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1.

Under PAS 32 and PIC rules, any transaction costs attributed to the issuance of new shares shall be
a. expensed immediately.
b. deducted from equity, net of any related income tax benefit.
c. deducted from equity, gross of any related income tax benefit.
d. charged to retained earnings, net of any related income tax benefit.
2. What links the decision makers and the decisions they make so that financial information would be
useful?
a. Reliability
b. Understandability
c. Relevance
d. Materiality
3. The IASB's standard-setting structure includes all of the following except
a. Standing Interpretations Committee
b. Standards Advisory Council
c. Standards Comparison Committee
d. Trustees
4. Which statement is incorrect regarding Philippine Financial Reporting Standards (PFRSs)?
a. PFRSs set out recognition, measurement, presentation and disclosure requirements dealing with
transactions and events that are important in general purpose financial statements.
b. PFRSs are based on the Framework, which addresses the concepts underlying the information
presented in general purpose financial statements.
c. PFRSs are designed to apply to the general purpose financial statements and other financial
reporting of all profit-oriented entities.
d. PFRSs are designed to apply to not-for-profit activities in the private sector.
5. Under Section 2 of PFRS for SMEs, what are the common measurement bases used to measure
financial statement elements of SMEs?
a. Historical cost and fair value
b. Historical cost, current cost and fair value
c. Historical cost, present value and fair value
d. Historical cost, current cost, present value and fair value
6. Which of the following statements regarding the IASB and FASB conceptual frameworks is not
correct?
a. The existing IASB and FASB conceptual frameworks are organized in similar ways.
b. The two assumptions of the IASB framework are that the financial statements are prepared on an
accrual basis and that the reporting entity is a going concern.
c. The FASB and IASB agree that the sole objective of financial reporting is to provide users with
information that is useful for decision-making.
d. The FASB conceptual framework discusses the concept of accrual basis accounting in detail, but
does not specifically identity it as an assumption.
7. The issues which the FASB and IASB must address in developing a common conceptual framework
include all of the following except:
a. Should the common framework lead to standards that are principles-based or rules-based?
b. Should the role of financial reporting focus on stewardship as well as providing information to
assist users in decision making?
c. Should the characteristic of reliability be traded-off in favor of information that is verifiable?
d. Should a single measurement method such as historical cost be used?
8. Brown Company's account balances at December 31, 2012 for Accounts Receivable and the related
Allowance for Doubtful Accounts are P920,000 debit and P1,400 credit, respectively. From an
aging of accounts receivable, it is estimated that P25,000 of the December 31 receivables will
be uncollectible. The necessary adjusting entry would include a credit to the allowance account
for

a.
b.
c.
d.

P25,000.
P26,400.
P23,600.
P1,400.

9. The statement of cash flows helps meet the objective of financial reporting, which is to assess all of
the following except the
a. amount of future cash flows.
b. source of future cash flows.
c. timing of future cash flows.
d. uncertainty of future cash flows.
10. Under the Conceptual Framework for Financial Reporting 2010, which of the following statements
is not a feature of financial information's comparability characteristic?
a. Consistency, although related to comparability, is not the same.
b. A comparison requires at least two items.
c. Comparability is uniformity.
d. Comparability is the goal; consistency helps to achieve that goal.
11. Which of the following is not directly involved in the accounting standard-setting due process in the
Phillippines?
a. Financial Reporting Standards Council
b. Professional Regulations Commission
c. Bureau of Internal Revenue
d. Board of Accountancy
12. Under PFRS for SMEs, an entity has public accountability in all of the following situations, except:
a. The entity's debt or equity instruments are traded in a public market
b. The entity is in the process of issuing debt or equity instruments for trading in a public
market.
c. The entity holds assets in a fiduciary capacity for a broad group of outsiders as one of its
primary businesses.
d. The entity holds assets in a fiduciary capacity for a broad group of outsiders as an
incidental part of its business.
13. Which of the following is not considered as a basic financial instrument for SMEs?
a. Commercial papers and bills
b. Bonds and loans payable
c. Cash and bank accounts
d. Options and warrants
14. Under PAS 38, which of the following methods of amortization is normally not recommended for
intangible assets?
a. Units of production method
b. Declining balance method
c. Effective interest method
d. Straight-line method
15. When calculating estimates of future cash flows for value in use, which of these cash flows should
not be included?
a. Cash flows from disposal
b. Income tax payments
c. Cash flows from the sale of assets produced by the asset
d. Cash outflows on the maintenance of the asset
16. An entity owns a number of farms that harvest produce seasonally. Approximately 80% of the
entity's sales are in the period August to October. Because the entity's business is seasonal, PAS 34
suggests
a. Additional disclosure in the accounting policy note
b. Additional disclosure in the notes about the seasonal nature of the business

c. Disclosure of the seasonal nature of the business and disclosure of financial information
for the latest and comparative 12-month period in addition to the interim report
d. No additional disclosure
17. How can accounting for bad debts be used for earnings management?
a. Determining which accounts to write-off.
b. Changing the percentage of sales recorded as bad debt expense.
c. Using an aging of the accounts receivable balance to determine bad debt expense.
d. Reversing previous write-offs.
18. Why do companies provide trade discounts?
a. To avoid frequent changes in catalogs.
b. To induce prompt payment.
c. To easily alter prices for different customers.
d. Both a. and c.
19. An employee asks for an authorized reimbursement of transportation charges out of the Imprest
petty cash fund. To document this transaction, the petty cashier should
a. Debit transportation expensed
b. Debit receivable from employee
c. Credit cash and cash equivalents
d. Prepare the petty cash voucher only
20. According to PAS 37, which two of the following best describe the sources of legal obligation? A
legal obligation is an obligation derived from
1-Legislation
2-A contract
3-A published policy
4-An established pattern of past practice
a. 1 and 2
b. 1 and 3
c. 3 and 4
d. 2 and 4
21. Which of the following is within the scope of PAS 37 (Provisions, contingent liabilities and
contingent asset)?
a. Financial instruments carried at fair value
b. Future payments under employment contracts
c. Future payments on vacant leasehold premises
d. An insurance company's policy liability
SITUATIONAL PROBLEM 1
An SME operates an executive aviation service. The entitys only item of property, plant and equipment
is an aircraft that it acquired for P10,400,000. The cost of the aircraft is attributed to its significant parts
as follows: the jet engine (60%), body (20%) and aviation equipment (10%) and furniture and fittings
(10%).
A condition of operating an aircraft is that it is inspected by the aviation authorities every three years.
An inspection costs P400,000. The jet had been inspected at the manufacturers expense before
delivery to the entity.
Aviation regulations require the jet engine to be replaced when it has flown 2,000,000 air miles.
Management intends fitting a new engine to the aircraft when it requires replacement so that the aircraft
can be used for approximately 10 years, at which time it intends to scrap the aircraft.
Management does not expect to replace the body of the aircraft or the aviation equipment. However,
management assesses the useful life of the furniture and fittings as five years at which time they will be

scrapped and replaced.


22. What is the cost of each of the significant parts of the aircraft that the SME must depreciate
separately:
a. P6,240,000 jet engine, P2,080,000 body, P1,040,000 aviation equipment and P1,040,000
furniture and fittings.
b. P10,400,000 jet aircraft.
c. P6,000,000 jet engine, P3,000,000 body and equipment, P1,000,000 furniture and fittings
and P400,000 aviation inspection.
d. P10,000,000 jet aircraft.
23. What depreciation methods are most appropriate for the SME to apply to compute depreciation for
the significant parts of the aircraft:
a. Straight-line method for all parts of the aircraft.
b. Units of production method, based on air miles flown, for the jet engines and the straightline method for all other parts of the aircraft.
c. Units of production method, based on air miles flown, for all parts of the aircraft.
d. Diminishing balance method for all parts of the aircraft.
SITUATIONAL PROBLEM 2

In your analysis, as the accountant for John Manuel Company, you got the following
information from the books of accounts on December 31, 2016:
Accounts Receivable, before deducting credit
balance of P500,000
Financial assets at fair value through profit or loss
Financial assets at fair value through other
comprehensive income
Cash
Inventory
Equipment and furniture
Accumulated depreciation-Equipment and furniture
Patent
Prepaid expenses
Land held for future business site
Accounts payable, after deducting debit balances
in suppliers' accounts amounting to P100,000
Accrued expenses
Stock dividend payable
Claims for increase in wages and allowances by
employees of the company, covered in
a pending lawsuit
Estimated expenses in redeeming prize coupons
presented by customers

1,600,000
500,000
1,300,000
1,100,000
3,000,000
2,500,000
1,500,000
400,000
100,000
1,800,000
4,000,000
1,500,000
1,000,000
400,000
600,000

JoemeCorp's finance services department has presented to you the following incomplete data:
Sales
Cost of goods sold
Foreign translation adjustment-credit
Selling expenses
Unusual and infrequent gain
Correction of inventory error
General and administrative expenses
Income tax expense
Gain on sale of investment, FA@FVT-OCI
Proceeds from sale of land at cost

?
?
400,000
?
400,000
200,000
600,000
150,000
050,000
800,000

Dividends
Income from continuing operations

1,150,000

During year 3, Emelita Company discovered that the ending inventories reported on its financial
statements were incorrect by the following amounts:
Year 1
P60,000 understated
Year 2
75,000 overstated
Emelita uses the periodic inventory system to ascertain year-end quantities that are converted to
dollar amounts using the FIFO cost method.

24. In John Manuel Company's December 31, 2016 statement of financial position, the current assets
should be
a. 9,400,000
b. 6,400,000
c. 6,300,000
d. 7,600,000
25. How much should be presented as total current liabilities on the statement of financial position of
John Manuel Company?
a. 6,700,000
b. 6,600,000
c. 7,100,000
d. 7,700,000
26. If other income is 8% of sales and expenses (except income tax expense) is 26% of sales, how
much is cost of goods sold in JoemeCorp's books?
a. 2,800,000
b. 3,312,500
c. 2,200,000
d. 5,000,000
27. In JoemeCorp's books, how much is the selling expenses?
a. 1,300,000
b. 862,500
c. 700,000
d. 600,000
28. Prior to any adjustments for the errors above and ignoring income taxes, Emelitas retained
earnings at January 1, year 3, would be
a. Correct.
b. P 15,000 overstated.
c. P 75,000 overstated.
d. P135,000 overstated.
SITUATIONAL PROBLEM 3
An array of problems were presented to you for consultation by different entities. These entities were
relying on your professional accounting expertise:

On March 1, Jimjim Company purchased for P4,500,000 a tract of land as a factory site. An
existing building on the property was razed and construction was begun on a new factory
building in April. Additional data are available as follows:
Cost of razing old building
300,000
Title insurance and legal fees to purchase land
200,000
Architect fee
950,000
New building construction cost
8,000,000
The Jacob Company purchased an investment property on 1 January 2015 for a cost of
P220,000. The property had a useful life of 40 years and at 31 December 2017 had a fair value

of P300,000. On 1 January 2018 the property was sold for net proceeds of P290,000. Jacob uses
the cost model to account for investment properties.

The following expenditures relating to the plant building were made by Jian Rob Company
during the year ended December 31, 2016: replacement of the old shingle roof with a fireproof
tile roof, P750,000; repainted the plant building, P50,000; major improvement to the electrical
wiring system, P350,000.

Johanna Company provides the following data with respect to its inventory:
Items counted in the bodega
Items included in the count specifically segregated per sale contract
Items in the receiving department, returned by customer in good
condition
Items ordered and in the receiving department, invoice not received
Items ordered, invoice received but goods not received. Freight is on
account of seller
Items shipped today, invoice mailed, FOB shipping point
Items shipped today, invoice mailed, FOB destination
Items currently being used for window display
Items on counter for sale
Items in receiving department, refused by Johanna Company because
of damage
Items included in count, damaged and unsalable
Items in the shipping department

4,000,000
100,000
50,000
400,000
300,000
250,000
150,000
200,000
800,000
180,000
50,000
250,000

Raizil Company purchased 100 beef cattle at an auction for P800,000 on July 1, 2010.
Transportation costs were P8,000. Raizil Company would have to incur the same transportation
costs if it had sold its cattle in the auction. In addition, there would be a 2% auctioneer's fee on
the market price of the cattle payable by the seller. Raizil Company also incurred P4,000
veterinary expenses. On December 31, 2010, the fair value of the cattle in the most relevant
market increases to P880,000. On May 2, 2011, Raizil Company sold 18 cattle at an auction for
P160,000 and incurred transportation costs of P1,200.
On June 15, 2011, the fair value of the remaining cattle was P662, 560 but on the same day, 42
cattle were slaughtered with total cost of P33,600. The fair value of the carcasses on that day
was P386,400 and the estimated transportation cost to sell the carcasses is P3,360. No other
selling costs were expected.
On June 30, 2011, the fair value of the remaining 40 cattle was P358,400. The estimated
transportation cost is P3,200.

Rob Company received an P1,800,000 subsidy from the government to purchase manufacturing
equipment on January 2, 2015. The equipment has a cost of P3,000,000, a useful life of six
years, and no salvage value. Rob depreciates the equipment on a straight-line basis.

29. In Jimjim's books, the cost of the factory building should be


a. 9,250,000
b. 9,450,000
c. 8,950,000
d. 9,150,000
30. What is the gain or loss to be recognized by Jacob Company in profit or loss for the year ended 31
December 2018 regarding the disposal of the property, according to PAS 40 Investment property?
a. P86,500 gain
b. P81,000 gain
c. P10,000 loss
d. P70,000 gain

31. How much should be capitalized by Jian Rob Company in 2016?


a. 1,150,000
b. 1,100,000
c. 750,000
d. 50,000
32. What is the correct amount of inventory in Johanna's books?
a.6,000,000
b.5,700,000
c.5,800,000
d. 5,150,000
33. What amount should the biological asset be initially recognized on July 1, 2010 in Raizil's books?
a. 776,000
b. 784,000
c. 792,000
d. 800,000
34. What is the net proceeds from the sale of cattle on May 2, 2011 (Raizil Company)?
a. 155,600
b. 156,400
c. 158,800
d. 160,000
35. If Rob chooses to account for the grant as deferred revenue, the amount of depreciation expense
recorded in 2015 will be:
a. 0
b. 200,000
c. 300,000
d. 500,000
SITUATIONAL PROBLEM 4
Different entities with different investment accounts went to you for consultation. These are the
information you gathered:

During 20x3 Cynthia Company acquired investment in equity securities and designated as
financial assets at fair value through other comprehensive income. At December 31, 20x3, the
balance in the fair value adjustment account was a credit amount of P200,000 and unrealized
loss of P140,000 net of deferred tax asset of P60,000. There were no security transactions
during 20x4. Pertinent data on December 31, 2014 are:
Securities
Historical Cost
Market
F
P1,500,000
P1,600,000
A
1,200,000
1,400,000
R
2,300,000
2,400,000

Manuel Company purchased 10% of Xymon Corporation's 200,000 outstanding shares of


ordinary share on January 2, 2014 for P2,500,000. On January 2, 2014, Manuel Company
purchased another 40,000 shares of Xymon for P6,000,000. There was no goodwill as a result
of either acquisition. Xymon reported earnings of P6,000,000 and P7,000,000 for the year
ended December 31, 2014 and December 31, 2015, respectively. No dividends were declared in
years 2014 and 2015, respectively by Xymon.

On March 1, year 1, Acadia purchased 1,000 shares of common stock of Marston Corp. for
P50,000 and classified the investment as available-for-sale securities. On December 31, year 1,
the Marston stock had a fair value of P53,000. Acadia Corp. prepares its financial statements in
accordance with IFRS. Acadia elects to use fair value through profit or loss to record its
investments in available-for-sale securities.

On January 2, year 1, Well Co. purchased 10% of Rea, Inc.s outstanding common shares for
P400,000. Well is the largest single shareholder in Rea, and Wells officers are a majority on
Reas board of directors. Rea reported net income of P500,000 for year 1, and paid dividends of
P150,000. Well does not elect the fair value option to report its investment in Rea.

36. If securities are to be sold aggregately, the company will have to incur P150,000 transaction cost.
What amount of cumulative unrealized gain should Cynthia Company report in its shareholders equity
on December 31, 20x4?
a. 200,000
b. 160,000
c. 280,000
d. 600,000
37. What amount of income from investment should Manuel Company report in its statement of
comprehensive income related to its investment for the year ended December 31, 2015?
a. none
b. P600,000
c. P1,400,000
d. P2,100,000
38. How is the gain on the investment in Marston stock reported in Acadias year 1 financial
statements?
a. As a P3,000 gain in other comprehensive income.
b. No gain or loss is reported in year 1.
c. As a P3,000 prior period adjustment to retained earnings.
d. As a P3,000 gain in current earnings of the period.
39. In its December 31, year 1 balance sheet, what amount should Well report as investment in Rea?
a. 435,000
b. 450,000
c. 400,000
d. 385,000
SITUATIONAL PROBLEM 5
An SME with varied investments in other entities had the following data gathered:

On January 2, 2014 Jennelyn Company, an SME, purchased 20% of Chad Corporation's


200,000 ordinary shares for P3,000,000 including a P50,000 transaction cost. This investment
gives Jennelyn the ability to exercise significant influence over Chad Corporation. During 2014,
Chad reported net income of P1,750,000 and paid cash dividends of P1,000,000 on its ordinary
shares. As of December 31, 2014, the shares of Chad Corporation are traded and are currently
selling at P81.25 per share.

On July 1, 2014, Malou Company, an SME, purchased 20% of the outstanding ordinary shares
of Abet Corporation for P800,000, when the fair value of Abet's net assets was P3,000,000. The
shares of Abet Company are traded in the active market. Malou Company has elected the use of
the equity model to account for the investment in associate. The following data concerning Abet
are available for 2014:
12 months ended
6 months ended
December 31, 2014
December 31, 2014
Net Income
P600,000
P320,000
Dividends declared and paid
360,000
200,000
Shares outstanding
100,000
Market value per share
P41.00

40. In the statement of comprehensive income of Jennelyn Company for the year 2014, what net
amount that is reported in relation to the investment?
a. 200,000
b. 250,000

c. 450,000
d. 400,000
41. Assuming the shares of the investee are selling at P70 per share and cost to sell of P6 per share on
December 31, 2014 and Jennelyn Company uses the cost method of accounting for the investment,
what net amount is reported in the 2014 statement of comprehensive income of Jennelyn Company?
a. 200,000
b. (190,000)
c. (240,000)
d. (440,000)
42. In the statement of financial position of Malou Company for the year ended December 31, 2014, at
what amount should the investment be reported?
a. 804,000
b. 820,000
c. 814,000
d. 824,000
SITUATIONAL PROBLEM 6
The following are independent cases from different entities:

March 1, 2014 Rapture Corporation issued at 103 plus accrued interest, 1,000 of its 9%, P1,000
bonds. The bonds are dated January 1, 2014 and mature on January 1, 2024. Interest is payable
semi-annually on January 1 and July 1. Rapture paid transaction costs of P5,000

At the beginning of 2015, Wallace Corporation issued 10% bonds with a face value of
P900,000. These bonds mature in the five years, and interest is paid semi-annually on June 30
and December 31. These bonds were sold for P833,760 to yield 12%. Wallace uses a calendaryear reporting period.

On January 1, 2012, Faith Company issued its 8%, 5-year convertible debt instrument with a
face amount of P8,000,000 for P7,700,000. Interest is payable every December 31 of each year.
The debt instrument is convertible into 50,000 ordinary shares with a par value of P100. When
the debt instruments were issued, the prevailing market rate of interest for similar debt without
conversion option is 10%
On December 31, 2014, all the convertible debt instruments were retired for P8,000,000. The
prevailing rate of interest on a similar debt instrument as of December 31, 2014 is 9% without
the conversion option.

43. Based on the given information, how much should Rapture realize as net cash receipts from the
bond issuance?
a. 1,025,000
b. 1,030,000
c. 1,040,000
d. 1,045,000
44. Using effective-interest method of amortization, what amount of interest expense should be
reported for 2015 by Wallace Corporation?
a. 99,750
b. 100,050
c. 100,353
d. 103, 248
45. What is the carrying value of the debt instrument to be reported by Faith on December 31, 2014?
a. P7,393,473
b. P7,492,820
c. P7,602,102

d. P7,722,314

SITUATIONAL PROBLEM 7
An entity had financial assets at its disposal but does not know how to account for them. Assist the
entity in its predicament:
The entity reported the following information as of the end of the current year:
Investment securities of P1,000,000. These securities are share investments in entities
that are traded in the Philippine Stock Exchange. As a result, the shares are very actively
traded in the market.
Investment securities if P2,000,000. These securities are government treasury bills. The
treasury bills have a 10-year term and purchased on December 31 at which time they had
two months to go until they mature
Cash of P3,400,000 in the form of coin, currency, saving account and checking account.
Investment securities of P1,500,000. These securities are commercial papers. The term
of the papers is nine months and they were purchased on December 31 at which time
they had four months to go until they mature.

At the close of its first year of operations, December 31, 2015, the entity had accounts
receivable of P540,000 after deducting the related allowance for doubtful accounts. During
2015, the company had charges to bad debt expense of P90,000 and wrote off, as uncollectible,
accounts receivable of P40,000.

On the December 31, year 2 balance sheet of the entity, the current receivables consisted of the
following:
Trade accounts receivable
Allowance for uncollectible accounts
Claim against shipper for goods lost in transit (November year
2)
Selling price of unsold goods sent by the entity on
consignment at 130% of cost (not included in entitys ending
inventory)
Security deposit on lease of warehouse used for storing some
inventories
Total

P 93,000
(2,000)
3,000
26,000
30,000
P150,000

46. How much should be reported as cash and cash equivalents at the end of the current year?
a. 5,400,000
b. 6,400,000
c. 6,900,000
d. 7,900,000
47. What should the entity report on its statement of financial position at December 31, 2015, as
accounts receivable before the allowance for doubtful accounts?
a. 440,000
b. 490,000
c. 590,000
d. 640,000
48. At December 31, year 2, the correct total of the entitys current net receivables was
a. 94,000
b. 120,000
c. 124,000
d. 150,000

SITUATIONAL PROBLEM 8
You are given the following information about different entities:
The opening inventory of Chronic Company on January 1, 2014 was P5,000,000. This amount
included inventory A items which were carried at their net realizable value of P500,000, the
original cost of these items was P800,000. During the current year purchases totaled
P20,000,000, transportations and other directly attributable costs incurred in bringing the
inventories to warehouse totaled P500,000. At year end December 31, 2014, a physical
inventory count was conducted and it revealed a book amount of P7,000,000. Included in the
closing inventory was P2,000,000 but the estimated realizable value was P1,200,000. Also,
inventory A items brought forward from prior year remained unsold at year end. There was an
increase in the demand for these items and it was estimated that they could be sold for
P1,000,000.

Internet Protocol-IP, Inc. owns a fleet of over 100 cars and 20 ships. It operates in a capitalintensive industry and thus has significant other property, plant, and equipment that it carries in
its books. It decided to revalue its property, plant, and equipment. The companys accountant has
suggested the alternatives that follow.

Shien Company completes installation of its telecommunication network facilities on January 1,


2012. The various costs incurred prior to completion are as follows: Cost of overseas trips to
search for telecommunication, facilities purchasing and administrative cost incurred prior to
installation, P2,000,000; costs of site preparation, P50,000,000, telecommunication machinery
and equipment, P300,000,000; initial delivery and handling costs, P10,000,000; commissioning,
installation and assembly costs, P40,000,000; cost of testing the network, P5,000,000; directly
attributable professional fees, P15,000,000; costs of opening the network facilities, including
costs incurred for inviting superstars and VIPs, P5,000,000; costs of relocating certain facilities,
P2,000,000.
Shien Company has a right to operate the facilities for 10 years. After the 10th year, it is
required to decommission the facilities and the cost of decommissioning is estimated at a future
value of P50,000,000. Shien Companys current borrowing cost is 8% per annum.

Wojtowicz Limited was involved in a mining exploration business. It commenced a project to


design more efficient gold detecting equipment. The following expenditures occurred during the
financial year ended 2013: Researchers salary P5,000 Research consumables P3,000 Redevelopment of the detecting equipment P4,000 Final adjustments to the detecting equipment
P2,500.

Josh Corporation owns an office building where nine out of ten floors are leased out to a third
party under operating lease, while the 10th floor is occupied by Millenium as its head office.

At 30 June 2016 the fair value of WineCos vineyard is P2.5 million. At 30 June 2017 the
following information is available:
Fair value of vines prior to harvest at 31 March 2017
3,100,000
Fair value of grapes harvested at 31 March 2017
500,000
Estimated costs to sell - grapes
10,000
Estimated costs to sell - vines
20,000

NCA-HFS Co. is planning to dispose of a collection of assets. The entity designates these assets
as a disposal group, and the carrying amount of these assets immediately before the
classification as held for sale was P20 million. Upon being classified as held for sale the asset
were revalued at P18 million. The entity feels that the fair value less cost to sell would be P17
million.

49. It is Chronic's policy to include declines and reversals in the cost of sales. What is the amount of the
cost of sales during 2014?

a. 18,200,000
b. 18,500,000
c. 19,000,000
d. 19,600,000
50. Which one of the options should Internet Protocol-IP, Inc. select in order to be in line with the
provisions of PAS 16?
a. Revalue one ship at a time, as it is easier than revaluing all ships together.
b. Revalue an entire class of property, plant, and equipment.
c. Since assets are being revalued regularly, there is no need to depreciate.
d. Revalue only one-half of each class of property, plant, and equipment, as that method is
less cumbersome and easy compared to revaluing all assets together.
51. At what amount should the telecommunication network facilities be initially recorded by Shien
Company?
a. 415,000,000
b. 420,000,000
c. 400,000,000
d. 443,160,000
52. The amount to be capitalized by Wojtowicz as an intangible asset, for the 2013 financial year, is:
a. 11,500
b. 6,500
c. 8,000
d. 14,500
53. What is the proper treatment of the above property in Josh's financial statements?
a. Nine floors are reported as Investment Property while the tenth floor as Property and
Equipment
b. The entire building is reported as Property and Equipment
c. Nine floors are reported as Property and Equipment while the tenth floor as Investment
Property
d. The entire building is reported as Investment Property
54. The entry to recognize the grapes at the point of harvest is (WineCos):
a. Debit: Agricultural produce - grapes (500,000)
Credit: Profit & loss (500,000)
b. Debit: Agricultural produce - grapes (510,000)
Credit: Cash (10,000)
Credit: Biological asset - vines (500,000)
c. Debit: Agricultural produce - grapes (500,000)
Credit: Biological asset - vines (500,000)
d. Debit: Agricultural produce - grapes (490,000)
Credit: Profit & loss (490,000)
55. How would the reduction in the value of the assets on classification as held for sale be treated in the
financial statements of NCA HFS Co.?
a. The entity recognizes a loss of P3 million immediately before classifying the disposal
group as held for sale
b. The entity recognizes an impairment loss of P3 million.
c. The entity recognizes a loss of P2 million immediately before classification as held for
sale and then recognizes an impairment loss of P1 million
d. The entity recognizes an impairment loss of P2 million.
SITUATIONAL PROBLEM 9
Many companies, having no other option, resorted to your help as their last chance in redeeming their
companies from the following problems:

Carlos Co. leased equipment to Nini Corp. on January 2, 2016, for an 8-year period expiring
December 31, 2022. Equal payments under the lease are 1,200,000 and are due on January 2 of
each year. The initial payment was made on January 2, 2016. The list selling price of the
equipment is 7,040,000 and its carrying value on Nini Corp.s books is 5,600,000. The lease
payments have a present value of 6,600,000 at an imputed interest rate of 12%.

The Minor Company leased a freehold building for 20 years, the useful life of the building, with
effect from January 1 2015. At that date the fair value of the leasehold interest was P7.5 million
of which P6.0 million was attributable to the building, Annual rentals of P800,000 are payable
in advance on January 1.

Carpenter Ltd has 6 employees, who are each paid P750 per week for a 5 day working week.
Each employee is entitled to 8 days accumulating non-vesting sick leave per year. At 1 July
2013 the accumulated untaken leave was 14 days in total. During the year ended 30 June 2014 a
total of 50 days sick leave was taken, of which 12 days were unpaid leave. Of the accumulated
untaken leave at 30 June 2014 it is estimated that 75% of it will be taken during the following
year.
On June 30, 2015 Forest Co. sold equipment with an estimated remaining useful life of 10 years
and immediately leased it back for 5 years. The equipment's carrying amount was P210,000.
The sales price was P150,000. The fair value of the equipment was P184,337. The lease
agreement is an operating lease.

56. How much is the dealers profit that should be recognized by Carlos Co. in 2016?
a. 1,440,000
b. 4,000,000
c. 0
d. 1,000,000
57. SMILE
58. How much should Minor recognize as an operating lease expense in the year ended December 31,
2015, according to PAS 17 Leases?
a. Nil
b. 160,000
c. 640,000
d. 800,000
59. The balance of the provision for sick leave at 30 June 2014 is (Carpenter Ltd):
a. 0, as the leave is non-vesting
b. 1,350
c. 3,600
d. 2,700
60. What amount of loss should Forest Co. recognize on June 30, 2015 assuming future rental is equal
or above market rate rent?
a. none
b. P25,663
c. P34,337
d. P60,000
61. What amount of loss should Forest Co. recognize on June 30, 2015 assuming future rental is below
market rate rent?
a. none
b. P25,663
c. P34,337
d. P60,000
SITUATIONAL PROBLEM 10

62. Under new legislation, ABC is required to fit smoke filters to its factories by 31 March 20X2. Paper
Co has not fitted smoke filters yet. The state authority will perform annual checks of smoke filters and
impose penalty for breach of the legislation. Should ABC recognize any provision as of 31 December
20X1?
a. Yes, the provision should be recognized as of 31 December 20X1 in amount of estimated
penalty for not installing the smoke filters.
b. No, the provision should not be recognized as of 31 December 20X1, because there is no
present obligation arising from past event.
c. Yes, the provision should be recognized as of 31 December 20X1 for both the cost of
smoke filters and the penalty.
d. Yes, the provision should be recognized as of 31 December 20X1 in amount of estimated
cost of smoke filters.
SITUATIONAL PROBLEM 11
John is a Full PFRS compliant entity. It so happens that John also prepares interim financial statements.
The company provided you the following information:

John Company's profit before tax for the six months ended June 30, 2014 was P5,000,000.
However, the business is seasonal and profit before tax for the six months ended December 31,
2014 is almost certain to be P9,000,000. Profit before tax equals taxable profit for this entity.
John operates in a country where income tax is at a rate of 30% if annual profit is below
P11,000,000 and a rate of 35% where annual profit exceeds P11,000,000. These tax rates apply
to the entire profit for the year.

63. What should be the income tax expense in John's interim financial statements for the half year
ended June 30, 2014?
a. 1,750,000
b. 1,500,000
c. 2,450,000
d. 2,100,000
64. As a minimum requirement, interim financial report of John should include
a. A complete set of financial statement pursuant to PAS 1
b. A condensed set of financial statements and selected explanatory notes
c. A balance sheet and statement of comprehensive income
d. A condensed balance sheet and statement of comprehensive income
SITUATIONAL PROBLEM 12
The Mark Corporation has requested you to look at its financial statements for the year 2010. During
your analysis, Mark presented to you its balance sheet as of December 31, 2009 containing the
following capital section:
Preferred stock P10 par; 60,000 shares authorized and issued, of which
6,000 are treasury shares costing P90,000 and shown as an asset
600,000
Common stock, par value P4; 600,000 shares authorized, of which 450,000
are issued and outstanding
1,800,000
Additional paid in capital (P5 per share on preferred stock issued in 2005)
300,000
Allowance for doubtful accounts receivable
12,000
Reserve for depreciation
840,000
Reserve for fire insurance
198,000
Retained earnings
2,250,000
6,000,000
Additional information:
1
Of the preferred stock, 3,000 shares were sold for P18 per share on August 30,
2010. Perseverance credited the proceeds to the Preferred Stock account. The
treasury shares as of December 31, 2009 were acquired in one purchase in 2009

The preferred stock carries an annual dividend of P1 per share. The dividend is
cumulative. As of December 31, 2009, unpaid cumulative dividends amounted to
P5 per share. The entire accumulation was liquidated in June, 2010, by issuing to
the preferred stockholders 54,000 shares of common stock.
3
A cash dividend of P1 per share was declared on December 1, 2010 to preferred
stockholders of record December 15, 2010. The dividend is payable on January 15,
2011.
4
At December 31, 2010, the Allowance for Doubtful Accounts Receivable and
Reserve for Depreciation had balances of P25,000 and P1,050,000, respectively.
5
On March 1, 2010, the Reserve for Fire Insurance was increased by P60,000;
Retained Earnings was debited.
6
On December 31, 2010, the Reserve for Fire Insurance was decreased by P30,000,
which represents the carrying value of a machine destroyed by fire on that
date. Estimated fire cleanup costs of P6,000 does not appear on the records.
7
Net income for the year ended December 31, 2010 was P1,297,500 per companys
records.
8
The December 31, 2009 Retained Earnings consists of the following:
Donated land from a stockholder (Market value on date of
450,000
donation)
Gains from treasury stock transactions
51,000
Earnings retained in business
1,749,000
2,250,000
65. Total stockholders equity
a. 3,700,500
b. 5,812,500
c. 6,316,500
d. 6,319,500
SITUATIONAL PROBLEM 13
Ino Corporation owned 10,000 shares of Jing Corporation. These shares were purchased in 2009 for
P90,000. On November 15, 2013, Ino declared a property dividend of one share of Jing for every ten
shares of Ino held by a stockholder. On that date, when the market price of Jing was P14 per share,
there were 90,000 shares of Ino outstanding.
66. What gain and net reduction in retained earnings would result from this property dividend?
a. Gain (45,000); Net reduction in retained earnings (36,000)
b. Gain (45,000); Net reduction in retained earnings (81,000)
c. Gain (0); Net reduction in retained earnings (81,000)
d. Gain (0); Net reduction in retained earnings (126,000)
SITUATIONAL PROBLEM 14
At the beginning of year 1, Entity A grants share options to each of its 100 employees working in the
sales department. The share options will vest at the end of year 3, provided that the employees will
remain in the entitys employ, and provided that the volume of sales of a particular product increases by
at least an average of 5% per year. If the volume of sales of the product increases by an average of
between 5% and 10% per year, each employee will receive 100 share options. If the volume of sales
increases by an average of between 11% and 15% each year, each employee will receive 200 share
options. If the volume of sales increases by an average of 16% or more, each employee will receive 300
share options.On grant date, Entity A estimates that the share options have a fair value of P20 per
option. Entity A also estimates that the volume of sales of the product will increase by an average of bet
11% and 15% per year, and therefore expects that, for each employee who remains in service until the
end of year 3, 200 share options will vest. The entity also estimates, on the basis of a weighted average
probability, that 20% of employees will leave before the end of year 3. By the end of year 1, seven
employees have left and the entity still expects that a total of 20 employees will leave by the end of
year 3. Hence, the entity expects that 80 employees will remain in service for the three-year period.

Product sales have increased by 12% and the entity expects this rate of increase to continue over the
next 2 years. By the end of year 2, a further 5 employees have left, bringing the total to 12 to date. The
entity now expects only 3 more employees will leave during year 3, and therefore expects a total of
85% employees will remain at the end of year 3. Product sales have increased by 20%, resulting in an
average of 16% over the 2 years to date. The entity now expects that sales will average 16 percent or
more over the three-year period, and hence expects each sales employee to receive 300 share options at
the end of year 3.By the end of year 3, a further two employees have left. Hence, 14 employees left
during the three-year period, and 86 employees remain. The entitys sales have increased by an average
of 16 % over the three years.
67. What is the compensation expense for year 2?
a. 233,333
b. 286,667
c. 168,000
d. 180,000
SITUATIONAL PROBLEM 15
The net income of Charles Company for the year ended December 31, 2002 was P100,000. The
following additional information is available about the Company:
The weighted average number of shares outstanding during the year was 19,000.
During the year 1,000 shares of P100 par, 5% convertible preferred stock were outstanding.
Each preferred stock is convertible into one share of common stock.
During the year, 100 bonds each of P1,000 face value were outstanding. The bonds were issued
at par, pay 12% interest per year, and are convertible into 20 shares of common stock.
There were 5,000 options outstanding, with an option price of P20 each. The average market
price for the period was P25.
68. In the case of Charles Company, which security is the most dilutive
a. Options
b. Convertible preferred stock
c. Convertible bonds
d. No dilutive, all anti-dilutive
69. Compute the diluted earnings per share (tax rate=30%)
a. P5.00
b. P4.70
c. P4.86
d. P4.48
SITUATIONAL PROBLEM 16
After hurdling the life-changing CPA board examination, Mr. Valix goes to PICC to take the oath of
upholding the integrity of the profession. After this he goes to the ball where the board of accountancy
(BOA) members were happily mingling with the freshly-minted CPAs. To get ahead of the pack and
speak to the BOA members personally, he wants to grab the attention of the chairman. However he
does not know the name of the chairman of BOA. Can you help Mr. Valix?
a. Joel Torre
b. Joel Tan-Torre
c. Joel Tan-Torres
d. Joey Tan-Torres

jmsm,cpa