CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING MAY 2024
FINAL PREBOARD EXAMINATION

1. Which of the following is false about the Financial and Sustainability Reporting Standards Council (FSRSC)?
a. The FSRSC was established by the Professional Regulatory Commission to assist the Board of
Accountancy in carrying out its power and function to promulgate accounting standards in the Philippines.
b. The FSRSC is the successor of the International Accounting Standards Board.
c. The FSRSC formed the Philippine Interpretations Committee (PIC) to assist the FSRSC in establishing
and improving financial reporting standards in the Philippines.
d. The FSRSC has full discretion in developing and pursuing the technical agenda for setting accounting
standards in the Philippines.

2. Which of the following is not an objective of the Philippine Interpretations Committee (PIC)?
a. To issue implementation guidance on Philippine Financial Reporting Standards (PFRS)
b. To comment on exposure drafts of proposed PFRSs and other documents that may be issued for comment
by the FSRSC
c. To comment on exposure drafts of proposed accounting standards or proposed regulations with accounting
relevance that may be issued by government agencies, such as the SEC.
d. Has the full discretion in developing and pursuing the technical agenda for setting accounting standards
in the Philippines

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. Under the current BOA Resolution, a CPA is required to comply with how many CPD units for accreditation
to practice the accountancy profession?
a. 120
b. 100
c. 80
d. 15

5. Which of the following is true about the Conceptual Framework for Financial Reporting?
a. Any provision in the Conceptual Framework may override any specific IFRS.
b. The fundamental qualitative characteristics include relevance and completeness.
c. The objective of financial reporting forms the foundation of the Conceptual Framework.
d. Verifiability implies legal evidence.

6. Which of the following is false about the Conceptual Framework for Financial Reporting?
a. Only items that meet the definition of an asset, liability or equity shall be recognized in the statement of
financial position.
b. Derecognition occurs when an item no longer meets the definition of an asset or a liability.
c. Current value includes fair value and current cost only.
d. The physical concept of capital requires current cost measurement.

7. Considering the following below, which step should be done first?

a. Journalize and post adjusting entries
b. Prepare a postclosing trial balance
c. Journalize and postclosing entries
d. Prepare financial statements
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8. An entity provided the following information on December 31, 2024:

Cash in bank 2,000,000
Accounts receivable 4,000,000
Allowance for doubtful accounts 250,000
Notes receivable 1,250,000
Note receivable discounted 250,000
Inventory 2,250,000
Prepaid expenses (including cash surrender value of P300,000) 1,000,000
Deferred tax asset 1,500,000
Equipment classified as “held for sale” 1,800,000
The accounts receivable included sale price of P1,500,000 of unsold goods out on consignment at 125% of
cost and excluded from ending inventory. Which of the following statements is false?
a. Current and noncurrent presentation of assets and liabilities provide useful information when an entity
supplies goods or services within a clearly identifiable operating cycle.
b. The operating cycle of an entity is always a period of 12 months.
c. Total current assets amount to P11,200,000.
d. Total noncurrent assets amount to P1,800,000.
9. An entity reported the following data for the current year:

Legal and audit fees 1,400,000 Freight out 1,600,000

Rent for office space 2,000,000 Officers’ salaries 1,500,000
Interest on inventory loan 1,100,000 Insurance 950,000
Loss on abandoned equipment 450,000 Sales representative salaries 2,150,000
Doubtful accounts expense 1,750,000 Gross profit 15,000,000
The office space is used equally by the sales and accounting departments. Which of the following is true?
a. An entity is required to present expenses in the income statement according to function.
b. The total distribution costs amount to P6,500,000.
c. The total general and administration costs amount to P6,600,000.
d. Net income for the year is P3,200,000.

10. An entity reported changes in certain accounts included accounts payable P150,000 decrease, inventory
P50,000 increase and accounts receivable P100,000 decrease. All purchases of inventory were on account.
Depreciation during the year was P900,000 and equipment was sold at gain of P300,000. The entity reported
net income of P3,500,000 for the current year and the cash flows for the current year were as follows:
collection from customers, P9,500,000; payment for inventory purchase P4,100,000; payment for other
expenses, P1,400,000.
Statement I: The indirect method of preparing the cash flow statement is known as the reconciliation method.
Statement II: The net cash flow provided by operating activities is P4,000,000.
a. Only statement I is true.
b. Only statement II is true.
c. Statements I and II are true.
d. Statements I and II are false.

11. Significant accounting policies may not be

a. Selected on the basis of judgement
b. Selected from existing acceptable alternatives
c. Unusual or innovative in application
d. Omitted from financial statement disclosures

12. The following may be classified as cash equivalents, except

a. Money market placements c. Redeemable preference shares
b. Equity investments held for trading d. Certificate of time deposit
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13. On January 1, 2024, the entity had 100,000 ordinary shares outstanding. The shareholders’ equity was affected
by the following transactions during 2024:
February 1 15,000 ordinary shares were sold in the market.
July 1 Issued P1,000,000, 5-year, 10% bonds at face amount. Each P1,000 bond
is convertible into 50 ordinary shares.
July 1 45,000 ordinary shares were sold.
October 1 A 10% bonus issue was declared and distributed.
December 31 Net income for 2024 was P5,000,000. The income tax rate is 25%.
Which of the following statements is true?
a. Ordinary shares issued because of a conversion of a debt instrument to ordinary shares are included in the
computation of weighted average ordinary shares outstanding from date of issue of debt.
b. Dilution arises when the inclusion of the potential ordinary shares increases basic EPS or decreases basic
loss per share.
c. The entity should report basic EPS at P33.61
d. The entity should report diluted EPS at P28.40
14. An entity had outstanding 1,000,000 written put options on the ordinary shares with an exercise price of P25.
The average market price of ordinary share of the period is P20. How many potential ordinary shares should
be included in the computation of diluted earnings per share?
a. 1,250,000
b. 800,000
c. 250,000
d. 200,000
15. On December 31, 2024, an entity reported cash of P5,000,000 with the following details:
Undeposited collections 50,000
Cash in bank – BDO checking account 500,000
Cash in bank – PNB (overdraft) ( 50,000)
Undeposited NSF check received from customer, dated December 1, 2024 15,000
Undeposited check from a customer, dated January 15, 2025 35,000
Cash in bank – BDO fund for payroll 150,000
Cash in bank – BDO saving deposit 100,000
Cash in bank – money market instrument 2,000,000
Treasury bonds 1,500,000
Cash in foreign bank restricted 100,000
Cash in bank – BDO value added tax account 600,000
Total 5,000,000
Statement I: Cash and cash equivalents are presented as current assets.
Statement II: Investments with a term of 3 months or less from the date of the financial
statements may be classified as cash equivalents.
Statement III: Cash and cash equivalents amount to P3,400,000.
a. Statements I and III are true.
b. Only statement I is true
c. All statements are true.
d. Statements I and II are true.
16. An entity adopted the imprest system and established a petty cash fund balance of P100,000. At the end of
the current year, it was discovered that receipts evidencing expenses amounted to P70,000, employee IOU
P10,000 and currency P24,000. The fund was not replenished at year-end. What entry should the entity make
at year-end?
a. Debit expenses P70,000, receivable P10,000 and credit cash P80,000
b. Debit expenses P70,000, cash short or over P6,000 and credit cash P76,000
c. Debit expenses P70,000, receivable P10,000 and credit petty cash P76,000, cash short or over P4,000
d. Debit expenses P70,000, receivable P10,000 and credit cash P76,000, cash short or over P4,000
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17. An entity received the following information to prepare a bank reconciliation on May 31 2024:
Cash balance per bank statement – May 31, 2024 80,890
Note collected by bank credited to entity’s account, including interest of P400 10,400
Bank service charges 200
Cash balance per ledger – May 31, 2024 96,470
Deposit in transit on May 31, 2024 38,000
Outstanding checks on May 31, 2024 15,500
Cash on hand – May 31, 2024 3,100
The bookkeeper improperly recorded a payment for supplies at P1,465. The correct amount should be P1,645.
What amount of cash should be reported in the statement of financial position on May 31, 2024?
a. 103,390
b. 106,490
c. 106,850
d. 83,990
18. On January 1, 2024, an entity sold land in exchange for a 4-year, noninterest-bearing note in the face amount
of P2,000,000 due January 1, 2028. The land is carried on entity’s books at carrying amount of P800,000. On
the same date, the entity rendered services in exchange for a 3%, 8-year promissory note having a face value
of P500,000. Interest is payable annually every December 31 and the principal amount is due on January 1,
2032. The market rate of interest for similar notes is 12%. The present value factors are: PV of 1 at 12% for
4 periods is 0.64; PV of 1 at 12% for 8 periods is 0.40; PV of an ordinary annuity of 1 at 12% for 8 periods is
4.97. Which of the following statements are true?

a. Interest income for the year 2024 is P168,600.

b. Long-term noninterest bearing notes and those with unrealistic rates are initially measured at face amount.
c. The gain on sale of the land in 2024 is P1,200,000.
d. The carrying amount of the notes on December 31, 2024 is P1,726,096.

19. On January 1, 2024, an entity acquired equity securities for a total payment of P8,500,000. The payment
includes broker’s commission of P500,000. The equity securities are nontrading and has a fair value of
P9,800,000 on December 31, 2024.
Statement I: Equity investments at fair value may be measured at fair value through profit or loss or fair value
through other comprehensive income.
Statement II: If the entity did not designate the investment to be measured at FVOCI, the unrealized gain is
P1,800,000.
Statement III: If the entity designated irrevocably to measure the investment at FVOCI, the unrealized gain is
P1,300,000.
a. All statements are true.
b. Statements I and III are true.
c. Statements I and II are true.
d. Statements II and III are true.
20. On January 1, 2024, an entity reported accounts receivable P3,000,000 and allowance for doubtful accounts
P100,000. The entity provided the following data:
Credit sales Writeoffs Recoveries
2021 11,100,000 260,000 22,000
2022 12,250,000 295,000 37,000
2023 14,650,000 300,000 36,000
2024 20,000,000 300,000 50,000
The collections from customers during 2024 totaled P18,000,000, excluding recoveries. Doubtful accounts
are provided for as a percentage of credit sales. The entity calculated the percentage annually by using the
experience of the three years prior to the current year. Which of the following is false?
a. The doubtful accounts expense for the year 2024 is P400,000.
b. The allowance for doubtful accounts on December 31, 2024 is P250,000.
c. The net realizable value of accounts receivable on December 31, 2024 is P4,400,000.
d. An estimate of doubtful accounts as a percentage of sales focuses on the income statement.
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21. During 2024, an entity entered into the following receivable financing transactions:

• Factored P2,000,000 of accounts receivable without recourse to Finance Company. The finance charge on
the transaction is 15% of the accounts factored.
• Assigned P6,000,000 of accounts receivable to Bank Company to obtain a one-year loan of P4,500,000.
The finance charge is 10% of the loan.
What amount of cash is received by the entity because of the receivable financing?
a. 8,000,000
b. 7,100,000
c. 5,600,000
d. 5,750,000
22. On July 1, 2024, an entity acquired bonds for P2,173,200. The face amount of the bonds is P2,000,000 and is
due on July 1, 2029. Interest is payable annually every June 30. For the year ended June 30, 2025, the entity
recorded interest receipt of P140,000 and amortization of P31,340. Which of the following statements is true?
a. Interest income for the year ended June 30, 2025 is P171,340.
b. The effective interest rate is 5%.
c. The carrying amount of the bonds on June 30, 2025 is P2,204,540.
d. If bonds are purchased at a premium, the effective interest rate is higher than the stated interest rate.
23. An investor uses the equity method to account for its equity investment. Which of the following will increase
the investment account?
a. Amortization of excess cost relating to the investee’s depreciable asset
b. Amortization of goodwill
c. Share in the net income of the investee
d. Cash dividend received from the investee
24. During 2024, an entity recorded the following information pertaining to inventory:
Units Unit cost Total cost
Balance on January 1 20,000 100 2,000,000
Purchased on April 15 12,000 300 3,600,000
Sold on October 20 21,000
Purchased on November 25 8,000 500 4,000,000
Purchase return on Nov. 26 2,000 500 1,000,000
The entity uses the FIFO cost flow assumption and on December 31, 2024, the net realizable value per unit is
P330. Which of the following statements is false?
a. The cost of inventory on December 31, 2024 is P5,610,000.
b. The entity should report inventory at P5,610,000 on December 31, 2024.
c. The entity should report loss on inventory writedown of P690,000.
d. If goods are ordinarily interchangeable, an entity may use the FIFO cost flow assumption.
25. At year-end, an entity reported that a flood caused severe damage to the entire inventory. Based on recent history,
the entity had a gross profit of 25%. The entity provided the following information for the current year:
Inventory, January 1 750,000
Purchases 6,000,000
Purchase returns 300,000
Sales 8,400,000
Sales returns 600,000
Sales allowances 150,000
Statement I: If the gross profit rate of 25% is based on sales, the cost damaged by flood is P600,000.
Statement II: If the gross profit rate of 25% is based on cost, the cost damaged by flood is P210,000.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.
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26. An entity imported machinery to be installed in the new factory premises before year-end. What is the proper
treatment of freight and interest on the loan to fund the cost of machinery?

a. Both freight and interest are capitalized

b. Interest may be capitalized but freight is expensed
c. Freight is capitalized but interest cannot be capitalized
d. Both freight and interest are expensed

27. An entity acquired new machinery and the following items were analyzed in computing the initial cost:
Invoice price of the machinery 1,400,000
Cash discount available but not taken on purchase 20,000
Freight paid on the new machinery 40,000
Cost of removing the old machinery 15,000
Installation cost of the new machinery 50,000
Testing cost before the machinery was put into regular operation including
P10,000 in wages of the regular machinery operator 30,000
Loss on premature retirement of the old machinery 5,000
Estimated cost of manufacturing similar machinery including overhead 1,300,000
The machine has a useful life of 5 years and was put into use on January 1, 2024. The entity used the double
declining balance method of depreciation. On January 1, 2026, the entity decided to change to the straight-
line method of depreciation and the revised total useful life of the asset is 10 years. Which of the following
statements is true?

a. Change in useful life and change in depreciation method are changes in accounting policies.
b. The initial cost of the machine is P1,515,000.
c. The depreciation expense for the year 2026 is P67,500
d. The accumulated depreciation on December 31, 2025 is P953,600.

28. On January 1, 2024, an entity 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, 2026, 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 2026?

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

29. An entity provided the following account balances relating to property, plant and equipment on January 1,
2024.
Land 2,000,000
Building 15,000,000
Accumulated depreciation 3,750,000
Assets have been carried at cost since their acquisition on January 1, 2014. The entity revalued the property,
plant and equipment on January 1, 2024. On such date, the revaluation revealed the replacement cost of land
at P5,000,000 and the building at P25,000,000. On July 1, 2026, the entity sold the land for P6,300,000. Ignore
effect of taxes. Which of the following statements are true?

a. Revaluation surplus is a component of other comprehensive income that may be transferred to profit or
loss.
b. The revaluation surplus on December 31, 2025 is P10,000,000.
c. The revaluation surplus on December 31, 2026 is P9,750,000.
d. The gain on sale of the land in 2026 is P4,300,000.
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30. An entity acquired a building on January 1, 2024 for P15,000,000 and was available for operating lease on
such date. The building had a total useful life of 30 years and on December 31, 2024, the fair value of the
building was P18,000,000. For the year 2024, the entity received P2,500,000 as rentals from lessees. It is the
entity’s policy to apply the fair value model to account for all investment properties. What is the total income
that the entity should recognize for the year 2024?
a. 2,500,000
b. 2,000,000
c. 3,000,000
d. 5,500,000
31. Which of the following statements is false concerning investment property?
a. The initial measurement of investment property shall include start-up cost, abnormal wastes, and initial
operating losses.
b. An entity shall choose between the cost model or fair value model in accounting for the investment
property.
c. If the fair value model is applied, gains or losses from changes in fair value are recognized in profit or
loss.
d. The gain or loss on disposal should be calculated as the difference between the net disposal proceeds and
the carrying amount of the investment property.
32. On January 1, 2024, a patent was acquired for P1,500,000 with a useful life of 10 years. On December 31,
2025, because of reduced demands for certain products protected by the patent, a possible impairment may
have occurred. The expected future cash flows from the patent from December 31, 2026 to December 31,
2028 were P20,000 for each period. The discount rate is 10% and the PV of an ordinary annuity of 1 at 10%
for 3 periods is 2.49. What is the carrying amount of the patent on December 31, 2025 after considering any
impairment?
a. 1,500,000
b. 1,200,000
c. 49,800
d. 60,000
33. An entity incurred the following costs during the year 2024:
Organization costs 1,200,000
Trademarks 1,000,000
Bonds payable 1,750,000
Deposits with advertising agency for ads to promote goodwill of company 1,000,000
Excess of cost over fair value of net identifiable assets of an acquired company 750,000
Cost of equipment acquired for research and development
projects; the equipment has an alternative future use 450,000
Research costs of developing a secret formula for a product 700,000
What is the total amount of intangible assets?
a. 1,750,000
b. 2,750,000
c. 2,000,000
d. 2,200,000
34. An entity provided the following information:
Value of biological asset at acquisition cost on December 31, 2024 12,000,000
Fair valuation surplus on initial recognition at fair value on December 31, 2024 1,000,000
Increase in fair value in 2025 due to growth and price fluctuation 1,800,000
Decrease in fair value due to harvest in 2025 200,000
What is the carrying amount of the biological asset on December 31, 2025?
a. 14,800,000
b. 14,600,000
c. 15,000,000
d. 13,000,000
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35. On January 1, 2024, an entity purchased a vineyard costing P3,000,000. It was determined that the grape vines
can produce fruit for a period of 8 years. The vineyard satisfies the definition of a bearer plant. During 2024,
the entity harvested grapes with a fair value less cost of disposal of P1,000,000. On December 31, 2024, 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
36. On June 1, 2024, an entity had equipment with cost of P10,000,000 and accumulated depreciation of
P6,000,000. On that date, the entity classified the equipment as held for sale. On same date, the equipment
had an estimated selling price of P2,600,000, estimated selling cost of P200,000 and remaining life of 4 years.
On December 31, 2024, the estimated selling price of the equipment had increased to P3,000,000 with
estimated selling cost of P150,000.
Statement I: Noncurrent assets held for sale are measured at fair value less cost of disposal.
Statement II: The asset is measured at P2,850,000 on December 31, 2024.
Statement III: The gain on reversal of impairment on December 31, 2024 is P1,150,000.
a. All statements are true
b. Only statement II is true.
c. Statements II and III are true.
d. All statements are false.
37. An entity paid advertising cost of P2,640,000. The payment consists of two advertising contracts which
provide monthly advertising in two trade magazines. The terms of the contracts are as shown below:
Contract Date Amount Number of Magazine Issues
XX May 1, 2024 1,200,000 12
YY October 1, 2024 1,440,000 24
The first advertisement runs in the month in which the contract is signed. Which of the following statements
is true?
a. Prepaid expenses are expenses paid and recognized immediately in profit or loss.
b. Advertising expense for the year 2024 is P2,640,000.
c. Both a and d are true.
d. Prepaid advertising on December 31, 2024 amounts to P1,660,000.
38. Which of the following statements is false about financial liabilities?
a. Financial liabilities are measured at either fair value through profit or loss or amortized cost.
b. If the fair value option is elected, the financial liability is measured at fair value through profit or loss.
c. If the fair value option is elected, changes in fair value are classified entirely in profit or loss.
d. An entity shall derecognize a financial liability when it is extinguished.
39. Debt issue cost (choose the false statement)
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. Is included in the measurement of financial liability if measured at fair value through profit or loss.
d. Will effectively increase the market rate of interest.
40. An entity issued P600,000,000 of 7% bonds on November 1, 2024, for P644,636,000. The bonds were dated
November 1, 2024, and mature in 10 years, with interest payable each May 1 and November 1. The effective-
interest rate is 6%. The entity prepared the adjusting entry on December 31, 2024. Which of the following
statements is true?
a. Interest expense for the year 2024 is P25,785,440.
b. The adjusting entry credits cash of P42,000,000.
c. The adjusting entry credits interest payable of P7,000,000.
d. The adjusting entry credits cash of P7,000,000.
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41. An entity owes P4,000,000 plus P360,000 of accrued interest to a bank. Both principal and interest are due on
December 31, 2024. During 2024, the entity’s business deteriorated due to a faltering economy. As a result,
on December 31, 2024, the entity has two options to settle the liability:
Option A: Transfer machinery to the bank. The machine has a cost of P7,800,000, accumulated depreciation
of P4,420,000 and fair value of P3,600,000.
Option B: Issue P20 par, 15,000 ordinary shares to the bank. The shares are currently selling at P240 per share.
Which of the following statements are true?
a. If Option A is selected, the gain on disposal or transfer of the machine is P760,000.
b. If Option A is selected, the gain on extinguishment of debt is PP3,440,000.
c. If Option B is selected, no gain nor loss should be recognized.
d. If Option B is selected, share premium of P3,300,000 is recognized.
42. An entity, a grocery retailer, operates a customer loyalty program. The entity grants program members loyalty
points when they spend a specified amount on groceries. Program members can redeem the points for further
groceries. The points have no expiry date. During 2024, the sales amounted to P8,000,000 based on stand-
alone selling price. During the year, the entity granted 20,000 points. But management expected that only
80% of the points will be redeemed. The stand-alone selling price of each loyalty point is estimated at P100.
On December 31, 2024, 10,400 points have been redeemed. In 2025, management revised its expectations
and now expected that 100% of the points will be redeemed altogether. During 2025, the entity redeemed
5,000 points. What amount of revenue from the points should the entity record in 2024?
a. 1,040,000
b. 1,600,000
c. 1,232,000
d. 192,000
43. An entity sells a machine for P800,000 with a 1-year warranty agreement that requires the entity to replace
all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly
throughout the year, the entity sells 700 machines in 2024. As a result of product testing, the entity estimates
that the total warranty cost is P400 per machine. What is the 2024 unadjusted warranty expense and unadjusted
warranty liability on December 31, 2024 respectively?
a. 280,000 and 0
b. 140,000 and 140,000
c. 280,000 and 70,000
d. 280,000 and 280,000
44. The nonredemption of gift certificates is called
a. Waiver
b. Breakage
c. Forfeiture
d. Rebate
45. Disclosure usually is not required for
a. Contingent loss that is probable and not measurable
b. Contingent gain that is probable and measurable
c. Contingent loss that is remote and measurable
d. Contingent loss that is possible and measurable
46. Which of the following is false about share capital and share issue cost?
a. If shares are issued for noncash consideration, they shall be measured by fair value of consideration.
b. If shares are issued at par, any share issue costs incurred is debited to “Share Issuance Cost”,
which is a deduction from equity.
c. Any subscription receivable currently collectible is presented as a deduction from equity.
d. Contributed capital includes issued share capital and share premium.
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47. An entity reported the following equity items in its December 31, 2023 statement of financial position:
8% preference share capital, P100 par value 2,000,000
Ordinary share capital, P5 par value 1,000,000
Share premium - preference 1,250,000
Retained earnings 4,500,000
Total shareholders’ equity 8,750,000
During 2024, the following transactions took place in chronological order:
• Paid the annual 2023 P8 per share dividend on preference shares and a P2 per share dividend on ordinary
shares. These dividends had been declared on December 31, 2023.
• Purchased 27,000 shares of its own outstanding ordinary shares for P40 per share.
• Reissued 7,000 treasury shares for land with a fair value of P300,000.
• Issued 5,000 preference shares at P105 per share.
• Declared a 10% share dividend on the outstanding ordinary shares when the fair value is P45 per share.
• Issued the share dividend.
• Declared the annual 2024 P8 per share dividend on preference shares and the P2 per share dividend on
ordinary shares. These dividends are payable in 2025.
• Net income for 2024 is P4,000,000.
What amount of total shareholders’ equity should the entity report on December 31, 2024?
a. 11,339,000
b. 11,899,000
c. 11,089,000
d. 12,500,000

48. An entity had the following shareholders’ equity as of January 1, 2024:

Share capital - ordinary, P5 par value, 400,000 shares issued 2,000,000
Share premium - ordinary 1,200,000
Retained earnings 1,300,000
During 2024, the following transactions occurred in chronological order:

• Repurchased 8,000 treasury shares at a price of P30 per share.

• 1,600 treasury shares were reissued at P25 per share.
• 1,000 treasury shares were reissued at P27 per share.
• 1,200 treasury shares were reissued at P35 per share
• Net income for the year is P800,000
Statement I: On December 31, 2024, total retained earnings should be reported at P2,089,000.
Statement II: On December 31, 2024, total share premium should be reported at P1,206,000.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.

49. On December 31, 2024, an entity has 100,000 shares of P200 par value, 6%, preference shares and 500,000
ordinary shares of P100 par value outstanding. The preference shares were issued at par value in 2023 and a
preference share is convertible into 5 ordinary shares. On January 15, 2025, 30,000 preference shares were
converted. The entry on conversion date will include a

a. Credit to ordinary share capital of P30,000,000.

b. Debit to share premium – preference of P9,000,000.
c. Debit to retained earnings of P9,000,000.
d. Debit to share premium – ordinary of P9,000,000.
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50. On January 1, 2024, an entity changed from the average cost method to the FIFO method to account for
inventory. The entity the provided the following ending inventory for each method:
2023 2024
Average cost 1,000,000 1,800,000
FIFO cost 1,400,000 ?
Using the average cost method, income before tax for the years 2023 and 2024 were P3,000,000 and
P4,000,000 respectively. It was determined that the net income for 2024 using the FIFO cost method was
P3,450,000. The income tax rate is 25%. What is the 2024 FIFO cost of ending inventory?
a. 800,000
b. 1,000,000
c. 1,250,000
d. 2,800,000
51. On December 31, 2024 an entity has 5% preference share capital with a par value of P100 and 200,000 shares
outstanding and ordinary share capital with a par value of P50 and 300,000 shares outstanding. The preference
shares are cumulative and nonparticipating. The preference dividends are in arrears for 2 years prior to 2024.
The entity declared a total cash dividend of P5,000,000 for the year 2024. What amount of the cash dividends
will the preference shareholders receive?
a. 2,000,000
b. 3,000,000
c. 5,000,000
d. 2,500,000
52. On December 31, 2024, an entity declared and issued 1,500 ordinary shares of P100 par value in connection
with a share dividend. The market value on the date of declaration was P150. Before the issuance of the share
dividend, the entity had 20,000 shares outstanding and retained earnings of P2,500,000. What amount of
retained earnings should be reported after declaration and issuance of the share dividend?
a. 2,500,000
b. 2,350,000
c. 2,312,500
d. 2,275,000
53. An entity had incurred heavy losses since it started its operations. The board of directors and the shareholders
approved to implement a quasi-reorganization. Prior to the quasi-reorganization the entity reported the
following:
Share capital, P100, 1,000,000 shares 100,000,000
Share premium 12,000,000
Retained earnings (deficit) ( 18,000,000)
To accomplish the quasi-reorganization, inventory and property, plant and equipment shall be reduced by
P7,000,000 and P2,500,000 respectively, goodwill of P1,500,000 shall be written off and any appropriate
adjustment against the share premium and any remaining deficit against the share capital account. What is the
reduction in share capital account to accomplish the quasi-reorganization?
a. 6,000,000
b. 11,000,000
c. 17,000,000
d. 29,000,000
54. Which of the following other comprehensive income may be reclassified to profit or loss?
a. Revaluation surplus
b. Fair value changes of equity investment measured at fair value through other comprehensive income
c. Remeasurements of a defined benefit plan
d. Fair value changes of debt investment measured at fair value through other comprehensive income
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55. An entity provided the following on December 31, 2024:

Preference share capital, 10% cumulative and nonparticipating, 45,000 shares, P100 par 4,500,000
Ordinary share capital, P100, 60,000 shares 6,000,000
Subscribed ordinary share capital 30,000 shares 3,000,000
Subscription receivable 750,000
Share premium 4,500,000
Retained earnings 7,200,000
Treasury ordinary shares outstanding 15,000 shares 1,200,000
Preference dividends are in arrears for 5 years. What is the book value per ordinary share?
a. 230
b. 192
c. 383
d. 224

56. On January 1, 2024, an entity 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, 2024 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, 2024,
December 31, 2025 and December 31, 2026 respectively. Which of the following statements is false?

a. The entity issues a compound financial instrument in a share-based payment transaction if the counterparty
has the choice of settlement of whether shares or cash.
b. The compensation expense for 2026 is P890,000.
c. If the entity selects shares, the share premium to be recorded is P1,510,000.
d. If the entity selects cash, the share premium to be recorded is P150,000.

57. On January 1, 2024, an entity signed a five-year noncancellable lease for equipment. The terms of the lease
called for the following:
Annual lease payment at the end of each year, starting December 31, 2024 800,000
Useful life of the machine 10 years
Unguaranteed residual value 100,000
Initial direct cost paid by the entity 250,000
Cash incentive paid by the lessor to entity to induce entity to accept contract 80,000
Entity’s incremental borrowing rate 9%
Present value of an ordinary annuity of 1 for 9% at 5 periods 3.89
Present value of 1 for 9% at 5 periods 0.65
The entity uses the straight line method to depreciate all its plant assets. The machine shall revert back to the
lessor at the end of the lease term and the implicit rate in the lease is unknown. Which of the following is
true?

a. The initial cost of the right of use asset is P3,347,000.

b. The depreciation for the year 2024 is P656,400.
c. The lease liability on December 31, 2024 should be reported at P2,864,580.
d. Under IFRS, lessees shall apply the lease capitalization criteria to recognize an asset and a liability.

58. Which of the following is true?

a. IFRS requires a lessee to present the right of use asset as a separate line item under current assets.
b. Lease liabilities are always presented as noncurrent liabilities in total.
c. If the lease is short-term, a lessee may apply the operating lease model.
d. A low-value lease cannot have a lease-term of more than one year.
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59. On January 1, 2024, an entity signs an agreement to lease equipment to a lessee. The lease term and the useful
life of the equipment is 6 years. The cost of the asset to the entity is P3,000,000. The asset will revert back to
the entity at the end of the lease term, and the asset is expected to have an unguaranteed residual value of
P250,000. The equal rentals are to be paid annually beginning December 31, 2024. The implicit rate in the
lease is 10%. The present value of an ordinary annuity of 1 at 10% for 6 periods is 4.36 and the present value
of 1 at 10% for 6 periods is 0.56. What is the annual rental?

a. 655,963
b. 500,000
c. 688,073
d. 458,333

60. On January 1, 2024, an entity sold a building with a remaining life of 20 years and immediately lease it back
for 5 years. The selling price, fair value and carrying amount of the building were P60,000,000, P55,000,000
and P40,000,000 respectively. The annual rental at the end of each year, beginning December 31, 2024 is
P5,000,000, the implicit rate in the lease is 10% and the present value of an ordinary annuity of 1 at 10% for
5 periods is 3.79. As amended, what amount should be recognized as lease liability on January 1, 2024?

a. 18,950,000
b. 20,000,000
c. 13,950,000
d. 55,000,000

61. An entity reported the following information for the year 2024:
Depreciation reported in the tax return in excess of depreciation in income statement 2,400,000
Nontaxable interest received on government bonds 200,000
Rent collected in advance of P1,200,000 on January 1, 2024; Deferred balance at year-end 800,000
Income taxes due per tax return in 2024, subject to a 25% tax rate 4,000,000
Statement I: Taxable income for the year 2024 is P16,000,000
Statement II: Pretax financial income for the year 2024 is P17,800,000
Statement III: Future taxable amounts are deducted from financial income to compute taxable income.

a. Only statement I is true.

b. Statements I and III are true.
c. All statements are true.
d. Only statement II is true.

62. An entity reported the following information for the year 2024:
Deferred tax liability – January 1, 2024 600,000
Taxable income for the year 2024 5,000,000
Cumulative future taxable amounts on December 31, 2024 3,500,000
Cumulative future deductible amounts on December 31, 2024 1,500,000
The tax rate is 25% and the entity did not recognize any deferred tax asset on January 1, 2024. Which of the
following is false?
a. The income tax payable on December 31, 2024 is P1,250,000.
b. The deferred tax asset on December 31, 2024 is P100,000.
c. The total tax expense for the year 2024 is P1,150,000.
d. Deferred tax assets and deferred tax liabilities shall be presented as noncurrent.
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
 Page 14
64. An entity reported the following information pertaining to its defined benefit plan for the year 2024:
Fair value of plan assets – January 1 4,000,000
Projected benefit obligation – January 1 5,000,000
Service cost 800,000
Discount rate 5%
Actual return on plan assets 350,000
Increase in projected benefit obligation due to change in actuarial assumptions 700,000
Contribution to the plan 950,000
Benefits paid to retirees 550,000
What amount should be reported as defined benefit cost for the year 2024?
a. 1,400,000 c. 1,000,000
b. 300,000 d. 1,450,000
65. An entity incurred an inventory loss from market decline of P420,000 on June 30, 2024. What amount of
inventory loss should be recognized in the quarterly income statement for the three months ending June 30,
2024?
a. 105,000 c. 210,000
b. 140,000 d. 420,000
66. An SME disclosed the following assets on December 31, 2024:
Cash 600,000
Intangible assets 1,500,000
Investment property – fair value model 2,800,000
Trade accounts and notes receivable 750,000
Inventory 900,000
Investment in associate 1,200,000
Bond investment 400,000
Investment in nonputtable ordinary shares - listed 550,000
What amount should be reported as basic financial assets?
a. 3,200,000 c. 2,300,000
b. 3,500,000 d. 3,450,000
67. On January 1, 2024, an SME acquired 25% of the outstanding ordinary shares of another entity for P6,000,000.
The carrying amount and fair value of the net assets acquired was P4,800,000. The investee reported net
income of P2,000,000 and paid dividends of P500,000 for the year 2024. There is no published price quotation
for the investee’s shares and the SME elected to use the equity method. What is the 2024 investment income?
a. 380,000 c. 125,000
b. 500,000 d. 375,000
68. SME is permitted to present a single statement of income and retained earnings if the only equity changes are
a. Profit or loss, dividends declared, changes in accounting policy, prior period errors and OCI
b. Profit or loss, dividends declared, change in accounting estimates and changes in accounting policies
c. Profit or loss, dividends declared, OCI and share capital
d. Profit or loss, dividends declared, changes in accounting policy and prior period errors
69. A small entity purchased shares with are actively traded in a market for P200,000. The transaction costs
incurred on the purchase was P15,000. At year-end, the shares were valued at P290,000. At what amount shall
the small entity report the shares?
a. 215,000 c. 290,000
b. 200,000 d. 275,000
70. A small entity may elect to use the cost model or fair value model on what assets?
a. Investment property
b. Property, plant and equipment
c. Both investment property and property, plant and equipment
d. None of the above
END