FINANCIAL ACCOUNTING AND REPORTING CPA REVIEW

Believe on what you can do, always bear on your mind that you can answer everything to the best that
you can. Always observe HONESTY. GODBLESS!

1. Which of the following is a characteristic of the FRSC?

A. Majority of the FRSC members should come from CPA firms.
B. All FRSC members must be CPAs.
C. FRSC members are required to render service to the Council on full-time basis.
D. All four sectors of the accountancy profession are represented in the FRSC.

2. The period of exposing the draft of a proposed PFRS will be at least sixty (60) days, unless a shorter
period is considered appropriate by the FRSC. The shorter period should be
A. Not less than 30 days
B. 30 days no more, no less
C. Less than 30 days
D. More than 30 days but not to exceed 59 days

3. Which statement is(are) correct regarding Philippine Financial Reporting Standards (PFRSs)?
A. PFRSs set out recognition, measurement, presentation and disclosure requirements dealing with
transactions and events that are important in general purpose financial statements.
B. PFRSs are designed to apply to the special purpose financial statements and other financial
reporting of all profit-oriented entities.
C. PFRSs are designed to apply to not-for-profit activities in the private sector.
D. All of the above

4. Which statement is incorrect regarding cost formulas?

a. An entity shall use the same cost formula for all inventories having a similar nature and use to the
entity.
b. For inventories with a different nature or use, different cost formulas may be justified.
c. The cost of inventories of items that are not ordinarily interchangeable shall be assigned by using
specific identification of their individual costs.
d. If specific identification is not required, the cost of inventories shall be assigned by using the first-
in, first-out (FIFO), last-in, first-out (LIFO) or weighted average cost formula.

5. Which is incorrect regarding write-down of inventory to net realizable value?

a. The practice of writing inventories down below cost to net realizable value is consistent with the
view that assets should not be carried in excess of amounts expected to be realized from their sale
or use.
b. Materials and other supplies held for use in the production of inventories are not written down
below cost if the finished products in which they will be incorporated are expected to be sold at or
above cost.
c. When a decline in the price of materials indicates that the cost of the finished products exceeds
net realizable value, the materials are written down to net realizable value. In such circumstances,
the best available measure of the net realizable value of materials is the replacement cost.
d. Inventories are usually written down on the basis of a classification of inventory, for example,
finished goods, or all the inventories in a particular operating segment.

6. Maximilian uses the perpetual inventory system. Maximilian's inventory transactions for the month of
August were as follows:

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 Total
No. Unit cost cost
01 Aug. Beg. inventory 20 P4.00 P80.00
07 Aug. Purchases 10 4.20 42.00
10 Aug. Purchases 20 4.30 86.00
12 Aug. Sales 15 ? ?
16 Aug. Purchases 20 4.60 92
20 Aug. Sales 40 ? ?
28 Aug. Sales returns 3 ? ?

Assuming that Maximilian uses the weighted average cost flow method, the 12 August sales should be
costed at what unit cost?
a. P4.16 c. P4.07
b. P4.30 d. P4.60

7. An entity has partially-completed inventory located in its factory, to which the following estimates relate:

Production costs incurred to dateP268,000

Production costs to complete 20,000
Transport costs to customer 5,000
Future selling costs 10,000
Selling price 300,000

At what amount should the entity report the inventory on its statement of financial position?
a. P280,000 c. P268,000
b. P270,000 d. P265,000

8. The gross profit method of estimating inventory would NOT be useful when
a. Inventories have been destroyed or lost by fire, theft, or other casualty, and the specific data
required for inventory valuation are not available.
b. A periodic system is in use and inventories are required for interim statements.
c. The relationship between gross profit and sales remains stable over time.
d. There is a significant change in the mix of products being sold.

9. Which statement is incorrect regarding ‘bearer plants’?

a. Tea bushes, grape vines, oil palms and rubber trees usually meet the definition of a bearer plant.
b. Bearer plants are within the scope of PAS 16.
c. The produce growing on bearer plants, for example, tea leaves, grapes, oil palm fruit and latex, is
within the scope of PAS 41.
d. Incidental scrap sales would prevent the plant from satisfying the definition of a bearer plant.

10. The following pertains to an Organic Corp.’s biological assets:

Fair value based on unobservable inputs for the asset P4,900

Quoted price in an active market for similar asset 5,400
Quoted price in an active market for identical asset 5,300
Selling price in a binding contract to sell 5,600
Estimated commissions to brokers and dealers 500
Estimated transport and other costs necessary to get
asset to the market 300

Organic Corp.’s biological assets should be valued at

A. P4,800 C. P4,500
B. P4,600 D. P4,400

11. The following pertains to the biological assets owned by ABC Farms, Inc.:

Carrying amount at January 1 P459,570

Purchases 26,250
Gain arising from changes in fair value less costs
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 to sell attributable to physical changes 15,350
Gain arising from changes in fair value less costs
to sell attributable to price changes 24,580
Sales 100,700
The carrying amount of ABC Farms, Inc.’s biological assets on December 31 is
A. P425,050 C. P525,750
B. P499,500 D. P451,300

12. Items of property, plant and equipment acquired for safety or environmental reasons
a. Qualify as assets because the acquisition of such property, plant and equipment directly increases
the future economic benefits of existing item of property, plant and equipment.
b. Qualify as assets because they enable an entity to derive future economic benefits from related
assets in excess of what could be derived had those items not been acquired.
c. Do not qualify as assets because the acquisition of such property, plant and equipment does not
directly increase the future economic benefits of existing item of property, plant and equipment.
d. Do not qualify as assets because the acquisition of such property, plant and equipment is not
necessary for an entity to obtain the future economic benefits from its other assets.

13. Which statement is incorrect regarding acquisition of items of property, plant and equipment in
exchange for a non-monetary asset, or a combination of monetary and non-monetary asset?
a. An entity determines whether an exchange transaction has commercial substance by considering
the extent to which its future cash flows are expected to change as a result of the transaction.
b. For the purpose of determining whether an exchange transaction has commercial substance, the
entity-specific value of the portion of the entity’s operations affected by the transaction shall
reflect pre-tax cash flows.
c. The cost of such an item of property, plant and equipment is measured at fair value.
d. If the acquired item is not measured at fair value, its cost is measured at the carrying amount of
the asset given up.

14. Bell Company exchanged an old machine, with a book value of P39,000 and a fair value of P35,000,
and paid P10,000 cash for a similar used machine having a list price of P50,000. The transaction has
commercial substance. At what amount should the machine acquired in the exchange be recorded on
the books of Bell?
a. P45,000 c. P49,000
b. P46,000 d. P50,000

15. The Royal Furniture Mfg. Co. fabricated furniture and fixtures for its office use in the company’s plant
during the year. The following data were taken from the company’s records:

Materials Direct
Labor
Finished goods P100,800 P151,200
Office furniture & fixtures 67,200 50,500

Factory overhead amounted to P134,000. Normal production of finished goods results to 420 units.
Due to the fabrication of office furniture and fixtures, finished goods produced totaled 294 units only in
the current year.

What is the total cost of office furniture and fixtures?

a. P117,600 c. P175,029
b. P157,900 d. P251,600

16. Entities A and B exchanged assets with the following details:

Entity A Entity B
Fair value of asset given up P300,000 P380,000
Carrying amount of asset given up 240,000 400,000

If Entity A paid the boot of P80,000, the gain or loss on exchange to be recognized by Entity B is
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 A. P20,000 loss C. P60,000 gain
B. P40,000 loss D. P80,000 gain

17. An entity has a machine with the following details:

Cost P1,750,000
Residual value P155,000
Date of purchase Jan. 1, 2016
Useful life 10 years
Expected units of production 100,000
Units produced in 2023 8,000

If the asset’s service potential declines with use, the 2023 depreciation should be
A. P114,688 C. P145,000
B. P127,600 D. P159,500

18. A machine with a five-year estimated useful life and an estimated 10% salvage value was acquired on
January 1, 2020. On December 31, 2023, accumulated depreciation, using the sum-of-the-years’ digits
method, would be
a. (Original cost less salvage value) multiplied by 1/15.
b. (Original cost less salvage value) multiplied by 14/15.
c. Original cost multiplied by 14/15.
d. Original cost multiplied by 1/15.

19. Blessing Corp. uses the sum-of-the-years’ digits method to depreciate equipment purchased in January
2021 for P20,000. The estimated residual value of the equipment is P2,000 and the estimated useful
is four years. What amount of depreciation should Blessing Corp. recognize for the year ended 31
December 2023?
A. P6,000 C. P4,000
B. P5,400 D. P3,600

20. Cuyapo Company purchased a machine on January 2, 2020, for P500,000. The machine has an
estimated useful life of eight years and a salvage value of P50,000. Depreciation was computed by
the 200% declining-balance method. What amount of depreciation should Cuyapo Company recognize
for the year ended 31 December 2023?
A. P70,313 C. P47,461
B. P52,734 D. P41,870

Use the following information for the next five questions.

On Jan. 1, 2022, Kalipay Corporation acquired two assets within the same class of plant and equipment.
Information on these assets follows:

Cost Expected useful life

Machine A P100,000 5 years
Machine B 60,000 3 years

The machines are expected to generate benefits evenly over their useful lives. The class of plant and
equipment is measured using the revaluation model.

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At Dec. 31, 2022, information about the assets follows:

Fair value Expected useful life

Machine A P84,000 4 years
Machine B 38,000 2 years

On July 1, 2023, machine B was sold for P32,000 cash. On the same day, Kalipay Corporation acquired
machine C for P80,000 cash. Machine C has expected useful life of four years.

At Dec. 31, 2023, information on the machines follows:

Fair value Expected useful life

Machine A P61,000 3 years
Machine C 68,500 1.5 years

QUESTIONS:

21. The amount to be recognized in 2022 profit or loss related to the revaluation of the assets is
A. P4,000 C. P(2,000)
B. P2,000 D. P0

22. The amount to be recognized in 2022 comprehensive income related to the revaluation of the assets is
A. P4,000 C. P(2,000)
B. P2,000 D. P17,000

23. The gain or loss on sale of Machine B is

A. P13,000 gain C. P 333 gain
B. P 3,500 gain D. P6,000 loss

24. The total depreciation for the year 2023 is

A. P40,500 C. P64,167
B. P31,000 D. P50,500

25. The amount to be recognized in 2023 profit or loss related to the revaluation of the assets is
A. P(3,500) C. P(500)
B. P(1,500) D. P0

26. Which of the following distinguishes investment property from owner occupied-property?
A. Investment property is held to earn rentals.
B. Investment property is classified as a noncurrent asset.
C. Investment property generates cash flows largely independently of the other assets held by an
entity.
D. Investment property does not generate cash flows largely independently of the other assets held
by an entity.

27. Which of the following generally provides the best evidence of fair value of an investment property?
A. Discounted cash flow projections based on reliable estimates of future cash flows.
B. Current prices for properties of a different nature or subject to different conditions.
C. Current prices in an active market for similar property in the same location and condition.
D. Recent prices on less active markets with adjustments to reflect the changes in economic
conditions.

28. On 1 January 2018, Miya Co. purchased a property for P400,000. The property had a useful life of 20
years and was depreciated on a straight-line basis. On 1 January 2023, the property was revalued to
P420,000. The company’s policy is to make the allowed transfer of excess depreciation between the
revaluation surplus and retained earnings. The balance of Miya Co.’s revaluation surplus at 31
December 2023 is
A. P18,667 C. P112,000
B. P19,000 D. P114,000
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29. Indifferent Corp. has an office building used for administrative purposes with a depreciated historical
cost of P5 million. At 1 January 2023 it had a remaining life of 20 years. After a re-organization on 1
July 2023, the property was leased to a third party and reclassified as an investment property
applying the entity’s policy of the fair value model. An independent valuer assessed the property to
have a fair value of P4.8 million at 1 July 2023, which had risen to P4.95 million at 31 December 2023.
The net amount to be recognized in 2023 profit or loss in relation to Indifferent Corp.’s building is
A. P150,000 C. P(100,000)
B. P 25,000 D. P( 50,000)

30. Aldous Corporation’s properties included the following items:

- Land held as potential plant site, P5,000,000.
- A vacant building to be leased out under an operating lease, P20,000,000.
- Property held for sale in the ordinary course of its business, P30,000,000.
- Property acquired exclusively with a view to subsequent disposal in the near future, P4,000,000.
- Property occupied by employees paying market rent, P3,000,000
- Property occupied by employees paying below market rent, P1,000,000
- Property held for administrative purposes, P10,000,000.
- A hotel owned and managed, P50,000,000.
- A building being leased out to a subsidiary, P8,000,000.
- A building, which cannot be sold or leased out separately, used in the production of goods and
around 2% of the area being leased out to canteen operators, P2,000,000.
- Property that is being constructed for use as an investment property, P7,000,000.

How much should be reported as investment properties in Aldous Corporation’s separate financial
statements?
A. P43,000,000 C. P38,000,000
B. P40,000,000 D. P35,000,000

31. There is goodwill involved in the acquisition of a business if the purchase price paid is in excess of the
proprietorship of the business acquired.

Goodwill might be viewed as the enjoyment of a profit by a company in excess of the normal or usual
return for the industry as a whole but such goodwill is recorded if it has not been purchased or paid
for.
a. False; True. c. False; False.
b. True; False. d. True; True

Use the following information for the next four questions:

You noted the following items relative to the company’s Intangible assets in connection with your
preparation of the HI-Five Corporation’s financial statements for the year 2023.

Franchise
On January 1, 2023, HI-Five signed an agreement to operate as franchisee of Clear Copy Service, Inc. for
an initial franchise of P1,700,000. Of this amount, P500,000 was paid when the agreement was signed
and the balance was payable in four annual payments of P300,000 each, beginning January 1, 2024. The
agreement provides that the down payment is not refundable and no future services are required of the
franchisor. The implicit rate for loan of this type is 14%. The agreement also provides the 5% of the
revenue from the franchise must be paid to the franchisor annually. Five’s revenue from the franchise for
2023 was P20,000,000. HI-Five estimates the useful life of the franchise to be ten years.

Patent

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On July 1, 2023, HI-Five purchased a patent from the inventor, who asked P2,750,000 for it. HI-Five paid
for the patent as follows: cash, P1,000,000; issuance of 10,000 shares of its own ordinary shares, par P25
(market value, P50 per share); and a note payable due at the end of three years, face amount,
P1,250,000, noninterest-bearing. The current interest rate for this type of financing is 12 percent. HI-Five
estimates the useful life of the patent to be ten years.

Trademark
HI-Five purchased for P3,000,000 a trademark for a very successful soft drink it markets under the name
POWER!. The trademark was determined to have an indefinite life. A competitor recently introduced a
product that is in direct competition with the POWER! product, thus suggesting the need for an
impairment test. Data gathered by the entity suggests that the useful life of the trademark is still
indefinite, but the cash flows expected to be generated by the trademark have been reduced either to
P100,000 per year (with a probability of 70%) or to P200,000 per year (with 30% probability). The
appropriate risk-free interest rate is 5%. The appropriate risk-adjusted interest rate is 10%.

QUESTIONS:
Based on the above information, determine the following: (Round off present value factors to 4 decimal
places)

32. Total expenses related to franchise in 2023

a. P1,259,786 c. P1,122,375
b. P1,338,000 d. P1,137,410

33. Carrying amount of franchise as of December 31, 2023

a. P1,374,100 c. P1,346,833
b. P1,236,700 d. P1,530,000

34. Carrying amount of patent as of December 31, 2023

a. P2,612,500 c. P2,150,775
b. P2,389,750 d. P2,270,263

35. Total expenses related to the intangible assets in 2023

a. P1,656,898 c. P1,832,658
b. P1,779,273 d. P2,005,530

36. In developing accounting policies for exploration and evaluation activities, an entity should consider
A. The requirements and guidance in Standards and Interpretations dealing with similar and related
issues.
B. The definitions, recognition criteria, and measurement concepts for assets, liabilities, income and
expenses in the Framework.
C. Recent pronouncements of standard-setting bodies, accounting literature, and accepted industry
practices.
D. Whether the accounting policy results in information that is relevant and reliable

Use the following information for the next two questions:

On June 1, 2023, Natividad Mining Corp. acquired the rights to a coal mine containing an estimated
reserves of 2,000,000 tons of coal. The company estimated that 25,000 tons of coal would be extracted
and sold each month. Cost allocable to coal was P7,000,000.

Also, on June 1, 2023, the company purchased an equipment to be used in the production, costing
P190,000 which has an estimated useful life of 10 years. The equipment was expected to become
obsolete after all the coal deposits had been extracted from the mine and only P10,000 selling price of the
equipment could be expected. Production was in full blast since June 2, 2023.

37. What would be the depletion expense for the year ended December 31, 2023?
a. P306,250 c. P 612,500
b. P525,000 d. P1,050,000

38. What would be the depreciation expense on the new equipment for the year ended December 31,
2023?
a. P 9,000 c. P16,625
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 b. P15,750 d. P18,000

39. Physical assets and intangible assets are not financial assets. Why?
A. Control of such assets creates an opportunity to generate an inflow of cash or another financial
asset, but it does not give rise to a present right to receive cash or another financial asset.
B. The future economic benefit from these assets is the receipt of goods or services, rather than the
right to receive cash or another financial asset
C. Both a and b.
D. Neither a nor b.

Information relevant to five different entities follows.

 On Jan. 1, 2018, the Kyung-ho Corp. purchased machinery for P650,000. It is depreciating the
machinery over 12 years by the straight-line method to a residual value of P50,000. Late in 2022,
because of increasing competition in the industry, the entity believes that its asset may be impaired
and will have a remaining useful life of 5 years, over which it estimates the asset will produce total
cash inflows of P1,000,000 and will incur total cash outflows of P825,000. The cash flows are
independent of the entity’s other activities and will occur evenly each year. The entity is not able to
determine the fair value based on a current selling price of the machinery. The entity’s discount rate
is 10%.

 Han-yeol Corp. reported an impairment loss of P250,000 in its income statement for the year 2019.
This loss was related to an item of property, plant and equipment which was acquired on Jan. 1, 2011
with a cost of P2,000,000. Depreciation on the asset is computed on a straight-line basis and annual
depreciation on cost is P80,000. Depreciation for the year 2020 was computed on the asset’s
recoverable amount at Dec. 31, 2019. On Dec. 31, 2022, Han-yeol decided to measure the asset using
revaluation model. This asset was then appraised at a fair value of P1,650,000.

 The Joo-ah Corp. accounts for non-current assets using the revaluation model. On June 30, 2022, Joo-ah
classified a freehold property as held for sale in accordance with PFRS 5. At that date the property's
carrying amount was P290,000 and the balance on the revaluation reserve was P20,000. At that date its
fair value was estimated at P330,000 and the costs to sell at P20,000. At Dec. 31, 2022 the property's
fair value was estimated at P325,000 and the costs to sell at P25,000.

 On Jan. 1, 2022 GG Corp. purchased a plating machine with a 5-year useful life for P135,000. The entity
received a grant of P13,500 towards the capital cost. GG’s policy is to treat the grant as a reduction in
the cost of the asset. GG uses straight-line method of depreciation.

 Yu Tang Corp. commenced the construction of a new packaging plant on Feb. 1, 2022. The cost of
P1,800,000 was funded from existing borrowings. The construction was completed on Sept. 30, 2022.

The entity’s borrowings during 2022 comprised:

- Loan from Allied Bank: P800,000 at 6% per annum;
- Loan from BDO Bank: P1 million at 6.6% per annum; and
- Loan from Metro Bank: P3 million at 7% per annum.

40. The impairment loss to be recognized by Kyung-ho Corp. in its 2022 profit or loss is
A. P317,322 C. P246,490
B. P267,322 D. P217,322

41. The revaluation increase to be recognized by Han-yeol Corp. in 2022 other comprehensive income is
A. P748,125 C. P563,125
B. P610,000 D. P530,000

42. The balance of Joo-ah’s revaluation reserve as of Dec. 31, 2022 is

A. P60,000 C. P30,000
B. P40,000 D. Nil

43. GG Corp. will recognize depreciation expense for the year ended Dec. 31, 2022 of
A. P27,000 C. P21,600
B. P24,300 D. P19,440

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44. The amount of borrowing costs to be capitalized by Yu Tang Corp. in relation to the packaging plant is
A. Nil C. P 91,125
B. P81,000 D. P121,500

Use the following information for the next four questions:

On January 1, 2023, San Isidro Corporation decided to dispose of an item of plant that is carried in its
records at a cost of P900,000, with accumulated depreciation of P160,000. Depreciation on the plant
since it was originally acquired has been charged at P10,000 per month. The plant will continue to be
operated until it is sold, at which time the operations of the plant will be outsourced. The company
undertook all the necessary actions to be able to classify the asset as held for sale. It is estimated that it
could sell the plant for its fair value of P720,000, incurring P20,000 selling costs in the process. The plant
has been depreciated at an amount of P10,000 per month.

On March 31, 2023, the plant had not been sold but, due to a shortage of this type of plant, there had
been an increase in the fair value to P770,000. On June 30, 2023, San Isidro sold the plant for P785,000,
incurring P25,000 selling costs.

QUESTIONS:

45. The impairment loss to be recognized on January 1, 2023 (date of classification as held for sale) is
a. P 0 c. P 40,000
b. P20,000 d. P180,000

46. The depreciation expense to be recognized in 2023 is

a. P 0 c. P58,380
b. P56,760 d. P60,000

47. The gain to be recognized in profit or loss as a result of increase in the fair value of the plant is
a. P 0 c. P50,000
b. P40,000 d. P70,000

48. The gain to be recognized on sale of plant on June 30, 20232 is

a. P10,000 c. P45,000
b. P20,000 d. P68,380

49. Which statement is correct regarding the revaluation model for property, plant and equipment?
A. Appraisal should be made by recognized specialists independent of the entity which owns the
property.
B. Annual revaluation is required regardless of the change in fair value of the assets.
C. Revalued amount is the fair value at the end of the reporting period less any subsequent
accumulated depreciation and subsequent accumulated impairment losses.
D. Depreciated replacement cost can be used to measure the fair value of an item of property, plant
and equipment only when the entry price equals a current exit price.

50. Which statement is incorrect regarding the useful life of an asset in accordance with PAS 16?
A. The useful life of an asset is defined in terms of the asset’s expected utility to the entity.
B. The useful life of an asset cannot be shorter than its economic life.
C. The estimation of the useful life of the asset is a matter of judgement based on the experience of
the entity with similar assets.
D. None of these.

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