EASY

1. It is the allotment release by Local Government Units (LGU) or Department of Budget and Management
to barangays.
a. Income fro grants and donations
b. Barangay Social Fund
c. Subsidy - LGU
d. Internal Revenue Allotment (IRA)

2. If the foreign operation reports in the currency of a hyperinflationary economy, assets, liabilities
income and expenses shall be translated at
a. Exchange rate on the date of transaction
b. Forward rate
c. Closing rate
d. Average rate

3. By applying the definition provided in PAS 21, which item will be regarded as a monetary item?
a. Land and buildings
b. Accounts receivable
c. Inventory
d. Property, plant and equipment

4. Which of these considerations would not be relevant in determining the entity's functional currency?
a. The currency in which finance is generated
b. The currency that influences the costs of the entity
c. The currency in which receipts from operating activities are retained
d. The currency that is the most internationally acceptable for trading

5. Financial statements of non profit organization includes all of the following, except
a. Statement of activities
b. Statement of financial position
c. Statement of changes in equity
d. Statement of cash flows

6. With respect to the cost a business acquisition, PFRS 3 requires cost(total consideration) to be
allocated
a. Based on original costs
b. Based on fair values
c. Based on recoverable amounts
d. To the assets based on their carrying values

7. It is the currency of the primary economic environment in which the entity operates.
a. Foreign currency
b. Local currency
c. Functional currency
d. Presentation currency

8. Which of these considerations would not be relevant in determining the entity's functional currency?
a. The currency in which finance is generated
b. The currency that influences the costs of the entity
c. The currency in which receipts from operating activities are retained
d. The currency that is the most internationally acceptable for trading

9. The Rissa Company has entered into a contract on June 1, 20X3 that requires it to issue its own
ordinary shares with a value of CU250,000 on 31 May 20X6. In accordance with PAS32, Financial
instruments presentation, the company should classify the contract as
a. Equity instrument
 b. Financial asset
c. Embedded derivative
d. Financial liability
AVERAGE
1. Bucca Warehousing Corporation bought a building at auction on June 30, 2017, for P1,000,000. On
July 2, 2017, before occupying the building, Bucca sold it to a triple-A rated company for P1,200,000.
Bucca received a cash down payment of P300,000 and a first mortgage note at the market rate of
interest, for the balance. No additional payments were required until 2018. On September 1, 2017, an
independent appraiser valued the property at P1,500,000. On its 2017 income tax return, Bucca
reported the sale on the installment basis. How much gain should Bucca recognize in its income
statement for the year ended December 31, 2017?
a. 200,000
b. 0
c. 50,000
d. 300,000
SOLUTION:
The installment method of recognizing revenue is not acceptable for financial reporting purposes unless the
circumstances are such that the collection of the sales price is not reasonably assured. Since the property was
sold to a triple-A rated company and the value of the property is appreciating, collection can be assumed to be
reasonably assured. Therefore, the entire gain should be recognized for financial reporting purposes at the
date of sale:
Sales price Cost of building = Gain recognized

P1,200,000 P1,000,000 = P200,000

2. Exchange differences arising from translation of financial statement of a foreign entity are
a. Recognized as accumulated translation adjustments in the equity section
b. Recognized as accumulated translation adjustments in profit or loss
c. Recognized directly in retained earnings
d. Capitalized if the differences resulted from severe devaluation of a currency

3. Kenneth Company, Inc. franchisor, entered into a franchise agreement with Orville Trading, franchisee
on March 31,2013. The total franchise fee is P500,000, of which P100,000 is payable upon signing and
the balance in four equal annual installments. The downpayment is refundable in the event the
franchisor fails to render services and none thus far had been rendered. When Kenneth Company
prepares its financial statements on March 31, 2013, the franchise fee revenue to be reported is:
a. 100,000
b. 500,000
c. 400,000
d. 0

4. Which of the following statements concerning the different types of hedging transactions is incorrect?
a. In hedging transaction designated as cash flow hedge, unrealized holding gain or loss on hedged item
will be recognized in other comprehensive income with reclassification adjustment to profit or loss if
realized.
b. In hedging transaction designated as hedge of net investment in foreign operation, unrealized holding
gain or loss on hedging instrument which is considered effective portion will be recognized in other
comprehensive income with reclassification adjustment to profit or loss if realized.
c. In hedging transaction designated as fair value hedge, unrealized holding gain or loss on hedged item
will be recognized in profit or loss.
d. In hedging transaction which is undesignated, unrealized holding gain or loss on hedging instrument
will be recognized in profit or loss.

5. SLEX enters into an arrangement under which it will build and operate a toll bridge. Company B is
entitled to charge users for driving over the toll bridge for the period from the completion of
 construction until 1 million cars have driven across the bridge, at which point the concession
arrangement will end. SLEX incurred a total cost of P1 billion for the construction of the toll bridge.
How shall SLEX account for its infrastructure asset?
a. It shall be classified and treated as intangible asset to be amortized using straight line method of
presumed life of 10 years.
b. It shall be classified and treated as intangible asset to be amortized on the basis of usage or unit
method of 1 million cars.
c. It shall be classified and treated as financial asset

6. On December 31, 2017, the home office of Trisha Supply Company recorded a shipment of
merchandise to its Glenda branch as follows:

Glenda branch 30,000

Shipments to Glenda branch 25,000

Unrealized profit in Glenda branch inventory 4,000

Cash (for freight charges) 1,000

The Glenda branch sells 40% of the merchandise to outside entities during the rest of December 31, 2017.
The books of the home office and Trisha branches are closed on December 31 of each year. On January 5,
2018, the Glenda branch transfers half of the original shipments to the Sandy branch and the Glenda
branch pays P500 freight on the shipment.
At what amounts should the 60% of the merchandise remaining unsold at December 31, 2017 be included
in the inventory of the Glenda branch on December 31, 2017?
a. 15,000
b. 15,600
c. 18,000
d. 17,400

7. When a secured claim is not fully settled by the selling of the underlying collateral
a. The unsettled portion remains as an unsecured priority claim.
b. The unsettled portion of the claim cannot be collected by the creditor
c. The unsettled portion remains as a secured claim
d. The unsettled portion is classified as an unsecured priority claim

8. Tillary Company, which began business on January 1, 2017, appropriately uses the installment sales
method of accounting. The following data are available for 2017:
Installment accounts receivable, December 31, 2017 P200,000
Deferred gross profit, December 31, 2017 P140,000
(before recognition of realized gross profit)

Gross profit on sales 40%

9. The realized gross profit on installment sales for the year ended December 31, 2017, should be
a. 50,000
b. 70,000
c. 80,000
d. 60,000

10. PSY Corporation owns 90% of the outstanding common shares of SVG Company. On January 2, 2016,
office equipment that had a carrying value to SVG Company P480,000 and has a remaining life of 10
years was sold to PSY Corporation for P400,000. On the other hand, last August 31, 2017, PSY
Corporation sold a second hand delivery van to SVG Company at a gain of P30,000 (remaining life of 5
years).
Included in the January 1, 2017 inventory of PSY Company was merchandise inventory worth
P65,000 while SVG Company had P80,000 on its December 31, 2017. These inventories came from
inter-company sales and purchases. PSY Corporation included a mark-up of 25% on cost while SVG
Company charged a 30% mark-upon sales.
Each of the two companies has net incomes in 2016 and 2017 as follows:
2016 2017

PSY Corporation 1,200,000 1,500,000

SVG Company 900,000 1,000,000

What is the amount of the consolidated net income attributable to controlling interest in 2017?
a. 2,366,350
b. 2,369,500
c. 2,377,600
d. 2,398,350
DIFFICULT
1. Which of the following is not objective evidence of impairment of a financial asset?
a. Significant financial difficulty of the issuer or obligor.
b. Observable data indicating that there is a measurable decrease in the estimated future cash flows from
a group of financial assets although the decrease cannot yet be associated with any individual financial
asset.
c. A breach of contract, such as a default or delinquency in interest or principal payments.
d. A decline in the fair value of the asset below its previous carrying amount

2. Dickie Corporation contracted to build a building for Dickson Company. The contract price was
P500,000 and Dickie estimated that construction costs would total P420,000. The construction period
lasted until September 1, 2015. Costs during the each period, estimated total cost of the product at the
end of the year, billings and cash collected during the year were as follows:
2015 2016 2017
Cost during the period 105,000 195,000 125,000
Estimated or actual 420,000 425,000 425,000
total costs
Billings during the 100,000 150,000 250,000
period
Cash collected during 80,000 140,000 260,000
the period
The amount of gross profit recognized in 2016 using the percentage of completion method must be:
a. 36,500
b. 32,942.50
c. 20,000
d. 80,000
 3. What is the principle for recognition of a financial asset or a financial liability in PAS 39?
a. A financial asset is recognized when, and only when, it is probable that future economic benefits will
flow to the entity and the cost or value of the instrument can be measure reliably.
b. A financial asset is recognized when, and only when, the entity obtains the risks and rewards of
ownership of the financial assets and has the ability to dispose the financial asset.
c. A financial asset is recognized when, and only when, the entity becomes a party to the contractual
provision of the instrument.
d. A financial asset is recognized when, and only when, the entity obtains control of the instrument and
has the ability to dispose of the financial asset independent of the actions of others.

4. Corporation Lizzy acquired 2,000 shares of the voting stock of Corporation Lizette in the open market
at P48 per share. Direct costs associated with the acquisition total of P4,000. Balance sheets of both
companies on January 1, 2017, immediately after the acquisition of shares of Lizzy, are as follows:
Corporation Lizzy Corporation Lizette
Cash 50,000 10,000
Temporary investments 80,000 40,000
Receivables (net) 95,000 10,000
Investment in Corporation Lizette 100,000
Machinery and equipment (net) 100,000 45,000
Land 50,000 20,000
Total assets 475,000 125,000
Accounts payable 75,000 25,000
Common stock (P20 par) 250,000 50,000
Excess over par 90,000 30,000
Retained earnings 60,000 20,000
Total liabilities and SHE 475,000 125,000
The fair values of Lizzy and Lizette assets on January 1m 2017 are presented below. Liabilities of both
companies are properly valued at their respective book value:
Lizzy Lizette
Cash 50,000 10,000
Temporary investment 100,000 50,000
Receivables (net) 95,000 8,000
Investment in Corporation Lizette 100,000 -
Machinery 110,000 40,000
Land 100,000 30,000
555,000 138,000
The total consolidated assets must be
a. 518,600
b. 613,000
c. 522,600
d. 520,000
 5. On December 1, 2016, Gary Inc. entered into a 120-day forward contract to purchase 250,000 US
dollars for speculative purposes. Gary, Inc, fiscal year ends on December 31. The exchange rates are
as follows:
Date Spot rate Forward rate (3/31/10)

December 1, 2016 P45.00 P45.50

December 31, 2016 46.00 46.50

January 30, 2017 45.60 45.30

March 31, 2017 45.10

How much is the forex gain or loss to be reported from this forward contract in 2017?
a. 250,000
b. 225,000
c. 350,000
d. 300,000

6. Below is the unadjusted trial balance of Elmer Corporation at December 31, 2015
Debit Credit
Cash 2,500
Installment accounts 20,000
receivable, 2014
Installment accounts 70,000
receivable, 2015
Inventory, December 31, 100,000
2015
Other assets 248,500
Accounts payable - trade 25,000
Unrealized gross profit, 2013 10,000
Unrealized gross profit, 2014 43,000
Unrealized gross profit, 2015 50,000
Capital stock 300,000
 Retained earnings 40,000
Gain on repossession 3,000
Operating expenses 25,000
Total 466,000 466,000
Cost of goods sold had been uniform over the years at 60% of sales.
Elmer Corporation adopts perpetual inventory procedures. On installment sales, the corporation charges
installment accounts receivable and credits inventory gross profit accounts.
Repossessions of merchandise have been made during the 2015 due to some customers failure to pay
maturing installments. Analysis of these transactions were summarized as follows:
Inventory 3,750
Unrealized gross profit, 2013 400
Unrealized gross profit, 2014 1,200
Installment accounts 1,000
receivable, 2013
Installment accounts 3,000
receivable, 2014
Gain on repossession 1,350
The repossessed merchandise was unsold at December 31, 2015. It was ascertained that they were booked
upon repossession at original costs. A fair valuation of these items would be a sale price of the repossessed
merchandise at P5,000 after incurring costs of reconditioning of P2,500 and cost to dispose them in the market
at P250.
The realized gross profit on 2015 sales was:
a. 22,000
b. 28,000
c. 62,000
d. 68,000

7. Joshua Corporation is considering an acquisition of Pane Company. Pane has a capital structure of 50
percent debt and 50 percent equity, with a current book value of P10 million in assets. Panes pre-
merger beta is 1.36 and is not likely to be altered as a result of the proposed merger. Joshuas pre-
merger beta is 1.02 and both it and Pane face a 40 percent tax rate. Joshuas capital structure is 40
percent debt and 60 percent equity, and it has P24 million in total assets. The net cash flows from
Pane available to Joshuas stockholders are estimated at P4.0 million for each of the next three years
and a terminal value of P19.0 million in Year 4. Additionally, new debt issued by the combined firm
would yield 10 perce before-tax, and the cost of equity is estimated at 12.59 percent. Currently, the
risk-free rate is 6.0 percent and the market risk premium is 5.88 percent.
What is the present value (to the nearest thousand) of the Pane cash inflows to Joshua?
a. 22,847,000
b. 25,620,000
c. 20,536,000
d. 14,695,000
e. 31,000,000

8. A manufacturing group has just acquired a controlling interest in a football club that is listed on a stock
exchange. The management of the manufacturing group wishes to exclude the football club from the
consolidated financial statements on the grounds that its activities are dissimilar. How should the
football club be accounted for?
a. The entity should not be consolidated; details should be disclosed in the financial statements.
b. The entity should not be consolidated using the purchase method but should be consolidated using
equity accounting.
 c. The entity should be consolidated as there is no exemption from consolidation on the grounds of
dissimilar activities.
d. The entity should not be consolidated and should appear as an investment in the group accounts.

9. Dallas Motors Auto, a national autoparts chain, is considering purchasing a smaller chain, Southern
Auto. Dallas Motorss analysts project that the merger will result in incremental net cash flows of P2
million in Year 1, P4 million in Year 2, P5 million in Year 3, and P117 million in Year 4. The Year 4 cash
flow includes a terminal value of P107 million. Assume all cash flows occur at the end of the year. The
acquisition would be made immediately, if it is undertaken. Southerns post-merger beta is estimated to
be 2.0, and its post-merger tax rate would be 34 percent. The risk-free rate is 8 percent, and the
market risk premium is 4 percent. What is the value of Southern Auto to Dallas Motors Auto?
a. 88,230,000
b. 60,350,000
c. 81,930,000
d. 72,520,000
e. 67,000,000

10. Anas Inc. granted a franchise to Mocca for the Makati area. The franchisee was to pay a franchisee of
P500,000, payable in five equal annual installments starting with the payment upon signing of the
agreement. The franchise was to pay monthly 3% of gross sales of the preceding month. Should the
operations of the outlet prove to be unprofitable, the franchise may be canceled with whatever
obligations owing Anas, Inc. in connection with the P500,000 franchise fee waived. The prevailing
interest rate is 14%. The first year generated a gross sales of P2,500,000.
What is the amount of unearned franchisee fee after the first year of operations?
a. 391,400
b. 575,000
c. 291,400
d. 500,000

FINAL
1. On January 2, 2017, Diversified Enterprises signed a franchise agreement with DTSI Company for an
initial franchise fee of P92,500. Of this amount DTSI paid P17,500 upon the signing of the franchise
contract and the balance is payable in four annual payments of P18,750 starting December 31, 2017.
DTSI issued 12% interest-bearing notes for the balance. Collection of the notes are not reasonably
assured.
The down-payment is not refundable; it represents the actual cost of initial services provided by
Diversified before formal signing. However, additional substantial services have yet to be performed by
Diversified. During 2017 additional direct franchise cost of P45,750 and indirect cost of P15,000 were
incurred by Diversified.
It is also agreed that DTSI will pay continuing franchise fee at 3% of its gross sales revenue.
The franchise outlet commenced business operations on October 1, 2017 and its gross sales totaled
P600,000 by year-end.
The net income recognized by Diversified from the DTSI franchise in 2017 is
a. 37,150
b. 36,812.50
c. 16,590
d. 19,312.50
An entity will primarily generate and expend cash in one primary economic environment. According to PAS 21,
the effects of changes in foreign exchange rates, the correct term for the currency of this primary economic
environment is the
a. Functional currency
b. Presentation currency
c. Foreign currency
d. Reporting currency

2. Tillary Company, which began business on January 1, 2017, appropriately uses the installment sales
method of accounting. The following data are available for 2017:
Installment accounts receivable, December 31, P200,000
2017

Deferred gross profit, December 31, 2017 P140,000

(before recognition of realized gross profit)

Gross profit on sales 40%

3. The cash collections on installment sales for the year ended December 31, 2017, should be
a. 120,000
b. 130,000
c. 150,000
d. 100,000

4. The following transactions were incurred for the year by the Company:
1. Transfer of P13,000 merchandise to an agency to establish a working fund.
2. Receipt of sales orders from the agency, P130,000.
 3. Collection of agency accounts by the home office, P91,000.
4. Home office disbursements representing agency expenses, P11,700.
5. Replenishment of the agency working fund upon receipt of expense vouchers for P5,850.
6. Cost of goods sold identified with the agency sales, P93,600.
How much is the net income traceable to the agency?
a. 5,850
b. 36,400
c. (72,150)
d. 18,850

5. On January 2, 2015, Mycors Inc. signed an agreement to operate as franchisee of Mang Inasal for an
initial franchise fee of P2,343,750 for 10 years. Of this amount, P468,750 was paid when the
agreement was signed and the balance payable in three annual payments beginning on December 31,
2015. Mycors signed a non-interest bearing note for the balance. The implicit interest rate is 18%.
Assume that substantial services amounting to P730,000 had already been rendered by the franshisor
and indirect costs of P53,750 have also been incurred.
If collection of the note is not reasonably assured, calculate the net income. For the year ended
December 31, 2015. Use PV factor 2.17.
a. 509,776
b. 456,026
c. 753,900
d. 700,150

6. Mendiola Construction is constructing a skyscraper in the heart of town and has signed a fixed price
two-year contract for P21 million with the local authorities. It has incurred the following cost relating to
the contract by the end of first year:
Material cost 5,000,000
Labor cost 2,000,000
Construction overhead 2,000,000
Marketing costs 500,000
Depreciation of idle plant and equipment 500,000
At the end of the first year, it has estimated cost to complete the contract, P9 million.
What profit or loss from the contract should Mendiola Construction recognize at the end of the first
year?
a. 1,005,000 (10/19 x P2,000,000)
b. 1,500,000 (9/18 x P3,000,000)
c. 1,280,000 (9.5/18.5 x P2,500,000)
d. 1,000,000 (9/18 x P2,000,000)
7. Jinkee Corp. has been undergoing liquidation since January 1. As of March 31, its condensed statement
of realization and liquidation is presented below:
Assets:
Assets to be realized 1,375,000
Assets acquired 750,000
Assets realized 1,200,000
Assets not realized 1,375,000
Liabilities:
Liabilities liquidated 1,875,000
Liabilities not liquidated 1,700,000
Liabilities to be liquidated 2,250,000
Liabilities assumed 1,625,000
Revenues and Expenses:
Supplementary charges/debits 3,125,000
Supplementary credits 2,800,000
The net gain (loss) for the three-month period ending March 31 is:
a. 425,000
 b. (325,000)
c. 250,000
d. 750,000

8. On July 1, the Joshua Company, organized a sales outlet in Cebu City. Following are the home office-
branch transactions for the month of July:
July The home office transferred P250,000 to its Cebu branch.
1
2 Merchandise costing the home P30 per unit was shipped to the branch at an invoice price
of P40 per unit. Ten thousand units were shipped on July 2; a second order was to be
filled by local suppliers.
2 Shipping costs on the above were paid as follows:
By the office: P15,000
By the branch: P5,000
5 Additional merchandise was acquired by the branch from regional distributors, 5,000 units
at P31
6 Display equipment was purchased by the home office, cost P360,000, and was delivered
to the branch. Plant assets accounts were kept by the home office.
10 Branch sales for the period July 3-10; on account, 8,000 units at P50.
18 Branch collections on account, P320,000
25 Branch sales for the period July 11-24; on account, 5,000 units at P50
29 Cash remittance by branch to home office, P100,000
30 Monthly summary of branch cash expenses: Advertising (P4,000); Sales commission
(65,000); Miscellaneous (P1,000)
31 Depreciation recorded by the home office for July included P15,000 that related to the
display equipment used by the branch. Insurance on this equipment was amortized by the
home office in the amount of P2,500.
31 Inventories of merchandise at the branch on July 31 included the following:
From the home office (1,500 units x P40)
From local suppliers (500 units x P31)
Determine the correct balance of reciprocal account after recording branch net income or loss.
a. 665,500
b. 599,500
c. 582,500
d. 648,500
9. A construction company is in the middle of a 2 year construction contract when it receives a letter from
the customer extending the contract by a year and requiring the construction company to increase its
output in proportion of the number of years of the new contract to the previous contract period. This is
allowed in recognizing additional revenue according to PAS 11 if
a. It is probable that the customer will approve the variation and the amount of revenue arising from the
variation, whether the amount of revenue can be reliably measured or not.
b. It is probable that the customer will approve the variation and the amount of revenue arising from the
variation, and the amount of revenue can be reliably measured.
c. Negotiations have reached an advanced stage and it is probable that the customer will accept the
claim.
d. The contract is sufficiently advanced and it is probable that the specified performance standards will be
exceeded or met.
10. Dorian and Donnie are partners who share profits and losses in a 2:3 ratio. The partnership will be
liquidated in installments. Some noncash assets have been sold, but other assets with a book value of
P126,000 remain. Liabilities are now P16,000, and liquidation expenses are expected to be P7,200. The
capital balances are P92,000 for Dorian and P68,000 for Donnie.
Assuming the available cash is distributed, how much is the share of Dorian?
a. 26,800
b. 42,800
c. 8,000
d. 32,000
CLINCER
1. Electricity companies A and B (involved in electricity sales but not distribution) jointly establish a power
generation entity (Company C) to build and operate a power plant. Companies A and B each have a
50% ownership interest in Company C, which is structured as a corporation. The incorporation enables
the separation of Company C from Companies A and B and, as a consequence, the assets and liabilities
held in Company C are the assets and liabilities of Company C. The contractual arrangement between
the parties does not specify that the parties have rights to the assets or obligations for the liabilities of
Company C. However, the parties also enter into an off-take agreement requiring the following:
1. Companies A and B agree to purchase all the power generated by Company C in a ratio of
50:50. Company C cannot sell any of the output to third parties, unless this is approved by companies
A and B. Because the purpose of the arrangement is to provide companies A and B with power they
require, such sales to third parties are expected to be uncommon and not material.
2. The price of the power sold to companies A and B is set forth in the off-take agreement at a
level that is designed to cover the costs of production and administrative expenses incurred by
company . The arrangement is intended to operate at a break-even level.
What is the proper classification of this joint arrangement?
a. It is classified as joint operation because the off-take agreement reflects the exclusive dependence of
Company C upon Companies A and B for the generation of cash flows and the rights of Company A and
B to all of the economic benefits of the assets of Company C.
b. It is classified as joint operation because PFRS 11 provides that in case of doubt, a joint arrangement
shall be classified as joint operation instead f joint venture.
c. It is classified as joint venture because the arrangement is established through a separate vehicle, an
incorporated entity Company C.
d. It is classified as joint venture because the incorporation enables the separation of Company C from
Companies A and B and, as a consequence, the assets and liabilities held in Company C on the assets
and liabilities of Company C.

2. Personal services include

a. Travelling, training and seminar, telephone, internet staff development
b. Advertising, rent, insurance and gasoline
c. Salaries, allowances and bonuses
d. Bank charges, interest, loss on foreign exchange transactions

3. The recognition of unrealized gain or loss on the measurement of the financial assets and insurance
liabilities as a component of other comprehensive income is described in insurance parlance as
a. current value accounting
b. hedge accounting
c. fair value accounting
d. shadow accounting
 4. Abby Inc. charges an initial franchise fee of P115,000, with P25,000 paid when the agreement was
signed and the balance in five annual payments. The present value of the future payments, discounted
at 10% is P68,234. The franchisee has the option to purchase P15,000 of equipment for P12,000. Abby
has substantially provided all initial services required and collectability of the payments is reasonably
assured. The amount of the revenue from franchise fees is:
a. 93,234
b. 115,000
c. 90,234
d. 25,000

5. Lane Co., which began operations on January 1, 2017, appropriately uses the installment method of
accounting. The following information pertains to Lanes operations for the year 2017:
Installment sales P1,000,000
Regular sales 600,000
Cost of installment sales 500,000
Cost of regular sales 300,000
General and administrative expenses 100,000
Collections on installment sales 200,000
The deferred gross profit account in Lanes December 31, 2017 balance sheet should be
a. 320,000
b. 500,000
c. 400,000
d. 150,000

6. What is the principle for recognition of a financial asset or a financial liability in PAS 39?
a. A financial asset is recognized when, and only when, it is probable that future economic benefits will
flow to the entity and the cost or value of the instrument can be measure reliably.
b. A financial asset is recognized when, and only when, the entity obtains the risks and rewards of
ownership of the financial assets and has the ability to dispose the financial asset.
c. A financial asset is recognized when, and only when, the entity becomes a party to the contractual
provision of the instrument.
d. A financial asset is recognized when, and only when, the entity obtains control of the instrument and
has the ability to dispose of the financial asset independent of the actions of others.

7. Jane had the following information

1. Purchased merchandises from a foreign supplier on January 20, 2016 for the Philippine peso
equivalent of P60,000 and paid the invoice on April 20, 2016 at the Philippine peso equivalent of
P68,000.
2. On September 1, 2016, borrowed the Philippine peso equivalent of P300,000 evidence by a note that is
payable in the lenders local currency on September 1, 2017. On December 31, 2016, the Philippine peso
equivalent of the principal amount was P320,000.
In Janes income statement, what amount should be included as a foreign exchange loss?
a. 20,000
b. 4,000
c. 28,000
 d. 22,000

8. On January 1, 2012, Mark Company received a two-year P500,000 loan. The loan calls for payment to
be made at the end of each year based on the prevailing market rate at January 1 of each year. The
interest rate on January 1, 2012, was 10%. Anthony company also has a two-year P500,000 loan, but
Anthony's loan carries a fixed interest rate of 10%. Mark Company does not want to bear the risk that
interest rates may increase in year two of the loan. Anthony Company believes that rates may decrease
and they would prefer to have variable debt. So the two companies enter into an interest rate swap
agreement whereby Anthony agrees to make Mark's interest payment in 2013 and Mark likewise
agrees to make Anthony's interest payment in 2013. The two companies agree to make settlement
payments, for the difference only, on December 31, 2013. The interest rate on January 1, 2013 is
12%. How much should be recognized as derivative asset at December 31, 2012?
a. 0
b. 10,000
c. 8,929
d. 9,091

9. Foreign operations that are an integral part of the operations of the entity would have the same
functional currency as the entity. Where a foreign operation functions independently from the parent,
the functional currency will be
a. that of the country of incorporation
b. the same as the presentation currency
c. determined using the guidance for determining an entitys functional currency
d. that of the parent

10. When disclosing information about investments in associate, PAS 28 Investment in Associates and Joint
Ventures, requires separate disclosure of which of the following?
I Shares in associates in the statement of financial position
II Share profit or loss associates in the statement of profit or loss and other comprehensive
income
III Share of any discontinuing operations in the statement of changes in equity
IV Shares of changes recognized directly in the associates equity in the statement of changes
in equity

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

11. James Inc. purchased a P1 million life insurance policy on its president, of which James is the
beneficiary. Information regarding the policy for the year ended December 31, 2013 follows:
Cash surrender value, 1/1/13 87,000
Cash surrender value, 12/31/13 108,000
Annual advance premium paid 1/1/13 40,000
During 2013, dividends of P6,000 were applied to increase the cash surrender value of the policy. What
amount should James report as life insurance expense for 2013?
a. 40,000
b. 13,000
c. 21,000
d. 19,000
12. PSY Corporation owns 90% of the outstanding common shares of SVG Company. On January 2, 2016,
office equipment that had a carrying value to SVG Company P480,000 and has a remaining life of 10
years was sold to PSY Corporation for P400,000. On the other hand, last August 31, 2017, PSY
Corporation sold a second hand delivery van to SVG Company at a gain of P30,000 (remaining life of 5
years).
Included in the January 1, 2017 inventory of PSY Company was merchandise inventory worth P65,000
while SVG Company had P80,000 on its December 31, 2017. These inventories came from inter-
company sales and purchases. PSY Corporation included a mark-up of 25% on cost while SVG
Company charged a 30% mark-upon sales.
Each of the two companies has net incomes in 2016 and 2017 as follows:
2016 2017
PSY Corporation 1,200,000 1,500,000
SVG Company 900,000 1,000,000
What is the amount of the consolidated net income attributable to controlling interest in 2017?
a. 2,366,350
b. 2,369,500
c. 2,377,600
d. 2,398,350

13. PFRS 4 was introduced principally for what reason?

a. Because of pressure from the financial services authorities in several countries.
b. To completely overhaul insurance accounting.
c. To make limited improvements to the accounting for insurance accounting.
d. As a response to recent scandals within the insurance industry.

14. Jojo, Inc. has several branches. Goods costing P10,000 were transferred by the head office to
Camiguin Branch with the latter paying P600 for freight cost. Subsequently, the head office authorized
Camiguin Branch to transfer the goods to Bohol Branch for which the latter was billed for the P10,000
cost of the goods and freight charge of P200 for the transfer. If the head office had shipped the goods
directly to Bohol Branch, the freight charge would have been P700. The P100 difference in freight cost
would have been disposed of as follows:
a. Charged to the Head Office
b. Charged to Bohol Branch
c. Considered as savings
d. Charged to Camiguin Branch
15. BPI US is operating within US territory wherein the functional currency is the US $. However, the
presentation currency of the bank is Philippine peso. The following financial position data for the year
2020 are provided:
Total assets on 12/31/2020 $1,000
Total liabilities on 12/31/2020 200
Ordinary shares on 12/31/2020 300
Share premium on 12/31/2020 100
Retained earnings on 1/1/2020 200
Net income for year 2020 300
Dividends declared on 12/1/2020 100
The following additional data are provided.
1. All ordinary shares are issued on January 1, 2015.
2. The translated amount of retained earnings at Philippine peso on December 31, 2019 is P8,000.
3. The following direct exchange rates are determined:
1/1/2015 45
12/31/2019 42
12/1/2020 41
12/31/2020 43
Average rate for 2020 44
What is the translation gain (loss) to be recognized by BPI US in its Statement of Comprehensive
Income for the year ended December 31, 2020?
a. (P600) loss
b. P800 gain
c. (P700) loss
d. P100 gain