Easy

1. The Oakes Company has a loan due for repayment in six months' time, but Oakes has the option to
refinance for repayment two years later. Oakes plans to refinance this loan. In which section of its
statement of financial position should this loan be presented, according to IAS1 Presentation of
financial statements? (select one answer)
a. Current liabilities
b. Current assets
c. Non-current liabilities
d. Non-current assets

Answer C. Because Oakes both has the right to roll over the loan beyond 12 months for the end of the
reporting period and intends to roll it over, it should be presented as a non-current liability per para 73
of IAS1.

2. On the statement of cash flows in which the operating activities section is prepared under the
indirect method, depreciation is treated as an adjustment to reported net earnings because
depreciation
a. Is a direct inflow of cash from investing activities.
b. Reduces reported net earnings and involves an inflow of cash.
c. Reduces reported net earnings but does not involve an outflow of cash.
d. Is an inflow of cash to a reserve account for replacement of assets.

Answer C.

Average
1. Esplanade Company sells a variety of merchandise to its customers. On December 31, 2009, the
balance of Esplanade’s ending inventory account was P3,000,000, and the allowance for inventory
write down account before any adjustment was P150,000. Relevant information about the proper
valuation of inventories and the breakdown of inventory cost and market data at December 31,
2009, are as follows:
Cost Replacement Sales NRV Normal
Cost Price Profit
Bags 800,000 900,000 1,200,000 550,000 250,000
Shoes 1,000,000 1,200,000 1,300,000 1,100,000 150,000
Clothing 700,000 1,000,000 1,250,000 950,000 300,000
Lingerie 500,000 600,000 1,000,000 350,000 300,000

How much loss on inventory write down is included in 2009 cost of sales?
a. 50,000 b. 200,000 c. 400,000 d. 250,000

Answer: D
Solution: LCNRV Cost
Bags 550,000 Bags 800,000
Shoes 1,000,000 Shoes 1,000,000
Clothing 700,000 Clothing 700,000
Lingerie 350,000 Lingerie 500,00
Total 2,600,000 Total 3,000,000

End. Allowance P400,000

Beg. Allowance 150,000
Increase in Allowance 250,000
2. Lene Company uses straight line depreciation for its property, plant and equipment. Balances of the
property, plant and equipment and related accumulated depreciation accounts on January 1, 2017
are P25,000,000 and P5,000,000 and on December 31, 2017 are P20,000,000 and P6,200,000. Lene
did not purchase property, plant and equipment during 2017. However, machinery was sold for
P3,000,000 that resulted in a P400,000 loss. What is the depreciation expense for 2009?
a. 1,200,000 b. 2,800,000 c. 3,600,000 d. 2,200,000

Answer: B
Solution:
Accum. Depn. 1/1 5,000,000
Accum. Depn. From sold equipment (5M – (3M + 400) (1,600,000)
Depreciation expense (SQUEEZE) 2,800,000
Accum. Depn. 12/31 6,200,000

Difficult
1. During 2009, Dinara Company made the following property, plant and equipment expenditures:
Land and building acquired from Samantha Company 7,000,000
Repairs and reconditioning cost made to the building 250,000
Reconstruction of sidewalk and fences 100,000
Special tax assessment 50,000
Remodeling of office space including new partitions and walls 400,000

In exchange for the land and building acquired from Samantha, Dinara issued 50,000 ordinary
shares of its P100 par value ordinary shares. On the date of purchase, the shares had a market
value of P140 per share and the land and building had a fair value of P2,000,000 and P6,000,000
respectively. During the year, Dinara also received land from a shareholder to facilitate to
relocation of its main offices in the city. Dinara paid P50,000 for the donated land transfer. The
donated land is fairly valued at P1,800,000. What is the total cost of the land acquisition?
a. 4,100,000 b. 3,900,000 c. 3,850,000 d. 3,600,000

Answer: C
Solution:FV of land acquired by issuing of shares 2,000,000
Special assessment 50,000
FV of donated land 1,800,000
Total cost 3,850,000

2. The following unadjusted account balances have been reported on the financial statements by
Marilag Biscuit Company on December 31, 2017:
Cash in bank 4,000,000 Notes receivable 3,000,000
Accounts receivable 5,000,000 Inventory 2,000,000
Deferred charges 350,000 Accounts payable 2,500,000
Notes payable 4,000,000 Accrued expenses 1,500,000

Cash in bank is net of a checking account’s bank overdraft amounting 250,000. Notes receivable
includes discounted notes of 800,000 while Accounts receivable balance is net of accounts with
credit balances of 650,000. Accounts payable is also net of accounts with debit balances of 500,000.
The total current liabilities to be reported as of December 31, 2017 should be
a. 8,900,000
b. 8,500,000
c. 8,000,000
d. 9,400,000

Answer: D
Solution:
Bank overdraft 250,000
Customer’s credit balance 650,000
Notes payable 4,000,000
Accrued expenses 1,500,000
Accounts payable 3,000,000
Total 9,400,000