THEORIES

1. To comply with Par. 23 of IFRS 6: Exploration and Evaluation of Mineral

Resources, the entity shall disclose:

a. Substantive expenditure on exploration

b. The period for which the entity has the right to explore in the specific area
has expired during the period or will expire in the near future, and is not
expected to be renewed.
c. The amount of assets, liabilities, income and expense and operating and
investing cash flows arising from the exploration for an evaluation of mineral
resources.
d. All of the above.

2. Agriculture: Bearer Plants (Amendments to IAS 16 and IAS41) changes the

accounting policy requirements for biological assets that meet the definition
of bearer plants. The amendment defines a bearer plant as living plant that:
(Select the true statement/s)

I. is used in the production or supply of agricultural produce

II. Is expected to bear produce for more than one period
III. Has a remote likelihood of being sold as agricultural produce, even
for incidental scrap sales

a. I, II, and III c. II and III only

b. I and II only d. I and III only

3. Which of the following statement is/are true regarding the amendments of

PAS 41 and PAS 16 that was effective in January 1, 2016?

I. Bearer biological assets will be accounted for as property, plant and

equipment separate from any related produce.
II. Entities will have the option to apply IAS 16’s cost model or
revaluation model to subsequently measure bearer biological assets.
III. Entities following either model will need to determine the useful life
of the bearer biological asset in order to depreciate it. The useful life
will need to be reevaluated every 3 years.
IV. Early adoption of the new requirements is permitted

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

b. II, III and IV only d. IV only

4. Which of the following statements is.are true?

a. Demolition costs of the old building shall be considered as part of costs of

site preparation mentioned under PAS 16.17 (b) and therefore shall be
capitalized as part of the new building.
b. If the land and building purchased in a lump sum price will be
subsequently measured using the fair value model, the land and building will
be classified as two separate items under Investment Property at their
allocated cost determined using the relative fair value.
c. As the entity, at date of acquisition, has decided to initially use the
property as owner-occupied property, the land and building acquired in lump
sum price will be classified as two separate items under Property, Plant and
Equipment measured at their allocated cost determined using the relative
fair value method
d. None of the above

5. If a share option is converted on March 31 of the current year

a. The potential ordinary shares are included in diluted EPS up to March 31

and in basic EPS from the date converted to the year-end both weighted
accordingly.
b. The ordinary shares are not included in diluted EPS calculation but are
included in basic EPS
c. The ordinary shares are not included in basic EPS but are included in
diluted EPS
d. The effects of the share option are included only in previous year’s EPS
calculation.

6. Preference as to dividends means:

I. If dividends are declared, the oreference shareholders have the right

to receive dividends first before ordinary shareholders are paid a
dividends.
II. The preference shareholders have the right to receive an amount
equal to par value or liquidation value of their shareholdings in the
event of liquidation in addition to cumulative dividends in arrears.

a. I only c. Both I and II

b. II only d. Neither I nor II

7. Which is the correct accounting treatment for a finance lease in the

accounts of a lessor?

a. Treat as a noncurrent asset equal to net investment in the lease.

Recognize all finance payments in income statement.
b. Treat as a receivable equal to gross amount receivable on lease.
Recognize finance payments in cash by reducing debt.
c. Treat as a receivable equal to net investment in the lease. Recognize
finance payment by reducing debt and taking interest to income statement.
d. Treat as a receivable equal to net investment in the lease. Recognize
finance payments in cash by reduction of debt.

8. The following are disclosures related to investment property except:

a. Whether the entity uses the cost model or fair value model of measuring
investment property.
b. The amount of rental income for the period along with the related
expense.
c. Restrictions on the investment property either through rentals or sale
proceeds
d. Non-contractual obligations to purchase or construct investment property.

9. When determining the unit cost of an inventory, which of the following

should not be included?
a. Interest on loan obtained to purchase the inventory
b. Commission paid when inventory is purchased
c. Labor cost of the inventory when manufactured
d. Depreciation of the plant equipment used in manufacturing

10. Interest revenue earned on specific borrowing for qualifying asset

a. Reduces the cost of the qualifying asset

b. Reduces interest expense reported in the income statement
c. Increases equity
d. Must be credited to interest income

11. Which of the following statements is incorrect concerning the

depreciation methods?

a. Under the output method, the cost per unit of production is constant.
b. The straight line method is particularly appropriate where the asset is
expected to decline in usefulness as a function of time and the expected use
pattern of the asset is fairly constant over time.
c. The sum of the years’ digits method provides for a decreasing
depreciation charge
d. First year depreciation under the double declining balance method is
computed as the depreciable amount multiplied by double the straight line
rate.

12. In the case of a nonmonetary grant, which of the following accounting

treatment is prescribed?

a. Record the asset at replacement cost and the grant at nominal value
b. Record the grant at a value estimated by management
c. Record both the grant and the asset at fair value of the nonmonetary
asset.
d. Record only the asset at fair value and not recognize the fair value of the
grant

13. Which of the following statements is true if there is an acceleration of

vesting?

I. The entity shall not recognize immediately the compensation

expense that otherwise would have been recognized for services
received over the remainder of the vesting period.
II. Any payment made to the employees on the cancellation or
settlement of the grant shall be accounted for as repurchase of equity
interest an any payment in excess of the fair value of share options
shall be recognized as expense

a. I only c. Both I and II

b. II only d. Neither I nor II

14. Under which category should lump sum benefit and actuarial gains be
accounted for?
a. Lump sum benefit and actuarial gains should be accounted for under
defined benefit plans
b. Lump sum benefits should be accounted for under short term employee
benefits. Actuarial gains should be accounted for under defined benefit
plans.
c. Lump sum benefit should be accounted for under defined benefit plans.
Actuarial gains should be accounted for under defined contribution plans.
d. Lump sum benefit should be accounted for under short term employee
benefits. Actuarial gains should be accounted for under defined contribution
plans.

15. The following statements concerning research and development are not
incorrect except:

a. Research is original and planned investigation undertaken with the

purpose of gaining new scientific and technical knowledge.
b. Development is application of research finding to a plan for the production
of new product prior to the commencement of commercial production or use.
c. Expenditure on research shall be recognized as an expense when incurred.
d. If an entity cannot distinguish the research phase from the development
phase of a project, the entity shall treat the expenditure on that project as if
it were incurred in the development phase.

16. The Board of Directors of an entity decided in the latter part of the
current year to wind up international operations in the Cayman Islands and
move them to Australia. The decision was based on a detailed formal plan of
restructuring. This decision was conveyed to all workers and management
personnel in the headquarters at Colombia. The cost of the restructuring plan
can be estimated reliably. How should the entity treat the restructuring at
the current year-end?

a. Disclose only the restructuring decision and the cost of restructuring

because the entity has not announced the restructuring to those affected by
the decision and thus has not raised an expectation that the entity would
actually carry out the restructuring.
b. Recognize a provision for restructuring since the Board of Directors has
approved it and it has been announced in the headquarters in Colombia.
c. Mention the decision to restructure and the cost involvement in the
chairman’s statement in the annual report.
d. Do nothing because the restructuring has not commenced before year-
end.

17. The following are based on PAS 16 (Property Plant and Equipment):

I. An entity is required to measure the residual value of an item of

property, plant and equipment as the amount it estimated it would
receive currently for the asset if the asset were already of the age and
in the condition expected at the end of its useful life.
II. An entity is required to determine the depreciation charge
separately for each significant part of an item of property, plant and
equipment.
 III. If fair value can be measured reliably, an entity should carry all
items of property, plant an equipment of a class at a revalued amount,
which is the fair value of the items at the date of the revaluation less
any subsequent accumulated depreciation and accumulated
impairment losses.

a. Only Statement I is true

b. Only Statements I and II are true
c. Only Statements II and III are true
d. All of the above statements are true.

18. The following are based on PAS 20 (Accounting for Government Grants
and Disclosure of Government Assistance):

I. Government grants shall be recognized in Profit or loss on a

systematic basis over the periods in which the entity recognizes as
expenses the related costs for which the grants are intended to
compensate
II. A government grant that becomes receivable as compensation for
expenses or losses already incurred or for the purpose of giving
immediate financial support to the entity with no future related costs
shall be recognized in profit or loss of the period in which it becomes a
receivable

a. True, True
b. True, False
c. False, True
d. False, False

19. The following statements are based on PAS 40 (Investment Property):

I. An investment property is a property held to earn rentals or for

capital appreciation or both
II. An investment property shall be measured initially at costs.
Transaction costs shall be excluded in the initial measurement.
III. Under the cost model, a gain or loss arising from the change in the
fair value of investment property shall be recognized in profit or loss
for the period in which it arises.

a. All of the statements are True

b. Only Statement I is True
c. Only Statement II is False
d. Only Statement III is False

20. The following statements are based on PAS 17 (Leases):

I. Any initial direct cost incurred by a lessee under a finance lease are
added to the amount of the asset recognized in the statement of
financial position.
II. Any initial direct cost incurred by a lessee under a finance lease are
added to the amount of the liability recognized in the statement of
financial position.
a. True, True
b. True, False
c. False, True
d. False, False

21. In rare circumstances, when a pension plan has attributes of both defined
contribution and defined benefit plan, it is considered as:

a. Defined benefit plan

b. Defined contribution plan
c. Both defined benefit plan and defined contribution plan
d. Neither a defined benefit plan nor defined contribution plan

22. In accounting for share0based compensation under PFRS 2, what interest

rate is used to discount both the exercise price of the option and the future
dividend stream?

a. The firm’s known incremental borrowing rate

b. The current market rate that firms in that particular industry use to
discount cash flows
c. The risk-free interest rate
d. Any rate that firms can justify being reasonable

23. Under PAS 23 (Borrowing costs), which of the following statements about
the capitalization of borrowing costs as part of the cost of a qualifying asset
is true?

a. If funds come from general borrowings, the amount to be capitalized is

based on the weighted average cost of borrowing.
b. Capitalization always continues until the asset is brought into use.
c. Capitalization always commences as soon as expenditure of the asset is
incurred.
d. Capitalization always commences as soon as interest on relevant
borrowings is being incurred.

24. Which of the following components of the annual pension costs shall be
recognized in the other comprehensive income (rather than in Profit or
Loss)?

a. Service cost
b. Net interest on the net defined benefit liability
c. Remeasurements of the net defined benefit liability
d. All of these items are required to be recognized in the profit or loss

25. Inventory estimates will be required for the following except:

a. When interim financial statements are prepared

b. When inventory is destroyed by typhoon or lahar flow
c. As proof of reasonable accuracy of the physical inventory
d. In the determination of the ending inventory to be shown on the balance
sheet at year end
26. Which statement is incorrect concerning biological assets and
agricultural produce?

a. Inventories comprising agricultural produce that an entity has harvested

from its biological assets are measured on initial recognition at fair value.
b. Changes in fair value of a biological assets or an agriculture produce are
included in the determination of income of the current period.
c. An unconditional government grant related to a biological asset that has
been measured at fair value less point of sale costs should be recognized as
income when the grant becomes receivable.
d. Biological assets are measured at fair value less costs to sell at initial
recognition and at each subsequent reporting period.

27. Which of the following statements characterizes defined benefit plans?

a. They are comparatively simple in construction and raise few accounting

issues for employers.
b. Retirement benefits are based on the benefit formula
c. Retirement benefits depend on how well pension fund assets have been
managed.
d. All of the above.

28. The following statements relate to inventories under PAS 2:

I. The carrying amount of sold inventories shall be recognized as

expense in the period in which the related revenue is recognized.
II. The amount of any write-down of inventories to net realizable value
and all losses of inventories shall be recognized as an expense in the
period the write-down or loss occurs.
III. The amount of any reversal of a write-down of inventories, arising
from increase in the net realizable value, shall be recognized as a
reduction in the amount of inventories recognized as an expense in
which the reversal occurs.

a. Only Statement I is true

b. Only Statement II is true
c. Only Statement III is true
d. All of the statements are true.

29. Biological transformation results in the following types of outcomes,

except:

a. Detachment of produce from a biological asset or cessation of biological

assets’ life processes.
b. Decrease in quantity or deterioration in quality of an animal or plant
c. Production of agricultural produce such as tea leaf
d. Improvement in quality of an animal or plant.

30. Under PAS 37, the appropriate accounting treatment for future operating
losses is to:

a. Determine a reasonable estimate of the cost and provide for the future
liability
b. Determine the cost and charge it directly against retained earnings
c. Not recognize such items in the financial statements
d. Measure on the basis of estimated future cash flows

31. Which of the following standards may not be applied in accounting for
ANIMALS in zoo (or Game Park) that does not have an active breeding
program and rarely sells any animals or animal products and BACTERIA in
the pharmaceutical industry that involves development of a culture.

a. PAS 2
b. PAS 16
c. PAS 36
d. PAS 41

32. An entity operates a chemical plant and has a published policy of making
good any damage caused to the environment. Which of the following would
give rise to a provision?

a. It is likely that a chemical spill which would result to pay penalty will occur
next year
b. Research suggests that there is a possibility that the entity’s action may
cause damage to surrounding wildlife.
c. The government has a plan for a law requiring all environment damage to
be rectified
d. A chemical spill from a chemical plant has caused harm to the surrounding
wildlife.

33. AreYouStillAlive Commercial obtained an interest-free loan of P500,000

and a cash grant of P400,000 from the City of Mandaue. The cash grant is a
partial subsidy for the annual salary of five of its employees for the year
2016. How should AreYouStillAlive Commercial account for these events?

a. Only the cash grant should be taken to equity, as Share Premium

b. Only the cash grant should be recognized as income
c. Both the cash grant and the interest-free loan should be taken to equity,
as Share Premium
d. Both the cash grant and the interest-free loan should be regarded as
income

34. IStillLoveMyEx Corporation acquires a research and development project.

The entity does not intend to complete the project. Instead it holds the
project to prevent competitors from obtaining access to the technology. In
doing this, the project is expected to provide defensive value, principally buy
improving the prospects for the entity’s own competing technology. To
measure the fair value of the acquired R&D project at initial recognition, the
highest and bestuse of the project would be determined on which of the
following basis?

a. The entity’s own intended use of technology

b. How market participants would use the technology
c. Both of the above
d. None of the above
35. When an inventory costing formula is changed, the change is required to
be applied:

a. Prospectively and the adjustment taken through the current profit or loss
b. Retrospectively and the adjustment taken through the opening balance of
Retained Earnings
c. Prospectively and the current period adjustment recognized directly in
equity
d. Retrospectively and the adjustment recognized as an extraordinary gain
or loss.

PROBLEMS

1. OUTSPOKEN CEBU has several contingent liabilities at December 31, 2016.

The accountant obtained the following brief description of each liability:

- In May 2016, Outspoken Cebu became involved in litigation. In December

2016, the court assessed a judgment for P1,600,000 against Outspoken
Cebu. Outspoken Cebu is appealing the amount of the judgment. Its
attorneys believe it is probably that they can reduce the assessment on
appeal by 50%. The appeal is expected to take at least a year.
- In July 2016, Cebu City brought action again Outspoken Cebu for polluting
Guadalupe River with its waste products. It is probable that Cebu City will be
successful but the amount of damages Outspoken Cebu might have to pay
should not exceed P1,500,000.
- Outspoken Cebu has signed a guarantor for a P1,000,000 loan by Super
Bank to Pitstop Restaurant, a principal supplier to Outspoken. At this time,
there is only a remote likelihood that East will have to make payment on
behalf of Pitstop Restaurant.

How much should be accrued as provision on December 31, 2016?

a. P1,600,000 c. P3,100,000
b. P1,500,000 d. P2,300,000

2. To increase sales, MAOY Company, inaugurated a promotional campaign

on June 30, 2016. Maoy placed a coupon redeemable for a premium in each
package of product sold. Each premium costs P100. A premium is offered to
customers who send in 5 coupons and a remittance of P30. The distribution
cost per premium is P20. Maoy estimated that only 60% of the coupons
issued will be redeemed. For the six months ended December 31, 2016, the
following is available:

Packages of product sold 160,000

Premiums purchased 16,000
Coupons redeemed 64,000

How much is the premium liability to be recognized?

a. P1,728,000 c. P1,152,000
b. P1,600,000 d. P576,000
3. On April 1, 2016, Good Luck Company engages in the development of a
property which is expected to take 5 years to complete, at a cost of
P6,000,000. The statements of Financial Position at December 31, 2015 and
December 31, 2016 prior to capitalization of interest are as follows:

12/31/15 12/31/16
Development Property P-
P1,200,000
Other Assets 6,000,000
6,000,000
P 6,000,000
P7,200,000
Loans
5.5% debenture stock P2,500,000 P2,500,000
Bank loan at 6% per annum - 1,200,000
Bank loan at 7% per annum 1,000,000 1,000,000
P3,500,000 P4,700,000

Shareholders’ equity P2,500,000 P2,500,000

The bank loan with effective interest rate at 6% was drawn down to match
the development expenditure on April 1, July 1, and October 1, 2016. The
5.5% debenture stocks were irredeemable. Expenditure was incurred on the
development as follows: April 1 – P600,000; July 1 – P400,000; October 1 –
P200,000. If all the borrowing were general (i.e. the bank loan 6% was not
specific to the development) and would have been avoided but for the
development, then the amount of interest to be capitalized would be (Round
off to 2 decimal places for the general borrowing rate):

a. P 42,000 c. P 46,130
b.P 41,580 d.P 0

4. On December 27, 2016, NAAKAYCAR Company leases its airplane to

WAKOYSAKYANAN Company. The airplane which was constructed for
P7,500,000 has a fair value of P9,800,000 and an expected useful life of 12
years. Under the 8-year lease agreement, WAKOYSAKYANAN Company will
pay an annual rent in advance starting January 1, 2017 at an implicit rate of
12%. At the end of the lease, WAKOYSAKYANAN Company is given an option
to purchase the airplane at P100,000; which is substantially low compared to
the airplane’s expected resale value of P600,000. NAAKAYCAR Company
incurred cost of P125,000 to have the contract completed. Depreciation
expense to be reported by WAKOYSAKYANAN Company in its 2018 income
statement is:

a. 813,301 c. 1,219,951
b. 816,667 d. 1,225,000

5. WaPaKoKaMoveOn Company leases a Gray Kia Picanto car to

NagSakitGihaponKo Company on January 1, 2016. The term of the non-
cancelable lease is 6 years. The fair value of the car was P147,581, while its
carrying amount was P131,500. The car’s residual amount at the end of the
lease is 3,000 none of which was guaranteed by NagSakitGihaponKo
Company. WaPaKoKaMoveOn Company wants a rate of return on 9% on its
car. Equal annual payments are due at the end of each year starting on
December 31, 2016. The total income recognized by WaPaKoKaMoveOn
Company in relation to the lease agreement in 2016 is:

a. 29,363 c. 26,438
b. 16,081 d. 29,093

6. SpokenWord Company, a large entity, constructs a new building

commencing on September 1, 2015 and was completed on December 31,
2015. Directly attributable expenditures on this asset are P200,000 in
September and P500,000 at the beginning of each month from October to
December. SpokenWord has incurred finance cost on its general borrowings
during the construction period.

During the year, SpokenWord had 10% debentures in issue with a face value
of P4,000,000 and an overdraft of P1,000,000, which increased to
P1,500,000 in December 2013 on which interest is paid at 15% until October
1, 2013, and 16% thereafter.

Determine the rate to be used in capitalizing the borrowing costs. (Round

rates in two decimal places and amounts to the nearest peso)

a. 12.11% c.11.99%
b.11.27% d. 14.11%

7. Mandy Company’s Statement of Financial Position on June 30, 2012

reported the following:

Equipment at Cost P5,000,000

Accumulated depreciation 1,500,000

The equipment consisted of two machines, A and B. Machine A had a cost of

P3,000,000 and a carrying amount of P1,800,000 while Machines B had a
cost of P2,000,000 and a carrying value of P1,700,000 both machines are
measured using the cost model and depreciated on a straight line basis over
10years.

On December 31, 2012, the directors of Mandy company decided to change

the basis of measuring the equipment from cost model to revaluation model.
Machine A was revalued at P1,800,000 with a useful life of 6 years and
Machine B was revalued at P1,550,000 with useful life of 5 years. Assuming
an income tax rate of 30%, what should be reported as a revaluation surplus
on December 31, 2013?

a. 87, 500 c. 104,000

b. 92,300 d. 90,000

8. . Sardote Company is considering the appropriate classification of the

following items:
 15,000,0
Land held for long-term capital appreciation
00

30,000,0
Land held for undecided future use
00

75,000,0
Building leased out under an operating lease
00

45,000,0
Building lease out under a finance lease
00

Vacant building held to be leased out under operating 8,000,00

lease 0

Property held for use in production or supply of goods 6,000,00

or services 0

9,000,00
Property held for administrative purposes
0

Property held for sale in the ordinary course of 2,000,00

business 0

Property held in the process of construction or 3,000,00

development for sale 0

Property held constructed or developed on behalf of 12,000,0

third parties 00

Property held for future use as owner-occupied 4,000,00

property 0
4,400,00
Property occupied by employees
0

3,600,00
Owner-occupied property awaiting disposal
0

Property that is being constructed or developed for

750,000
use as an investment property

Property being constructed or developed for use as 12,000,0

investment property 00

Existing investment property that is being

24,000,0
redeveloped for continuing use as investment
00
property

Building held for administrative purposes and leased 15,000,0

out under operating lease (60% is admin purposes) 00

Building leased out under an operating lease (the

30,000,0
entity supplies security and maintenance services to
00
the lessees)

How much is the total amount that would be reported as investment

property?
a. 100,000,000 c. 200,000,000
b. 300,000,000 d. 430,000,000

9. On January 1, 2015, Wax Corporation has 240,000 ordinary shares of

common stock outstanding. It also had 300,000 preference shares
outstanding. It had the following transactions in 2015 arranged according to
the number of shares involved:

December 1 Reacquisition 6,000 ordinary shares

April 1 Reacquisition 24,000 ordinary shares

October 1 Issuance 96,000 ordinary shares

June 1 Issuance 100,000 preference shares

July 1 Issuance 108,000 ordinary shares

For the purpose of computing EPS, the weighted average number of shares
in 2015 is

a. 299,400 shares c. 300,000 shares

b. 299, 500 shares d. 340,000 shares

10. Your client, Slims Corporation, requests your assistance in determining

the amount of loss and in filing in insurance claim in connection with a fire on
June 15, 2014 that destroyed some of the company’s inventory and
accounting records. You were able to obtain the following information from
available records.

The last physical inventory was taken on December 31, 2013. At the time,
total (at cost) amounted to P210,789.80. Accounts payable were
P110,106.42 on December 31, 2013 and P126,945.37 at the time the fire
occurred. Payments to vendors from December 31, 2013 to the date of fire
totaled P641,871.56. All sales are on account and account receivable were
P135,009.18 at December 31, 2013 to the date of fire amounted to
P876,195.50. Almost all the merchandising items are sold approximately
30% in excess of cost. As at June 15, 2014, the total cost of inventory items
not destroyed by the fire amounted to P144,882.33. How much is the loss
incurred by the company as a result of the fire?

a. 82,022.34 c. 103,227.12
b. 74,220.13 d. P72,055.23

11. On January 1, 2014, Ken Company grants 1,000 cash share appreciation
rights to each of its 500 employees, on the condition that the employees
remain in its employ for the next three years. During the year, 35 employees
left the firm. Ken Company estimates that around 60 employees will leave
over the next two years

In 2015, 22 employees left the firm and Ken Company expects that 25
employees will leave by next year.
At the end of 2016, 150 employees exercise their share appreciation rights.
In 2017 another 140 employees exercise their share appreciation rights.
At the end of 2018 all the remaining 150 employees exercise their share
appreciation rights

Year Fair value of the Intrinsic value of

SAR the SAR
2014 20
2015 25
2016 28 26
2017 32 28
2018 31 31

Compensation Expense in 2014 is:

a. 0 c. 3,100,000
b. 2,700,000 d. 8,100,000

12. Cyclops Company uses the average retail inventory method to estimate
ending inventory for its monthly financial statements. In the past, Cyclops
Company has had a stable cost-to-retail relationship for its inventory due to
buying only from one supplier and marking up the goods by a fixed
percentage. Because of lack of competition, Cyclops Company has not
previously needed to mark down any of its goods. During 2012, however, two
department store chains have opened which provided intense competition
and Cyclops Company has found itself buying products from a variety of
manufacturers with lower costs, reducing markup on many of its goods and
marking down various items of inventory. The following data pertain to a
single department of Cyclops Company for March 2012: Inventory, March 1:
at cost – P200,000, at retail – P300,000; purchases: at cost – P1,001,510, at
retail – P1,464,950; freight-in – P45,400; purchase returns: at cost – P21,000,
at retail – P28,000; additional markups – P25,000; markup cancellations –
P2,650; net markdowns – P8,000; normal spoilage and breakage – P36,000;
sales – P1,347,300.

The cost of the March 31 inventory is

a. 289,380 b. 282,800 c. 265,055 d. 257,600

13. Presented below is a list of items that may or may not reported as
inventory in CHALLENGING Company’s December 31 statement of financial
position located in Clark:
Goods sold under a bill and hold P 450,000
sale, at the time of sale, the buyer
accepts the billing, goods are on
hand, identified and ready for
delivery to the buyer, the buyer
specifically acknowledges the
deferred delivery, and is under
special terms agreed
Goods sold on installment basis 100,000
Goods sold under Lay away sale, 300,000
final installment payment is due on
January 15 next year
Goods sold where large returns are 280,000
predictable
Goods sold f.o.b. Clark that are in 80,000
transit as of December 31, the
buyer is in Cebu
Goods sold f.o.b. Davao that are in 80,000
transit as of December 31, the
buyer is in Davao
Interest cost incurred for 40,000
inventories that are routinely
manufactured
Costs incurred to advertise goods 20,000
held for resale
Raw Materials on hand not yet 350,000
placed into production
Raw materials on which a the 280,000
company has started production,
but which are not
completely processed
Conversion costs incurred on goods 50,000
still not completely processed
Work-in-process inventory, ending 330,000
Costs identified with units 260,000
completed but not yet sold
Goods out on consignment at 400,000
another company’s store
Goods purchased still in transit on 450,000
December 31 on terms FAS (free
alongside)
Goods purchased still in transit on 120,000
December 31 on terms CIF (cost,
insurance, and freight)
Goods purchased still in transit on 200,000
December 31on terms Ex-ship
Freight charges on goods 80,000
purchased

How much of these items would be reported as inventory in the financial

statements?

a. 1,950,000 c. 2,700,000
b. 2,250,000 d. 2,820,000

14. Sunfire Company started operations on March 2009. The following

information were provided in relation to its inventory for the past three years
2009 2010 2011
Inventory, P - P 900,000 P
beg 1,100,000
Net 4,500,000 5,000,000 4,200,000
Purchases
Inventory, 900,000 1,100,000 850,000
end

In preparing the 2011 financial statements of Sunfire Company the following

items were noted:
 The ending inventory reported in the past three years were based on
physical counts made in Sunfire Company’s warehouses.
 Goods out on consignment at the end of 2009, 2010 and 2011 were
P130,000, P90,000 and P110,000 respectively
 The last purchase invoice recorded in 2009 was P70,000. These goods
were shipped on December 29, 2009 under the terms fob shipping point and
arrived on January 3, 2010

The amount to be reported as cost of sales in the 2011 income statement of

Sunfire Company is

a. 4,100,000 b. 4,340,000 c. 4,360,000 d. 4,430,000

15. A company has six million ordinary shares in issue at the beginning of
Year 1. At the very end of the third quarter of Year 2 it announces a rights
issue whereby all existing shareholders will be entitled to buy one share for
every four they hold, at a price of 30. Immediately prior to the issue, the
share price was 50. The profits for year 1, 2 and 3 were 225 million, 230
million and 245 million, respectively. The rights were exercised immediately
upon issuance. What are the (restated) basic earnings per share for each of
these years?

Year 1 Year 2 Year 3

a. 37.50 32.81 32.67
b. 37.50 30.67 32.67
c. 34.50 33.99 32.67
d. None of the above

16. The stockholders’ equity of Sunny Company on December 31, 2005,

consists of the following capital balances:
Preferred stock, 10% cumulative, 3 years in arrears, P100 par,

P110 liquidation price 150,000 shares 15,000,00

0

Common stock, P100 par, 200,000 shares 20,000,00

0

Subscribed common stock, net of subscription receivable of

P4,000,000 6,000,000

Treasury common stock, 50,000 shares at cost 4,000,000

Additional paid in capital 3,000,000

Retained earnings 20,000,00

0

The book value per share of the common stock is

a. P156.00 b. P190.00 c. P172.00 d.

P286.67

17. On January 1, 2004, Bansalan Company offered its top management

stock appreciation right with the following terms:
 Predetermined price P100 per share

Number of shares 50,000

shares

Service period 3 years

Exercise date January 1, 2007

The stock appreciation right is to be exercised on January 1, 2007. The

quoted prices of Bansalan Company stock are 100, 124, and 151 on
January 1, 2004, December 31, 2004 and December 31, 2005,
respectively. What amount should Bansalan charge to compensation
expense for the year ended December 31, 2005 as a result of the stock
appreciation right?

a. P1,700,000 c. P1,200,000
b. P1,300,000 d. P 500,000
c.
18. Mara Company provided the following comparative information
concerning its defined benefit plan in its memorandum records:
January 1, December 31,
2015 2015

Fair value of plan assets 10,000,000 11,500,000

Unamortized past service cost 1,500,000 1,350,000

Accrued benefit obligation 12,500,000 13,035,000

Unrecognized actuarial gain 1,700,000 1,620,000

The transactions for 2015 related to the defined benefit plan are:

Current service cost 2,000,000

Interest cost 1,000,000

Expected return on plan assets 1,200,000

Contribution to the plan 2,800,000

Benefits paid to retirees 2,300,000

Unexpected decrease in accrued benefit obligation 165,000

Amortization period of past service cost and actuarial 10 years

gain

The actual return on plan assets in 2015 is

a. P1,200,000 c. P1,000,000
b. P1,905,000 d. P2,000,000
c.
19. To increase sales, Quezon Company inaugurated a promotional
campaign on June 30, 2005. Quezon placed a coupon redeemable for a
premium in each package of cereal sold at P200. Each premium costs P100.
A premium is offered to customers who send in 5 coupons and a remittance
of P30. The distribution cost per premium is P20. Quezon estimated that
only 60% of the coupons issued will be redeemed. For the six months ended
December 31, 2005, the following is available:

Packages of cereal sold

100,000
Premiums purchased
10,000
Coupons redeemed
40,000

What is the estimated liability for coupons on December 31, 2005?

a. P1,080,000 c. P360,000
b. P1,000,000 d. P720,000

20. Dumalag Company provided the following information relevant to the

research and development expenditures for the year 2005:

Current period depreciation on the building housing R and D activities

1,500,000

Cost of market research study 1,000,000

Current period depreciation on a machine used in R and D activities 500,000

Salary of R and D director 1,200,000

Salary of Vice-President who spends ¼ of his time overseeing

R and D activities 2,400,000

Pension costs for salary of R and D director 50,000

Pension costs for salary of Vice-President 100,000

The R and D expense for the current period should be

a. 3,875,000
b. 4,875,000
c. 5,750,000
d. 3,800,000

21. Biñan Company made the following expenditures relating to Product X:

* Legal costs to file a patent on Product X. Production of the 500,000

finished product would not have been undertaken without
the patent.

* Special equipment to be used solely for development of 4,000,000

Product X. The equipment has no other use and has an
estimated useful life of four years.

* Labor and material costs incurred in producing a prototype 3,000,000

 model
* Cost of testing the prototype 2,000,000

What is the total amount of costs that will be expensed when incurred?

a. 9,000,000
b. 9,500,000
c. 6,000,000
d. 5,000,000

22. A schedule of plant assets owned by Bauan Company is presented

below.

Depreciable
Cost Scrap cost Life Annual
dep
Building 8,800,000 800,000 20 years
Machinery 3,200,000 320,000 15 years
Equipment 640,000 5 years
Bauan computes depreciation on the straight line method. The composite
life of the assets should be
a. 19.8
b. 13.3
c. 18.0
d. 16.0

23. Lemery Company acquired property in 2005 which contains mineral

deposit. The acquisition cost of the property was P20,000,000. Geological
estimates indicate that 5,000,000 tons of mineral may be extracted. It is
further estimated that the property can be sold for P5,000,000 following
mineral extraction. For P2,000,000, Lemery is legally required to restore the
land to a condition appropriate for resale. After acquisition, the following
costs were incurred:

Exploration cost 13,000,000

Development cost related to drilling of wells 10,000,000

Development cost related to production equipment 15,000,000

The company extracted 600,000 tons of the mineral in 2005 and sold
450,000 tons. In the 2005 income statement, what amount of depletion is
included in cost of sales?
a. 4,800,000
b. 3,600,000
c. 5,400,000
d. 4,050,000
24. On January 1, 2014, Meri’s defined benefit pension plan showed a surplus
of P75,000. The maximum future benefit available to Meri in the form of
future contribution reductions was P30,000. The 2013 service costs
amounted to P8,000 and the assumed discount rate at the beginning of the
period amounted to 5%. During 2014, contributions of P9,000 were made
into the pension plan. If the maximum benefit available to Meri is P30,000,
what is the amount of net pension asset or liability at December 31 2014?

a. 27,250 b. 29,500 c. 30,000 d. 31,000

25. On November 17, 2005, Solana Airways entered in to a commitment to

purchase 3,000 barrels of aviation fuel for P9,000,000 on March 23, 2006.
Solana entered into this purchase commitment to protect itself against the
volatility in the aviation fuel market. By December 31, 2005, the purchase
price of aviation fuel had fallen to P2,200 per barrel. However, by March 23,
2006, when Solana took delivery of the 3,000 barrels, the price of aviation
fuel had risen to P2,500 per barrel.

How much should be recognized as loss on purchase commitment on

December 31, 2005?
a. P1,500,000 c. P2,400,000
b. P 900,000 d. P 0

26. The following pertains to Claudine Company’s biological assets:

Price at the Makati market of bio-assets A P250,000

Price at the Davao market of bio-assets B 250,000
Total Price at the market of the bio-assets A & B 500,000

Selling price in a binding contract to sell – bio-asset A P200,000

Selling price in a binding contract to sell – bio-asset B 200,000
Total Selling Price in a binding contract to sell 400,000

Estimated commissions to brokers and dealers (total) 50,000

Estimated transport and other cost necessary to get assets
to Makati market 5,000
Estimated transport and other cost necessary
to get assets to Davao market 20,000

Average estimated transport and other cost necessary

to get assets to any market in the country (bio-asset A & B) 30,000

Determine the fair value of the entity’s biological assets

a. P475,000
b. P470,000
c. P425,000
d. P420,000

27. On July 1, 2011, Taurotron Company purchased a coal mine for P2

million. The estimated capacity of the mine was 700,000 tons. During 2011,
the company mines 10,000 tons of coal per month and sells 9,000 tons per
month. The selling price is P30 per ton and production cost (excluding
depletion and depreciation) are P8 per ton. At the end of the mine’s life it is
expected that it will cost P200,000 to restore the land, after which it can be
sold for P100,000. The company also purchased some temporary housing for
the miners at a cost of P150,000. The housing has an expected life of 10
years but is expected to be sold for P10,000 at the end of the mine’s life.

In January 2012, a new estimate indicated that the capacity of the mine was
only 500,000 tons at that time. The company mines and sells 10,000 tons
per month in 2012. Assuming the company uses the FIFO cost flow
assumption, compute the company’s expenses included on the 2012
statement of comprehensive income.

a. P1,451,520
b. P1,446,480
c. P1,397,960
d. P1,344,000

28. Crazy Company has recognized a provision for lawsuit at P400,000 in its
statement of financial position at December 31, 2011. At December 31,
2012, the risk adjusted present value of the best estimate of the amount
required to settle the lawsuit is P900,000 but portion of the increase during
2012 included a 7% that is attributable to the unwinding of the discount and
the remainder of the increase is attributed to better information becoming
available on which to base the estimates. In the statement of comprehensive
income for the year ended December 31, 2012, what amount of loss from
the lawsuit Crazy Company must be disclosed?

a. P--0-- b. P28,000 c. P472,000 d. P500,000

29. The Miracle Company leased some plant and machinery for 10 years, its
useful life, with effect from January 1, 2012. At that date the fair value of the
plant and machinery was P490,000. Annual rentals of P70,000 are payable in
advance on 1 January and the interest rate implicit in the lease is 9%. What
is the total lease liability which Miracle should recognize in its statement of
financial position at December 31, 2012, according to PAS 17 – Leases?

a. P--0-- b. P70,000 c. P457,800 d. P464,100

30. The memorandum records of Revised Inc. for its defined benefit plan
show the following balances:

Plan asset, January 1, 2014 P5,000,000

Defined benefit obligation, January 1, 2014 5,200,000

2014 information:

Current service cost 750,000

Market yields on government bonds at year - end 10%
Contributions made 1,800,000
Benefits paid 480,000
Past service cost as a result of plan amendment 2,300,000
Plan asset, at fair value, December 31, 2014 8,000,000
Defined benefit obligation, re-measured, December 31, 2014 8,350,000
The fair value of Plan asset at year end includes the unpaid contributions due
from the Revised Inc. to the fund, as well as the non-transferable FVPL issued
by the Revised Inc. and held by the fund amounting to P700,000 and
P300,000, respectively. Determine the amount recognized in profit or loss in
accordance with revised PAS 19 – Employee Benefits.

a. P3,050,000

b. P3,070,000

c. P3,570,000

d. P2,300,000

31. The shareholders’ equity of Joyful Corporation on December 31, 2012

shows the following account balances:

10% Preference share, 5,000 shares, P100 par P500,000

12% Preference share, 6,000 shares, P100 par 600,000
Ordinary share, 10,000 shares, P40 par 400,000
Share premium 320,000
Accumulated profits 480,000

The 10% preference share is cumulative and fully participating, while the
12% preference share is non-cumulative and fully participating. The last
payment of dividends was on December 31, 2010. What is the book value
per share of ordinary shares?

a. P44.00
b. P59.68
c. P60.27
d. P102.80

32. On December 31, 2011, Raven Company has 200,000 ordinary shares
outstanding with a par value of P100 per share. Information revealed that
Raven had an 9% convertible debenture, P1,000,000 face value bonds. The
bond has a carrying value of P1,067,830 as of January 2, 2011 based on a
prevailing rate of 7%. Each 1,000 bond is convertible into 20 ordinary shares.
The bonds were dated January 1, 2011. Net income after tax of 32% for 2011
was P418,000.

How much should Raven Company report as earnings per share in its
financial statements?

a. P1.90
b. P2.09
c. P2.13
d. P2.89

33. The Palila Company purchased a varnishing machine for PHP150,000 on

1 January 20X7.
The company received a government grant of PHP13,500 in respect of this
asset. Company policy was to depreciate the asset over 4 years on a
straight-line basis and to treat the grant as deferred income. Under IAS20
Government grants and government assistance, what should be the carrying
amounts of the machine and the deferred income ("DI") balance at 31
December 20X8?

Carrying amount DI balance

a PHP75,000 PHP6,750
b PHP112,500 PHP10,125
c PHP81,750 PHP6,750
d PHP75,000 PHP13,500

34. On January 1,2011, BigayNaNi Company received a grant of 1, 500,000

from the government to subsidize tuition fees for a period of 5 years. On
January 1, 2013, the entity violated certain conditions attached to the grant,
and therefore had to repay such grant to the government. What amount
should be recognized as loss resulting from the repayment of the grant in
2013?

a. 1,500,000
b. 900,000
c. 600,000
d. 0

35. BahalagSawiSaLovelifeBastaDiliLangUntaSawiSaGrado Company leased a

building for 20 years with effect from January 1, 2011. The useful life of the
building is 40 years. As part of the negotiations for the lease, the lessor grant
the Company a rent-free period. Annual rentals of 1,600,000 are payable in
advance on January 1, commencing in 2013. What rent expense should be
recognized for the year ended December 31, 2011?

a. 1,600,000
b. 1,520,000
c. 1,440,000
d. 0

“Find the ‘Kaya Pa Lagi Na Nimo’ in this world filled with ‘Gikapoy Na Ko’”

AC 506
Comprehensive Exam

Name: _______________________________________ Schedule: ___________________

ANSWER SHEET

INSTRUCTIONS: Write all your FINAL answers in this sheet. Any

accompanying solutions should be written in a different sheet of paper and
passed along with the exam papers. Refrain from talking to your seatmates,
as such will be construed as cheating. Make your handwriting legible. Do not
detach this sheet from the other pages. NO ERASURES ALLOWED.
 THEORIES PROBLEMS

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