FAR- Incoming 4th year
1. An entity reported the following information on December 31, 2024:
Cash (including bond sinking fund of P500,000) 1,500,000
Accounts receivable - assigned 3,000,000
Accounts receivable - unassigned 1,400,000
Inventory, including goods expected in the ordinary 1,200,000
course of operations to be sold beyond 12 months
amounting to P700,000
Bond investment held for trading 300,000
Equity investment at FVOCI 900,000
Cash surrender value 250,000
Land held for sale 2,000,000
Deferred tax asset 150,000
Statement I: An asset is classified as current if it is expected to be
realized, sold or consumed within the normal operating cycle.
Statement II: The total current assets amount to P8,900,000.
Statement III: The total noncurrent assets amount to P1,800,000.
a. All statements are true.
b. Statements I and II are true.
c. Statements II and III are true.
d. Statements I and III are true.
2. On January 1, 2024, an entity acquired a machine for P5,500,000. The
machine was depreciated using the sum of the year’s digits method based
on a useful life of 10 years with no residual value. On January 1, 2026
the entity changed to the straight-line method. The residual value on
such date was P200,000.
Statement I: Accounting changes included change in accounting policy,
change in accounting estimate and prior period error.
Statement II: A change in depreciation method is a change in accounting
estimate.
Statement III: The depreciation for 2026 amounts to P425,000.
a. All statements are true.
b. Statement III is true.
c. Statements I and II are true.
d. Statements II and III are true.
3. An entity purchased an equipment for P8,000,000 on January 1, 2024.
The equipment had a useful life of 5 years with no residual value. On
December 31, 2025, the entity classified the equipment as held for sale.
On such date, the fair value less cost of disposal of the equipment was
P4,500,000. On December 31, 2026, the entity believed that the criteria
for classification as held for sale can no longer be met. Accordingly,
the entity decided not to sell the equipment but to continue to use it.
On December 31, 2026, the fair value less cost of disposal of the
equipment was P3,700,000 and the value in use is P4,000,000.
Statement I: A noncurrent asset is classified as held for sale if the
asset is available for immediate sale in its
present condition and the sale is highly possible.
Statement II: An abandoned noncurrent asset may be classified as held
for sale.
Statement III: The impairment loss in 2025 is P300,000
Statement IV: The loss on reclassification in 2026 is P500,000
a. All statements are true.
b. All statements are false.
c. Statements I, III and IV are true.
d. Statement III is true.
4. On January 1, 2024, an entity established a petty cash fund with an
imprest balance of P100,000. Upon review of records, the entity
discovered the following connected to the fund: currency and coins,
P82,000; petty cash vouchers representing expenses, P10,000; NSF
employee check, P3,000. The fund was not replenished on December 31,
2024.
Statement I: The petty cash fund balance should be reported at P82,000
on December 31, 2024.
Statement II: The entry to adjust the petty cash fund will include a
credit to cash short / over of P5,000.
a. All statements are true.
b. Statement I is true.
c. Statement II is true.
d. All statements are false.
5. From inception of operations, an entity provided for doubtful accounts
using percentage of credit sales. The balance in the allowance for
doubtful accounts was P500,000 on January 1, 2024. During 2024, credit
sales totaled P10,000,000, interim provisions for doubtful accounts were
made at 2% of credit sales, P100,000 of bad debts were written off and
recoveries of accounts previously written off amounted to P25,000. An
aging was made on December 31, 2024.
Classification Balance Uncollectible
November - December 3,000,000 10%
July - October 1,000,000 20%
January - June 750,000 30%
Prior to January 1, 2024 250,000 50%
Based on the review of collectability of the account balances in the
“prior to January 1, 2024” aging category, additional accounts totaling
P50,000 are to be written off on December 31, 2024. Effective December
31, 2024, the entity adopted aging method for estimating the doubtful
accounts.
Statement I: Accounts written off using the allowance method decreases
working capital.
Statement II: The doubtful accounts expense that should be reported
amounts to P450,000.
Statement III: The adjustment to change to the aging method will increase
doubtful accounts expense by P200,000.
Statement IV: The net realizable value of accounts receivable amounts
to P4,125,000.
a. Statements II and IV are true.
b. Statements I, III and IV are true.
c. Statements II, III and IV are true.
d. Statements I and II are true.
6. An entity reported inventory costing P4,410,000 based on physical
inventory on December 31, 2024. Upon investigation, the following items
were excluded from the count:
• Merchandise of P610,000 which is held by the entity on consignment.
• Merchandise costing P330,000 which was shipped by the entity FOB
Destination to a customer on December 31, 2024. The customer received
the merchandise on January 6, 2025.
• Merchandise costing P460,000 which was shipped by the entity FOB
Shipping Point to a customer on December 29, 2024. The customer was
scheduled to receive the merchandise on January 2, 2025.
• Merchandise costing P730,000 shipped by a vendor FOB Buyer on December
30, 2024, and received by the entity on January 4, 2025.
• Merchandise costing P510,000 shipped by a vendor FOB Shipping Point
on December 31, 2024, and received the entity on January 5, 2025.
Statement I: Merchandise in transit, sold to customers FOB Destination
shall be excluded from inventory.
Statement II: Merchandise in transit, purchased from vendors FOB Shipping
point shall be included in inventory.
Statement III: The correct inventory balance is P5,980,000.
a. All statements are true.
b. All statements are false.
c. Statements I and III are false.
d. Statements II and III are true.
7. On January 1, 2024, an entity acquired milking cows for P3,500,000.
During 2024, the fair value less cost of disposal of the cows increased
by P450,000 due to growth and price changes. However, the fair value
less cost of disposal decreased by P230,000 due to harvest. Milk was
harvested at fair value less cost of disposal of P700,000. Towards the
end of 2024, all of the milk was sold for P850,000.
Statement I: Biological assets are measured at fair value less cost of
disposal.
Statement II: Bearer plants are classified as biological assets.
Statement III: The entity shall report a net income of P1,070,000 for
the year 2024.
Statement IV: The entity shall report biological assets at P3,720,000
on December 31, 2024.
a. Statements I, III and IV are true.
b. Statements I, II and IV are true.
c. Statements I and III are true.
d. Statement IV is true.
8. An entity uses the gross profit method to estimate inventory for
interim reporting purposes. Below is the information pertaining to the
inventory transactions for the first quarter of 2024:
Inventory, January 1 1,600,000
Gross purchase 6,400,000
Purchase discount 120,000
Freight – in 300,000
Sales 10,000,000
Sales return 700,000
Statement I: If the gross profit rate is 25% of sales, the estimated
cost of inventory is P1,125,000.
Statement II: If the gross profit rate is 25% of cost, the estimated
cost of inventory is P740,000.
a. All statements are true.
b. All statements are false.
c. Statement I is false.
d. Statement II is false.
9. On December 31, 2024, an entity reported the following information
pertaining to its equity investments held for trading:
Cost Fair value
A shares 2,500,000 3,300,000
B shares 1,200,000 1,100,000
C shares 1,800,000 1,000,000
During 2025, B shares were sold for P1,450,000. On December 31, 2025, A
shares and C shares had fair values of P3,000,000 and P1,400,000
respectively.
Statement I: Equity investments held for trading are measured at fair
value through OCI.
Statement II: Equity investments held for trading are not subject to
impairment.
Statement III: The gain on disposal of B shares in 2025 is P250,000.
Statement IV: The unrealized gain from change in fair value of A and C
shares in 2025 is P100,000.
a. All statements are true.
b. Statements II and IV are true.
c. Statement IV is true.
d. Statements II, III and IV are true.
10. On December 31, 2024, an entity reported an equity investment in an
associate at P1,078,000. The entity has a 25% interest in the associate.
On September 1, 2025, the entity sold 60% of its interest in the associate
to another entity for P750,000. The associate reported net income of
P2,400,000 for the year 2025. It was determined that the net income was
earned evenly throughout 2025. On September 1, 2025, the fair value of
the remaining interest is P700,000, and the entity reclassified the
investment to FVPL. What amount of gain or loss on remeasurement on the
remaining investment should the entity report in 2025?
a. 268,800
b. 108,800
c. 28,800
d. 186,800
11. On January 1, 2024, an entity purchased 12% bonds having a face value
of P5,000,000 for P5,379,100. The bonds provide the bondholders with a
10% yield. The bonds are dated January 1, 2024, and mature January 1,
2029, with interest received December 31 of each year. The entity’s
business model is to hold these bonds to collect contractual cash flows
that are composed of interest and principal.
Statement I: The bonds are measured at amortized cost.
Statement II: Interest income is 2024 is P537,910.
Statement III: If the entity elected to use the fair value option,
interest income in 2024 is P500,000.
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.
12. On January 1, 2024, an entity reported cash surrender value of
P80,000. On the same date, the entity paid annual premium of P120,000.
On September 1, 2024, the entity received dividend of P12,000 and the
cash surrender value increased by P25,000 for the year 2024. What amount
of life insurance expense should the entity report in 2024?
a. 120,000 c. 108,000
b. 95,000 d. 83,000
13. On January 1, 2024, an entity acquired land at a total cost of
P6,000,000. The land is properly classified as investment property and
the entity elected to use the fair value model to account for all
investment properties. The fair values of the land on December 31, 2024
and December 31, 2025 are P7,000,000 and P7,800,000 respectively. On
January 1, 2026, the entity decided use the land as a future plant site.
Statement I: The gain from change in fair value in 2024 is P1,000,000.
Statement II: The gain from change in fair value in 2025 is P1,800,000.
Statement III: The land remains to be investment property on January 1,
2026.
a. Statements I and III are true.
b. Statements I and II are true.
c. Statements II and III are true.
d. Statement I is true.
14. An entity received a grant of a large tract of land in Baguio City
from the Philippine Government. The land has a fair value of P25,000,000.
The grant required the entity to construct a factory building and employ
only personnel residing in Baguio. The cost of the factory is P40,000,000
with a useful life of 20 years.
Statement I: Government grant related to nondepreciable assets shall be
recognized as income over the periods
which bear the cost of meeting the conditions.
Statement II: Grant income for the current year is P2,000,000.
a. All statements are true. c. Statement II is false.
b. Statement I is false. d. All statements are false.
15. An entity acquired equipment at a cost of P5,000,000 on January 1,
2024, it has a useful life of 10 years with no residual value. On January
1, 2026, the entity decided to use the revaluation model for this class
of equipment. The fair value on such date is P4,680,000. On December 31,
2028, the entity sold the equipment for P3,400,000. Ignore effect of
taxes.
Statement I: The revaluation surplus on December 31, 2026 is P595,000.
Statement II: The gain on disposal on December 31, 2028 is P900,000.
Statement III: Upon disposal of a revalued asset, any balance of
revaluation surplus is transferred to P&L.
a. Statements I and II are true.
b. Statements II and III are true.
c. Statement I is true.
d. Statements I and III are true.
16. An entity acquired the following intangible assets during 2024:
• A franchise from Mac Company on January 1, 2024 for P7,000,000. The
carrying amount of the franchise on Mac’s books on such date was
P10,000,000. The franchise agreement had an estimated useful life of
25 years. Because the entity must enter a competitive bidding at the end
of 2033, it is unlikely that the franchise will be retained beyond 2033.
• A license for distribution of a popular consumer product on January
1, 2024 for P3,000,000. It is expected that this product will generate
cash flows for an indefinite period of time. The license has an initial
term of 5 years but by paying a nominal fee, the entity can renew the
license indefinitely for successive 5-year terms.
What is the carrying amount of the intangible assets on December 31,
2024?
a. 10,000,000
b. 9,720,000
c. 9,300,000
d. 8,700,000
17. An entity has been working to develop a patented technology for
backing up computer hard drives. The entity had the following activities
related to this project:
February 1 Incurred P200,000 in legal and processing fees to file
and record a patent for the technology
March 15 Laboratory and material fees to identify a working
system, P330,000
April 25 Prototype development and testing, P400,000
May 28 Meets the economic viability threshold upon receiving a
firm contract for the product
June 13 Final development of product based on earlier tests,
P550,000
What amount of research and development expense should the entity report
for the current year?
a. 1,280,000
b. 930,000
c. 950,000
d. 730,000
18. 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.
19. 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.
20. 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.
21. 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.
22. 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
23. Which of the following statements concerning interest-bearing notes
receivable is
generally a false statement?
a. Amortization of the premium causes the carrying amount of the notes
receivable to decrease over the life of the note.
b. The periodic amortization of discount or premium is the difference
of nominal interest recorded and effective interest recorded over the
life of the note.
c. The unamortized discount on notes receivable should be added to the
outstanding principal amount of notes receivable to arrive at the
carrying value of notes receivable.
d. Amortization of the discount causes the carrying amount of the notes
receivable to increase over the life of the note.
24. Micro entities are entities that meet following criteria, except:
a. Total assets and liabilities are below P3 Million.
b. Are required to file financial statements under Part II of SRC Rule
68.
c. Are not in the process of filing their financial statements for the
purpose
of issuing any class of instruments in a public market.
d. Are not holders of secondary licenses issued by regulatory agencies.
25. A common business transaction that would not affect the amount of
owners' equity is
a. signing a note payable to purchase equipment.
b. payment of property taxes.
c. billing of customers for services rendered.
d. Declaration of dividends.
26. Which of the following is not true about the Financial and
Sustainability Reporting Standards Council (FSRSC)?
a. It was created by the Philippine Institute of Certified Public
Accountants(PICPA).
b. The main function is to establish generally accepted accounting
principles in the Philippines.
c. It carries on the decision made by the ASC to converge Philippine
accounting standards with international accounting standards issued by
the International Accounting Standards Board (IASB).
d. It is the successor of the Accounting Standards Council (ASC).
27. If an adjusting entry is not made to record the cost of supplies
used during the
period,
a. expenses are overstated.
b. assets are overstated.
c. equity is understated.
d. liabilities are understated.
28. Younger Company has outstanding both ordinary shares and
nonparticipating, non-cumulative preference shares. The liquidation
value of the preference shares is equal to its par value. The book value
per share of the ordinary shares is unaffected by:
a. the declaration of a share dividend on preference payable in
preference shares when the market price of the preference is equal to
its par value.
b. the declaration of a share dividend on ordinary shares payable in
ordinary shares when the market price of the ordinary shares is equal
to its par value.
c. the payment of a previously declared cash dividend on the ordinary
shares.
d. a 2-for-1 split of the ordinary shares.
29. Which of the following statements is false?
a. Social security taxes withheld from employees' payroll checks should
never be recorded as a liability since the employer will eventually remit
the amounts withheld to the appropriate taxing authority.
b. A company may exclude a short-term obligation from current liabilities
if it intends to refinance the obligation on a long-term basis and have
an unconditional right to defer settlement of the liability for at least
12 months.
c. Cash dividends should be recorded as a liability when they are
declared by the board of directors.
d. Under the cash basis method, warranty costs are charged to expense
as they arepaid.
30 . Patrick Hula Company withdrew from his current bank account the sum
of P110,000 and exchanged it for the bank’s certified check in payment
of obligation. In the preparation of the bank reconciliation of Patrick
Hula Company, the outstanding certified check of P110,000 should be:
a. included among the outstanding checks. c. added back to cash balance.
b. included among the deposits in transit. d. ignore.
