terms FOB statement?
buyer, invoiced for P37,000 which includes P2,000 a. P100,000 included in cost of goods sold
freight charges to deliver the goods. Goods are in b. P20,000 loss on purchase commitments

transit. c. P20,000 gain on purchase commitments
d. Purchased goods in transit, terms FOB seller, d. Nothing would be reported on the income
invoice price P96,000, freight cost, P6,000. statement
e. Goods out on consignment to Hayabusa Company,
sales price P72,800, shipping cost of P4,000. 9. A physical inventory taken on December 31, 2019
Assuming that the company's selling price is 140% of resulted in an ending inventory of P2,880,000. Karrie
inventory cost, the adjusted cost of Hanabi Company's Company suspects some inventory may have been
inventory at December 31 should be taken by employees. To estimate the cost of missing
a. P2,074,600 c. P2,079,000 inventory, the following were gathered:
b. P2,078,600 d. P2,111,400 Inventory, Dec. 31, 2018 P 2,560,000
Purchases during 2019 11,280,000
5. Under IFRS, LIFO is not permitted for financial Cash sales during 2019 2,800,000
reporting purposes. Why? Shipment received on December

Page 1 of 8 www.prtc.com.ph FINAL PREBOARD

Financial Accounting and Reporting SET B

26, 2019, included in physical Milk harvested during 2019 but not yet sold 108,000
inventory, but not recorded as
12. At December 31, 2019, what is the value of the
purchases 80,000
milking cows on Miya Dairy’s statement of financial
Deposits made with suppliers,
position?
entered as purchases. Goods
a. P3,166,000 c. P2,998,000
were not received in 2019 160,000
b. P3,106,000 d. P2,890,000
Collections on accounts
receivable, 2019 14,400,000 13. On Miya Dairy’s income statement for the year ending
Accounts receivable, January 1, December 31, 2019, what amount of unrealized gain
2019 2,000,000 on biological assets will be reported?
Accounts receivable, Dec. 31, a. P922,000 c. P754,000
2019 2,400,000 b. P814,000 d. P646,000
Gross profit percentage on sales 40%
14. Which statement is incorrect regarding spare parts and
At December 31, 2019 what is the estimated cost of
servicing equipment?
missing inventory?
a. Spare parts and servicing equipment are usually
a. P320,000 c. P480,000
carried as inventory and recognized in profit or loss
b. P400,000 d. P640,000
as consumed.
b. Major spare parts and stand-by equipment qualify
10. The physical inventory of Moscov Company as of
as property, plant and equipment when an entity
December 26, 2019 totaled P3,930,000. In trying to
expects to use them during more than one period.
establish the December 31 inventory, the accountant
c. Spare parts and servicing equipment that can be
noted the following transactions from December 27 to
used in connection with the production of goods or
December 31, 2019.
services are accounted for as property, plant and
Sales (20% markup on cost) P1,200,000 equipment.
d. None of the above.
Credit memos issued:
For goods returned on:
15. Items of property, plant and equipment acquired for
December 15 54,000
safety or environmental reasons
December 20 70,000
a. Do not qualify as assets because the acquisition of
December 29 72,000
such property, plant and equipment does not
For goods delivered to
directly increase the future economic benefits of
customers not in accordance
existing item of property, plant and equipment.
with specifications 19,000
b. Do not qualify as assets because the acquisition of
Credit memos received: such property, plant and equipment is not
For goods returned on: necessary for an entity to obtain the future
December 10 34,000 economic benefits from its other assets.
December 26 46,000 c. Qualify as assets because they enable an entity to
December 28 16,000 derive future economic benefits from related assets
in excess of what could be derived had those items
Purchases: not been acquired.
Placed in stock 240,000 d. Qualify as assets because the acquisition of such
In transit, FOB seller 100,000 property, plant and equipment directly increases
In transit, FOB buyer 66,000 the future economic benefits of existing item of
The inventory as of December 31, 2019 is property, plant and equipment.
a. P3,314,000 c. P3,337,333
b. P3,326,000 d. P3,351,600 16. A condition of continuing to operate an item of
property, plant and equipment (for example, an
11. Which statement is incorrect regarding a biological aircraft) may be performing regular major inspections
asset? for faults regardless of whether parts of the item are
a. It is a living animal or plant within the scope of replaced. When each major inspection is performed,
PAS 41. its cost is
b. It is presented in the statement of financial a. Recognized in profit or loss as incurred.
position as part of the line item property, plant and b. Recognized in the carrying amount of the item of
equipment. property, plant and equipment as a replacement if
c. Produce growing on bearer plants is a biological the recognition criteria are satisfied.
asset. c. Recognized in other comprehensive income as
d. It is measured on initial recognition and at incurred.
subsequent reporting dates at fair value less costs d. Often described as for the ‘repairs and
to sell, unless fair value cannot be reliably maintenance’ of the item of property, plant and
measured. equipment.

Use the following information for the next two questions. Use the following information for the next two questions.

Miya Dairy produces milk to sell to local and national ice Layla Ltd acquired real estate for the construction of a
cream producers. Miya Dairy began operations on January building and other facilities. Operating equipment was also
1, 2019 by purchasing 840 milk cows for P1,176,000. The purchased and installed. The company's accountant, who
company controller had the following information available was not sure how to record some of the transactions,
at year end relating to the cows: opened a Property ledger account and recorded debits and
(credits) to this account as follows.
Carrying value, January 1, 2019 P2,352,000
Increase in fair value due to growth Cost of land purchased as a building site P170,000
and price changes 730,000 Architect's fee for design of new building 23,000
Decrease in fair value due to harvest 84,000 Paid for the demolition of an old building

Page 2 of 8 www.prtc.com.ph FINAL PREBOARD

Financial Accounting and Reporting SET B

on the building site purchased above 28,000 value of 1 at 5% for 7 years is 0.7107), the total
Paid land tax on the real estate purchased depreciation expense in 2019 is
as a building site 1,700 a. P1,000,000 c. P2,934,362
Paid excavation costs for the new building 15,000 b. P2,180,185 d. P1,789,210
Made the first payment to the building 250,000
contractor 22. Irithel Corp. acquired a machine on January 1, 2011.
Paid for equipment to be installed in the Details of the machine at December 31, 2018 are
new building 148,000 given below:
Received from sale of salvaged materials Depreciation
from demolishing the old building (6,800) Component Cost basis
Made final payment to the building 350,000 Engine P 340,000,000 Useful life of
contractor 40,000 hours
Paid interest on building loan during 22,000 Outer casings 1,020,000,000 25 years
construction straight line
Paid freight on equipment purchased 1,900 Other 12 years
Paid installation costs of equipment 4,200 components 510,000,000 straight line
Paid for repair of equipment damaged P1,530,000,000
during installation 2,700
Property ledger account balance P1,009,700 During the year 2019, the following events took place:
a) Engine, which had run for 30,000 hours till date
Compute for the following: developed serious snags. It was replaced by a
17. Land better engine with a cost of P476 million and
a. P191,900 c. P171,700 estimated life of 50,000 hours. The new engine
b. P163,200 d. P192,900 was used for 5,000 hours during the year.
b) Polishing and painting was done to the outer
18. Building casings at a cost of P2.6 million.
a. P681,200 c. P653,200 c) Other components were upgraded at a cost of
b. P660,000 d. P666,800 P204 million. The remaining life of the other
components is 5 years.
19. Which statement is incorrect regarding ‘components
depreciation’? Compute the total depreciation for the year 2019,
a. Each part of an item of property, plant and assume that all the work mentioned above was
equipment with a cost that is significant in relation completed at the beginning of 2019.
to the total cost of the item shall be depreciated a. P163,200,000 c. P171,700,000
separately. b. P163,352,940 d. P181,900,000
b. An entity may not depreciate separately the parts
of an item that do not have a cost that is 23. Under the revaluation model, how often shall
significant in relation to the total cost of the item. revaluations be made?
c. An entity allocates the amount initially recognized a. Annually.
in respect of an item of property, plant and b. Every three or five years.
equipment to its significant parts and depreciates c. It depends upon the entity’s accounting policy.
separately each such part. d. It depends upon the changes in fair values of the
d. It may be appropriate to depreciate separately the items of property, plant and equipment being
airframe and engines of an aircraft, whether owned revalued.
or subject to a finance lease.
Use the following information for the next five questions.
20. Clint Company takes a full year’s depreciation in the On 1 January 2018, Granger Corporation acquired two
year of an assets acquisition, and no depreciation in assets within the same class of plant and equipment.
the year of disposition. Data relating to one Information on these assets follows:
depreciable asset acquired in 2017, with residual value
of P900,000 and estimated useful life of 10 years, at Cost Expected useful life
December 31, 2018 are: Machine A P250,000 5 years
Machine B 150,000 3 years
Cost P9,900,000
Accumulated depreciation 3,564,000 The machines are expected to generate benefits evenly
over their useful lives. The class of plant and equipment is
Using the same depreciation method in 2017 and measured using the revaluation model.
2018, how much depreciation should Clint record in
2019 for this asset? At 31 December 2018, information about the assets
a. P 900,000 c. P1,309,091 follows:
b. P1,267,200 d. P1,152,000
Fair value Expected useful life
Machine A P210,000 4 years
21. Kimmy Truckers, Inc. acquired a heavy road
Machine B 95,000 2 years
transporter on January 1, 2013 at a cost of P10
million. The estimated useful life is 10 years. On On 1 July 2019, machine B was sold for P80,000 cash. On
January 1, 2020, the power train requires the same day, Granger Corporation acquired machine C for
replacement, as further maintenance is uneconomical P200,000 cash. Machine C has expected useful life of four
due to the off-road time required. The remainder of years.
the vehicle is perfectly roadworthy and is expected to
At 31 December 2019, information on the machines
last for the next three years. The cost of the new
follows:
power train is P4.5 million. Assuming that the original
cost of the power train is not separately identifiable Fair value Expected useful life
and the appropriate discount rate is 5% (the present Machine A P152,500 3 years
Machine C 171,250 1.5 years

Page 3 of 8 www.prtc.com.ph FINAL PREBOARD

Financial Accounting and Reporting SET B

QUESTIONS: fair value on the date of reclassification was P38

million.
24. The amount to be recognized in 2018 profit or loss
related to the revaluation of the assets is
How much should be recognized in the 2019 profit or
a. P10,000 c. (P5,000)
loss as a result of the transfer from owner-occupied to
b. P 5,000 d. P0
investment property?
25. The amount to be recognized in 2018 comprehensive a. P8,000,000 c. P500,000
income related to the revaluation of the assets is b. P2,000,000 d. Nil
a. P10,000 c. P 5,000
b. P34,000 d. (P5,000) 32. Which statement is incorrect regarding initial
recognition of research and development costs?
26. The gain or loss on sale of Machine B is a. Research costs are not capitalized.
a. P32,500 gain c. P8,750 gain b. Development costs should be capitalized.
b. P15,000 loss d. P 833 gain c. A research and development project acquired in a
27. The total depreciation for the year 2019 is business combination is recognized as an asset.
a. P 77,500 c. P126,250 d. If an entity cannot distinguish the research phase
b. P101,250 d. P180,418 of an internal project to create an intangible asset
from the development phase, the entity treats the
28. The amount to be recognized in 2018 profit or loss expenditure for that project as if it were incurred in
related to the revaluation of the assets is the research phase only.
a. (P8,750) c. (P1,250)
b. (P3,750) d. P0 33. Lesley Company purchased a customer database and a
formula for a new fuel substitute for diesel fuel for a
29. Which statement is correct regarding measurement of total of P1,000,000. Lesley Company uses the
fair value of investment property on the basis of a expected cash flow approach for estimating the fair
valuation by an independent valuer who holds a value of these two intangibles. The appropriate
recognized and relevant professional qualification and interest rate is 5%. The potential future cash flows
has recent experience in the location and category of from the two intangibles, and their associated
the investment property being valued? probabilities, are as follows:
a. An entity is required to measure the fair value of
Customer Database:
investment property on that basis.
Outcome 1 - 20% probability of cash flows of P100,000
b. An entity need not disclose the extent to which the
at the end of each year for 5 years.
fair value of investment property is determined on
Outcome 2 - 30% probability of cash flows of P20,000
that basis.
at the end of each year for 4 years.
c. An entity need not disclose the fact the fair value
Outcome 3 - 50% probability of cash flows of P2,000
of investment property is not determined on that
at the end of each year for 3 years.
basis.
d. None of the above. Formula:
Outcome 1 - 10% probability of cash flows of P500,000
30. Bruno, Inc. and its subsidiaries have provided you, at the end of each year for 10 years.
their PFRS specialist, with a list of the properties they Outcome 2 - 30% probability of cash flows of P300,000
own: at the end of each year for 4 years.
 Land held by Bruno, Inc. for undetermined future Outcome 3 - 60% probability of cash flows of P100,000
use, P5,000,000. at the end of each year for 3 years.
 A vacant building owned by Bruno, Inc. and to be
leased out under an operating lease, P20,000,000. How much should be recognized as customer
 Property held by a subsidiary of Bruno, Inc., a real database?
estate firm, in the ordinary course of its business, a. P105,652 c. P108,442
P30,000,000. b. P131,383 d. P108,826
 Property held by Bruno, Inc. for use in production,
P1,000,000. 34. An entity that acquires an intangible asset may use
 A hotel owned by Sugo, Inc., a subsidiary of the revaluation model for subsequent measurement
Bruno, Inc., and for which Sugo, Inc. provides only if
security services for its guests’ belongings, a. An active market exists for the intangible asset.
P50,000,000. b. The useful life of the intangible asset can be
 A building owned by Bruno, Inc. being leased out reliably determined.
to Brando, Inc, a subsidiary of Bruno, Inc., c. The cost of the intangible asset can be measured
P20,000,000. reliably.
d. The intangible asset is a monetary asset.
How much will be reported as investment properties in
Bruno, Inc.’s financial statements? 35. An entity purchases the brand name of a product on 1
a. P75,000,000 c. P95,000,000 January 2019 for P30 million. The management feels
b. P25,000,000 d. P45,000,000 that the brand has an indefinite useful life and have
therefore not charged any amortization in the year
31. Claude, Inc. owns a building purchased on January 1, ended 31 December 2019. Which of the following is
2015 for P50 million. The building was used as the true?
company’s head office. The building has an estimated a. There is no requirement to charge amortization,
useful life of 25 years. In 2019, the company however the brand must be tested for impairment
transferred its head office and decided to lease out the each year and in addition, whenever there are
old building. Tenants began occupying the old building indications of impairment.
by the end of 2019. On December 31, 2019, the b. Amortization should be charged based on an
company reclassified the building as investment assumed maximum useful life of 20 years.
property to be carried under the fair value model. The c. Amortization should be charged based on an
assumed maximum useful life of 50 years.

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Financial Accounting and Reporting SET B

d. There is no requirement to charge amortization, Strider reports its financial performance as 'Mineral
however the brand must be tested for impairment Production' and 'Energy Trading' in its financial
when indications of impairment arise. statements in accordance with PFRS8 Operating
segments. The Mineral Production segment comprises
36. Roger Company acquired three patents in two cash-generating units - 'oil production' and 'gas
January 2019. The patents have different lives as production'.
indicated in the following schedule:
In accordance with PFRS6 Exploration for and
Remaining Remaining evaluation of mineral resources, what is the highest
Patent Cost useful life legal life level at which the impairment test can be undertaken?
A P 400,000 10 8 a. A cash-generating unit based on the assets in the
B 600,000 5 10 particular gas field
C 1,200,000 Indefinite 15 b. Gas production cash-generating unit
Patent C is believed to be uniquely useful as long as c. Oil production and gas production cash-generating
the company retains the right to use it. In June 2019, units combined
the company successfully defended its right to Patent d. A cash-generating unit at The Strider Company level
B. Legal fees of P160,000 were incurred in this action.
The company’s policy is to amortize intangible assets Use the following information for the next four questions.
by the straight-line method to the nearest half year. In 2014, Terizla Corporation acquired a mine. Because the
The company reports on a calendar-year basis. The mine is located deep in the mountains, Terizla was able to
amount of amortization that should be recognized for acquire the mine for the low price of P250,000. In 2015,
2019 is Terizla constructed a road to the silver mine costing
a. P266,000 c. P250,000 P25,000,000. Improvements to the mine made in 2015
b. P410,000 d. P190,000 cost P3,750,000. Because of the improvements to the
mine and the surrounding land, it is estimated that the
37. The owners of Wanwan Company are planning to sell mine can be sold for P3,000,000 when the mining activities
the business to new interests. The cumulative net are complete.
earnings for the past 5 years was P47,500,000. The
current value of net assets of Wanwan Company was During 2016, five buildings were constructed near the
P100,000,000. Goodwill is determined by capitalizing mine site to house the mine workers and their families.
average earnings at 8%. What is the amount of The total cost of the five buildings was P7,500,000.
goodwill? Estimated residual value is P1,250,000. In 2014,
a. P18,750,000 c. P8,500,000 geologists estimated 4 million tons of ore could be
b. P 9,500,000 d. P6,250,000 removed from the mine for refining. During 2017, the first
year of operations, only 5,000 tons of ore were removed
38. Which of the following is not a difference between the from the mine. However, in 2018, workers mined 1 million
accounting treatment for depreciation and cost tons of ore. During that same year, geologists discovered
depletion? that the mine contained 3 million tons of ore in addition to
a. Depletion applies to natural resources while the original 4 million tons. Improvements of P1,375,000
depreciation applies to plant and equipment. were made to the mine early in 2018 to facilitate the
b. Depletion refers to the physical exhaustion or removal of the additional ore. Early in 2018, an additional
consumption of the asset while depreciation refers building was constructed at a cost of P1,125,000 to house
to the wear, tear, and obsolescence of the asset. the additional workers needed to excavate the added ore.
c. Many formulas are used in computing depreciation This building is not expected to have any residual value.
but only one is used to any extent in computing In 2019, 2.5 million tons of ore were mined and costs of
depletion. P5,500,000 were incurred at the beginning of the year for
d. The cost of the asset is the starting point from improvements to the mine.
which computation of the amount of the periodic
charge is made to operations for depreciation, but QUESTIONS:
the fair value reassessed each year as the starting
point for the periodic charge for depletion. (Round off depletion and depreciation rates to two decimal
places)
39. PFRS 6 applies to expenditures incurred.
41. Depletion for 2018
a. When searching for an area that may warrant
a. P3,900,000 c. P6,500,000
detailed exploration, even though the entity has
b. P4,350,000 d. P9,100,000
not yet obtained the legal rights to explore a
specific area 42. Depreciation for 2018
b. When the legal rights to explore a specific are have a. P 900,000 c. P1,250,000
been obtained, but the technical feasibility and b. P1,050,000 d. P2,450,000
commercial viability of extracting a mineral
43. Depletion for 2019
resources are not yet demonstrable
a. P 9,750,000 c. P11,375,000
c. When a specific area is being developed and
b. P10,750,000 d. P12,125,000
preparations for commercial extraction are being
made 44. Depreciation for 2019
d. In extracting mineral resources and processing the a. P2,250,000 c. P3,125,000
resource to make it marketable or transportable b. P2,625,000 d. P6,125,000

40. The Strider Company is involved in the exploration for 45. PAS36 Impairment of assets should be applied in
mineral resources. Its policy is to recognize exploration accounting for the impairment of which ONE of the
assets and measure them initially at cost. It is currently following types of asset?
exploring a new gas field. The exploration license for a. Assets arising from construction contracts
the new gas field is about to expire and Strider is now b. Non-current assets held for sale
preparing to undertake an impairment review. c. Investment properties measured at fair value

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Financial Accounting and Reporting SET B

d. Non-current assets measured at cost b. The higher of its carrying amount and its recoverable
amount
46. Which of the following is incorrect regarding c. The lower of its carrying amount on the basis that it
impairment testing of long-lived assets? had never been classified as held for sale and its
a. The impairment test compares the asset’s carrying recoverable amount
value with the lower of its fair value less costs of d. The higher of its carrying amount on the basis that it
disposal and its value-in-use. had never been classified as held for sale and its
b. If impairment indicators are present, the company recoverable amount
must conduct an impairment test.
c. If the recoverable amount is lower than the 51. Alpha Cycle Shop sells a bicycle to Bane, a customer
carrying value, an impairment loss will be reported who uses Express Charge (a national credit card, but
on the period’s income statement. not issued by a bank). In recording this sale, Alpha
d. If either the fair value less costs of disposal or the Cycle Shop should record
value-in-use is higher than the carrying amount, a. a cash receipt.
no impairment loss will be recorded. b. an account receivable from Bane.
c. an account receivable from Express Charge.
47. X-Borg Company purchased an equipment on January d. a small increase in the allowance for doubtful
1, 2017 at a cost of P2,500,000. This equipment was accounts.
depreciated over its useful life of ten years with a
residual value of 10%. On December 31, 2018 X-Borg 52. Sun, Inc had net sales in 2019 of P1,400,000. At
determined that the recoverable amount of the December 31, 2019, before adjusting entries, the
equipment was only P1,250,000 with no residual value balances in selected accounts were: accounts
and appropriately recognized an impairment loss. receivable P250,000 debit, and allowance for doubtful
However on December 31, 2019, the fair value had accounts P2,400 debit. Tanya estimates that 2% of its
increased to P1,750,000 and the management of X- accounts receivable will prove to be uncollectible.
Borg deemed to reverse the impairment that was What is the cash realizable value of the receivables
previously recorded. What is the gain on impairment reported on the statement of financial position at
to be shown on 2019 income statement? December 31, 2019?
a. P750,000 c. P656,250 a. P219,600 c. P224,400
b. P731,250 d. P625,000 b. P222,000 d. P245,000

48. Dyroth Inc. reported an impairment loss of P300,000 53. Which of the following accounting principles primarily
on its income statement for the year ended December supports the use of allowance for doubtful accounts?
31, 2018. This loss was related to an item of a. Continuity principle. c. Cost principle.
equipment which Dyroth intended to use in its b. Full-disclosure principle. d. Matching principle.
operations. On the company's December 31, 2018
statement of financial position, Dyroth reported this 54. Excel Company is a leading educational institution with
equipment at P1,840,000 and, as of December 31, student population of more than 50,000. Excel
2018, Dyroth estimated that this equipment would be continuously maintains good quality education and a
used for another five years. On December 31, 2019, roster of qualified professors. As a result, Excel
Dyroth determined that the recoverable amount of its continuously produces top graduates in several fields.
impaired equipment had increased by P50,000 over its As at December 31, Excel has an outstanding
recoverable amount at December 31, 2018. The receivable balance of P23,250,000 broken down into:
increase in recoverable amount is due to the 0-60 days outstanding, P9,000,000; 61-120 days
unwinding of discount. On the company's December outstanding, P6,750,000; and over 120 days
31, 2019 statement of financial position, what amount outstanding, P7,500,000. Estimated percent
should be reported as the carrying amount for this uncollectible of these accounts is 1%, 2% and 6%,
equipment? respectively. Excel wrote off P525,000 of its accounts
a. P1,522,000 c. P1,890,000 receivable and recovered P50,000 from accounts
b. P1,472,000 d. P1,712,000 previously written of in prior year. As at January 1,
Excel has an allowance for uncollectible accounts of
49. Which statement is incorrect regarding assets that P650,000. Based on the aging analysis, Excel should
meet the criteria to be classified as held for sale in report doubtful accounts expense for the year at
accordance with PFRS 5?
a. Such assets are measured at the lower of carrying a. P675,000 c. P550,000
amount and fair value less costs to sell. b. P500,000 d. P475,000
b. Depreciation on such assets is not recognized.
c. Such assets are presented separately in the 55. On an entity’s April 30, 2018 balance sheet a note
statement of financial position. receivable was reported as a noncurrent asset and it’s
d. To be classified as an asset held for sale, the sale accrued interest for eight months was reported as a
must be expected to be completed within 12 months current asset. Which of the following terms would fit
from the end of the financial year. the entity’s note receivable?
a. Principal is due August 31,2019, and interest is
50. The Yi Sun-Shin Company classified a non-current asset due August 31, 2018, and August 31, 2019.
accounted for under the cost model as held for sale on b. Both principal and interest amounts are payable on
31 December 2018. Because no offers were received at August 31, 2018, and August 31, 2019.
an acceptable price, Mirror decided on 1 July 2019 not c. Principal and interest are due December 31, 2018.
to sell the asset, but to continue to use it. d. Both principal and interest amounts are payable on
December 31, 2018 and December 31, 2019.
The asset should be measured on 1 July 2019 at
a. The lower of its carrying amount and its recoverable
56. At December 31, 2019, Alucard Bank recorded an
amount
investment of P200,000 in a loan to Guinevere. The
loan has an effective interest rate of 10 percent, the

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Financial Accounting and Reporting SET B

principal is due in full at maturity in three years, and 61. Which statement is incorrect?
interest is due annually. Unfortunately, Guinevere is a. Companies account for transfers between
experiencing significant financial difficulty and indicates investment classifications retroactively, at the end
that he will have a difficult time making full payment. of the accounting period after the change in the
The loan officer prepared the following cash flow business model.
schedule: b. The Unrealized Holding Gain or Loss–Income
account is reported in the other income and
Contractual Expected Loss of
expense section of the income statement.
Date Cash Flow Cash Flow Cash Flow
c. Over the life of a debt investment, interest
12/31/20 P 20,000 P 10,000 P10,000
revenue and the gain on sale are the same using
12/31/21 20,000 10,000 10,000
either amortized cost or fair value measurement.
12/31/22 220,000 210,000 10,000
d. The fair value option is generally available only at
P260,000 P230,000 P30,000
the time a company first purchases the financial
asset or incurs a financial liability.
How much should be recognized as loan impairment
loss in 2019 profit or loss?
Use the following information for the next two questions.
a. P30,000 c. P24,870
b. P27,200 d. P22,540 On January 1, 2019, Choson Corporation purchased
P4,000,000 10% bonds for P3,711,520. These bonds are
57. On November 30, accounts receivable in the amount of held in a business model whose objective is achieved by
P2,700,000 were assigned to Enrico Finance Co. by collecting contractual cash flows of financial assets. The
Justo as security for a loan of P2,250,000. Enrico bonds were purchased to yield 12%. Interest is payable
charged a 3% commission on the accounts; the annually every December 31. The bonds mature on
interest rate on the note is 12%. During December, December 31, 2023. On December 31, 2019 the bonds
Justo collected P1,050,000 on assigned accounts after were selling at 99. On December 31, 2020, Choson sold
deducting P1,680 of discounts. Justo wrote off a P2,000,000 face value bonds at 101, which is the fair value
P1,590 assigned account. On December 31, Justo of the bonds on that date, plus accrued interest.
remitted to Enrico the amount collected plus one
62. The unrealized gain to be recognized as a separate
month's interest on the note.
component of equity on December 31, 2019 is
How much is Justo’s equity in the assigned accounts a. P203,098 c. P152,270
receivable as of December 31? b. P248,480 d. P 0
a. P448,410 c. P425,910
b. P446,730 d. P424,230 63. The gain on sale of the bonds on December 31, 2020
is
58. When the interest payment dates of a bond are May 1 a. P217,684 c. P116,040
and November 1, and a bond issue is purchased on b. P220,000 d. P141,549
June 1, the amount of cash paid will be
a. Decreased by accrued interest from June 1 to 64. On June 1, 2019, Ping Corp. purchased 10,000 of
November 1. Pong’s 50,000 outstanding shares at a price of P12.00
b. Decreased by accrued interest from May 1 to June per share. Pong had earnings of P6,000 per month
1. during 2019 and paid dividends of P20,000 on March
c. Increased by accrued interest from June 1 to 1, 2019 and P25,000 on December 1, 2019. The fair
November 1. value of Pong’s shares was P13.00 per share on
d. Increased by accrued interest from May 1 to June December 31, 2019.
1.
Which statement is correct?
a. Assuming that the investment is FVTPL, the total
59. In 2018, Emong Co. acquired, at a premium, Bobads,
effect on Ping’s profit or loss for the year ended
Inc. ten-year bonds as a long-term investment. At
December 31, 2019 is P5,000.
December 31, 2019, Bobads’ bonds were quoted at a
b. Assuming that the investment is FVTOCI, the total
small discount. Which of the following situations is the
effect on Ping’s profit or loss for the year ended
most likely cause of the decline in the bonds’ market
December 31, 2019 is P15,000.
value?
c. Assuming that the investment is an associate, the
a. Bobads issued a stock dividend.
total effect on Ping’s profit or loss for the year
b. Bobads is expected to call the bonds at a premium,
ended December 31, 2019 is P8,400.
which is less than Emong’s carrying amount.
d. Before all closing entries for 2019 are completed,
c. Interest rates have declined since Emong
the effect of the increase in fair value on total
purchased the bonds.
shareholders' equity would be the same amount
d. Interest rates have increased since Emong
under the FVTOCI and FVTPL approaches.
purchased the bonds.
65. On December 31, 2017, Zenobia Co. purchased
60. Which of the following is incorrect about recording a
equity securities as classified as FVTOCI. Pertinent
sale of a debt investment classified as FA@FVTOCI
data are as follows:
before maturity date?
a. The entry to amortize a premium to the date of Fair value
sale includes a debit to Debt Investments – Cost 12/31/18 12/31/19
FA@FVTOCI. C Company P1,575,000 P1,540,000 P1,365,000
b. Accrued interest will be received by the seller even P Company 1,925,000 1,960,000 2,170,000
though it is not an interest payment date. A Company 3,500,000 3,360,000 3,010,000
c. An entry must be made to amortize a discount to
On December 31, 2019, Zenobia transferred its
the date of sale.
investment in security P from FVTOCI to FVTPL. How
d. The gain on the sale is the excess of the selling
much should be recognized as fair value adjustment in
price over the amortized cost of the bonds.

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Financial Accounting and Reporting SET B

other comprehensive income for the ended December

31, 2019 related to these securities?
a. P525,000 c. P315,000
b. P455,000 d. P0

Use the following information for the next two questions.

On December 28, 2019, Anne Company commits itself to
purchase a financial asset to be classified as amortized
cost for P800,000, its fair value on commitment (trade)
date. This security has a fair value of P801,000 and
P802,500 on December 31, 2019 (Anne's financial year-
end), and January 5, 2020 (settlement date), respectively.

66. If Anne applies the trade date accounting method to

account for regular way purchases of its securities,
how much gain should be recognized on December 31,
2019?
a. P2,500 c. P1,000
b. P1,500 d. Nil

67. If Anne applies the settlement date accounting

method to account for regular way purchases of its
securities, how much gain should be recognized on
January 5, 2020?
a. P2,500 c. P1,000
b. P1,500 d. Nil

68. A series of equal periodic payments in which the first

payment is made one compounding period after the
date of the contract is
a. An annuity due.
b. An ordinary annuity.
c. A future annuity.
d. A deferred annuity.

69. A series of equal periodic payments that starts more

than one period after the agreement is called:
a. An annuity due. c. A future annuity.
b. An ordinary annuity. d. A deferred annuity.

70. Loan A has the same original principal, interest rate,

and payment amount as Loan B. However, Loan A is
structured as an annuity due, while Loan B is
structured as an ordinary annuity. The maturity date of
Loan A will be
a. Earlier than Loan B.
b. Later than Loan B.
c. The same as Loan B.
d. Indeterminate with respect to loan B.

 - end - 

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