Multiple Choice. Select The Letter That Corresponds To The Best Answer. This Examination [PDF]

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Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao Since 1977



FAR FINAL PRE-BOARD EXAMINATION



OCAMPO/OCAMPO APRIL 27, 2021



Multiple Choice. Select the letter that corresponds to the best answer. This examination consists of 70 items (ignore the extra answer options in the answer sheet after number 70) and the exam is good for three (3) hours. Good luck! 1. How IFRS standards strengthen accountability? a. By enhancing the international comparability and quality of financial information, enabling investors and other market participants to make informed economic decisions. b. By reducing the information gap between the providers of capital and the people to whom they have entrusted their money. c. By helping investors to identify opportunities and risks across the world, thus improving capital allocation. d. All of the above. 2. In or a. b. c. d.



accordance with the Conceptual Framework, the amount at which an asset, a liability equity is recognized in the statement of financial position is referred to as its Cost Fair value Carrying amount Book value



3. The recognition of income occurs at the same time as a. The initial recognition of an asset, or an increase in the carrying amount of an asset. b. The derecognition of a liability, or a decrease in the carrying amount of a liability. c. Either a or b. d. Neither a nor b. 4. Bumbly Co extracted the trial balance for the year ended 31 December 2021. The total of the debits exceeded the credits by P300. Which of the following could explain the imbalance? a. Sales of P300 were omitted from the sales day book. b. Returns inward of P150 were extracted to the debit column of the trial balance. c. Discounts received of P150 were extracted to the debit column of the trial balance. d. The bank ledger account did not agree with the bank statement by a debit of P300. 5. Which of the following best describes the purpose of disclosure notes in the financial statements? a. To provide more detail for the users of accounts about the information in the main financial statements. b. To allow companies to present their financial results in a more favorable way by only disclosing some things in the notes and not on the main financial statements. c. To give all the detail of all the transactions that occurred during the period because the main financial statements only present a summary. d. To explain the accounting treatment adopted where management have chosen not to apply PFRSs.



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EXCEL PROFESSIONAL SERVICES, INC. 6. Which of the following is inappropriate aggregation? a. Cash and cash equivalents (Cash on hand and time deposits) b. Trade and other receivables (Notes receivable and advances to employees) c. Trade and other payables (Notes and bonds payable) d. Provisions (Liability from pending litigation and purchase commitment liability) 7. Which of the following is (are) appropriate related to an entity whose financial statements are not prepared on a going concern basis? a. Recognition of provision for future operating losses. b. Recognition of a liability for which a commitment did not exist at the end of the reporting period. c. Both a and b. d. Neither a nor b. 8. The entity shall depart from a requirement of PFRS a. Under no circumstances. b. When compliance will unfavorably affect the performance of the entity. c. When compliance will expose the entity to hostile take-over. d. In the extremely rare circumstances in which management concludes that compliance with a requirement in a PFRS would be so misleading that it would conflict with the objective of financial statements set out in the Framework. Use the following information for the next two questions. The accounts below were taken from the unadjusted trial balance of VECO Co. as at December 31, 2021: Cash Investment in shares, at cost Notes receivable Trade accounts receivable Allowance for doubtful accounts Merchandise inventory Notes payable Trade accounts payable Employees’ income tax withheld Bonds payable Share dividends payable Income tax payable



P124,000 87,000 92,000 122,000 6,000 136,000 150,000 75,000 4,000 250,000 15,000 28,000



Analysis of the above accounts disclosed the following: • • • • • •



Bank overdraft of P13,000 was deducted from cash balance. Trade accounts receivable was net of customers’ deposit of P7,000. Merchandise worth P15,000 received December 30, 2021 was included in the inventory but was not recorded as a purchase. Accounts payable was net of accounts with debit balance of P12,000. A bank loan of P30,000 due December 31, 2023 was included in the notes payable balance. Bonds payable which was issued in 2021 will mature in five annual installments beginning June 1, 2022.



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EXCEL PROFESSIONAL SERVICES, INC. •



Investment in shares consists of 10,000 ordinary shares with published price quotation at December 31, 2021 of P9 per share. These shares are designated as FVTOCI and the entity expects to sell these in 2022.



QUESTIONS: Compute for the following at December 31, 2021: 9. Total current assets a. P590,000 b. P598,000



c. P605,000 d. P587,000



10. Total current liabilities a. P272,000 b. P289,000



c. P324,000 d. P339,000



11. Which of the following should determine presentation of income and expenses? I. Nature of a transaction or other event II. Function of a transaction or other event III. Frequency of a transaction or other event a. I, II and III c. I and III only b. I and II only d. I only Use the following information for the next two questions. Jimmy Company’s income statement for the year ended December 31, 2021 reported net profit of P10,000,000. The auditor raised questions about the following amounts that had been included in the net profit: Unrealized loss on decline in value of FA at FVTOCI Loss on write-off of inventory due to a government ban net of tax Adjustment of profit of prior year net-debit Loss from expropriation of property, net of tax Exchange differences gain on translating foreign operations Revaluation surplus realized Equity in earnings of Joni Corp. Dividends received from Joni Corp. Defined benefit expense



P 500,000 1,500,000 2,000,000 3,500,000 4,500,000 1,000,000 600,000 300,000 800,000



Additional information: • • •



The loss from expropriation was unusual in occurrence in Jimmy’s line of business. Jimmy owns 20% of Joni's ordinary shares. Defined benefit expense includes: Service cost, P500,000; Interest cost, P200,000; Actuarial loss on defined benefit obligation, P100,000.



12. Jimmy Company’s 2021 statement of comprehensive income should report profit of a. P7,000,000 c. P6,700,000 b. P6,800,000 d. P6,600,000 13. Jimmy Company’s 2021 statement of comprehensive income should report total comprehensive income of a. P10,800,000 c. P10,600,000 b. P10,700,000 d. P 3,900,000 Page 3 of 19



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EXCEL PROFESSIONAL SERVICES, INC. 14. Crown Prince Corp. had the following cash flows during the reporting period: • Purchase of intangibles - P30,000 • Proceeds from sale of plant - P28,000 • Receipts from customers - P832,000 • Payments to suppliers - P593,000 • Interest received - P17,600 • Income taxes paid - P45,500 The net cash connected to operating activities was: a. P269,100 c. P239,100 b. P256,600 d. P211,100 15. Joshuarey Co. provided the following information on selected transactions during 2021: Purchase of land by issuing bonds Proceeds from issuing bonds Purchases of inventory Purchases of treasury shares Loans made to affiliated corporations Dividends paid to preference shareholders Proceeds from issuing preference shares Proceeds from sale of equipment



P250,000 500,000 950,000 150,000 350,000 100,000 400,000 50,000



The net cash provided by financing activities during 2021 is a. P550,000 c. P800,000 b. P650,000 d. P900,000 16. Las Piñas Corporation’s accountant is attempting to determine the amount of cash to be reported on its December 31, 2021 statement of financial position. The following information is provided: 1. Commercial savings account of P1,200,000 and a commercial checking account balance of P1,800,000 are held at PS Bank. 2. Travel advances of P360,000 for executive travel for the first quarter of the next year (employee to reimburse through salary deduction). 3. A separate cash fund in the amount of P3,000,000 is restricted for the retirement of a long-term debt. 4. Petty cash fund of P10,000. 5. An I.O.U. from a company officer in the amount of P40,000. 6. A bank overdraft of P250,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the present time, the company has no deposits at this bank. 7. The company has two certificates of deposit, each totaling P1,000,000. These certificates of deposit have maturity of 120 days. 8. Las Piñas has received a check dated January 2, 2022 in the amount of P150,000. 9. Las Piñas has agreed to maintain a cash balance of P200,000 at all times at PS Bank to ensure future credit availability. 10. Bills and coins on hand amounted to P15,000. 11. Cryptocurrencies valued at P100,000. How much will be reported as cash and cash equivalents at December 31, 2021? a. P2,575,000 c. P3,025,000 b. P2,825,000 d. P5,025,000



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EXCEL PROFESSIONAL SERVICES, INC. 17. The books of Manila's Service, Inc. disclosed a cash balance of P687,570 on December 31, 2021. The bank statement as of December 31 showed a balance of P547,800. Additional information that might be useful in reconciling the two balances follows: (a) Check number 748 for P30,000 was originally recorded on the books as P45,000. (b) A customer's note dated September 25 was discounted on October 12. The note was dishonored on December 29 (maturity date). The bank charged Manila's account for P142,650, including a protest fee of P2,650. (c) The deposit of December 24 was recorded on the books as P28,950, but it was actually a deposit of P27,000. (d) Outstanding checks totaled P98,850 as of December 31. (e) There were bank service charges for December of P2,100 not yet recorded on the books. (f) Manila's account had been charged on December 26 for a customer's NSF check for P12,960. (g) Manila properly deposited P6,000 on December 3 that was not recorded by the bank. (h) Receipts of December 31 for P134,250 were recorded by the bank on January 2. (i) A bank memo stated that a customer's note for P45,000 and interest of P1,650 had been collected on December 27, and the bank charged a P360 collection fee. Adjusted cash in bank balance is a. P512,400 c. P583,200 b. P577,200 d. P589,200 18. The following accounts were taken from Cervantes Inc.’s statement of financial position at December 31, 2021. Accounts receivable Allowance for doubtful accounts Net credit sales



Debit P4,100,000 100,000



Credit P7,500,000



If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2021. a. P 23,000 c. P223,000 b. P123,000 d. P225,000 19. The Roopun Corporation started its business on January 1, 2021. After considering the collections experience of other companies in the industry, Roopun Corporation established an allowance for bad debts estimated to be 5% of credit sales. Further analysis of the company’s accounts showed that merchandise purchased in 2021 amounted to P2,250,000 and ending merchandise inventory was P375,000. Goods were sold at 40% above cost. 80% of total sales were on account. Total collections from customers, on the other hand, excluding proceeds from cash sales, amounted to P1,500,000. Accounts written off during 2021 totaled P12,500. The net realizable value of accounts receivable as of December 31, 2021 is a. P495,000 c. P512,500 b. P993,750 d. P875,000 20. On July 1, 2021, Daniboy Company finished consultation services and accepted in exchange a promissory note with a face value of P300,000, a due date of June 30, 2024, and a stated rate of 5%, with interest receivable at the end of each year. The Page 5 of 19



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EXCEL PROFESSIONAL SERVICES, INC. fair value of the services is not readily determinable and the note is not readily marketable. Under the circumstances, the note is considered to have an appropriate imputed rate of interest of 10%. The total income to be recognized in Daniboy’s 2021 profit or loss is a. P307,500 c. P275,829 b. P288,963 d. P262,694 21. In accordance with PFRS 9, interest revenue and expected credit losses are recognized at Interest revenue Expected credit losses a. Stage 1, 2 and 3 Stage 1, 2 and 3 b. Stage 1 Stage 3 c. Stage 1 and 2 Stage 1 and 2 d. Stage 1 Stage 2 and 3 Use the following information for the next two questions. On January 1, 2019, San Manuel Corporation purchased 4-year P8,000,000, 10% bonds, at face value. The entity paid P80,000 commission. Interest is payable annually every December 31. The bonds mature on December 31, 2022. The entity classified the bonds as financial assets at fair value through profit or loss. The investment was sold on December 31, 2021 at fair value. The table below provides information regarding the prevailing market interest rate. Date December 31, 2019 December 31, 2020 December 31, 2021



Rate 11% 12% 9%



QUESTIONS: 22. Fair value adjustment loss to be recognized in the entity’s 2020 profit or loss is a. P 74,880 c. P270,320 b. P190,320 d. P350,320 23. Gain on sale of the investment on December 31, 2021 a. P 73,120 c. P270,320 b. P153,120 d. P343,440 24. Which of the following is recognized in other comprehensive income if the equity investment is designated as a financial asset at fair value through other comprehensive income? I. Changes in fair value II. Dividend income III. Transaction costs to sell a. b.



I, II and III I and II only



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EXCEL PROFESSIONAL SERVICES, INC. Use the following information for the next two questions. Mexico Inc. carries the following marketable equity securities on its books at December 31, 2020 and 2021. All securities were purchased during 2020. Transaction costs paid on each acquisition is 1% of the purchase price. FA at FVTPL: Fair value C Company P Company A Company Total



Purchase price P 300,000 250,000 700,000 P1,250,000



12/31/20 P 260,000 300,000 660,000 P1,220,000



12/31/21 P 310,000 290,000 640,000 P1,240,000



FA at FVTOCI: M Company E Company Total



Purchase price P4,100,000 1,000,000 P5,100,000



Fair value 12/31/20 12/31/21 P3,800,000 P3,830,000 1,200,000 1,240,000 P5,000,000 P5,070,000



On December 31, 2021, Mexico transferred its investment in C Company to FA at FVTOCI while investment in E Company to FA at FVTPL. QUESTIONS: 25. The amount to be recognized as fair value adjustment gain or loss in the entity’s 2021 profit or loss is a. P10,000 loss c. P20,000 gain b. P10,000 gain d. P22,500 loss 26. The amount to be recognized as fair value adjustment gain or loss in the entity’s 2021 OCI is a. P30,000 loss c. P80,000 gain b. P70,000 gain d. P81,000 loss Use the following information for the next two questions. Minalin, Inc. acquired 30% of Momo Corp.'s ordinary shares on January 1, 2021 for P360,000. During 2021, Momo reported profit of P150,000 and paid dividends of P90,000. Minalin's 30% interest in Momo gives Minalin the ability to exercise significant influence over Momo's operating and financial policies. On December 31, 2021, Minalin classified 40% of the investment as held for sale in accordance with PFRS 5. Total fair value of the investment was P390,000 on that date. Minalin normally incurs costs to sell equal to 5% of the selling price. QUESTIONS: Determine the amount to be reported for the following portions of the investment: 27. Retained a. P151,200 b. P222,300



c. P226,800 d. P234,000



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EXCEL PROFESSIONAL SERVICES, INC.



28. Held for sale a. P148,200 b. P151,200



c. P156,000 d. P226,800



29. Saver Corp. established a savings account for building construction by making annual deposits of P800,000 at the beginning of each of six years to a savings account paying 8%. At the end of the sixth year, the account balance was transferred to a bank paying 10%, and annual deposits of P800,000 were made at the end of each year from the seventh through the tenth years. What was the account balance at the end of the tenth year? a. P12,992,617 c. P12,228,056 b. P12,305,193 d. P11,589,274 30. Chain, Inc. purchased a P1 million life insurance policy on its president, of which Chain is the beneficiary. Information regarding the policy for the year ended December 31, 2021 follows: Cash surrender value, 1/1/21 Cash surrender value, 12/31/21 Annual advance premium paid 1/1/21



P87,000 108,000 40,000



During 2021, dividends of P6,000 were applied to increase the cash surrender value of the policy. What amount should Chain report as life insurance expense for 2021? a. P40,000 c. P19,000 b. P21,000 d. P13,000 31. Presented below is a list of items that may or may not be reported as inventory in a company’s December 31 statement of financial position. a) Goods purchased FOB shipping point (in transit)



P120,000



b) Goods purchased FOB destination (in transit)



200,000



c) d) e) f) g)



Freight charges on goods purchased Materials on hand not yet placed into production Factory supplies Office supplies Interest cost incurred for inventories that are routinely manufactured h) Costs identified with units started but which are not yet completed



80,000 350,000 20,000 10,000



i) Costs identified with units completed but not yet sold



310,000



j) Goods out on consignment at another company’s store k) Goods held on consignment from another company



800,000 450,000



l) Goods sold on installment basis m) Goods sold to another company, for which the company has signed an agreement to repurchase at a set price that covers all costs related to the inventory n) Goods sold FOB seller (in transit) o) Goods sold FOB buyer (in transit) p) Costs incurred to advertise goods held for resale



100,000



q) Securities acquired for the purpose of selling in the near term



500,000



r) Equipment held for sale in accordance with PFRS 5 s) Cryptocurrencies that are not held for sale in the ordinary course of business nor for investment purposes. Page 8 of 19



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40,000 280,000



300,000 120,000 40,000 20,000 80,000 180,000 FAR.FinPB5.21



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How much of these items would typically be reported as inventories in the statement of financial position? a. P2,300,000 c. P2,220,000 b. P2,260,000 d. P2,000,000 32. At 30 June 2021 the closing inventory of a company amounted to P386,400. The following items were included in this total at cost: • 1,000 items which had cost P18 each. These items were all sold in July 2021 for P15 each, with selling expenses of P800. • Five items which had been in inventory since 2016, when they were purchased for P100 each, sold in July 2021 for P1,000 each, net of selling expenses. What figure should appear in the company’s statement of financial position at 30 June 2021 for inventory? a. P382,600 c. P387,100 b. P384,200 d. P400,600 33. Dasol Factory started operations in 2021. Dasol manufactures bath towels. 60% of the production are “Class A” which sell for P500 per dozen and 40% are “Class B” which sell for P250 per dozen. During 2021, 6,000 dozens were produced at an average cost of P360 per dozen. The inventory at the end of the year was as follows: 220 dozens “Class A” @ P360 300 dozens “Class B” @ P360



P 79,200 108,000 P187,200



Using the relative sales value method, which management considers as a more equitable basis of cost distribution, how much is the cost of sales for the year 2021? a. P1,972,054 c. P1,993,500 b. P1,972,800 d. P2,043,000 34.



The following information is available for Villasis Corporation: Beginning inventory Sales Purchases Freight in Mark ups Mark up cancellations Markdown Markdown cancellations



Cost Retail P1,987,200 P2,760,000 4,688,640 94,560



7,812,000 6,512,000 720,000 120,000 240,000 40,000



Villasis Corp. uses the average retail inventory method in estimating the values of its inventories and cost of goods sold. The estimated ending inventory at cost is a. P1,275,588 c. P1,302,000 b. P1,287,120 d. P1,412,786 Page 9 of 19



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EXCEL PROFESSIONAL SERVICES, INC. Use the following information for the next two questions. Karina Corp. is engage in agricultural activity. Its trial balance at December 31 presents the following assets related to its farmland: • Two tractors (P500,000 each) • Four computers (P25,000 each) • Computer software (P50,000) • Fruit-bearing trees (estimated value, P20 million of which P3 million is attributed to the fruits attached to the trees). • Harvested fruits (estimated value, P2 million) • Trees grown for use as lumber (estimated value, P10 million) • Trees that are cultivated both for their fruit and their lumber (estimated value, P8 million) • Maize and wheat (estimated value, P4 million) 35. How much should be accounted for as biological assets? a. P25 million c. P7 million b. P17 million d. P3 million 36. How much should be accounted for as property, plant and equipment? a. P17.525 million c. P26.100 million b. P18.100 million d. P30.100 million 37. Presented below is a list of items that may or may not be reported as property, plant and equipment in a diversified company’s consolidated statement of financial position. a) Land held for capital appreciation b) Land and building for rental to others under operating leases c) Land and building for rental to others under finance leases d) Land and building held for resale in the ordinary course of business e) Factory building f) Research and development building g) Head office building h) Machinery used in production i) Store building j) Delivery vehicle k) Office furniture and fixtures l) Equipment for rental to others under operating leases m) Equipment for rental to others under finance leases n) Equipment held for sale in the ordinary course of business o) Equipment held for sale in accordance with PFRS 5 p) Dogs used in rendering security services q) Plants displayed in administrative office r) Bearer plants related to agricultural activity (excluding produce growing on bearer plants valued at P240,000) s) Bearer animals related to agricultural activity t) Annual crops related to agricultural activity



P3,000,000 5,000,000 8,000,000 6,000,000 4,000,000 2,000,000 3,800,000 1,700,000 1,300,000 900,000 760,000 540,000 710,000 2,800,000 230,000 150,000 70,000 740,000 620,000 880,000



How much of these items would typically be reported as property, plant and equipment in the consolidated statement of financial position? a. P15,220,000 c. P15,960,000 b. P15,420,000 d. P16,200,000



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EXCEL PROFESSIONAL SERVICES, INC. 38. The following items relate to the acquisition of a new machine by Bongabon Corporation in 2021: Invoice price of machine Cash discount not taken Freight on new machine Cost of removing the old machine Loss on disposal of the old machine Gratuity paid to operator of the old machine who was laid off Installation cost of new machine Repair cost of new machine damaged in the process of installation Testing costs before machine was put into regular operation Salary of engineer for the duration of the trial run Operating cost during first month of regular use Cash allowance granted because the new machine proved to be of inferior quality



P2,000,000 40,000 10,000 12,000 150,000 70,000 60,000 8,000 15,000 40,000 250,000 100,000



How much should be recognized as cost of the new machine? a. P1,985,000 c. P1,930,000 b. P1,993,000 d. P2,025,000 39.



An entity has the following items of Machinery at Dec. 31, 2020: Machine No. 1 2 3 4



Cost P100,00 0 200,000 300,000 400,000



Acc. Dep. P95,000 160,000 210,000 240,000



Additional information: • All items – useful is 10 years and the fair value is higher than the carrying amount at Dec. 31, 2021 • Machine No. 2 - idle during 2021 • Machine No. 3 - retired from active use on June 1, 2021 but not yet derecognized at Dec. 31, 2021 • Machine No. 4 - classified as held for sale in accordance with PFRS 5 on July 1, 2021 but still unsold at Dec. 31, 2021 The total depreciation for the year 2021 is a. P95,000 c. P75,000 b. P80,000 d. P57,500 40. In the 30 June 2021 annual report of Mamamo Blue Corp., the equipment was reported as follows: Equipment (at cost) Accumulated depreciation



P5,000,000 1,500,000 P3,500,000



The equipment consisted of two machines, machine A and machine B. Machine A had cost P3,000,000 and had a carrying amount of P1,800,000 at 30 June 2021, while machine B had cost P2,000,000 and was carried at P1,700,000. Both machines are Page 11 of 19



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EXCEL PROFESSIONAL SERVICES, INC. measured using the cost model, and depreciated on a straight-line basis over a ten-year period. On 31 December 2021, the directors of Mamamo Blue Corp. decided to change the basis of measuring the equipment from the cost model to the revaluation model. Machine A was revalued to P1,800,000 with an expected useful life of six years, and machine B was revalued to P1,550,000 with an expected useful life of five years. The amount to be recognized in profit or loss as a result of the revaluation of assets on December 31, 2021 is A. P150,000 C. P(150,000) B. P100,000 D. P( 50,000) 41. -



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 42. On January 2, 2013, Nagcarlan Company acquired a patent for P480,000. The patent had an estimated useful life of 10 years. At the beginning of 2017, the company spent P144,000 in successfully prosecuting an attempted patent infringement. At the beginning of 2018, the company purchased for P280,000 a patent that was expected to prolong the life of its original patent by 5 years. On July 1, 2021, a competitor obtained rights to a patent that made the company’s patents obsolete. Loss on patent obsolescence to be recognized in 2021 profit or loss is a. P338,000 c. P416,000 b. P364,000 d. P448,000 43. Kalayaan Corporation is considering acquiring Luisiana Company in total. Kalayaan makes the following computations and conclusions: • The fair value of the identifiable assets of Luisiana Company is P3,600,000. • The liabilities of Luisiana Company are P1,900,000. • A fair estimate of the annual earnings for the indefinite future is P600,000 per year. • Considering the risk and potential of Lusiana Company, Kalayaan feels that it must earn a 25% return on its investment.



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Compute the amount of goodwill. a. P175,000 c. P700,000 b. P600,000 d. P775,000 44. On January 1, 2018, Claudine Corp. acquired a gold mine property for P10,000,000. In 2018 and 2019, Claudine spent P4,000,000 on exploration and development. It expects to be able to mine 35,000 ounces of gold over the 10-year life of the mine. Claudine uses the output method to account for its gold costs and expects to be able to sell the property to a real estate developer for P2,000,000 at the end of the
10 years. It mined 3,100 ounces in 2020 and 2,800 in 2021. How much depletion would be recorded related to the gold in 2021? a. P 960,000 c. P1,200,000 b. P1,120,000 d. P1,400,000 45. At the current year-end, Nyusi Co has undertaken impairment tests on two machines. The following information is relevant: Machine Machine 2 1 Cost P450,000 P250,000 Useful life 10 years 15 years Age 4 years 3 years Fair value P300,000 P230,000 Costs of disposal P15,000 P35,000 Value in use P260,000 P198,000 At what carrying amount should machinery be recognized in the accounts of Nyusi Co? a. P498,000 c. P468,000 b. P470,000 d. P455,000 46. On July 1, 2021, the entity purchased a noncash asset with a list price of P260,000 by issuing a five-year noninterest-bearing note. The market or "going" rate of interest for this note was 12%. The note will; be paid in five equal annual P64,000 installments each June 30, 2022 through 2026. In relation to the note payable, the interest expense to be recognized by the entity for the year ended December 31, 2021 is a. P27,685 c. P13,842 b. P15,600 d. Nil 47. On January 1, 2021, an entity issued a P3 million 6% convertible bonds at par. The bonds are redeemable at a premium of 10% on December 31, 2024 or it may be converted into ordinary shares on the basis of 50 shares for each P1,000 bond at the option of the holder. The interest rate for an equivalent bond without the conversion rights would have been 10%. If the holders have no intention to exercise the conversion option, the issuance of convertible bonds on January 1, 2021 increased the entity’s equity by a. P380,418 c. P73,068 b. P175,518 d. P 0 48. A customer of Blessel Sharpeners alleges that Blessel's new razor sharpener had a defect that resulted in serious injury to the customer. Blessel believes the customer has a 51% chance of winning the case, and that if the customer wins the case, there is Page 13 of 19



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EXCEL PROFESSIONAL SERVICES, INC. a range of losses of between P1,000,000 and P3,000,000 in which any number is equally likely to occur. Blessel should accrue a liability in the amount of: a. P0 c. P2,000,000 b. P1,000,000 d. P3,000,000 49. The total carrying amount of equity will generally equal: a. The aggregate market value of equity claims on the entity. b. The amount that could be raised by selling the entity as a whole on a going concern basis. c. The amount that could be raised by selling all of the entity’s assets and settling all of its liabilities. d. None of these. 50. Which of the following should be presented in the statement of changes in equity? a. For each component of equity, the effects of retrospective restatement recognized in accordance with PAS 8. b. For each component of equity, an analysis of other comprehensive income by item. c. The amount of dividends recognized as distributions to owners during the period and the related amount of dividends per share. d. All of these. 51. a. b. c. d.



Which of the following will not change total equity? Share dividend Receipt of donated asset from a shareholder Issuance of convertible bonds Issuance of share warrants



52. The following information relate to an entity’s equity transactions for the year ended December 31, 2021: • Received P100,000 from the issuance of a call option that gives the holder the right to purchase 10,000 shares of the entity for a fixed price of P100 per share. Fair value of the option at December 31 is P110,000. • On December 31, 2021, the entity enters into a forward contract that requires the entity to repurchase its own shares for P60,000 on December 31, 2022. No consideration is paid or received at the inception of the contract. The market interest rate is 10% on December 31, 2021 and expected to be 12% on December 31, 2022. The net increase of these transactions on the entity’s equity for the year ended December 31, 2021 is a. P40,000 c. P 55,454 b. P45,454 d. P100,000 53. The following balances are shown in the shareholders' equity of Vaz Company on Dec. 31, 2020: Preference share capital, P10 par, 100,000 shares Ordinary share capital, P10 par, 500,000 shares, Share premium - preference Share premium – ordinary Retained earnings Total Page 14 of 19



P1,000,000 5,000,000 50,000 200,000 100,000 P6,350,000



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EXCEL PROFESSIONAL SERVICES, INC. During 2021, the following transactions pertaining to the shareholders' equity were completed: • Retirement of 5,000 preference shares at P9 per share. • Purchase of 5,000 ordinary shares at P12 per share to be held as treasury shares. • Share split, ordinary, 2 for 1. • Reissue of 2,000 treasury shares at P8 per share. • Profit for 2021, P300,000. The total retained earnings at Dec. 31, 2021 is a. P400,000 c. P392,000 b. P395,000 d. P387,000 54. PAS 10 states that if a dividend is declared after the reporting period but before the financial statements are authorized for issue, the dividend is: a. Recognized as a liability at the reporting period. b. Not recognized as a liability at the reporting period. c. Recorded as a direct reduction of equity at the reporting period. d. Recorded as a reduction against the asset ‘cash’ at reporting period. 55. The shareholders’ equity account balances for the Zackery, Inc. on December 31, 2019 follows: 12% Preference share capital, P100 par, 20,000 P2,000,000 shares Ordinary share capital, P25 par, 145,000 shares 3,625,000 Subscribed share capital, net of P500,000 subscriptions 1,000,000 receivable Share premium 500,000 Retained earnings 695,000 Treasury shares, 5,000 400,000 shares, at cost Preference shares have a liquidation value of P110; shares are cumulative, with dividends in arrears for 3 years including the current year and fully payable in the event of liquidation. The book value of an ordinary share is a. P22.50 c. P27.78 b. P25.00 d. P29.00 56.



Kagame Company’s capital structure was as follows: Outstanding securities: Ordinary Convertible preference 10% convertible bonds payable



2020



2021



1,000,000 100,000



1,000,000 100,000



P30,000,000 P30,000,000



During 2021, Kagame paid dividends of P15 per share on its preference shares. The preference shares are convertible into 150,000 ordinary shares and the 10% bonds are Page 15 of 19



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EXCEL PROFESSIONAL SERVICES, INC. convertible into 300,000 ordinary shares. Profit for 2021 was P10,000,000. income tax rate is 35%. The diluted earnings per share for 2021 should be a. P8.50 c. P8.24 b. P8.04 d. P7.50



The



57. On January 1, 2018, an entity granted the employees option to buy 200,000 shares with P20 par for P30 per share. The employees exercised the options on January 1, 2021. Quoted market prices of shares at the end of each year are as follows. 2018 2019 2020 2021



34 39 42 44



The service period is for two years beginning January 1, 2018. The fair value of the share options cannot be measured reliably. What is the compensation expense for 2020? a. P200,000 c. P400,000 b. P600,000 d. P 0 58. a. b. c. d. 59.



PFRS 16 applies to contracts that Convey the right to use an underlying asset for a period of time. Transfer control of the underlying asset to an entity. Both a and b. Neither a nor b.



Balances of the deferred tax accounts of Taxflow Ltd were as follows. 12/31/20 12/31/21 Deferred tax P3,200 P2,000



liabili Deferred tax asset



2,650



1,900



Income tax expense for the year ended December 31, 2021 was P1,550. The current tax payable at December 31, 2021 is P200 less than the current tax payable at the preceding year-end. What was the amount of income tax paid during the year ended December 31, 2021? a. P1,100 c. P2,000 b. P1,500 d. P2,200 60. Jessie Co. sponsors a defined benefit pension plan. For the current year ended December 31, the following information relevant to the plan has been accumulated: Defined benefit obligation, 1/1 Fair value of plan assets, 1/1 Current service cost Gain on settlement Actual return on plan assets Increase in defined benefit obligation due to changes in actuarial assumptions Market yield on high quality Page 16 of 19



P10,000,000 9,000,000 3,000,000 500,000 630,000 800,000 6%



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EXCEL PROFESSIONAL SERVICES, INC. corporate bonds Yield on bonds issued by the entity Expected return on plan assets



8% 9%



What amount should Jessie contribute in order to report an accrued pension liability of P500,000 in its December 31 statement of financial position? a. P2,060,000 c. P3,060,000 b. P2,770,000 d. P3,770,000 Use the following information for the next two questions. An entity is required to publish interim financial reports and is currently considering the accounting for the following: •



Sales of the entity for the first two quarters are as follows: Quarter ended March 31 June 30



•



•



• • • •



Amount P3,200,000 3,000,000



On January 1, the entity signed a 1-year rental with quarterly payments of P100,000 due at the end of each quarter. In addition, the entity must pay contingent rent of 5% of all sales in excess of P10,000,000. The contingent rent is payable on January 31 of the following year. The entity estimates that it is probable that it will pay additional rent. The entity sells electrical goods, and normally 5% of customers claim on their warranty. The provision in the first quarter was calculated as 5% of sales to date. However, in the second quarter, a design fault was found and warranty claims were expected to be 10% for the whole year. The entity paid P400,000 fire insurance premium for the calendar year. The entity paid P600,000 on February 1 for the calendar-year property tax. In the first week of April, the entity made unanticipated major repairs to its equipment at a cost of P180,000. The inventory at June 30 was includes P500,000 of slow moving inventory that is expected to be sold for a net amount of P300,000.



61. The total expense to be recognized in the entity’s profit or loss for the quarter ended March 31 is a. P705,000 c. P510,000 b. P545,000 d. P495,000 62. The total expense to be recognized in the entity’s profit or loss for the quarter ended June 30 is a. P1,215,000 c. P1,095,000 b. P1,190,000 d. P 895,000 63. Which of the following is (are) peculiar to an entity whose financial statements are prepared in accordance with the PFRS for Small and Medium-sized Entities? I. No other comprehensive income items II. Measurement of inventories at the lower cost or NRV III. Measurement of investment property using revaluation model IV. Measurement of investments in shares that are traded in an active market at the lower of cost or fair value Page 17 of 19



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EXCEL PROFESSIONAL SERVICES, INC.



a. b.



I, II, III and IV I, III and IV only



c. I and IV only d. None of these



64. The Standard contains a section on transition, which allows all of the exemptions in PFRS 1, First-Time Adoption of Philippine Financial Reporting Standards. It also contains certain exemptions for comparative information and the restatement of the opening statement of financial position. What is the basis for the latter exemptions to PFRS 1? a. Cost b. Impracticability c. Materiality d. Relevance 65. Which of the following may appear in the statement of financial position of an entity prepared in accordance with the PFRS for Small Entities? a. Finance lease liability b. Purchase commitment liability c. Investment in associate carried at fair value d. None of these 66. Which of the following is (are) peculiar to an entity whose financial statements are prepared in accordance with the PFRS for Small Entities? I. No statement of changes in equity II. Measurement of inventories at the lower cost or market III. Measurement of property, plant and equipment using fair value model IV. Measurement of equity-settled share-based payment transactions with reference to the net asset value of the equity instruments granted. a. b.



I, II, III and IV I, III and IV only



c. II, III and IV only d. I only



67. An entity acquires patent rights from other enterprises and pays advance royalties in some cases and in others, royalties are paid within ninety days after year-end. The following data are included in the entity’s December 31 balance sheets: 2020 2021 Prepaid royalties P55,000 P45,000 Royalties payable 80,000 75,000 During 2021 the entity remitted royalties of P300,000. In its income statement for the year ended December 31, 2021, the entity should report royalty expense of a. P295,000 c. P310,000 b. P305,000 d. P330,000 68. An analysis of Perk, Inc., disclosed changes in account balances for 20121 and the following supplementary data. Cash P21,000 increase Accounts 25,000 increase receivable Inventory 10,000 decrease Equipment 70,000 increase Accounts payable 5,000 decrease



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EXCEL PROFESSIONAL SERVICES, INC. Perk sold 5,000 shares of its P5 par shares for P8 per share and received cash in full. Dividends of P15,000 were paid in cash during the year. Perk borrowed P50,000 from the bank and made interest payments of P5,000. Perk had no other loans payable. Interest of P1,000 was payable at December 31, 2021. There was no interest payable at December 31, 2020. Equipment of P20,000 was donated by shareholders during the year. From these data, the profit for 2021 is a. P15,000 c. P20,000 b. P10,000 d. P65,000 69. The following information pertains to Judy-an Company and its operating segments for the current year. Sales to unaffiliated customers; P10,000,000, intersegment sales, P3,000,000; interest earned on loans to other segment, P500,000; traceable operating expenses, P6,000,000; indirect operating expenses, P2,500,000; general corporate expenses, P90,000; interest expense P400,000; income taxes, P1,200,000. Judy-an and all of its divisions are engaged solely in manufacturing operations and evaluates divisional performance based on controllable contribution. Judy-an has a reportable segment if that segment's operating profit is at least a. P150,000 c. P410,000 b. P370,000 d. P450,000 70.



Which of the following will change the net monetary items? I. Sales on account II. Collections of accounts receivable III. Purchases on account IV. Payments of account payable V. Cash dividends declaration VI. Payment of cash dividends payable



a. b.



I, II, III, IV, V and VI c. I, II, III, IV and VI only



I, III and V only d. II, IV and VI only End of Examination



Thank you for participating in Team PRTC Nationwide Online Final Pre-Board Examination.



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