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FINANCIAL ACCOUNTING AND REPORTING (FAR)

MAY 2024 BATCH

REO CPA REVIEW

FINANCIAL ACCOUNTING AND REPORTING
FINAL PREBOARDS – MAY 2024 BATCH

1. Under PFRS 5, the results of a discontinued operations

I. Shall be presented within profit or loss (gross of tax), after the computation
of income or loss from continuing operations.
II. Shall be presented in the statement of comprehensive income separate from other
comprehensive income and losses but within profit or loss.
A. I only C. Both I and II
B. II only D. Neither I nor II

2. The following statements pertain to FSRSC. Evaluate whether the statements are true
or false.
First Statement: FSRSC is the predecessor of ASC. Any member of ASC is not
disqualified from being a member of FSRSC.
Second Statement: The chairman and members of FSRSC are appointed by the President
of the Philippines.
Third Statement: The chairman should be a senior practitioner on any scope of
the accountancy profession and renders part-time service to the

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council.
A. True, false, true C. False, true, true
B. False, false, true
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D. True, false, false
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3. On January 1, 2024, CARNATION CORP has the following instruments outstanding:
Ordinary share capital, P5 par value, 200,000 shares P1,000,000
12% convertible bonds issued at face value 2,000,000
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On October 1, 2024, CARNATION issued 100,000 shares in exchange for a building with
a fair value on that date amounting to P800,000. At year-end, CARNATION reported
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net income amounting to P5,400,000.

Each 1,000 bonds are convertible into 100 ordinary shares. The entity is subject to
30% income tax rate. ROSE has no other potentially dilutive securities.
C

Based on the above information, determine whether the following statements are true
or false:
First Statement: The earnings per share is P24.00 per share
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Second Statement: The diluted earnings per share is P15.00 per share
A. Only the first statement is correct.
B. Only the second statement is correct.
C. Both statements are correct.
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D. None from the statements is correct.

4. ABITAGO CORP. has a single investment property with original cost of P2,500,000 on
January 1, 2022. The fair value of the asset is P1,980,000 and P1,900,000 On December
31, 2024 and on December 31, 2025, respectively. On acquisition, the property had
a useful life of 25 years and is to be depreciated using straight-line method (if
applicable).

Based on the above information, which of the following statement is correct?

A. Under the cost model, the total expense in 2024 is P100,000.
B. Under the fair value model, the asset’s carrying amount on December 31, 2025
is P1,900,000.
C. Under the fair value model, the total expense in 2025 is P80,0000.
D. Using the cost model, the total expense in 2025 is P90,000.

5. Which of the following is not included in the initial cost of inventories?

A. Irrecoverable taxes
B. Insurance cost while the purchased inventories are in transit
C. Storage cost of part-finished inventories
D. Production losses beyond management’s expected level

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FINANCIAL ACCOUNTING AND REPORTING (FAR)

SITUATION 1
CAREBEAR COMPANY and its divisions are engaged solely in manufacturing operations.
The following data pertains to the industries in which operations were conducted
for the year ended December 31, 2022:
Segments Revenue from Revenue from Operating Profit Identifiable Assets
outsiders within (Loss)
One 1,800,000 200,000 650,000 4,000,000
Two 1,300,000 300,000 700,000 3,600,000
Three 500,000 700,000 600,000 2,800,000
Four 450,000 150,000 (300,000) 1,600,000
Five 540,000 360,000 (250,000) 1,400,000
Six 300,000 -----0---- __175,000 _600,000
Total 4,890,000 1,710,000 1,575,000 14,000,000

On January 1, 2018, VALENZUELA CORP. purchased a P2,500,000 ordinary life insurance

policy on its president. VALENZUELA CORP. is the beneficiary under the life insurance
policy. Additional information for the year 2022 are as follows: Cash surrender
value, January 1, P300,000; Cash surrender value, December 31, P420,000; Annual
insurance premium paid on January 1, 2022, P360,000; Dividend received on August 1,
P30,000. The president died on October 30, 2022 and the policy was collected on
December 1, 2022.

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In relation to the cash and cash equivalents line item of the balance sheet of
KARDEL CORP. as of the year ended December 31, 2019, the following information was
presented:
VAT fund ie P30,000
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Bond sinking fund 150,000
BPI checking account (5,000)
BPI savings account 500,000
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BDO checking account (20,000)

BDO time deposit 100,000
Security bank savings account (10,000)
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Coins and currencies 30,000

IOUs from employees 25,000
Treasury bond acquired December 30, 2019 maturing February 15, 2020 50,000
C

Money order 15,000

Bonds payable maturing June 30, 2020 150,000
EO

On January 1, 2020, VIRGO CORP. granted 100 share options each to 500 employees,
conditional upon the employee's remaining in the entity's employ during the vesting
period. The share options vest at the end of a three-year period. On grant date,
each share option has a fair value of P30. The par value per share is P100 and the
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option price is P120.

On December 31, 2021, 30 employees have left and it is expected that on the basis
of a weighted average probability, a further 30 employees will leave before the end
of the three-year period.

On December 31, 2022, only 20 employees actually left and all of the share options
are exercised on such date.

On January 1, 2022, PAPA CORP. purchased the debt instruments of MAMA CORP. with a
face value of P5,000,000 bearing interest rate of 8% for P4,621,006 to yield 10%
interest per year. The bonds mature on January 1, 2027 and pay interest annually on
December 30. PAPA CORP. has a business model of collecting all contractual cash
flows including the interest and principal.

6. Using the quantitative threshold, how many reportable segments does CAREBEAR COMPANY
have?
A. six C. four
B. five D. three

7. What amount should VALENZUELA report in its statement of profit or loss as life
insurance expense for the current year, 2022?
A. P230,000 C. P170,000
B. P210,000 D. P190,000

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8. What amount is to be reported as cash by KARDEL for the year ended December 31,
2019?
A. P770,000 C. P720,000
B. P800,000 D. P700,000

9. What amount should be reported as compensation expense by VIRGO CORP. for 2022?
A. P500,000 C. P380,000
B. P880,000 D. P470,000

10. At what amount should the investment in debt security be disclosed in PAPA’s
statement of financial position dated December 31, 2023?
A. P4,621,006 C. P4,751,418
B. P4,683,107 D. P4,826,560

11. VERONICA COMPANY has provided the following account balances as of December 31,
2024:
Accounts receivable (net of credit balances of P50,000) P1,600,000
Financial assets at fair value through profit or loss 500,000
Financial assets at amortized cost 1,300,000
Cash (including compensating balance with
a long-term restriction amounting to P200,000) 1,100,000

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Inventory 3,000,000
Biological assets 800,000
Equipment and furniture
Accumulated depreciation ie 2,500,000
1,500,000
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Patent 400,000
Deferred tax asset (expected full reversal next year) 300,000
Prepaid expenses 150,000
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Equipment held for sale 1,800,000

Based on the above information, evaluate the following statements:
First Statement: As of December 31, 2024, the total amount of current assets
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reported in the Statement of Financial Position is P8,300,000.

Second Statement: As of December 31, 2024, the total amount of non-current assets
reported in the Statement of Financial Position is P4,000,000.
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A. Only the first statement is correct.

B. Only the second statement is correct.
C. Both statements are correct.
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D. None from the statements is correct.

12. On January 1, 2024, BLEACH CORP. purchased a patent with a cost of P1,160,000, a
useful life of 10 years. The residual value of the asset is P160,000. The company
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uses the straight-line method of depreciation. At December 31, 2025, the company
determines that impairment indicators are present.

As a result of the impairment testing, the fair value less cost to sell of the
patent is estimated to be P860,000. The patent’s value-in-use is estimated to be
P900,000. The assets remaining useful life is estimated to be 5 years.

Based on the above information, determine which of the following statements is

incorrect.
A. The recoverable amount of the asset is its value in use amounting to P900,000.
B. The impairment loss to be reported on the income statement for 2025 is P60,000.
C. The amortization expense of the patent in 2026 is P148,000.
D. The carrying amount of the asset at the end of 2027 is P752,000.

13. According to PAS 8, which of the following is incorrect?

A. When it is difficult to distinguish a change in an accounting policy from a
change in accounting estimate, the change is treated as a change in an
accounting estimate.
B. Change in an accounting estimate does not affect the financial statements of
prior period
C. Retrospective application means restating the opening balances of assets,
liabilities and equity for the earliest prior period presented.
D. Changes in accounting policy is NOT always be treated retrospectively.

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14. Which of the following statements is incorrect about PFRSs?

A. Any limitation on the scope of the PFRS is made on the standard itself.
B. PFRSs are the generally accepted accounting principles in the Philippines.
C. PFRSs approved by FSRSC includes paragraph in bold type and plain type, having
equal authority.
D. PFRSs are rule-based rather than principle-based.

15. Receivable financing is the financial flexibility of an entity to raise money out
of its receivable. In relation to the different forms of receivable financing, which
statement is incorrect?
A. Pledge or hypothecation transfers the general accounts receivable of the company
as a collateral security of a loan obtained from a bank.
B. Regarding assignment of specific accounts receivable, equity on assigned
accounts should be disclosed in notes to financial statements.
C. Under factoring, a factor’s holdback is an amount retained by the factor as a
cushion for sales returns, discounts and allowances and is generally classified
as a receivable item from the factor.
D. Under discounting of notes receivable under conditional sale, a gain or loss
on discounting is recorded and the notes receivable account is credited
representing the derecognition of the receivable account.

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16. BOSTON CORP. acquires a coal mine at a cost of P5,000,000. Intangible development
costs total P1,200,000. After extraction has occurred, Baton must restore the

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property (estimated fair value of the obligation is P600,000), after which it can
be sold for P1,700,000. Baton estimates that 50,000 tons of coal can be extracted.
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If 9,000 tons were extracted during the first year, which of the following would be
included in the journal entry to record depletion?
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A. Debit to Accumulated Depletion for P918,000

B. Debit to Inventory for P918,000
C. Credit to Inventory for P900,000
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D. Credit to Accumulated Depletion for P1,530,000

Use the following information in answering the next THREE (3) questions:
C

At the beginning of current year, an entity was authorized to issue share capital
of 100,000 shares with P30 par value. The entity had the following share capital
transactions during the year:
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Jan. 1 Issued 80,000 shares at P 70 per share.

May 1 Reacquired 4,000 treasury shares at P 65 per share.
July 1 Approved a share split of 5 for 1.
October 31 Issued a 10% share dividend when the market value of a share
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is P 25.
December 31 Reissued all of the treasury shares at P 35.
December 31 Net income for the year was P 4,500,000.
17. What total amount should be reported as share capital at year-end?
A. P3,200,000 C. P2,940,000
B. P3,428,000 D. P2,628,000

18. What total amount should be reported as share premium at year-end?

A. P3,200,000 C. P3,922,000
B. P3,640,000 D. P4,362,000

19. What amount of retained earnings should be reported at year-end?

A. P3,550,000 C. P3,430,000
B. P4,500,000 D. P2,950,000

SITUATION 2
JUPITER CORP. made several investment in equity securities:
• Received from URANUS CORP. P 260,000 in lieu of a 15% stock dividend. JUPITER
owns 8,000 of the total 80,000 outstanding shares of URANUS CORP. which it has
acquired for P 1,800,000
• MERCURY COMPANY declared a 20% stock dividend on March 15, 2018 at which time
MERCURY's shares was quoted at P 30 per share. JUPITER CORP. originally owns
10,000 MERCURY COMPANY shares. On December 28, 2018 MERCURY declared a cash
dividend of P8 per share, for holders on record as of January 15, 2019, to be
distributed on January 31, 2019
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• Received 2,000 common shares of PLUTO COMPANY in lieu of cash dividend. The
market price of PLUTO's shares was P 40

On January 1, 2013, B-MEG INC. issued convertible bonds with a face value of
P5,000,000 for P6,000,000. The bonds are convertible into 50,000 shares with P100
par value. The bonds have a 5-year life with 10% stated interest rate payable
annually every December 31. The fair value of the convertible bonds without
conversion option is computed at P5,399,300 on January 1, 2013. On December 31,
2015, the convertible bonds were not converted but fully paid for P5,550,000. On
such date, the fair value of the bonds without conversion privilege is P5,400,000
and the carrying amount is P5,178,300.

During the month of April, 2019, LANCELOT CORP. reported the following data in
relation to its use of retail inventory method:
Cost Retail
Beginning inventory 250,000 600,000
Purchases 1,000,000 1,500,000
Purchase discounts 50,000
Department transfer in 100,000 200,000
Freight-in 30,000
Freight-out 10,000
Net mark-up 400,000

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Net mark-down 200,000
Sales 2,000,000
Sales discounts
Sales returns ie 200,000
100,000
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Employee discounts 50,000
Normal losses due to shrinkage 100,000
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NECROLYTE INC. provided the following data for the month of January of the current
year:
Balance per book, January 31 3,130,000
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Balance per bank statement, January 31 3,500,000

Collections on January 31 but undeposited 550,000
NSF check received from a customer returned by the
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bank on February 5 with the January bank statement 50,000

Checks outstanding on January 31 650,000
Bank debit memo for safety deposit box rental
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not recorded by depositor 5,000

A creditor check for P30,000 was incorrectly recorded
in the depositor's book as 300,000
A customer check for P200,000 was recorded by the depositor as 20,000
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The depositor neglected to make an entry in its books for a check

drawn in payment of an account payable 125,000

NACHOS CORP. provided the following information for the current year:
Net income 3,960,000
Depreciation expense 1,020,000
Amortization 200,000
Decrease in accounts receivable 1,260,000
Increase in inventory 900,000
Increase in accounts payable 240,000
Payment of dividends 540,000
Purchase of financial asset at amortized cost 220,000
Decrease in income tax payable 160,000
Increase in long-term note payable 2,000,000

20. The total dividend income to be reported in JUPITER CORP.’s profit or loss statement
for 2018 is
A. P171,200 C. P200,000
B. P176,000 D. P216,000

21. What is the loss on the extinguishment of the convertible bonds should B-MEG report
on December 31, 2015?
A. P0 C. P221,700
B. P150,000 D. P371,700

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22. Under Conservative Method, what is estimated ending inventory of LANCELOT CORP. at
cost?
A. P221,625 C. P255,780
B. P239,400 D. P245,340

23. What is the adjusted cash in bank of NECROLYTE INC. on January 31?
A. 2,950,000 C. 3,400,000
B. 3,130,000 D. 3,500,000

24. What is the net cash flow from operating activities should NACHOS report on the
statement of cash flows?
A. P4,620,000 C. P5,400,000
B. P5,080,000 D. P5,620,000

25. Determine the incorrect statement in relation to PAS 37:

First Statement: Contingent assets should not be recognized but should be
disclosed where an inflow of economic benefits is probable.
Second Statement: Contingent liabilities are not recognized but are disclosed in
the notes to financial statements, unless the possibility of
an outflow of economic resources is remote.
A. Only the first statement is incorrect.

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B. Only the second statement is incorrect.
C. Both statements are incorrect.
D. None from the statements is incorrect.
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26. Which of the following statement is correct regarding the general features of
financial statements as mentioned in PAS 1?
First Statement: PAS 1 requires an entity to present comparative information in
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respect of the preceding period for all amounts only.

Comparative information for narratives is NOT required.
Second Statement: Under PAS 1, the reporting of assets net of valuation allowance
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is NOT offsetting (e.g. ending balance of accounts receivable

less allowance for doubtful accounts).
Third Statement: PAS 1 requires an entity whose financial statements comply with
PFRS, to make an explicit and unreserved statement of such
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compliance in the notes to financial statements.

A. First and second statements only.
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B. First and third statements only.

C. Second and third statements only.
D. First statement only
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27. Which of the following statements is FALSE regarding operating segments?

A. PFRS 8 shall apply to the separate or individual financial statements of an
entity, and to the consolidated financial statements of a group with a parent
which is a public entity.
B. PFRS 8 adopts the management approach in identifying which segments are
reportable.
C. Additional operating segments shall be identified as reportable segments even
if they do not meet the quantitative thresholds until at least 75% of the
entity’s total revenue is included in reportable segments.
D. Segment data for a prior period presented for comparative purposes shall be
restated if an operating segment is identified as a reportable segment in the
current period.

Use the following information in answering the next THREE (3) questions:
On July 1, 2024, DAVID CORP. acquired a 40% interest in the 300,000 ordinary shares
of an investee for P1,740,000. On that date, the book value of the investee’s net
assets amounted to P3,000,000. In addition, the carrying amount of the net assets
acquired equaled fair value except for an office equipment whose fair value exceeded
the carrying amount by P900,000. The remaining useful life of the equipment is five
years.

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During 2024, the associate reported the following in its statement of comprehensive
income:
Net income or (loss) P900,000
Unrealized gain (loss) from FVOIC investments, net of tax (200,000)
Revaluation surplus, net of tax 300,000

Both the unrealized gain or loss and revaluation surplus was recognized at year-
end. DAVID received cash dividends amounting to P60,000 on October 31, 2024. On
December 31, 2024, the investee’s shares are quoted at P20.00 per share.

28. What is the carrying amount of the investment in associate account as of December
31, 2024?
A. P1,900,000 C. P1,864,000
B. P1,720,000 D. P2,008,000

29. Based on the above information, evaluate whether the following statements is true
or false:
First Statement: If DAVID CORP. is a medium-sized entity, the carrying amount
of the investment in associate as of December 31, 2024 using
equity method is P1,935,000.
Second Statement: If DAVID CORP. is a small-sized entity, the carrying amount of
the investment in associate as of December 31, 2024 using equity

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method is P1,824,000.
A. Only the first statement is correct.
B.
C.
Only the second statement is correct.
Both statements are correct. ie
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D. None from the statements is correct.

30. Assuming DAVID CORP. is a medium-sized entity and elected the fair value model is
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accounting the investment in associate, which of the following statement is

INCORRECT?
First Statement: The amount of investment income to be reported by DAVID CORP.
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on its statement of profit or loss is P60,000.

Second Statement: The carrying amount of the investment in associate to be
presented in the 2024 statement of financial position is
C

P1,935,000.
A. Only the first statement C. Both statements
B. Only the second statement D. None from the statements
EO

31. The following liabilities were gathered from the trial balance of KGA INC as of
December 31, 2018:
10% 5 year Notes payable P1,500,000
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15% 4 year Loans Payable P2,000,000

Additional Information:
a) The 10% notes is payable on December 31, 2019. The notes was issued on January
1, 2015 and pays semi-annual interest every July 1 and December 31. On February
1, 2019, KGA entered into a refinancing agreement with BPI Bank to refinance
75% of the note on a long-term basis.
b) The 15% loans was issued last July 1, 2018 and pays interest every July 1. The
loan agreement requires KGA to maintain a 1.5:1 current ratio. As of December
31, 2018, KGA’s current ratio is 1.25:1. On such date, the bank agreed not to
demand payment and gave KGA 12 months to rectify the breach of the loan.
How much are the total current liabilities based on the above information?
A. P1,650,000 C. P2,525,000
B. P1,500,000 D. P3,650,000

32. On January 1, 2019, PARAGUAY CORP. received a grant of P8,000,000 to compensate for
costs to be incurred in planting trees over a period of 5 years. The entity will
incur such costs at P1,500,000 for 2019, P3,000,000 for 2020, P6,000,000 for 2021,
P8,000,000 for 2022, and P11,500,000 for 2023.

On April 1, 2019 PARAGUAY received another government grant of P10,000,000 with a

condition that PARAGUAY shall construct a new factory. On June 30, 2019, the factory
was completed with a total cost of P30,000,000 to be depreciated using double-
declining balance method over its useful life of 16 years.

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What is the balance of deferred income from government grant as of the year ended,
December 31, 2019, under gross and net presentation?
Gross Presentation Net Presentation
A. P16,975,000 Zero
B. P16,975,000 P7,600,000
C. P7,600,000 Zero
D. P15,003,125 P6,800,000

33. The following information are presented to you for your evaluation regarding the
intangible asset account of KGA CORP.:
Mastheads, internally developed P40,000
Patent, internally developed (including R&D costs of P30,000) 80,000
Web site costs, for external use,
customer can place orders on web site 30,000
Initial operating losses 20,000
Lease prepayments (6 months’ rent paid in advance) 60,000
Internally generated publishing title 25,000
Initial franchise fee 90,000
Continuing franchise fee 10,000
How much will be shown as intangible assets in KGA CORP.’s year-end statement of
financial position?
A. P170,000 C. P200,000

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B. P230,000 D. P270,000

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34. Which of the following statements is correct about the stages of accounting based
on the definition provided by the American Accounting Association?
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First Statement: Measuring, the analytical component of the accounting process,
focuses on the determination of the proper amounts to be
assigned on the transactions and events to be recognized.
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Second Statement: Under the identifying process, all transfers are external
events but not all external events are transfers.
A. Only the first statement is correct.
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B. Only the second statement is correct.

C. Both statements are correct.
D. None from the statements is correct.
C

35. Which of the following is within the scope of PAS 41 – Agriculture?

A. Bearer plants related to agricultural activity
B. Living plants used in landscaping
EO

C. Government grant related to bearer plants

D. Unprocessed harvested produce from a bearer plant
E. Land related to agricultural activity
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36. Determine the incorrect statement regarding treasury shares.

I. Acquisition of treasury shares does not affect the net assets of an entity.
II. Precedent to the acquisition of treasury shares is the availability of
unrestricted balance of retained earnings.
III. If treasury shares are reissued for noncash consideration, the proceeds shall
be measured by carrying amount of the noncash consideration received
A. I and II D. I, II and III
B. II and III E. Answer not given
C. I and III

SITUATION 3
INDONESIA COMPANY reported inventory on hand on December 31, 2015 at cost of
P8,000,000. The following items were not included in this inventory amount:
* Goods sold to another entity, FOB destination, invoiced at P480,000 including
P30,000 freight charge to deliver the goods. Goods are in transit. INDONESIA’s
selling price is 150% of cost.
* Goods purchased in transit, FOB shipping point, invoiced at P200,000. Freight
cost is P10,000.
* Goods purchased in transit, FOB destination, invoiced at P400,000 including
freight cost of P20,000.
* Goods out on consignment to another entity with sales price of P900,000. Freight
cost of P60,000 is paid by consignor.

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On January 1, 2022, PORTUGAL CORP. purchased a new machine, on a deferred payment

basis. A down payment of P1,000,000 was made and 4 annual instalments of P1,100,000
are to be made beginning on January 1, 2023. The cash price of the machine was
P5,120,000. Transportation cost of the machine to the entity’s location amounted
to P50,000. In addition, the following costs were incurred:
Cost of training for personnel who will use the machine 15,000
Cost of safety rails and platforms surrounding machine 30,000
Cost of water device to keep machine cool 20,000
Cost of removing old machine 25,000
Insurance for one year 12,000
Safety inspection cost prior to use 10,000
Due to an employee strike, PORTUGAL could not install the machine immediately, and
incurred P48,000 of storage costs. Installation and testing were completed by April
1, 2022. Total installation cost (excluding storage costs) amounted to P114,000.
PORTUGAL estimates the useful life of the machine to be 8 years with a residual
value of P100,000. PORTUGAL uses the SYD method to record depreciation.

TURKEY CORP. provided the following information relating to the revaluation of an

equipment on January 1, 2014.
Cost Replacement cost
Equipment 6,500,000 9,200,000
Residual value 500,000 200,000

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Useful life 12
Age of the equipment 2
Accumulated depreciation
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The equipment was sold on December 31, 2014 for P8,000,000.
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UE CORP. uses GAAP for its financial reporting. It produces machines that sell
globally. All sales are accompanied by a one-year warranty. At the end of the year,
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the company has the following data:

• 2,000 units were sold during the year.
• The trend over the past five years has been that 4% of the machines were
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defective in some way and had to be repaired. Of this 4%, half required a full
replacement at a cost of P3,000 per unit and half were able to be repaired at
an average cost of P300.
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On January 1, 2014, ROSA CORP. began marketing a new soft drink. To help promote
the soft drink, the management is offering a special gift, a T-shirt, to each
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customer who returns 10 bottle caps. The entity estimated that out of the 250,000
bottles sold in 2014, only 80% will be redeemed. On December 31, 2014, the following
information was collected:
Units Amount
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T-shirts purchased 18,000 1,800,000

T-shirts distributed 15,000

37. What is the adjusted cost of the INDONESIA’s inventory on December 31, 2015?
A. P9,110,000 C. P9,200,000
B. P9,170,000 D. P9,590,000

38. PORTUGAL shall initially measure the equipment at

A. P5,220,000 C. P5,374,000
B. P5,392,000 D. P5,344,000

39. The depreciation expense to be included in the 2022 comprehensive income statement
of PORTUGAL is
A. P874,000 C. P855,000
B. P890,660 D. P882,000

40. How much should TURKEY report as revaluation surplus on December 31, 2014?
A. P1,980,000 C. P2,250,000
B. P2,200,000 D. P2,430,000

41. What is the expected value of UE’s warranty cost provision?

A. P240,000 C. P264,000
B. P132,000 D. P120,000

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42. What is the estimated premium liability of ROSA CORP. on December 31, 2014?
A. P200,000 C. P500,000
B. P300,000 D. P700,000

Use the following information in answering the next THREE (3) questions:
On January 1, 2019, an entity was indebted to a bank under a P 4,800,000, 10% loan.
The loan was dated January 1, 2017 and was due on December 31, 2020. The annual
interest was last paid on December 31, 2017. The entity was experiencing financial
troubles and therefore the bank considered the loan impaired. The bank agreed to
reduce last year's interest and the remaining two years' interest payments to P
200,000 each and delay all such payments on December 31, 2020. The present value of
1 at 10% for two periods is 0.83.

The entity also reported the net realizable value of accounts receivable in the
amounts of P 1,000,000 and P 1,200,000 on December 31, 2019 and 2018 respectively.
It was also disclosed that the allowance for doubtful accounts on December 31, 2019
and 2018 were P 100,000 and P 130,000 respectively. Credit sales amounted to P
4,770,000 and collections from customers totaled P4,800,000. Certain accounts were
written off during the year.

43. What is the impairment on the loan for the year ended December 31, 2019?
A. P318,000 C. P484,000

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B. P918,000 D. P884,000

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44. What amount of accounts receivable was written off during the year?
C. P150,000
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B. P100,000 D. P0

45. What is the doubtful accounts expense for the year ended December 31, 2019?
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A. P100,000 C. P300,000
B. P130,000 D. P170,000
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46. Which of the following is NOT true regarding conceptual framework?

A. Special purpose financial reports of a profit-oriented entity are within the
scope of the Conceptual Framework.
B. The FSRSC recognizes that in a limited number of cases there may be a conflict
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between the Conceptual Framework and a Philippine Financial Reporting Standard.

In those cases where there is a conflict, the requirements of the Philippine
Financial Reporting Standard prevail over those of the Conceptual Framework.
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C. Under the Conceptual Framework, the concept of income encompasses both revenue
and gains.
D. The selection of the appropriate concept of capital by an entity should be
based on the needs of the users of its financial statements.
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47. In relation to accounting process, which of the following statements is not true?
A. If the total of the credits exceeds the total of the debits in the income
statement columns of a worksheet, there is a net income.
B. Reversing entries are made at the beginning of the new accounting period. Not
all adjusting entries may be reversed.
C. An adjusting entry to adjust the unearned rent income account for the earned
portion of advance rent collections during the year may be reversed in the next
financial reporting period.
D. A balanced trial balance does not necessarily mean that no accounting errors
were committed during the accounting period.

48. The following information about PAMPANGA CORP. is available at December 31, 2004:
Accounts payable 8,000,000
Accounts receivable with credit balance 2,000,000
Cash balance at BICOL Bank 10,000,000
Cash overdraft at BOCIL Bank 1,500,000
Deferred serial bonds, issued at par and bearing interest
at 12%, payable in semiannual installments of P500,000
due April 1 and October 1 of each year, the first bond to
be paid on April 1, 2006. Interest is also paid semiannually.
Interest accrued is not yet recorded 5,000,000
Employee income taxes withheld 1,000,000
Estimated expenses of meeting warranties on
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merchandise previously sold 3,000,000

Estimated damages as a result of unsatisfactory
performance on a contract 4,000,000
Stock dividend payable 2,000,000
The December 31, 2004 balance sheet should report current liabilities at
A. P19,500,000 C. P20,500,000
B. P19,650,000 D. P20,650,000

49. HANZO CORP. has reported a net income amounting to P200,000 for the year 2024 and
P300,000 for the year 2025. The following errors were discovered during 2025:
(a) Inventory on December 31, 2024 was understated by P10,000.
(b) An accrual for salaries expense in 2025 amounting to P15,000 was omitted.
(c) Rent of P36,000 on an equipment applicable for six months was received on
November 1, 2024. The entire amount was reported as income upon receipt.
(d) An item of PPE purchased last April 1, 2024 was fully expensed by HANZO,
amounting to P80,000. The PPE was supposed to be depreciated using straight-
line method and has a useful life of 10 years.
(e) Prepaid expense as of the end of 2023 is understated by P5,000.
Based on the above information, evaluate the following statements:
First Statement: The adjusted net income for the year 2024 is P260,000.
Second Statement: The total net adjustments to the 2025 beginning balance of
retained earnings is net credit of P55,000.

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Third Statement: The adjusted net income in 2025 is P291,000.
A. True, false, false C. False, false, true
B. False, true, true
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D. True, false, true
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50. Which of the following entity may be classified as an SME?
A. A rural bank on a small town in the Philippines.
B. A small insurance company with total assets amounting to P50,000,000.
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C. A listed manufacturing entity with total assets amounting to P70,000,000.

D. An unlisted entity manufacturing farm tractors with total liabilities of
P250,000,000.
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51. Which of the following is NOT considered a practice of accountancy profession?

I. Teaching employment in a university handling home economics subject.
II. Employment in a government agency where the CPA title is not a pre-requisite
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for the position.

A. I only C. Both I and II
B. II only D. None from I and II
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52. Which of the following statements is true regarding interim reporting under PAS 34?
A. PAS 34 requires listed entities to provide interim financial reports.
B. If an entity does not prepare interim financial reports, then the year-end
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financial statements are deemed not to comply with PFRS.

C. Interim financial reports may be prepared using either PAS 1 or PAS 34.
D. The discrete view is required for interim reporting.

53. ANGELUS CORP. provided the following information pertaining to a defined benefit
pension plan for the current year:
Prepaid pension cost, January 1 P20,000
Current service cost 190,000
Interest expense on PBO 380,000
Interest income on plan assets 400,000
Past service cost during the year 500,000
Employer contribution 400,000
What is the accrued pension cost at year-end?
A. P250,000 C. P290,000
B. P270,000 D. P400,000

54. On January 1, 2023, AURORA CORP. contracted a third party for the construction of
its building for P20,000,000 on a land that it had previously acquired. The building
was completed on December 31, 2023. The payments on the contractor were as follows:
Payment Date Amount
January 1 P2,000,000
March 31 6,000,000
September 30 10,000,000
December 31 2,000,000

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The following represents the borrowings of GIN KINGS as of December 31, 2023:
a) 10%, P7,000,000, 4-year note dated January 1, 2023, with simple interest payable
annually, specifically borrowed to finance the construction project. Interest
income earned on the temporary investment of the proceeds is P120,000.
b) 12.5%, P10,000,000, 10-year note dated January 1, 2023, with interest payable
annually.
c) 10%, P15,000,000, 10-year note dated December 31, 2018, with interest payable
annually.
Based on the above information, evaluate the following statements:
First Statement: The capitalizable borrowing cost using the traditional approach
is P937,500.
Second Statement: The capitalizable borrowing cost using the contemporary
approach is P800,000
A. Only the first statement is correct.
B. Only the second statement is correct.
C. Both statements are correct.
D. None from the statements is correct.

Use the following information in answering the next TWO (2) questions:
JEJEMON CORP. manufactures an X-ray machine and leases it to ECHOS HOSPITAL. The
entity provided the following information pertaining to the finance lease agreement:

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Commencement of the lease January 1, 2018
Annual rental payable in advance every January 1 600,000
Lease term
Useful life of machine ie 10 years
12 years
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Cost of the machine 3,000,000
Fair value of the machine on January 1, 2018 4,950,000
Legal fees in directly signing the lease 140,000
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Guaranteed residual value 150,000

Implicit rate in the lease 10%
The machine will revert back to JEJEMON on January 1, 2028. The present value of an
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ordinary annuity and annuity due for 10 periods at 10% are 6.14 and 6.76. The
present value of 1 for 10 periods at 10% is 0.39.

55. What amount of sales revenue should be recognized by JEJEMON?

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A. P4,956,780 C. P3,742,500
B. P4,056,000 D. P4,114,500
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56. What amount of interest income should recognized for 2018?

A. P405,600 C. P411,450
B. P345,600 D. P351,450
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57. Which of the following is (are) related parties?

I. An entity with a director or key manager in common with the reporting entity.
II. Two venturers who have joint control over a joint venture.
III. Both entities are associates of the same third party.
IV. One entity is a joint venture of a third entity and the other entity is an
associate of the third entity.
A. I, II, III, and IV C. II and IV only
B. II, III, and IV only D. IV only

SITUATION 4
PATIENCE CORP. reported a pretax accounting income of P5,000,000 for the current
year. The following items are included in the determination of the accounting
income:
Estimated litigation loss which will become tax
deductible when settled in the future 300,000
Dividend received - net of final tax 100,000
Revenue from an installment sale which will be recognized as
taxable income as received over the next three years 600,000
Income tax rate 30%

On January 1, Year One, HOPE CORP. buys three acres of land for exactly P800,000
with the amount to be paid on December 31, Year Three. Interest of 3 percent
(P24,000) will be paid each December 31 although a 10 percent annual rate is viewed
as reasonable. The present value of P1 in three years at 10 percent annual interest
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is .75. The present value of an ordinary annuity of P1 for three years at 10 percent
annual interest is 2.49. The present value of an annuity due of P1 for three years
at 10 percent annual interest is 2.74.

TRUST CORP. has a defined benefit pension plan for its employees. The following
information pertains to the pension plan as of December 31, 2018
Projected benefit obligation, January 1, 2018 P 1, 600,000
Service cost, 2018 750,000
Interest cost, 2018 100,000
Payments to retired employees 80,000
Actual return on plan assets 99,600
Remeasurement gain on benefit obligation 25,000

BAKING CORP. provided the following information for the current year:
Sales P7,000,000
Sales returns and allowances 80,000
Sales discounts 20,000
Cost of goods sold 2,800,000
Utilities expense 1,000,000
Interest revenue 120,000
Income tax expense 800,000
Casualty loss due to earthquake 50,000

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Finance cost 200,000
Salaries expense 600,000
Unrealized gain on FVPL investments
Loss on sale of investments ie 30,000
50,000
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Unrealized loss on available for sale (AFS) investments 40,000
Net loss from discontinued operations, net of tax 100,000
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XBORG CORP. purchased a machinery on January 1, 2021 for P7,200,000. The machinery
had useful life of 10 years with no residual value and was depreciated using the
straight line method. In 2024, a decision was made to change the depreciation method
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from straight line to sum of years' digits method. The useful life and residual
value remained unchanged.
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58. What amount should be reported by PATIENCE as current tax expense for the current
year?
A. P1,380,000 C. P1,500,000
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B. P1,470,000 D. P1,560,000

59. On a December 31, Year One balance sheet, at what amount should HOPE report as the
liability for this land?
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A P353,414 C P701,736
B P636,000 D P856,000

60. The amount of the December 31, 2018, pension benefit obligation of TRUST is
A. P 2,250,000 C. P 2,395,000
B. P 2,345,000 D. P 2,450,000

61. What is the income from continuing operations of BAKING CORP.?

A. P1,410,000 C. P1,510,000
B. P1,550,000 D. P1,450,000

62. What is the depreciation for 2024 of XBORG’s asset?

A. P720,000 C. P1,260,000
B. P916,360 D. P1,440,000

63. Which of the following concepts are eliminated in PFRS for SMEs?
I. Accounting for revalued item of PPE.
II. Computation and presentation of basic earnings per share and diluted earnings
per share.
III. Capitalization of borrowing costs in relation to a qualifying asset.
A. I and II C. I and III
B. II and III D. I, II and III

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64. PUNO AGRICULTURAL CORP., a medium size entity, is one of the booming companies in
the agriculture sector. At the beginning of 2022, it took out a loan of P500,000 in
order to finance specifically the construction of its administrative office. The
loan carried annual interest at 10%. Work on the building was substantially complete
on September 30, 2022. The building has a useful life of 10 years and to be
depreciated using the straight-line method.

In addition, PUNO AGRICULTURAL CORP. presented the following adjusted balances on

December 31, 2022:
Land related to agricultural activity P120,000
Farm house related to agriculture 90,000
Agricultural produce after the point of harvest 30,000
Bearer plants 60,000
Bearer animals 75,000
Poultry chickens (used for laying eggs and for consumption) 80,000
What is the total amount of PPE that PUNO should report on its current year,
statement of financial position?
A. P697,500 C. P795,000
B. P735,000 D. P757,500

65. On January 1, 2023, FARAMIS CORP. received cash for the issuance of its 3-year
P1,000,000 face amount 12% bonds. The bonds were sold to yield 11%. Interest is

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payable semiannually every January 1 and July 1. The entity has elected the fair
value option for valuing financial liabilities. On December 31, 2023, the fair value

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of the bonds is P1,064,600. The change in fair value of the bonds is attributable
to market factors. (Round-off present value factors in two decimal places.)
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Which of the following statements is correct regarding the bonds payable?
First Statement: The bonds shall be reported at P1,064,600 at the Statement of
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Financial Position as of December 31, 2023.

Second Statement: A gain on fair value changes shall be reported within profit or
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loss of the Statement of Comprehensive Income for the year 2023.

A. Only the first statement C. Both statements
B. Only the second statement D. None from the statements
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66. Which statement is true according to PAS10 Events after the reporting period?
A. A decline in the market value of investments would normally be classified as
an adjusting event.
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B. The settlement of a long-running court case would normally be classified as a

non-adjusting event.
C. Notes to the financial statements should give details of all material adjusting
events included in those financial statements.
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D. Notes to the financial statements should give details of material non-adjusting

events which could influence the economic decisions of users.

67. Initial direct costs incurred by the lessor under a sales-type lease should be
A. Expensed in the period incurred.
B. Deferred and allocated over the economic life of the leased property.
C. Deferred and allocated over the term of the lease in proportion to the
recognition of rental income.
D. Added to the gross investment in the lease and amortized over the term of the
lease as a yield adjustment.

Use the following information in answering the next THREE (3) questions:
The shareholders’ equity of MIYA COMPANY as of January 1, 2019 is as follows:
Preference Share Capital (P25 par value) P2,500,000
Preference Share Premium 500,000
Ordinary Share Capital (P10 stated value) 1,000,000
Ordinary Share Premium 500,000
Retained Earnings 2,000,000
Transactions affecting the components of MIYA’s shareholders’ equity during 2019
are as follows:
1/1 Exchanged 10,000 ordinary and 5,000 preference shares for a building with a
fair value of P500,000. The fair value of the ordinary and preferred shares
as of that date is P15 and P30, respectively.
2/1 Purchased 10,000 own ordinary shares at P20.
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3/2 Converted 30,000 preference shares into ordinary shares when the market value
of the ordinary share is at P20 per share. Each preference share can be
converted into 2 ordinary shares.
4/3 Declared 3 for 1 share split on its ordinary shares.
6/30 Issued 2 stock rights per 1 ordinary share outstanding which entitle the
holders to purchase one ordinary share in exchange for 2 stock rights for
P14. On that date the fair value of the ordinary shares is P16.
7/30 Appropriated P200,000 for plant expansion.
8/30 Reissued 5,000 treasury shares at P10 per share.
12/31 Net income for the year is P500,000.

68. What is total contributed capital as of December 31, 2019?

A. P5,000,000 C. 5,016,667
B. P3,725,000 D. P4,850,000

69. What is the balance of outstanding ordinary shares as of December 31, 2019?
A. 500,000 C. 350,000
B. 485,000 D. 510,000

70. What are the unrestricted retained earnings as of December 31, 2019?
A. P2,300,000 C. P2,500,000
B. P2,200,000 D. P2,133,333

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