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FINANCIAL ACCOUNTING AND REPORTING (FAR)

OCTOBER 2023 BATCH

REO CPA REVIEW

FINANCIAL ACCOUNTING AND REPORTING
FINAL PREBOARDS – OCTOBER 2023 BATCH

SITUATION 1
RAYMUND CORP. issued serial bonds On December 31, 2023 with face value of
P1,000,000 and a stated 10% interest rate. The bonds are issued on this date with
a 12% effective yield. The bonds mature at an annual installment of P250,000 and
together with the interest, they are to be paid every December 31, starting
December 31, 2024. (Round-off present value factors in two decimal places)

NACHOS CORP. provided the following information for the current year:
Net income 3,960,000
Depreciation expense 1,020,000
Amortization 200,000
Decrease in accounts receivable 1,260,000
Increase in inventory 900,000
Increase in accounts payable 240,000
Payment of dividends 540,000
Purchase of financial asset at amortized cost 220,000

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Decrease in income tax payable 160,000
Increase in long-term note payable 2,000,000

PARAGUAY CORP. purchased a machine for P1,500,000 on April 1, 2023 and received a
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government grant of P200,000 in relation to the acquisition of the said machine.
The policy is to treat the grant as a deferred income upon receipt. The machine is
to be depreciated using SYD method over its 5 years with a residual value of
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P100,000.
LOUIE CORP. is in its first year of operations. The entity has pretax income of
P400,000. The entity has the following items recorded in its records.
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Premiums on life insurance of key officer 10,000

Depreciation on tax return in excess of book depreciation 12,000
Interest on municipal bonds 5,300
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Warranty expense 4,000

Actual warranty repairs 3,250
Bad debt expense 1,400
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Beginning balance in allowance for uncollectible accounts 0

Ending balance for allowance for uncollectible accounts 800
Rent received at year-end will be recognized evenly
over the next three years 24,000
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VALENZUELA COMPANY purchased a P2,000,000 ordinary life insurance policy on its

president and the company is the named beneficiary. Additional data are available
for the year ended December 31, 2015.
Cash surrender value, January 1, 2015 - P87,000
Cash surrender value, December 31, 2015 - P108,000
Annual premium paid in advance on January 1 - P40,000
Dividend received on July 1 - 6,000

1. What is the carrying amount of the serial bonds by RAYMUND CORP. on December 31,
2023?
A. P760,000 C. P960,500
B. P890,500 D. P975,750

2. What is the net cash flow from operating activities of NACHOS CORP.?
A. P4,620,000 C. P5,400,000
B. P5,080,000 D. P5,620,000

3. How much income from government grant should PARAGUAY CORP. recognize on the
statement of profit or loss for the year ended December 31, 2023?
A. P53,750 C. P30,000
B. P84,583 D. Nil or Zero

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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

4. What is the taxable income of LOUIE CORP. for 2023?

A. P404,700 C. P410,250
B. P408,250 D. P418,250

5. How much should VALENZUELA report as life insurance expense for 2015?
A. P40,000 C. P19,000
B. P34,000 D. P13,000

6. Key management personnel compensation is a required disclosure under PAS 24. All
of the following are considered as compensation under PAS 24, except:
A. Rice and transportation allowance
B. Share-based compensation
C. Housing assistance to key officers
D. Travel expense of the chief marketing officer subject to reimbursement

7. Which of the following is not part of the legal capital under the Corporation Code
of the Philippines?
A. Additional paid-in capital of issued shares with no par value.
B. Paid-in capital of issued shares with par value.
C. Additional paid-in capital of issued shares with par value.
D. None from the choices.

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Use the following information in answering the next item(s):
On July 1, 2022, ITALY CORP. purchased an office equipment with at a price of
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P500,000 on installment basis. The terms of payment are as follows:
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• P100,000 downpayment.
• For the remaining amount, ITALY shall issue a 5-year non-interest bearing
note with an annual installment of P80,000. On this date, the market rate of
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interest is 10%. (Round off present value factors in 2 decimal places)

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In addition, the following costs in relation the acquisition of the office

equipment were incurred:
Cost of training for personnel who will use the machine 25,000
Cost of safety rails and platforms surrounding machine 60,000
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Testing and installation cost – net of P3,000 proceeds from samples 37,000
Cost of removing old machine 10,000
Insurance cost of the equipment – 1 year starting July 1 36,000
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The equipment has an estimated residual value of P25,000 and to be depreciated

over its estimated useful life of 5 years using double declining balance method.

8. What is the initial cost of the office equipment?

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A. P525,200 C. P500,200
B. P528,200 D. P503,200

9. What is the depreciation expense of the office equipment for the year-ended
December 31, 2022?
A. P201,280 C. P 95,640
B. P191,280 D. P100,640

10. Which of the following statements regarding the different forms of receivable
financing is incorrect?
A. Under non-notification basis of assigning receivables, the debtors will
continue to remit payments on the receivables to the assignor.
B. When receivables are pledged, such receivables are not derecognized on the
books; thus there is no change in receivable balance.
C. There is NO gain or loss on discounting if discounting is on a with recourse
basis.
D. Factor’s holdback is an amount retained by the factor as a cushion for sales
returns, discounts and allowances and is classified as part of cost of
factoring.

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FINANCIAL ACCOUNTING AND REPORTING (FAR)

SITUATION 2
The shareholders equity section of FANNY CORP.’s statement of financial position as of
December 31, 2020, is as follows:

Ordinary shares, P10, par value; authorized, 2,000,000 shares;

issued 400,000 shares P 4,000,000
Share premium 1,700,000
Accumulated profits 5,985,000
Treasury shares, 50,000 (1,100,000)
Total ?

The following transactions occurred during 2021:

Jan. 5 20,000 shares of authorized and unissed ordinary shares were sold P 18
per share. The company incurred share issue cost at P 20,000.
Jan.16 Declared a cash dividend of P0.60 per share, payable February 15 to
shareholders of record February 5.
Feb. 25 16,000 shares from the treasury were issued in exchange of equipment
having a fair market value of P 520,000.
Mar.1 15% stock dividend was declared and issued. Market value of shares on
this date was at P19.
May30 Declared a 2 for 1 share split up.

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Aug.15 Reissued half of the remaining treasury shares at P10 per share.
Sept.30 A cash dividend of P. 40 per share was declared payable October 15 to
shareholders of record on October 1.
Dec. 31 i
Adjusted net income for the year is at P 2,150,000.
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REQUIREMENTS:
11. What is the debit to retained earnings as a result of the share dividends
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declaration on March 1?
A. P1,197,000 C. P1,043,100
B. P1,100,100 D. P579,000
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12. What is the debit to retained earnings as a result of the cash dividends
declaration on September 30?
A. P355,120 C. P369,520
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B. P359,420 D. P368,720
13. The entry to record the reissuance of treasury shares on August 15 shall involves
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a:
A. Debit to retained earnings at P 34,000
B. Debit to share premium at P 34,000
C. Debit to retained earnings at P 68,000
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D. Debit to share premium at P 68,000

14. What is the total Additional paid-in capital as of December 31, 2018?
A. P1,974,000 C. P2,361,100
B. P2,495,100 D. P2,529,100

15. What is the balance of the Accumulated Profits- unappropriated as of December 31,
2018?
A. P5,344,180 C. P6,444,180
B. P6,591,280 D. P6,070,180
16. Initial direct costs incurred by a lessor in an operating lease should be
A. Expensed immediately
B. Capitalized as cost of the leased asset and depreciated over the lease term.
C. Capitalized as cost of the leased asset and depreciated over the life of the
asset.
D. Added to the carrying amount of the leased asset and recognized as expense
over the lease term on the same basis as lease income.

17. Which of the following is not represented in FSRSC?

A. Insurance Commission (IC)
B. Commission on Higher Education (CHED)
C. Securities and Exchange Commission (SEC)
D. Commission on Audit (COA)

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FINANCIAL ACCOUNTING AND REPORTING (FAR)

18. KGA CORP. has provided the following information in relation to its statement of
comprehensive income for the year ended December 31, 2023:
Income before tax P400,000
Income from discontinued operations, gross of tax 200,000
Operating income 480,000
Tax rate 30%
Revaluation surplus, gross of tax 300,000
There were no other items affecting profit or loss except interest expense.
Which of the following statements is correct?
A. The interest expense is P100,000
B. The income from continuing operations is P200,000
C. The bottom-line figure of the statement of profit or loss is P420,000.
D. The revaluation surplus is an item presented within profit or loss.

19. DAVAO CORP. prepared a draft of its 2016 balance sheet. The draft statement
reported current liabilities totaling P 2,000,000. However, none of the following
items were included in this preliminary total at December 31, 2016:

Accounts payable - trade, P 300,000, bonds payable due in 2017, P 500,000;

discount on bonds payable. P 60,000; dividends payable due 2017, P 160,000; bond
issue costs, P 20,000; deferred tax liability, P 60,000 and notes payable, P

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100,000. The notes payable is an issued debt instrument that the entity intends to
repurchase in the near term to make a gain from short-term movements in interest
rates and has a current fair value of P 120,000.
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The deferred tax liability is excess tax depreciation over financial that are
expected to reverse in the next three years. At what amount should Lever's current
liabilities correctly reported in the December 31, 2016 statement of financial
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position?
A. P 2,880,000 C. P 3,000,000
B. P 2,900,000 D. P 3,110,000
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20. Which of the following is not one of the criteria for classifying an asset as held
for sale in accordance with PFRS 5?
A. The asset or disposal group is available for immediate sale in its present
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condition.
B. Actions required to complete the plan to sell indicate that it is unlikely
that the plan will be significantly changed or withdrawn.
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C. A program, whether active or inactive, to locate a buyer and complete the

plan must have been initiated.
D. Management must be committed to a plan to sell the asset or disposal group.
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SITUATION 3
The ledger of TRUST THE PROCESS CORP. shows the following information regarding
its accounts for the year ended December 31, 2023:
Cash and cash equivalents P200,000
Trade accounts receivable (net of credit balances of P10,000) 140,000
Deferred tax asset (reversal is next year) 20,000
Equipment held for sale 50,000
Investment in equity securities (FVOCI investments) 40,000
Land 100,000
Patent 80,000
Trade accounts payable (net of debit balances of P5,000) 75,000
Bonds payable (due in 2024) 90,000

NOTE: Cash and cash equivalents includes a restricted compensating balance and
bond sinking fund amounting to P10,000 and P80,000, respectively.

On April 1, 2019, CYCLOPS CORP. rendered services to AURORA CORP. in exchange for
P50,000 cash and a promissory note worth P320,000 maturing on April 1, 2023. The
note bears an interest of 10%. The agreed interest as well as the principal
payment is to be paid annually. The first payment of the principal is on April 1,
2020. The cost of services is P250,000. On transaction date, the market rate of
interest is 12%.

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FINANCIAL ACCOUNTING AND REPORTING (FAR)

On April 1, 2018, WARRIORS CORP, purchased an office equipment for an invoice

price of P150,000. Such price is to be paid in 3 equal annual instalments every
April 1 starting next year. The equipment has a useful life of 10 years with no
salvage value. The market rate of interest on April 1 is 12%.

FLORAL CORP. has several contingent liabilities on December 31, 2022. A brief
description of each liability is as follows:
• A personal injury liability suit for P500,000 was brought against FLORAL
CORP. in March 2022. The management and legal counsel of FLORAL CORP.
concluded that it is not probable that FLORAL CORP. will be responsible for
damages and that P150,000 is the best estimate of the damages.
• In July 2022, FLORAL CORP. became involved in a tax dispute with the BIR
pertaining to 2021 income tax. In December 2022, a judgment for P400,000 was
assessed against FLORAL CORP. by the tax court. FLORAL CORP. is appealing
the amount of the judgment. The tax advisor and legal counsel of FLORAL CORP.
believed it is probable that the assessment can be reduced on appeal by 50%.
• FLORAL CORP. signed as guarantor for P200,000 loan by PNB to TINTED CORP. a
principal supplier of FLORAL. By reason of financial difficulties, it is
probable that FLORAL CORP. shall pay the P200,000 loan with only a 60%
recovery anticipated from TINTED CORP.

HOPEFUL COMPANY is in the business of telecommunication. It is given a concession

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by the government to operate the business for 10 years. In the year 2011, it sets
up its telecommunication network facilities. The agreement with the government
requires the company to decommission the network facilities at the end of the
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concession period. Based on the current technology, the cost of decommissioning at
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the end of 10 years is estimated at P150,000,000. Because of the changes in the
technology in decommissioning work, it is reasonably probable that the cost of
decommissioning would be reduced by the end of the concession period. The company
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estimates that there is a 30% (high) chance the cost will be P90,000,000, a 40%
(medium) chance the cost will be P100,000,000 and a 30% (low) chance the cost will
be P110,000,000. The residual value of the facilities is negligible and no gain or
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loss is expected from their eventual disposal after 10 years. The current risk-
free rate of interest is 5%. For the risks specific to the liability, the
variability of the possible outflows, an additional 10% on the expected cash
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outflows is considered a reasonable estimate.

21. How much is the total current assets of TRUST THE PROCESS CORP. as of December 31,
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2023?
A. P395,000 C. P310,000
B. P315,000 D. P415,000
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22. What is the net amount to be presented on statement of profit or loss of CYCLOPS
CORP. for the year 2019?
A. P170,793 C. P150,972
B. P120,268 D. P134,808

23. What is the net amount to be presented on the statement of comprehensive income of
WARRIORS CORP. for the year 2018? (Round-off present value factors in 2 decimal
places)
A. P10,800 D. P15,000
B. P26,400 E. Nil
C. P19,800

24. Determine the amount of provision to be recognized by FLORAL CORP. on December 31,
2022
A. 200,000 C. 350,000
B. 400,000 D. 550,000

25. In relation to HOPEFUL COMPANY, what is the amount of provision required for the
decommissioning costs that should be recognized and included as additional cost of
the facilities?
A. None C. P67,530,458
B. P61,391,325 D. P70,906,981

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26. In relation to the Conceptual Framework, which of the following statements is

correct?
A. Conceptual framework applies in the preparation and presentation of general
purpose financial statement of a profit oriented entity.
B. If there is a conflict between the provisions of the conceptual framework and
that of a financial accounting standard, the conceptual framework should
prevail.
C. Conceptual framework provides assistance to standard setting bodies in
developing accounting standards based on consistent concepts. It aims to
reduce information gap between the providers of capital and the people to
whom they have entrusted their money.
D. The conceptual framework is not a standard and nothing in the conceptual
framework overrides any specific Philippine Financial Reporting Standard.

27. S1: PFRSs apply to all profit-oriented entities whether owned by private
individuals or the government.
S2: PFRSs apply to all reports prepared by profit-oriented entities.
S3: Any limitation of the scope of PFRS is made clear in the standard itself.
Which of the above statements is correct?
A. S1 only C. S2 and S3 only
B. S1 and S2 only D. S1 and S3 only

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Use the following information in answering the next item(s):
On July 1, 2022, DA VINCI COMPANY acquired a 30% interest in the ordinary shares
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of an investee for P1,300,000. On that date, the book value of the investee’s net
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assets amounted to P3,000,000. Moreover, The carrying amount of the net assets
acquired equaled fair value except for equipment whose fair value exceeded the
carrying amount by P800,000. The remaining useful life of the equipment is five
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years.

During 2022, the associate reported the following in its statement of

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comprehensive income a P1,200,000 net income and unrealized gain from its FVOCI
investments, net of tax amounting to P300,000. The unrealized gain was recognized
at year-end. DA VINCI received cash dividends amounting to P40,000 on October 31,
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2022.

28. What is the carrying amount of the investment in associate account as of December
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31, 2022?
A. P1,534,000 C. P1,416,000
B. P1,506,000 D. P1,400,000
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29. Assuming RENE COMPANY is a medium-sized entity. What is the carrying amount of the
investment in associate account as of December 31, 2022?
A. P1,534,000 C. P1,416,000
B. P1,506,000 D. P1,408,000

30. Which of the following is not correct regarding provisions of PAS 8 on accounting
changes and error corrections?
A. PAS 8 requires that ALL changes in accounting estimates be reflected in the
current and future periods.
B. PAS 8 requires changes in accounting policy to be accounted for by reflecting
the effect of the change in the income of the current period without
restating prior period results despite the existence of a transitional
provision.
C. Under PAS 8 when an entity faces difficulty in distinguishing a change in
accounting estimate from a change in accounting policy, the change is treated
as a change in accounting estimate, with appropriate disclosure.
D. PAS 8 requires that the correction of an error in the financial statements of
a prior period should be reflected, net of applicable income taxes, in the
beginning balance of retained earnings of the current year.

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FINANCIAL ACCOUNTING AND REPORTING (FAR)

SITUATION 4
NARUTO CORP. had 2,500,000 ordinary shares outstanding on January 1, 2022. An
additional 500,000 ordinary shares were issued on April 1, 2022, and 250,000 more
on July 1, 2022. On October 1, 2022, the entity issued 50,000, P 1,000 face
amount, 7% convertible bonds. Each bond is convertible into 40 ordinary shares. No
bonds were converted into ordinary shares in 2022. The net income for the year
2022 was P 15,000,000.

SARADA CORP. reported the net realizable value of accounts receivable in the
amounts of P 1,000,000 and P 1,200,000 on December 31, 2019 and 2018 respectively.
It was also disclosed that the allowance for doubtful accounts on December 31,
2019 and 2018 were P 100,000 and P 130,000 respectively. Credit sales amounted to
P 4,770,000 and collections from customers totaled P4,800,000. Certain accounts
were written off during the year.

The closing inventory of NORTH KOREA CORP. amounted to P116,400 excluding the
following two inventory lines:
• Item one - 400 items, which had cost P40 each. All were sold after the
balance sheet date for P30 each, with selling expenses of P2,000 for the
batch.

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• Item two - 200 different items, which had cost P30 each. These items were
found to be defective at the balance sheet date. Rectification work after the
balance sheet date amounted to P1,200, after which they were sold for P35,
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with selling expenses totaling P300.

JUPITER CORP. made several investment in equity securities:

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• Received from URANUS CORP. P 260,000 in lieu of a 15% stock dividend.

JUPITER owns 8,000 of the total 80,000 outstanding shares of URANUS CORP.
which it has acquired for P 1,800,000
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• MERCURY COMPANY declared a 20% stock dividend on March 15, 2018 at which time
MERCURY's shares was quoted at P 30 per share. JUPITER CORP. originally owns
10,000 MERCURY COMPANY shares. On December 28, 2018 MERCURY declared a cash
dividend of P8 per share, for holders on record as of January 15, 2019, to be
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distributed on January 31, 2019

• Received 2,000 common shares of PLUTO COMPANY in lieu of cash dividend. The
market price of PLUTO's shares was P 40
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31. What amount should be reported as basic earnings per share in NARUTO CORP.’s
financial statements?
A. 5.00 C. 6.00
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B. 4.62 D. 4.80

32. What amount should be reported as diluted earnings per share? In NARUTO CORP.’s
financial statements?
A. 4.29 C. 4.46
B. 4.11 D. 3.12

33. What amount of SARADA CORP.’s accounts receivable was written off during the year?
A. 200,000 C. 150,000
B. 100,000 D. 0

34. Which of the following figures should appear in the statement of financial
position of NORTH KOREA CORP.?
A. P116,400 C. P131,900
B. P126,400 D. P132,400

35. The total dividend income to be reported in JUPITER CORP.’s profit or loss
statement for 2018 is
A. 171,200 C. 200,000
B. 160,000 D. 216,000

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36. Evaluate whether the following statements are true or false in relation to PAS 41,
Agriculture
Statement 1: In accordance with PAS 41, contract prices are sufficient basis of
measuring fair value of a biological asset or agricultural
produce.
Statement 2: Any gain or loss on initial and subsequent measurement of
biological asset is presented in profit or loss or other
comprehensive income depending on the accounting policy employed
by management.
Statement 3: All animal related to agricultural activity is classified as
biological assets.
A. False, true, false C. True, false, true
B. False, false, true D. True, false, false
37. In relation to PAS 1, which of the following statements is incorrect?
A. An entity whose financial statements comply with PFRS shall make an explicit
and unreserved statement of such compliance in the notes.
B. Deferred tax assets are not minimum line items on the face of Statement of
Financial Position but presented ALWAYS as non-current items.
c. An entity shall present the Statement of Comprehensive Income more
prominently as compared to other financial statements.
D. An entity is allowed to present an income statement only as long as it will

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provide a more relevant and reliable information.

Use the following information in answering the next item(s):

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The following errors and omissions pertaining to KGA CORP. were discovered before
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closing the books of the current year, 2023 and are summarized as follows:
2022 2023
Understatement on ending inventory P30,000 P15,000
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Unrecorded advances from customers

(recognized as sales upon receipt of cash) 10,000 8,000
Note receivable recorded as accounts receivable 9,000 -
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In 2022, the acquisition cost of a delivery truck amounting to P50,000 was

inappropriately charged as expense. The delivery truck has a useful life of five
years. KGA’s policy is to provide a full year’s straight-line depreciation in the
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year of acquisition and none in the year of disposal. The company has registered
the following net income: 2022 – P210,000; 2023 – P150,000.
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38. What is the adjusted net income for the year 2022?
A. P279,000 C. P118,000
B. P270,000 D. P127,000
39. What is the adjusted net income for the year 2023?
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A. P279,000 C. P118,000
B. P270,000 D. P127,000

40. Which of the following statements is FALSE regarding operating segments?

A. PFRS 8 shall apply to the separate or individual financial statements of an
entity, and to the consolidated financial statements of a group with a parent
which is a public entity.
B. PFRS 8 adopts the management approach in identifying which segments are
reportable.
C. Additional operating segments shall be identified as reportable segments even
if they do not meet the quantitative thresholds until at least 75% of the
entity’s total revenue is included in reportable segments.
D. Segment data for a prior period presented for comparative purposes shall be
restated if an operating segment is identified as a reportable segment in the
current period.
41. Which of the following reporting standards have the requirement of earnings per
share computation and presentation in the financial statements?
PAS 33 PFRS for SMEs PFRS for Small Entities
A. Yes Yes No
B. No Yes No
C. Yes No No
D. Yes Yes Yes

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42. Assume the following data of RIGOR CORP. of its cash and short-term highly liquid
investments for December 31, 2016:
Cash on hand P80,000
Checking account No. 143 – BPI 200,000
Checking account No. 155 – BPI (30,000)

Securities Date Acquired Maturity Date Amount

120-day Certificate of Deposit 12/10/2016 01/31/2017 P600,000
BSP-Treasury Bills (No. 1) 11/30/2016 04/30/2017 5,000,000
BSP-Treasury Bills (No. 2) 10/31/2016 01/20/2017 1,000,000
180-day Commercial Paper 12/01/2016 06/20/2017 1,400,000
Money Market Funds 11/21/2016 02/10/2017 2,000,000
The correct cash and cash equivalents balance on December 31, 2016 is
A. P3,850,000 C. P5,250,000
B. P3,880,000 D. P5,280,000

43. Which of the following statements is true regarding interim reporting under PAS
34?
A. PAS 34 requires listed entities to provide interim financial reports.
B. If an entity does not prepare interim financial reports, then the year-end
financial statements are deemed not to comply with PFRS.

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C. Interim financial reports may be prepared using either PAS 1 or PAS 34.
D. The discrete view is required for interim reporting.

SITUATION 5
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NECROLYTE INC. provided the following data for the month of January of the current
year:
Balance per book, January 31 3,130,000
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Balance per bank statement, January 31 3,500,000

Collections on January 31 but undeposited 550,000
NSF check received from a customer returned by the
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bank on February 5 with the January bank statement 50,000

Checks outstanding on January 31 650,000
Bank debit memo for safety deposit box rental not
recorded by depositor 5,000
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A creditor check for P30,000 was incorrectly recorded

in the depositor's book as 300,000
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A customer check for P200,000 was recorded by the depositor as 20,000

The depositor neglected to make an entry in its books for a check
drawn in payment of an account payable 125,000
On September 30, 2014, a flood at TAIWAN COMPANY’s warehouse caused severe damage
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to its entire inventory. Based on recent history, TAIWAN had a gross profit of 25%
of net sales. The following data were gathered for the nine months ended September
30:
Inventory, January 1, P520,000; Purchases, P4,120,000; Purchase returns, P60,000;
Sales, P5,600,000 and Sales discounts, P400,000.
A physical inventory disclosed usable damaged items which TAIWAN estimates can be
sold to a jobber for P70,000. The company uses the gross profit method.
On January 1, 2016, BEAST CORP. started construction of a new office building. To
finance construction, BEAST borrowed P 15,000,000 specifically for the
construction of the building. Interest accruing on the loan is 10%. However, a
part of the borrowing is used for working capital and other business needs during
the year. Investment income earned on temporary investments of proceeds from the
borrowing amounted to P 50,000 which was received in cash on October 1, 2016.
Expenditures on the building amounted P 6,000,000 which was incurred evenly during
the year.
ALEXANDER CORP. has acquired 30,000 shares of the 100,000 shares outstanding
GRAHAM BELL INC. for P2,700,000 on January 2, 2014. GRAHAM BELL’s net asset at the
time of acquisition was P9,000,000. For the year ended December 31, 2014, GRAHAM
BELL reported a net income of P1,200,000 and paid dividends of P600,000. On
January 2, 2015, GRAHAM BELL issued addition 50,000 shares at the prevailing
market price of its shares at P120 per share. All the newly issued shares were
sold to new investors.
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FINANCIAL ACCOUNTING AND REPORTING (FAR)

NO JOWA CORP. is a dealer in machinery. On January 1, 2018, machinery was leased

to another entity with the following provisions:
Annual rental payable at the end of each year 2,000,000
Lease term and useful life of machinery 5 years
Cost of machinery 6,000,000
Residual value-unguaranteed 1,000,000
Implicit interest rate 12%
PV of an ordinary annuity of 1 for 5 periods at 12% 3.60
PV of 1 for 5 periods at 12% 0.57
There is no transfer of title nor bargain purchase option.

44. What is the adjusted cash in bank of NECROLYTE INC. on January 31?
A. 2,950,000 C. 3,400,000
B. 3,130,000 D. 3,500,000

45. How much is the estimated cost of inventory loss of TAIWAN COMPANY on September
30, 2014?
A. P310,000 C. P380,000
B. P320,000 D. P450,000

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46. How much is the capitalizable borrowing cost of BEAST CORP. during the current
year?
A. 298,750 C. 295,000
B. 300,000 D. 1,450,000
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47. What amount of dilution gains or losses should ALEXANDER recognize?
A. none C. P360,000
B. P240,000 D. P480,000
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48. What is the interest income of NO JWA CORP. for 2018?

A. 720,000 C. 864,000
PA

B. 795,600 D. 932,400

SITUATION 6
C

LOVE CORP. has one temporary difference at the end of 2014 that will reverse and
cause taxable amounts of P1,100,000 in 2015, P1,200,000 in 2016 and P1,200,000 in
2017. The entity has also a deductible temporary difference of P1,500,000. The
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pretax accounting income for 2014 is P6,000,000 and the tax rate is 30%. There
are no deferred taxes at the beginning of 2014.

On January 1, 2020, VIRGO CORP. granted 100 share options each to 500 employees,
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conditional upon the employee's remaining in the entity's employ during the
vesting period. The share options vest at the end of a three-year period. On grant
date, each share option has a fair value of P30. The par value per share is P100
and the option price is P120. On December 31, 2021, 30 employees have left and it
is expected that on the basis of a weighted average probability, a further 30
employees will leave before the end of the three-year period. On December 31,
2022, only 20 employees actually left and all of the share options are exercised
on such date.

BONIFACIO CORP. had a defined benefit plan for the employees. On January 1, 2018,
the entity provided me following balances related to this plan:
Fair value of the plan assets 2,700,000
Projected benefit obligation 3,400,000
During 2018, the actuary provided the following information:
Service cost 450,000
Actual return on plan assets 270,000
Benefits paid to retirees 410,000
Discount rate 7%
Contribution to the plan ?

BONIFACIO reported a pension liability of P 468,000 on December 31, 2018.

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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

GGWP CORP. leased equipment for the entire nine-year useful life, agreeing to pay
P500,000 at the start of the lease term on December 31, 2019, and P500,000
annually on each December 31 for the next eight years.
The present value on December 31, 2019 of the nine lease payments over the lease
term using the rate implicit in the lease which GGWP knows to be 10% was
P3,165,000. The December 31, 2019 present value of the lease payments using GGWP's
incremental borrowing rate of 12% was P2,985,000. GGWP made a timely second lease
payment.

49. What is the net deferred tax expense of LOVE CORP. for 2014?
A. 450,000 C. 1,050,000
B. 600,000 D. 1,200,000

50. What amount should be reported as compensation expense of VIRGO CORP. for 2022?
A. 500,000 C. 380,000
B. 880,000 D. 470,000

51. What amount of employee benefit expense should be reported for 2018?
A. 499,000 C. 418,000
B. 450,000 D. 459,000

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52. What is the cash contribution to the plan asset for 2018?
A. 418,000 C. 232,000
B. 731,000 D. 650,000

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53. What amount should be reported as lease liability on December 31, 2020?
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A. 3,500,000 C. 2,283,200
B. 2,431,500 D. 2,485,000
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54. Which of the following is not part of the due process of standard setting?
A. Consideration of pronouncements of the International Accounting Standards
Board (IASB).
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B. Consideration of all comments received within the comment period and, when
appropriate, preparing a comment letter to the IASB.
C. Formation of a task force, when deemed necessary, to give advice to FSRSC.
D. Issuing for comment an exposure draft approved by all FRSC members; comment
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period will be at least 60 days, unless a shorter period (not less than 30
days) is considered appropriate by the FSRSC.
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55. Bearer plants are classified as biological assets in which of the following
reporting standards?
PFRS for SMEs PFRS for Small Entities
A. Yes No
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B. No Yes
C. No No
D. Yes Yes

56. Which of the following events after the reporting period would NOT require
adjustment?
A. Errors on intangible assets discovered after the reporting period but before
the financial statements are authorized for issue.
B. Major ordinary share transactions and potential ordinary share transactions
after reporting period.
C. Bankruptcy of a customer which occurs after the reporting period.
D. Resolution after the reporting period of a court case for which an accrual
was made at the end of the reporting period.

57. Which of the following adjusting entries will not affect both the balance sheet
and income statements?
A. Accrued income
B. Prepayments using the expense method
C. Unearned income using the liability method
D. None of the choices

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FINANCIAL ACCOUNTING AND REPORTING (FAR)

SITUATION 7
On March 31, 2020, HOUSTON CORP. acquired a new office equipment at P3,000,000.
The equipment has a useful life of 5 years and to be depreciated using straight-
line method. HOUSTON settled the amount by issuing giving a downpayment of
P300,000 and a non-interest bearing promissory note payable in 3 equal annual
installments for the remaining balance. The first payment is to be made next year.
The market rate of interest of the note on transaction date is 10%.

On January 1, 2013, B-MEG INC. issued convertible bonds with a face value of
P5,000,000 for P6,000,000. The bonds are convertible into 50,000 shares with P100
par value. The bonds have a 5-year life with 10% stated interest rate payable
annually every December 31. The fair value of the convertible bonds without
conversion option is computed at P5,399,300 on January 1, 2013. On December 31,
2015, the convertible bonds were not converted but fully paid for P5,550,000. On
such date, the fair value of the bonds without conversion privilege is P5,400,000
and the carrying amount is P5,178,300.

HYDROGEN CORP., a real estate entity, has a building with a carrying amount of
P20,000,000 on December 31, 2014. The building is used as offices of the entity's
administrative staff. On December 31, 2014, the entity intended to rent out the
building to independent third parties. The staff will be moved to a new building

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purchased early in 2014.
On December 31, 2014, the original building had a fair value of P35,000,000. On
December 31, 2014, the entity also had land that was held in the ordinary course
of business. i
The land had a carrying amount of PI0,000,000 and fair value of
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P15,000,000 on December 31,2014. On such date, the entity decided to hold the land
for capital appreciation.
The accounting policy is to carry all investment property at fair value.
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The shareholders' equity of HAPPY COMPANY on December 31, 2018 shows the following
account balances:
PA

10% Preference share, 5,000 shares, P 100 par P 500,000

12% Preference share, 6,000 shares, P 100 par 600,000
Ordinary share, 10,000 shares, P 40 par 400,000
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Share premium 320,000

Accumulated profits 480,000
The 10% preference share is cumulative and fully participating, while the 12%
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preference share is non cumulative and fully participating. The last payment of
dividends was on December 31, 2016.

FARM CORP., a medium sized entity, is engaged in agricultural activities. In

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relation to such, the following information are presented:

Bearer plants P100,000
Consumable plants 90,000
Farm house related to agriculture 130,000
Land related to agricultural activity 120,000
Bearer animals 200,000

58. For the year ended 2020, what is the total amount of expense to be presented by
HOUSTON CORP. in its profit or loss based on the foregoing transaction? (Round off
present value factors in 2 decimal places)
A. P168,075 C. P504,225
B. P732,300 D. P549,225

59. What is the loss on the extinguishment of the convertible bonds of B-MEG INC. on
December 31, 2015?
A. 0 C. 221,700
B. 150,000 D. 371,700

60. On December 31, 2014, what amount should be recognized by HYDROGEN CORP. in its
profit or loss as a result of transfer of the land to investment property?
A. 0 C. 10,000,000
B. 5,000,000 D. 15,000,000

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FINANCIAL ACCOUNTING AND REPORTING (FAR)

61. What is the book value per share of ordinary shares of HAPPY CORP.?
A. P 44.00 C. P 60.27
B. P 59.68 D. P102.80

62. What is the total amount of PPE that FARM will report in relation to its
agricultural operations?
A. P250,000 C. P450,000
B. P350,000 D. P550,000

Use the following information for the next item(s):

During the current year, an entity began work on a research and development
project. The project was completed and commercial production of the developed
product began in later part of the year. The following expenditures were included
in the Research and Development expense account:
Salaries and wages for laboratory research 1,000,000
Design of pre-production prototype 200,000
Quality control during commercial production 10,000
Material and supplies consumed for laboratory research 400,000
Construction of preproduction prototype 150,000
Purchase of equipment used solely for the project
with useful life of 5 years 600,000

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Patent filing and legal fee for completed project 50,000
Payment to others for the research 300,000
Cost of adapting the now monitor for the specific needs of a customer250,000

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On December 31, 2022, the entity showed the following intangible assets:
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Trademark 6,000,000
Patent 3,000,000
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The trademark has 8 years remaining in its legal life. However, it is anticipated
that the trademark will be routinely renewed in the future. Thus, the trademark is
considered to have an indefinite life. Because of the inflationary economy, the
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trademark is expected to generate cash flows of P 200,000 per year. The

appropriate discount rate is 10%. Mathematically, the discounted value of a stream
of indefinite annual cash flows is simply computed by dividing the annual cash
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flow by the discount rate. The patent has a remaining economic life of 5 years. It
is expected that the patent will generate cash flows of P 500,000 per year. The
appropriate discount rate is also 10%. The present value of an ordinary annuity of
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1 at 10% for 5 periods is 3.79.

63. What amount should be reported a research and development expense?
A. 2,650,000 C. 2,900,000
B. 2,170,000 D. 2,350,000
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64. What total amount should be recognized as impairment loss in 2022?

A. 0 C. 4,000,000
B. 1,105,000 D. 5,105,000
65. Which of the following is correct regarding FSRSC?
A. RA 9298 requires that all members, including the chairman, are CPAs and are
senior practitioner in any scope of accountancy practice.
B. The FSRSC replaced the AASC as the standard setting-body in the Philippines.
C. FSRSC members serve without compensation for a term of three years, which can
be renewed for another three-year periods.
D. In accordance to RA 9298, majority of the members of FSRSC should come from
education or academe sector.
66. When the provision involves Continuous range of possible outcomes and each point
in that range is as likely as any other, the estimate of the amount
A. Midpoint of the possible outcomes.
B. Is determined as the individual most likely outcome
C. Reflects the weighting of all possible outcomes by their associated
probabilities.
D. May be the individual most likely outcome adjusted for the effect of other
possible outcomes.

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FINANCIAL ACCOUNTING AND REPORTING (FAR)

Use the following information in answering the next item(s):

SARADA CORP. presented the following account balances in relation to its
liabilities as of December 31, 2022:
Accounts payable P 1,350,000
Salaries payable 900,000
The following additional information pertains to these liabilities:
a) The accounts payable of P 1,350,000 was before any necessary year-end
adjustments relating to the following:
• Goods were in transit to SARADA from a vendor on December 31, 2022. The
invoice cost was P75,000. The goods were shipped FOB shipping point on
December 29, 2022 and were received on January 2, 2023.
• Goods shipped FOB destination on December 21, 2022, from a vendor to
SARADA, were received on January 6, 2023. The invoice amounts P37,500.
• On December 27, 2022, SARADA wrote and recorded checks totaling P60,000
which were mailed on January 10, 2023.
b) The accrued salaries payable pertains to the liability for compensated
absences accrued in the previous year 2,500 days unused vacation leave, from
2021 were forwarded to 2022, from which 1,900 days were exercised. By the end
of the current year, additional 3,000 days earned in the current, year were
unused by the employees. Unused leave can be carried over 2 years, thereafter
it shall expire. The company also estimates, as per past, experience, that

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only 805 of the unused leaves will ultimately be exercised. Salary rate in
2021 was at 450 per day while salary rate in 2022 is at P475 per day. Payment
of salaries including exercise of leaves were appropriately debited to
current year salaries expense. i
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67. In SARADA CORP.'s December 31, 2022 statement of financial position, how much
should be the accounts payable?
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A. P 1,410,000 C. P 1,462,500
B. P 1,425,000 D. P 1,485,000
PA

68. What is the adjusted liability for compensated absences to be included in the
accrued salaries as of December 31, 2022?
A. P1,225,000 C. P1,368,000
B. P1,280,000 D. P1,710,000
C

69. Under PAS 2: Inventories, which of the following statements is true?

A. Inventories are initially measured at cost. Its cost of purchase includes
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import duties and recoverable taxes.

B. PAS 2 allows First-in, First-out (FIFO) Method, Average Method and Last-in,
First-out (LIFO) Method in computing the cost of ending inventory.
C. PAS 2 allows recognition of gain on reversal of inventory write-down but up
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to the extent of allowance balance only.

D. If the NRV of an item of raw materials is lower than its cost, the inventory
item is automatically written down.

70. On January 1, 2012, PAPA CORP. purchased the debt instruments of MAMA CORP. with a
face value of P5,000,000 bearing interest rate of 8% for P4,621,006 to yield 10%
interest per year. The bonds mature on January 1, 2017 and pay interest annually
on December 30. PAPA CORP. has a business model of collecting all contractual cash
flows including the interest and principal.

At what amount should the investment in debt security be disclosed in the

statement of financial position dated December 31, 2014?
A. P4,621,006 C. P4,751,418
B. P4,683,107 D. P4,826,560

- END OF EXAMINATION -

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FINANCIAL ACCOUNTING AND REPORTING (FAR)

OCTOBER 2023 BATCH

REO CPA REVIEW

FINANCIAL ACCOUNTING AND REPORTING
PRE-WEEK – OCTOBER 2023 BATCH

1.0 Development of Financial Reporting Framework, Standard Setting Bodies and Regulation of the Accountancy
Profession (4 items)
Topic/(s) Covered:
FAR 01 – Introduction to Accountancy Profession & Preface to PFRS

1. Determine the incorrect statement regarding the standard setting process implemented by FSRSC?
A. FSRSC issues an exposure draft for comment which should be approved by at least 12 members of the council.
B. The comment period for the exposure draft is at least 60 days, unless a shorter period (not less than 15 days)
is considered appropriate by the FSRSC.
C. A task force is formed, when deemed necessary, to give advice to the FSRSC.
D. None from the statements.

2. Which of the following statements is correct regarding FSRSC?

A. The chairman of FSRSC should be a senior practitioner in public practice.
B. FSRSC members are on full-time basis and have a compensation coming from the government.
C. Any member of the ASC shall NOT be disqualified from being appointed to the FSRSC.

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D. The chairman and members of the FSRSC shall have a term of 2 years renewable for another term.

3. Which of the following is represented in FSRSC?

A. B. C. D. E.
BIR Yes Noi Yes No Yes
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CHED Yes Yes No No No
DTI No No No No Yes
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4. S1: PFRSs apply to all profit-oriented entities whether owned by private individuals or the government.
S2: Standards approved by FSRSC include paragraphs in bold type and plain type, the former having greater
authority than the latter since it indicate the main principles.
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S3: Any limitation in the scope of PFRS is made clear in the standard itself.
Which of the above statements is correct?
A. S1 and S3 only C. S1 and S2 only
B. S2 only D. All of the statements
C

2.0 Conceptual Framework, Accounting Process and Presentation of Financial Statements

(8 items)
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Topic/(s) Covered:
FAR 02 – Conceptual Framework for Financial Reporting
FAR 31 – Earnings per Share
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FAR 32 – Financial Statements (Part 1)

FAR 33 - Financial Statements (Part 2)
FAR 34 – Statement of Cash Flows
FAR 37 – Events after the Reporting Period
FAR 38 – Related Parties
FAR 42 – Accounting Process

5. Which of the following statements regarding the conceptual framework of accounting is (are) false?
I. The conceptual framework is intended to establish the objectives and concepts for use in developing standards
of financial accounting and reporting.
II. If there is a conflict between the provisions of the conceptual framework and that of a financial accounting
standard, the conceptual framework should prevail.
III. Special purpose financial reports, for example, prospectuses, and computations prepared for taxation purposes,
are outside the scope of the conceptual framework.
A. Only I D. All of the statements
B. Both I and III E. Both II and III
C. Only II

REO.CPA.ACADEMICS.F2.04.00
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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

Use the following information in answering the next item(s):

On June 30, 2021, LEOMORD COMPANY issued 100, P10,000, 7% bonds at face amount. Each bond was convertible
into 200 ordinary shares.

On January 1, 2022, 200,000 ordinary shares were outstanding. The following transactions occurred during 2022:
• The company issued 100,000 ordinary shares on April 1, 2022.
• The company declared a 20% stock dividend on May 30, 2022.
• The bondholders converted all the bonds on July 1, 2022.
• The net income for the current year was P3,485,000. LEOMORD is subject to a 30% tax rate.

6. What amount should be reported as basic earnings per share on the current year financial statements?
A. P10.72 C. P11.40
B. P10.25 D. P11.80

7. What amount should be reported as diluted earnings per share on the current year financial statements?
A. P9.91 C. P10.32
B. P9.98 D. P10.39

8. The accounting records of ESMERALDA CORP. provided the following account balances on December 31, 2022:
Cash 400,000
Accounts receivable 1,400,000
Inventory 1,500,000

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Property, plant and equipment at carrying amount 5,250,000
Bonds payable (due in 2023) 40,000
Accounts payable 900,000
Trade notes payable 500,000
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Deferred tax liability – full reversal is on 2023 240,000
The amount reported as cash includes bond sinking fund amounting to P50,000. The accounts receivable included
P500,000 due from a customer and payable in quarterly installments of P62,500 under special terms. The last payment
is due on December 31, 2024. The total amount of inventories reported is based on the recently conducted inventory
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count on the entity’s warehouse which includes goods held under consignment amounting to P150,000. Included in
property, plant and equipment is land held for sale measured at P750,000. The amount reported as accounts payable
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is net of P50,000 debit balances resulting from overpayment to suppliers. On December 31, 2022, what is
ESMERALDA’s working capital?
A. P2,310,000 C. P1,970,000
B. P1,920,000 D. P2,210,000
C

9. S1: Under Materiality and Aggregation, dissimilar accounts are not presented separately if immaterial.
S2: Not all financial statements are prepared on an accrual basis.
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S3: A statement of financial position must be presented more prominently than statement of comprehensive income
since it presents accumulated information for a business since its inception.
A. True, false, false D. False, true, true
B. False, true, false E. Answer not given
C. True, true, false
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10. LANCELOT CORP. provided the following information for the preparation of the statement of cash flows for the current
year:
Net income: P2,500,000
Amortization of licensing right 22,500
Depreciation of production equipment 825,000
Long-term debt:
Bond premium amortization 32,500
Interest payment 450,000
Unrealized loss on financial asset at fair value through profit or loss 50,000
Unrealized loss on financial asset at fair value through other comprehensive income 200,000
What is the net cash provided by operating activities for the current year?
A. P3,380,000 C. P3,365,000
B. P3,315,000 D. P3,430,000

11. Which of the following is not a related party of an entity?

A. Director of the company
B. Another entity where the company has significant influence over with
C. A major supplier where the entity regularly buys 70% of its raw materials used for the production of its finished
goods.
D. The eldest son of the chief executive officer of the entity.

12. Reversing entries may not be made on adjusting entries for

A. the accrual of income or expense
B. the unexpired portion of prepayments
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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

C. the unearned portion of advances received

D. the expired portion of prepayments

3.0 Cash and Other Financial Assets (10 items)

Topic/(s) Covered:
FAR 03 – Cash and Cash Equivalents
FAR 04 – Receivables
FAR 14 – Investment in Equity Securities
FAR 15 – Investment in Associates
FAR 16 – Investment in Debt Securities
FAR 18 – Funds and Other Investments

13. Which of the following is included in “cash” of an entity?

(1) Checks payable to entity’s suppliers but unreleased as of year-end.
(2) Treasury notes acquired on November 1, 20x1, maturing on January 31,20x2.
(3) Money orders and cashier’s checks.
(4) Formal compensating balances.
A. 1 and 2 D. 1, 2 and 3
B. 1 and 3 E. 2 and 4
C. 1, 3 and 4

14. The following information was included in the bank reconciliation for JAWHEAD CORP. for the month of August of the

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current year, 2022:

Checks & charges recorded by bank in August, including an August service charge of P1,400 and August NSF check
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returned as a bank charge P3,000 (no entry was made in the depositor’s books), P466,300; Service charge charged
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by bank in July and recorded in books in August, P600; P3,000 Customer's NSF check returned in July, recorded by
the company in August, P7,500, Checks not yet presented by payees for payment in August, P150,000; Outstanding
checks for July, P127,500;
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Summary of errors:
The company issued checks in August for P10,000 but recorded by the company as P1,000; Overstatement in the
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recording of cash collections in July corrected in August, P2,500; The bank charged the depositor’s account
erroneously for P10,000 in August; Erroneous bank credit in July corrected in August, P15,000.

What is the unadjusted disbursement per book on August 31, 2022?

C

A. P454,700 C. P461,000
B. P459,400 D. P463,800
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15. Information was gathered in relation to the receivables account of ARGUS CORP. as of December 31, 2022:
Trade accounts receivable ?
Trade accounts payable (net of P10,000 debit balance) 190,000
Subscription receivable on entity’s shares 30,000
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Notes receivable ?
Advances to affiliates 15,000

Additional information:
(a) The following data were provided in relation to the trade accounts receivable account:
January 1 balance after deducting credit balance of P20,000 430,000
Charge sales 520,000
Accounts written off but recovered 10,000
Write-off of uncollectible receivables 25,000
Sales discounts 45,000
Collections from customers, including recoveries 380,000
Credit memorandum issued to credit customers
for sales returns and allowances 30,000
Cash refunds given to cash customers for sales returns and allowances 5,000
ARGUS uses the allowance method in accounting for doubtful accounts. The allowance for doubtful accounts
has a beginning balance of P35,000. ARGUS estimated that 10% of the gross accounts receivable will become
uncollectible.
(b) On January 1, 2022, ARGUS sold one of its land with a carrying amount of P220,000 in exchange for P50,000
cash and P210,000 worth of promissory note. The principal amount of the note has an annual payment of
P70,000 and together with the nominal rate it is paid every December 31. The note bears an interest of 10% but
the effective rate of interest is 12%. (Round-off present value factors in 4 decimal places)
How much is the total amount to be presented as “trade and other receivables” on the December 31, 2022 statement
of financial position?
A. P548,634 C. P598,634
B. P527,634 D. P523,134

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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

16. If the initial measurement of a loan receivable is LOWER than its face value:
I. The direct origination cost is lower than origination fee.
II. The nominal interest rate is higher than the effective interest rate.
Which of the above statements is incorrect?
A. I only C. Both I and II
B. II only D. Neither I nor II

Use the following information in answering the next item(s):

On January 5, 2022, VALENTINA CORP. acquired 20,000 (10%) ordinary shares of an investee at P30 per share. The
investee company declared a P2.50 dividend per share on January 4, 2022 with a date of record of January 10, 2022.
The dividends are to be paid on January 15, 2022. The investment is measured at fair value through profit or loss.

During the current year, the investee company reported net income amounting to P1,500,000 and declared cash
dividends on June 30, 2022 of P3 per share. Prior to the cash dividends declaration, the investee declared a 10%
stock dividends. On October 1, 2022, VALENTINA sold 4,000 shares at a net selling price of P26 per share. The
shares have a market price of P28 per share on December 31, 2022.

17. What is the net amount to be presented in profit or loss for the year 2022?
A. P124,000 C. P63,000
B. P130,000 D. P66,000

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18. Assuming that the investment is measured at fair value through other comprehensive income, what is the net amount
to be presented in profit or loss for the year 2022?
A. P124,000 C. P63,000
B. P130,000 D. P66,000
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Use the following information in answering the next item(s):
SABER CORP. bought 25% of UNITE CORP.' outstanding ordinary shares on January 2, 2022, for P1,650,000. The
carrying amount of UNITE CORP.’s net assets at the purchase date totaled P5,000,000.
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The fair values and carrying amounts were the same for all items except for an office equipment and inventories, for
which fair values exceeded their carrying amounts by P1,000,000 and P600,000, respectively. The equipment has a
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remaining 10 year of useful life while all of the inventories were sold during 2022.

On July 1, 2022, the investee reported profit of P1,800,000 and paid a P500,000 cash dividend. In addition, the investee
sold a patent to the investor with a carrying amount of P800,000 for P500,000. The patent has a remaining useful life
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of 5 years.

19. What amount should SABER CORP. report in its statement of comprehensive income from its investment in Adams
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for the year ended December 31, 2022?

A. P360,000 C. P517,500
B. P335,000 D. P342,500
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20. What is the carrying amount of the investment in associates as of December 31, 2022?
A. P1,885,000 C. P2,042,500
B. P1,860,000 D. P1,867,500

21. On January 1, 2021, EUDORA CORP. purchased an FVOCI debt instruments of another entity with a face value of
P7,500,000 bearing interest rate of 8% for P6,931,509 to yield 10% interest per year. The bonds mature on January
1, 2027 and pay interest annually on December 31.

On December 31, 2021, the fair value of the investment is P7,257,021 which is based on the prevailing market rate of
9%. On December 31, 2022, the fair value of the investment is at 0.95. What is the unrealized gain or (loss) to be
recognized by EUDORA CORP. during 2022?
A. P235,488 C. P(234,488)
B. P120,098 D. P(132,021)

22. GRANGER COMPANY purchased a P2,000,000 ordinary life insurance policy on its president. GRANGER is the
beneficiary under the life insurance policy. The policy year and the entity's accounting year coincide. Additional data
available for the year ended December 31, 2022 are as follows:
Cash surrender value, January 1 174,000
Cash surrender value, December 31 216,000
Annual advance premium paid January 1 80,000
Dividend received July 1 12,000
What amount should be reported as life insurance expense for 2022?
A. P26,000 C. P68,000
B. P38,000 D. P80,000

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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

4.0 Non-financial Assets (10 items)

Topic/(s) Covered:
FAR 05 – Inventories
FAR 06 – Biological Assets
FAR 07 – Property, Plant and Equipment (Part 1)
FAR 08 – Property, Plant and Equipment (Part 2)
FAR 09 – Government Grants
FAR 10 – Borrowing Costs
FAR 11 – Wasting Assets & Depletion
FAR 12 – Intangible Assets
FAR 13 – Impairment of Assets
FAR 17 – Investment Properties
FAR 36 – Non-current Assets Held For Sale & Discontinued Operations

Use the following information in answering the next item(s):

The balances of the following non-financial assets were gathered from the records of YIN CORPORATION as of
December 31, 2022:
Inventories P400,000
Biological assets 300,000
Intangible assets 150,000
Land 500,000
Office equipment ?

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• The reported balance of inventories above is based on the recently conducted inventory count last December
28, 2022. The following items are presented for your consideration:
(a)
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Goods costing P30,000, purchased under a bill and hold arrangement were shipped on December 29,
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2022.
(b) Goods with an invoice amount of P70,000 were received on December 27, 2022 from a consignor. The
goods remained unsold as of year-end.
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(c) Inventories costing P20,000 were sold under a “sale on approval” basis in the last week of 2022. The
buyer, who was given 20 days to signify approval of the sale transaction, held the goods as of the balance
sheet date.
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(d) Inventories were sold at P35,000 to a customer and the entity signed an agreement to repurchase the
goods sold at a price that covers all costs related to the inventory. The goods costing P25,000 were
shipped on December 31, 2022 to the customer.
• YIN CORPORATION is also involved in agricultural activities. The following items (at their respective fair values)
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were presented for your evaluation:

Land related to agricultural activity P90,000
Rubber trees (with dual use) 60,000
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Sheep (bearer animal) 40,000

Maize plants 50,000
Fruit trees in plantation 60,000
• The balance of the intangible asset above is based on its acquisition cost on July 1, 2022. On that date, YIN
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CORPORATION acquired a trademark for the said amount. It is anticipated that the trademark will be renewed
in the future indefinitely without a problem. At year-end, the trademark is now being tested for impairment due
to external impairment indicators. The trademark is expected to generate cash flows of P9,600 per annum. The
appropriate discount rate is 8%.
• At the beginning of the current year, YIN reported land P500,000 (the amount reported above). During the
current year, the following transactions occurred:
(a) Another piece of land were acquired at the beginning of the current year. It was acquired by paying a
down payment of P18,000 and the balance to be paid in four equal annual installments of P50,000
payable each December 31. The implicit interest rate is 12%. (Round-off present value factors in two
decimal places)
(b) A piece of land was acquired for P100,000 on July 1. To be able to acquire the land, P10,000 was paid
to a real estate agent, and P15,000 was incurred to clear the land. Filling and levelling costs amounting
to P5,000 were also paid. During the course of clearing the land, timber and gravel were recovered and
sold for P2,000.
(c) A third piece of land was acquired for P150,000 and was held with undetermined use.
• On January 1, 2020, the entity acquired an office equipment for P400,000. On acquisition date, the equipment
has an estimated 10-year life and P40,000 residual value. At the beginning of 2022, the entity revised its useful
life and determined that the remaining useful life is now 4 years. In addition, the entity estimated an increase in
residual value by P8,000 and changed the depreciation method from straight-line method to SYD method.

23. What is the adjusted balance of inventories as of December 31, 2022?

A. P405,000 C. P450,000
B. P380,000 D. P330,000

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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

24. What is the adjusted balance of biological assets as of December 31, 2022?
A. P150,000 C. P160,000
B. P210,000 D. P100,000

25. What amount of impairment loss on trademark should YIN CORPORATION recognized on the 2022 statement of profit
or loss?
A. P34,800 C. P30,000
B. P40,000 D. Nil. The asset is not impaired

26. What total cost of land should be reported under property, plant and equipment as of December 31, 2022 statement
of financial position?
A. P780,000 C. P950,000
B. P798,000 D. P800,000

27. What is the depreciation expense of the office equipment in 2022?

A. P108,800 C. P128,000
B. P131,200 D. P112,000

Use the following information in answering the next item(s):

On July 1, 2022, XAVIER CORP. acquired a machine for P1,500,000. The entity received a government grant of
P250,000 in respect of this asset. The policy is to treat the grant as a reduction in the cost of the asset. The machine
is to be depreciated using double declining balance method over 10 years with a residual value of P250,000.

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XAVIER CORP. had 9% P2,100,000 specific constriction loan and 12% P7,000,000 general loan outstanding during
2022. The entity began the self-construction of a new building on March 31, 2022 and the building was completed on
September 30, 2022. Expenditures during 2022 were March 31, 2022 P1,500,000, June 1, 2022 P900,000, July 1,
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2022 P2,000,000 and August 1, 2022 P1,800,000, September 30, 2022 P200,000. The building has an estimated
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useful life of 5 years and to be depreciated using straight-line method with no expected residual value.

28. What is the capitalizable borrowing cost using the traditional approach?
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A. P190,500 C. P405,000
B. P381,000 D. P202,500
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29. What is the capitalizable borrowing cost using the contemporary approach?
A. P190,500 C. P405,000
B. P381,000 D. P202,500
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30. What is the total depreciation expense for 2022?

A. P 429,525 C. P579,525
B. P1,443,100 D. P454,525
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31. Which of the following assets held by an enterprise would NOT qualify as investment property as defined by IAS 40,
Investment Property?
(1) Building rented by employees paying market rate of rent.
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(2) Land with undetermined future use.

(3) Equipment rented out under operating lease.
(4) Building being leased under finance lease and subleased to another entity under operating lease.
A. 1 and 3 C. 1, 3 and 4
B. 2 and 4 E. 2 and 3

32. EDITH CORP. purchased equipment for P8,000,000 on January 1, 2018 with a useful life of 10 years and no residual
value. On December 31, 2019, the entity classified the equipment as held for sale. The fair value of the equipment on
December 31, 2019 was P6,000,000 and the cost of disposal P200,000. On December 31, 2020, the entity believed
that the criteria for classification as held for sale can no longer be met. On such date, the fair value of the equipment
was P5,000,000 and the cost of disposal was P100,000. The value in use was determined to be P 5,500,000.
Accordingly, the entity decided not to sell the asset but to continue to use it. What amount should be recognized in
profit or loss as a result of the reclassification in 2020?
A. 100,000 C. 300,000
B. 200,000 D. 0

5.0 Financial Liabilities (6 items)

Topic/(s) Covered:
FAR 19 – Current Liabilities
FAR 20 – Notes and Loans Payable and Debt Restructuring
FAR 21 – Bonds Payable
FAR 22 – Compound Financial Instruments
FAR 26 – Leases

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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

Use the following information in answering the next item(s):

The following information about the liabilities account of HANZO COMPANY, a calendar year entity, were gathered
based on the company’s accounting records:
(a) The company reported its trade accounts payable amounting to P420,000. This amount is net of P30,000 debit
balance resulting from advances made to a certain supplier. In addition, the following information were provided
in relation to the entity’s purchases near year-end:
• Before year-end, the company drawn against the company’s checking account, a check amounting to
P15,000. This check was dated January 4, 2023.
• Goods shipped FOB shipping point on December 20, 2022 from a vendor to HANZO, were lost in transit.
The invoice cost was P85,000. On January 5, 2023, HANZO filed a P37,500 claim against the common
carrier. Since the invoice were received before year-end, the corresponding journal entry for the purchase
was made.
• Goods with invoice cost of P65,000 were received in January 5, 2023 and included in the count as “goods
in transit”. Since the invoice was received in advance, it was recorded as purchases. It was found out that
the goods were shipped under FOB Destination.
• Goods shipped to HANZO under FOB shipping point, freight prepaid were still in transit as of year-end.
The cost of the goods were P45,000 with a freight cost of P5,000. The transaction is yet to be recorded
on HANZO’s books as of December 31.
(b) Aside from manufacturing and selling a certain product, the company also sells magazine subscriptions to
various customers that is published semi-annually and shipped to subscribers on May 15 and November 15.
Subscriptions received after the April 30 and October 30 cut-off dates are held for the next publication. The
balance above represents the sum of the January 1, 2021 balance amounting to P165,000 and cash collections

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during the current year from such subscriptions amounting to P900,000 (Cash from subscribers is received
evenly during the year).
(c)

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HANZO COMPANY leased equipment for the entire nine-year useful life, agreeing to pay P1,000,000 at the
start of the lease term on December 31, 2022, and P1,000,000 annually on each December 31 for the next eight
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years. The present value on December 31, 2022 of the nine lease payments over the lease term using the rate
implicit in the lease which HANZO knows to be 10% was P6,330,000. The December 31, 2022 present value of
the lease payments using HANZO's incremental borrowing rate of 12% was P5,970,000.
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33. How much is the amount to be reported as accounts payable on December 31, 2022 Statement of Financial Position?
A. P365,000 C. P535,000
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B. P385,000 D. P450,000

34. What is the correct balance of unearned income from subscriptions as of year-end?
A. P150,000 C. P915,000
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B. P750,000 D. P315,000

35. What amount should be reported as lease liability on December 31, 2023?
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A. P7,000,000 C. P4,566,400
B. P4,863,000 D. P4,970,000

Use the following information in answering the next item(s):

PAQUITO CORP. issued 10-year convertible bonds with face amount of P2,000,000 for P2,200,000 on January 1,
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2022. The interest is payable annually on December 31 at the 6% stated interest rate. The bonds were issued to yield
9% without the conversion option.
The present value of 1 at 6% for 10 periods is 0.56 and the present value of an ordinary annuity of 1 at 6% for 10
periods is 7.36. The present value of 1 at 9% for 10 periods is 0.42 and the present value of an ordinary annuity of 1
at 9% for 10 periods is 6.42.

On October 1, 2024 the convertible bonds were not converted but fully paid for P1,950,000. On such date, the fair
value of the bonds without conversion privilege is P1,500,000.

36. On the date of issue, what amount of the proceeds represents the equity component?
A. P589,600 C. P196,800
B. P200,000 D. P225,200

37. What is the bond interest expense for 2023?

A. P144,936 C. P120,000
B. P147,180 D. P149,626

38. What is the amount of the retirement price allocated to the conversion option on October 1, 2024?
A. Nil or Zero C. P450,000
B. P550,000 D. P360,000

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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

6.0 Non-financial Liabilities (6 items)

Topic/(s) Covered:
FAR 19 – Current Liabilities
FAR 23 - Provisions

Use the following information in answering the next item(s):

BEATRIX COMPANY gives warranties at the time of sale to purchasers of its product. The entity undertakes to make
good, by repair or replacement, manufacturing defects that become apparent within one year from the date of sale.
Sales of P 20,000,000 were made evenly throughout 2022.

The expenditures for warranty repairs and replacements for the products sold in 2022 are expected to be made 50%
in 2022 and 50% in 2023. The 2023 outflows of economic benefits related to the warranty will take place on December
31, 2023.

The entity estimated that 95% of products sold require no warranty repairs, 3% of products sold require minor repairs
costing 10% of the sale price, and 2% of products sold require major repairs or replacement costing 90% of sale price.

The appropriate discount factor for cash flows expected to occur on December 31, 2023 is 0.95. An appropriate risk
adjustment factor to reflect the uncertainties in the cash flow estimates is an increment of 6% to the probability-
weighted expected cash flows,

39. What is the warranty expense for the year ended December 31, 2022?

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A. 222,600 C. 445,200
B. 211,470 D. 434,070

40. What is me warranty liability on December 31, 2022?

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A. 420,000 C. 222,600
B. 445,200 D. 211,470
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41. S1: If the outflow of resources from a present obligation is remote, the entity shall disclose a contingent liability.
S2: A provision should never be discounted to the present value of the expected cash outflows needed to settle the
obligation.
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A. True, false C. False, false

B. False, true D. True, true

42. DOTA CORP. has guaranteed, a loan of P300,000 granted to MOBA COMPANY. After the balance sheet date of
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DOTA CORP. but before the directors approved the financial statements, DOTA CORP. receives notice that MOBA
COMPANY is in liquidation and the creditor of MOBA will invoke the guarantee. What proper accounting should DOTA
CORP. account for the guarantee?
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A. The amount of the guarantee is not accounted for in DOTA CORP.’s books.
B. The amount of P300,000 should be recognized as a provision.
C. The P300,000 should be recognized as a liability with necessary disclosure in the notes to financial statements
D. The contingent liability should be disclosed by way of note to the financial statements.
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Use the following information in answering the next item(s):

IRITHEL COMPANY commenced in 2021 premiums promotional program on its product line. Customers are given a
flashlight for every 10 product labels they surrender plus P10. The company acquires the flashlight in advance in
anticipation for the redemption and pays P30 per unit. The company further pays P7 per unit in handling and shipping
upon redemption.
The company estimates that 60% of the product labels from product sold (1 label in each unit) will be surrendered for
premium redemption. Upon your request, the following were made available regarding the premiums promotional
program:
2021 2022
Sales in units 90,000 100,000
Flashlight purchased* 4,200 3,800
Flashlight actually distributed 2,600 5,600
*Note that flashlight purchases were charged to outright premiums expense while any net amounts collected from
customers from redeeming flashlight are recognized as outright income. No accruals were made by the client in relation
to the premiums program.

43. What is the correct balance of premiums liability as of December 31, 2021?
A. P84,000 C. P172,800
B. P75,600 D. P103,680
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44. What is the amount to be reported as premium expense on 2022 statement of profit or loss?
A. P86,400 C. P162,000
B. P10,800 D. P180,000

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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

7.0 Shareholders’ Equity (10 items)

Topic/(s) Covered:
FAR 27 – Shareholders’ Equity (Part 1)
FAR 28 – Shareholders’ Equity (Part 2)
FAR 30 – Book Value per Share
FAR 40 – Accounting Changes & Error Correction

Use the following information in answering the next item(s):

A list of the following accounts along with their post-closing ending balances was available for FANNY CORP. on
December 31, 2022
Preference share capital, P100 par P2,400,000
Share premium - preference share 800,000
Ordinary share capital (no par value with P20 stated value) 1,600,000
Additional paid-in capital – Ordinary Shares 400,000
Ordinary share warrants outstanding 240,000
Donated capital 300,000
Ordinary shares subscribed 600,000
Subscription receivable – ordinary shares (short-term) 360,000
Subscription receivable – ordinary shares (long-term) 100,000
Cumulative translation adjustment- debit 560,000
Cash dividends payable 200,000
Ordinary shares dividends payable 700,000

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45. How much is the total contributed capital?
A.
B.
P6,940,000
P6,400,000
C.
D.
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P5,780,000
P6,340,000
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46. How much is the total legal capital?
A. P6,500,000 C. P4,900,000
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B. P4,400,000 D. P5,700,000

Use the following information in answering the next item(s):

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The shareholders equity section of FANNY CORP.’s statement of financial position as of December 31, 2020, is as follows:
Ordinary shares, P10, par value; authorized, 2,000,000 shares;
issued 400,000 shares P 4,000,000
Share premium 1,700,000
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Accumulated profits 5,985,000

Treasury shares, 50,000 (1,100,000)
Total ?
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The following transactions occurred during 2021:

Jan. 5 20,000 shares of authorized and unissued ordinary shares were sold P 18 per share. The company
incurred share issue cost at P 20,000.
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Jan.16 Declared a cash dividend of P0.60 per share, payable February 15 to shareholders of record February 5.
Feb. 25 16,000 shares from the treasury were issued in exchange of equipment having a fair market value of P
520,000.
Mar.1 15% stock dividend was declared and issued. Market value of shares on this date was at P19.
May30 Declared a 2 for 1 share split up.
Aug.15 Reissued half of the remaining treasury shares at P10 per share.
Sept.30 A cash dividend of P. 40 per share was declared payable October 15 to shareholders of record on October
1.
Dec. 31 Adjusted net income for the year is at P 2,150,000.

REQUIREMENTS:
47. What is the debit to retained earnings as a result of the share dividends declaration on March 1?
A. 1,197,000 C. 1,043,100
B. 1,100,100 D. 579,000

48. What is the debit to retained earnings as a result of the cash dividends declaration on September 30?
A. 355,120 C. 369,520
B. 359,420 D. 368,720

49. The entry to record the reissuance of treasury shares on August 15 shall involves a:
A. Debit to retained earnings at P 34,000
B. Debit to share premium at P 34,000
C. Debit to retained earnings at P 68,000
D. Debit to share premium at P 68,000

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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

50. What is the total Additional paid-in capital as of December 31, 2018?
A. 1,974,000 C. 2,361,100
B. 2,495,100 D. 2,529,100

51. What is the balance of the Accumulated Profits-unappropriated as of December 31, 2018?
A. 5,344,180 C. 6,444,180
B. 6,591,280 D. 6,070,180

52. The stockholders’ equity of FANNY CORP. on December 31, 2008 includes the following:
12% Preferred Stock, 20,000 shares, P100 par value P2,000,000
14% Preferred Stock, 10,000 shares, P300 par value 3,000,000
Common Stock, 50,000 shares, P100 par value 5,000,000
Retained Earnings 2,240,000
Additional Paid-in Capital 1,500,000
The 12% stock is cumulative and fully participating. The 14% stock is non-cumulative and fully participating. Dividends
have not yet been paid for 3 years.
Compute for the book value per ordinary share.
A. 130.00 C. 127.50
B. 135.00 D. 132.00

53. A receipt of P12,600 cash from a customer as a payment on account was incorrectly credited to service revenue. What
is the effect of this error on the financial statements of the company?

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A. Assets are overstated by P12,600 and equity is overstated by P12,600.
B. Assets are overstated by P25,200 and equity is overstated by P25,200.

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C. Assets are understated by P12,600 and equity is understated by P12,600.
D. Assets are understated by P12,600 and liabilities are understated by P12,600.
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54. ALUCARD CORP. has reported a net income amounting to P700,000 for the year 2022. The following errors were
discovered during the year when the entity’s books were already closed.
(a) In December 31, 2021, prepaid supplies was overstated by P80,000.
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(b) Rent of P120,000 for 2023 was received from a lessee on December 27, 2022 and recorded as outright income
in 2022.
(c) A P180,000 major repair cost which enhanced the production capacity of one of its equipment at the beginning
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of 2022 was charged to repairs expense. Remaining useful life of the related production equipment was 3 years.
(d) A fully depreciated equipment with no residual value was sold in 2021 for P150,000 but the sale was recorded
in the following year.
What is the adjusted net income of ALUCARD for the year ended December 31, 2022?
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A. P780,000 C. P630,000
B. P700,000 D. P770,000
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8.0 Other Topics (10 items)

Topic/(s) Covered:
FAR 24 – Employee Benefits
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FAR 25 – Income Taxes

FAR 29 – Share-based Payments
FAR 35 – Operating Segments
FAR 39 – Interim Reporting

55. HARITH COMPANY gives each of the 100 employees 15 days of vacation a year if they are employed at the end of
the year. The vacation accumulates indefinitely and may be taken starting January 1 of the next year.

The employees work 8 hours per day with 1 hour lunch break. The employees made P720 per day in 2021, P800 per
day in 2022 and expected to be P850 per day in 2023. During 2021 and 2022, the employees took an average of 10
days of vacation each. The entity's policy is to record the liability existing at the end of each year at the wage rate
for that year. What amount of vacation liability should be reported on December 31, 2022?
A. P800,000 C. P720,000
B. P850,000 D. P780,000

Use the following information in answering the next item(s):

ESMERALDA COMPANY sponsors a defined benefit pension plan. For the current year ended December 31, 2022,
the following information relevant to the plan has been accumulated:
Defined benefit obligation, 1/1 P 5,000,000
Fair value of plan assets, 1/1 4,500,000
Current service cost 1,500,000
Actual return on plan assets 800,000
Increase in defined benefit obligation due to changes in actuarial assumptions 400,000
Contribution to the plan 1,500,000
Benefits paid to retirees 500,000

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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

Present value of defined benefit obligation settled 800,000

Settlement price of defined benefit obligation 600,000
Market yield on high quality corporate bonds 6%
Yield on bonds issued by the entity 8%
Expected return on plan assets 9%

56. What is the projected benefit obligation on December 31, 2021?

A. P6,050,000 C. P6,000,000
B. P5,900,000 D. P6,100,000

57. What is the fair value of plan assets on December 31, 2021?
A. P5,400,000 C. P5,700,000
B. P5,650,000 D. P5,500,000

58. What is the total defined benefit cost?

A. P1,480,000 C. P1,215,000
B. P1,730,000 D. P1,200,000

59. FARAMIS COMPANY has an asset which cost P 300,000 and against which depreciation of P 100,000 has
accumulated. The accumulated depreciation for tax purposes is P 180,000 and the company’s current tax rate is 30%
while the future enacted tax rate is 35%. Which statement is correct?
A. The tax base of the asset is P 180,000

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B. The entity has a taxable temporary difference of P 120,000
C. The entity should recognize deferred tax liability of P 24,000

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D. The entity should recognize deferred tax liability of P 28,000

60. TIGREAL COMPANY reported current tax expense of P2,500,000 for 2022. The changes in assets and liabilities are
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as follows:
December 31, 2022 December 31, 2021
Deferred tax liability 225,000 300,000
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Deferred tax asset 500,000 400,000

Income tax payable 250,000 100,000
The deferred tax liability was caused by accelerated depreciation and the deferred tax asset is for rentals received in
PA

advance. What amount of total tax expense should be recognized in 2022?

A. P2,325,000 C. P2,675,000
B. P2,475,000 D. P2,825,000
C

Use the following information in answering the next item(s):

At the beginning of 2019, CHOU INC. granted share options to each of its 200 employees. It was agreed that the share
options will vest at the end of 2021 with the following conditions:
EO

• The employees remain in the entity’s employ within the vesting period.
• The volume of sales of PRODUCT X increases by at least an average of 6% per year
Options to be received by each employee, based on the condition, are as follows:
a) If the volume of sales of PRODUCT X increases by an average of between 6% 9% per year, each employee
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will receive 50 share options.

b) If the volume of sales of PRODUCT X increases by an average of between 9% and 12% each year, each
employee will receive 100 share options.
c) If the volume of sales increases by an average of 12% or more, each employee will receive 150 share options.
On grant date, CHOU estimates that the share options have a fair value of P10 per option.
By the end of 2019, ten employees have left and the entity still expects that a total of twenty employees will leave by
the end of 2021. Product sales have increased by 8%% and the entity expects this rate to continue over the next 2
years.
By the end of 2020, additional four employees have left. The entity now expects only 9 more employees will leave
during 2021. Product sales during the year have increased by 7%. The entity now expects that sales in 2021 will
increase by 15% due to economic factors.
By the end of 2021, additional 3 employees have left. The entity’s sales have increased by 21% only.

61. What is compensation expense for the year 2020?

A. P147,000 C. P29,000
B. P88,000 D. P30,000

62. What is compensation expense for the year 2021?

A. P65,000 C. P147,000
B. P18,000 D. P156,500

REO.CPA.ACADEMICS.F2.04.00
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OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

63. The equity of MIRAK CORP. is traded on a recognized stock exchange. MIRAK regularly reports the financial results
of five different business units to its chief operating decision maker. The relevant revenues for the year ended 31
December 20X7 for these five operations, as a percentage of total external and internal revenue, were as follows:
% internal % external total
1 3 35 38
2 10 14 24
3 15 5 20
4 0 9 9
5 0 9 9
28 72 100
In accordance with PFRS 8 Operating segments, the reportable segments of MIRAK are
A. 1 and 2 only C. 1, 2, 3 and 4 only
B. 1, 2 and 3 only D. 1, 2, 3, 4, and 5

64. Which of the following statements is incorrect regarding interim reporting?

A. PFRS requires a complete set of financial statements at the interim reporting date.
B. No accruals or deferrals in anticipation of future events during the year should be reported.
C. PFRS does not mention about the integral and independent view of interim financial reporting.
D. PFRS requires entities to expense interim amount like advertising expenditures that could benefit later interim
periods.

9.0 Other Reporting Frameworks (6 items)

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Topic/(s) Covered:
FAR 41 – Cash to Accrual Basis
FAR 43 – Small and Medium Sized Entities (SMEs)
(PFRS for SMEs and PFRS for Small Entities)
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Use the following information in answering the next item(s):
VALIR CORP. provided the following selected accounts, cash receipts and disbursements for the current year:
R

December 31 January 1
Accounts receivable 250,000 300,000
Notes receivable 150,000 100,000
PA

Accounts payable 120,000 160,000

Notes payable 200,000 150,000
Prepaid insurance 30,000 10,000
Cash receipts for current year
C

Cash sales 500,000

Collections of accounts receivable, net of discounts of P40,000 1,800,000
Collections of notes receivable 80,000
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Bank loan - one year, dated December 31 100,000

Purchase returns and allowances 60,000
Cash disbursements for current year
Cash purchases 130,000
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Payments on accounts payable, net of discounts of P20,000 1,500,000

Payments on notes payable 400,000
Insurance 220,000
Other expenses 650,000
Sales returns and allowances 50,000

65. Under accrual basis, what is the amount of gross sales for the current year?
A. 1,920,000 C. 2,420,000
B. 1,970,000 D. 2,470,000

66. Under accrual basis, what is the amount of gross purchases for the current year?
A. 1,830,000 C. 1,960,000
B. 1,890,000 D. 2,020,000

67. An SME shall account for investments in associate after initial recognition using
A. Either cost model or fair value model and using the same policy for all investments in associates.
B. Either cost model or fair value model and the model can be elected on an investment by investment basis.
C. Any of the cost model, equity method or fair value model and the model can be elected on an investment by
investment basis.
D. Any of the cost model, equity method or fair value model and using the same accounting policy for all
investments in associates.

68. In accordance with Section 17 of the PFRS for SMEs, the residual value, the useful life of an asset and the depreciation
method applied to an asset shall be reviewed
A. At least at each financial year-end

REO.CPA.ACADEMICS.F2.04.00
Page 13 of 13 | Pre-Week

OCTOBER 2023 BATCH

FINANCIAL ACCOUNTING AND REPORTING (FAR)

B. At least every two years.

C. At least every three years.
D. Only if there is an indication they may have changed since the most recent annual reporting date.

69. Which of the following entities are required to apply the PFRS for SMEs in Philippine financial reporting?
A. ENPs Comer, a Novelty Store with total assets of P300M and total liabilities of P160M
B. ABE Insurance Company with total assets of P420M and total liabilities of P195M
C. Rural Bank of Atimonan, Quezon, with total assets of P300M and total liabilities of P120M
D. CJ Foodhouse retails food. It is in the process of issuing securities in a domestic stock exchange.

70. All of the following topics are addressed in PFRS for SME, except
A. Revaluation model for property, plant and equipment
B. Measurement of basic debt instruments
C. Earnings per share
D. Cost model for investment in associate

- END OF PREWEEK MATERIALS -

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REO.CPA.ACADEMICS.F2.04.00
ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 46  October 2023 CPALE  Pre-Week Summary Lecture

FINANCIAL ACCOUNTING & REPORTING G. MACARIOLA  J. BINALUYO

FAR PREWEEK LECTURE (FARAP PREWEEK 1)

1. Which of the following statements is/are true?
Statement 1: The issuance of bonds with non-detachable share warrants is treated as
a compound financial instrument.
Statement 2: Equity-settled with cash alternative is treated as a compound financial
instrument if the choice is given to employer to settle in shares or in cash.
Statement 3: The issuance of non-convertible bonds is treated as a compound financial
instrument.
a. All of the statements are true
b. Only statement 1 is true
c. Only statement 2 is false
d. Only statement 3 is false

2. Which of the following statements is/are true?

Statement 1: If the contract is considered onerous, the provision is measured at
cost to fulfill the contract or at cost to cancel the contract whichever is lower.
Statement 2: Non-current asset classified as held for sale is initially measured at
the carrying value of the non-current asset and the fair value less cost to sell on
the date of reclassification whichever is lower.
Statement 3: If the asset is a qualifying asset, capitalized borrowing cost under
general borrowings is based on the actual interest or average interest whichever is
lower.
a. All of the statements are true
b. Only statement 1 is true
c. Only statement 2 is false
d. Only statement 3 is false

3. Which of the following statements is/are true?

Statement 1: In depreciating the depreciable asset used in mining activities, the
depreciation expense is based on its useful life or mining period where output method
is used whichever is shorter in all cases.
Statement 2: Intangible asset with finite life and indefinite life should be
amortized over its useful life or legal life whichever is shorter.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

4. The following statements are based on PAS 38 (Intangible Assets):

Statement 1: Internally generated goodwill shall not be recognized as an asset.
Statement 2: No intangible asset arising from research or research phase of an
internal project shall be recognized.
Statement 3: Internally generated brands, mastheads, publishing titles, customer
lists and items similar in substance shall not be recognized as intangible assets.
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

5. Which of the following statements is/are true?

Statement 1: The recoverable value of PPE is the fair value less cost to sell or
value in use whichever is higher.
Statement 2: Under the profit or loss test in identifying the reportable segment,
the segment is considered reportable, if the segment’s profit or loss is at least
10% of the combined profits of all segments that reported a profit or combined losses
of all segments that reported a loss whichever is greater in absolute amount.
Statement 3: Trade receivables or payables are classified as current if they are to
be collected or paid within 12 months after the balance sheet date or within the
normal operating cycle whichever is longer.
a. All of the statements are true
b. Only statement 1 is true
c. Only statement 2 is false
d. Only statement 3 is false

Page 1 of 16 0915-2303213/0908-6567516  www.resacpareview.com

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

6. Which of the following statements is/are true?

Statement 1: The LESSEE should account the lease as an operating lease only if the
lease is a short term lease (i.e., the lease term is 12 months or less) or the lease
is considered as a “low value” lease.
Statement 2: The LESSOR should account the lease as a finance lease only if there
is a transfer of ownership to the lessee or presence of bargain purchase option or
the lease term is at least 75% of the useful of the asset or the present value of
the minimum lease payments is at least 90% of the fair value of the leased asset.
Statement 3: The LESSOR should recognize a dealer’s/manufacturer’s profit whether
the residual value is guaranteed or unguaranteed under the sales-type lease and
direct finance lease.
a. All of the statements are true
b. Only statement 1 is true
c. Only statement 2 is false
d. Only statement 3 is false

7. Which of the following statements is/are true?

Statement 1: Premium income is recognized in the current period upon actual
redemption of premiums made by the customer in the current period.
Statement 2: Income from customer loyalty award credits is recognized in the current
period upon actual redemption of award credits/loyalty points made by the customer
in the current period.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

8. Which of the following statements is/are true?

Statement 1: If there is a breach of undertaking under a long-term debt agreement,
the company should classify the debt as current liability even if the lender agreed
after the balance sheet date but before the FS are authorized for issue, not to
demand payment for at least 12 months after the BS date.
Statement 2: If there is a refinancing of a short-term debt on a short-term basis,
the company should classify the debt as non-current liability only if the company
has a discretion/right to refinance as of the BS date.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

9. Which of the following statements is/are true?

Statement 1: If the preference share is cumulative, the company should deduct the
full amount of preference dividend from net income in computing the investment
income /share in net income of the associate, whether declared or not.
Statement 2: If the preference share is cumulative, the company should deduct the
full amount of preference dividend from net income in computing the basic and diluted
earnings per share, whether declared or not.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

10. Which of the following statements is/are true?

Statement 1: Contingent asset and contingent liability may be reported in the
statement of financial position if the amount is known and definite or measurable.
Statement 2: If the provision involves a large population of items, the provision
is measured by weighting all possible outcomes by their associated probabilities
known as the expected value method.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

Page 2 of 16 0915-2303213/0908-6567516/02-82886922  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

11. Which of the following statements is/are true?

Statement 1: Reissuance of treasury shares at a gain or loss will increase issued
shares, outstanding shares and total shareholders’ equity.
Statement 2: Retirement of treasury shares at a gain or loss will decrease issued
shares, outstanding shares and total shareholders’ equity.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

12. The statement of comprehensive income may include unrealized gains and losses from
which type of investment securities?
a. FVPL only
b. FVOCI only
c. FVPL & FVOCI
d. FVPLOCI

13. Which of the following transactions shall not be included in the statement of cash
flows?
a. Sale of land for cash at less than its carrying value
b. Purchase of treasury shares for cash at more than its cost
c. Increase or decrease in Accruals and Deferrals
d. Acquisition of building by means of issuing preference share

14. If an entity failed to amortize the premium on its investment in bond classified at
amortized cost, this may result to
a. Understatement of net income
b. Overstatement of net income
c. No effect on net income
d. Understatement on investment account

15. Which of the following items should be excluded from inventories at the balance sheet
date?
a. Goods sold under layaway sale where the buyer has not yet fully paid
the account as of the balance sheet date
b. Goods out on approval where the right of return has already expired
as of the balance sheet date
c. Goods in transit as of the balance sheet date purchased under Free
Alongside Ship (FAS) agreement
d. Goods in transit as of the balance sheet date sold under Delivered Ex-
Ship (DES) agreement

16. Share premium could NOT arise from

a. Gain on exercise of stock rights
b. Receipt of donated asset from a shareholder
c. Gain on exercise of stock options and warrants
d. Distribution of “large” bonus issue

17. CASHITO Company has issued a range of share appreciation rights to employees. In
accordance with IFRS 2 Share-based payment, what type of share-based payment transaction
does this represent?
a. Asset-settled share-based payment transaction
b. Equity-settled share-based payment transaction
c. Cash-settled share-based payment transaction
d. Liability-settled share-based payment transaction

18. Which of the following is false about the preparation of statement of comprehensive
income?
a. Income from Operation does not include items which are considered
Incidental/Peripheral.
b. Income or Loss from Continuing Operation plus Income or Loss from
Discontinued Operation equals Total Profit or Loss
c. Profit or Loss plus Other Comprehensive Income equals Total Comprehensive
Income
d. Other Comprehensive Income shall be disclosed on the face of Income
Statement after tax

Page 3 of 16 0915-2303213/0908-6567516/02-82886922  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

19. When an owner-occupied property is transferred to investment property at fair value,

a decrease in the carrying amount of the property to its fair value at the date of
transfer
a. Is recognized in profit and loss, or, for a revalued property,
charged against the revaluation surplus to the extent of its credit
balance
b. Is recognized in profit and loss at all times
c. Is absorbed by retained earnings
d. Is carried directly to equity

20. Which of the following is not true in relation to bearer plant?

a. It is a living plant that has a remote likelihood of being sold as
agricultural produce, except for incidental scrap sales
b. The bearer plant and the related agricultural produce are accounted as two
separate assets
c. Plants which have a dual use or exclusive to be harvested as agricultural
produce are not qualified as bearer plant
d. Bearer plant should be measured initially and every BS date at fair value
less estimated cost to sell

FINANCIAL ASSETS

The following relevant data for 2 different companies were as follows:

Company 1: ALABAMA Company had the following items in its “Cash and Cash Equivalents”
account as of December 31, 2023:

Petty cash fund including P2,000 unreplenished vouchers and P8,000 P10,000
remaining bills and coins
Postal money order including traveler’s check and manager’s check of 30,000
P5,000
BSP treasury bills (acquired 12/1/2023; due in 1/31/2024) 150,000
Short-term ordinary share investment (acquired 12/30/23 to be sold in
less than 3 months from the balance sheet date) 90,000
Total checks on hand (40% is customer’s post-dated check and 60% is 100,000
company’s undelivered check)
Cash in foreign bank of $2,000 - unrestricted 80,000
(average rate–P40; closing rate–P45)
Bond and Mortgage fund 500,000
Cash set aside for the acquisition of Assets to be disbursed in 2024. 900,000
(2/3 of cash for the purchase of Machineries and the remaining cash for
the purchase of Office Supplies)
Cash in bank to be used for payment of dividends, interests and taxes 200,000
Cash in bank – compensating balances (40% is unrestricted; 50% is
restricted related to short-term loan; 10% is restricted related to long- 1,000,000
term loan)

Company 2: The petty cash fund of ALASKA Company was counted on January 3, 2024. The
following items were found:

Total bills and coins 4,000

Petty cash vouchers not yet replenished
Postage stamps dated 12/29/23 450
Supplies dated 1/2/24 500
IOU of employee dated 12/31/23 750
Replenishment check of petty cash fund 7,000
Check drawn by office manager dated 12/30/23 1,000
Check drawn by employee dated 1/18/24 800
Check drawn by customer dated 12/25/23 2,000
An envelope containing contributions of employees
for the death of a fellow employee (no money 1,500
attached when opened)
Unused postage stamps 150

The petty cash fund was established at P15,000.

Page 4 of 16 0915-2303213/0908-6567516/02-82886922  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

1. Statement 1: The correct balance of Cash and Cash Equivalents on December 31, 2023
related to ALABAMA Company is P1,238,000.
Statement 2: The correct amount of the Petty Cash Fund on December 31, 2023 related
to ALASKA Company is P10,500.
a. Only statement 1 is TRUE
b. Only statement 2 is TRUE
c. Both statements are TRUE
d. Both statements are FALSE

ARIZONA Company provided the following data for the purpose of reconciling the cash balance
per books and per bank on September 30, 2023:
• Cash balance per books as of 9/30 - P939,000
• Deposits made but not yet recorded by the bank as of 9/30 – 35,000
• Checks issued to suppliers but not yet recorded by the bank as of 9/30 – 68,000
• Credit memo - 60,000; Debit memo - 20,000. These September memos are not yet reflected
per books as of September 30.
• Included in the September bank receipts was a deposit of ARIZONA Company for 25,000,
erroneously recorded by the bank to AMAZONA Company’s account.
• Included in the September bank disbursements was a check issued by ARINOLA Company
for 10,000, erroneously recorded by the bank in ARIZONA Company’s account.
• Included in the book receipts for September was a deposit for 45,000 which was recorded
as 54,000. No correction was made yet by ARIZONA Company.
• Included in the book disbursements for September was a check issued by ARIZONA Company
for 42,000 was recorded as 24,000. No correction was made yet by ARIZONA Company.

2. How much is the correct cash in bank on September 30?

a. 970,000 b. 927,000 c. 952,000 d. 945,000

ARKANSAS Company had the following transactions pertaining to its accounts receivable for
the year 2023:

Credit sales 5,700,000

Cash sales 3,150,000
Collection from credit customers net of 4% discount taken by the customers 4,536,000
Accounts ascertained worthless 75,000
Credit memo issued to credit customers 375,000
Cash refund for sales returns from cash sales 30,000
Recovery of accounts previously written off not included in total collections 120,000
Dishonored notes receivable at face value (excluding accrued interest of P 5,000 1,000,000
and protest fee of P1,000)

ARKANSAS Company’s beginning accounts receivable amounted to P1,425,000 and its beginning
allowance for bad debts amounted to P335,000. On December 31, 2023, the accounts receivable
included P2,900,000 past due accounts. After careful study of all past-due accounts, the
management estimated that the probable loss contained therein was 20%. In addition, 10% of
the current accounts receivable might prove uncollectible. The company is using the gross
method of accounting for cash discounts.

3. Statement 1: The correct bad debts expense for the year 2023 is P585,600.
Statement 2: The amortized cost of accounts receivable on December 31, 2023 is
P2,956,000.
a. Only statement 1 is TRUE
b. Only statement 2 is TRUE
c. Both statements are TRUE
d. Both statements are FALSE

On August 31, 2022, CALIFORNIA Company sold goods to SACRAMENTO Company. SACRAMENTO Company
signed a non-interest-bearing note requiring payment of P80,000 annually for five years.
The first payment was made on August 31, 2022. The prevailing rate of interest for this
type of note at the date of issuance was 12%. Information on present value factors is as
follows:

Page 5 of 16 0915-2303213/0908-6567516/02-82886922  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

Present value PV of Ordinary

Periods of 1 at 10% annuity of 1 at 10%
4 0.636 3.037
5 0.567 3.605

4. What is the amount of interest income for the year 2022?

a. 9,719 c. 11,536
b. 12,918 d. 14,736

On January 1, 2022, COLORADO Company sold an equipment costing P10,000,000 and accumulated
depreciation of P2,500,000. COLORADO received a P1,000,000 cash and a 10%, 7-year,
P7,000,000 note receivable every December 31 in equal annual installment of P1,000,000 plus
interest starting December 31, 2022. Interest effective on this note when received is at
8%.

5. Statement 1: The amount of gain or loss on sale on January 1, 2022 is P948,407.

Statement 2: The interest income for the period ending December 31, 2022 is P595,873.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

On December 1, 2023, CONNECTICUT Company engaged the following transactions:

• The company pledge P600,000 of its accounts receivable as a security for a P500,000
loan with HATFORD Bank.
• Factored P1,300,000 of accounts receivable without recourse on a notification basis
with WADSWORTH Finance Company. WADSWORTH Finance Company charged a factoring fee
of 10% of the amount of receivable factored and withheld 15% of the receivable
factored.
• A customer’s P700,000, 7-month, 5% note receivable dated August 1, 2023 was
discounted with MARKTWAIN Bank at 8% discount rate on a without recourse basis.

6. How much is the total cash proceeds from the financing of receivables?
a. 1,681,008 c. 2,181,008
b. 2,200,508 d. 2,291,508

On March 1, 2023, DELAWARE Corporation purchased 3,000 of the ordinary shares of DOVER
Company at market value of P240 per share. Transfer taxes and broker’s commission totaling
P3,600 were paid. During the same year, the following transactions occurred, and additional
information are given below:

August 1: Sold 1,500 shares for P 125 per share.

November 1: 20% bonus issue of ordinary share was declared and distributed by DOVER.

• Market value of DOVER ordinary share at December 31, 2023 was P130.

The DOVER Company shares are designated at Fair Value through Profit or Loss.

7. How much is the total amount taken to profit or loss for the year 2023?
a. 0 c. 172,500
b. 126,000 d. 302,100

On December 31, 2022, FLORIDA Company appropriately reported a P100,000 unrealized loss.
There was no change during 2023 in the composition of the portfolio of non-trading equity
securities held at fair value through other comprehensive income.

Security Cost MV – December 31, 2023

A 1,200,000 1,300,000
B 900,000 500,000
C 1,600,000 1,500,000
TOTAL 3,700,000 3,300,000

8. What cumulative amount of unrealized gain/loss on these securities should be reported

in the statement of financial position on December 31, 2023?
a. 100,000
b. 200,000
c. 400,000
d. 0

Page 6 of 16 0915-2303213/0908-6567516/02-82886922  [email protected]

ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

On July 1, 2022, GEORGIA Company acquired a 25% interest in the outstanding shares of
ATLANTA Company at a total cost of P1,750,000. The underlying equity of the shares acquired
by GEORGIA was P1,500,000. The difference was due to the following:

I. Land with current fair value of P750,000 more than its carrying amount.
II. Depreciable plant assets with current fair value of P150,000 more than the
carrying amount.
III. Inventories which are undervalued by P20,000.

All other identifiable assets of ATLANTA Company have fair values equivalent to their book
values. The depreciable plant assets have remaining useful lives of 10 years from the date
of acquisition of the investment. All of the inventories have been sold as of December 31,
2022.

GEORGIA received P100,000 dividends from ATLANTA in 2022. ATLANTA reported P1,350,000
profit during the year ended December 31, 2022. Interim reports from ATLANTA revealed that
it earned P650,000 during the first two quarters of 2022.

9. How much was the income from associate reported in GEORGIA’s profit and loss for the
year ended December 31, 2022?
a. 161,875
b. 166,250
c. 168,125
d. 175,000

On January 1, 2022, HAWAII Corporation purchased 3-year, 10%, 5,000 of P1,000 face value
bonds for P4,600,000. In relation to this acquisition, HAWAII incurred P160,000 broker’s
commission. As a result, the effective rate on the bond was 12%.

Meanwhile, HAWAII determined the following fair values at each yearend:

December 31, 2022 102

December 31, 2023 105

10. How much is the unrealized gain or loss to be reported in its 2022 Profit or Loss
Statement assuming the investment is FVPL?
a. 0
b. 500,000
c. 268,800
d. 340,000

11. How much is the carrying value of investments that should be reported in the statement
of financial position on December 31, 2023 assuming the investment is FVOCI?
a. 5,250,000 c. 4,831,200
b. 5,100,000 d. 4,910,944

12. How much is the carrying value of investments that should be reported in the statement
of financial position on December 31, 2023 assuming the investment is Investment at
Amortized Cost?
a. 5,250,000 c. 4,831,200
b. 5,100,000 d. 4,910,944

NON-FINANCIAL ASSETS

The inventory on hand at December 31, 2023 for IDAHO Company is valued as at a cost of
P500,000. The following items were not included in this inventory amount:
➢ Purchased goods shipped FOB destination costing P30,000. The goods were received
on December 30, 2023.
➢ Purchased goods in transit, terms FOB shipping point. Invoice price- P48,000;
freight costs of P3,000.
➢ Goods out on consignment to BOISE Company, sales price, P 35,000.
➢ Purchased goods shipped FOB Buyer still in transit. The invoice price is P47,500
including freight of P500.
➢ Inventory purchased and received with a buyback agreement costing P100,000.

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BATCH 46 – October 2023 CPA Licensure Examination

➢ Inventory purchased and received, Free Alongside, costing P 245,000. Delivery cost
alongside the Vessel is P3,000 while cost of shipment is P5,000.
➢ Mark-up based on sales is 20%. It was noted that 30% of the consigned goods were
sold as of December 31, 2023.

13. How much is the correct cost of inventory to be reported in IDAHO’s statement of
financial position on December 31, 2023?
a. 898,100
b. 839,400
c. 853,600
d. 850,600

ILLINOIS Company uses the FIFO method of valuing inventories. During August 2023, the
following inventory details were recorded.

Opening balance 300 units valued at P20 each

August 5 Purchase of 500 units at P24 each
August 10 Sale of 400 units
August 18 Purchase of 600 units at P25 each
August 23 Sale of 250 units

14. How much is the cost of inventories on August 31, 2023?

a. 17,678 c. 18,000
b. 18,600 d. 18,750

Information pertaining to the inventory of INDIANA Company as of December 31, 2023 follows:

A B C
Historical cost 2,000,000 2,500,000 3,500,000
Estimated selling price 2,200,000 3,600,000 4,000,000
Estimated cost to sell 300,000 800,000 600,000
Normal profit margin 440,000 720,000 800,000
Current replacement cost 2,500,000 3,000,000 2,700,000

INDIANA records losses that result from applying the lower of cost or NRV rule.

15. What amount should the inventory be valued on December 31, 2023?
a. 8,000,000 c. 7,700,000
b. 8,100,000 d. 7,800,000

The records of IOWA Company revealed the following information on September 30, 2023:

Cost Retail
Inventory, January 1, 2023 412,400 620,000
Purchases, 2,614,100 4,275,500
Freight in 40,000
Sales 3,200,000
Purchase return 10,000 28,000
Sales allowance 25,500
Purchase allowance 8,000
Sales returns 48,500
Sales discounts 22,500
Purchase discounts 6,200
Abnormal shrinkages 45,000 50,000
Normal shoplifting losses 150,000
Discounts granted to employees 15,500
Departmental transfer in 25,700 51,600
Departmental transfer out 31,500 68,000
Mark-ups 146,900
Mark-downs 116,000
Mark-up cancellations 25,000
Markdown-cancellation 18,000

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BATCH 46 – October 2023 CPA Licensure Examination

16. How much is the estimated cost of inventories on September 30, 2023 using the Average
method?
a. 1,508,000 c. 934,960
b. 1,037,570 d. 964,720

A new machine was acquired on July 31, 2022 by KANSAS Company with the following
considerations:

Down-payment 1,000,000
Total par value of 5,000 ordinary shares issued (FV is P140) 600,000
Notes payable in three equal annual installment every July 31,
starting 2023 (3 years non-interest bearing; effective rate on this
date 9%) 900,000
Estimated dismantling after five (5) year life of the machine (at
9% effective rate) 100,000

17. What is the initial cost of the machine on July 31, 2022?
a. P2,459,958 c. P2,582,291
b. P2,524,380 d. P2,611,388

18. Assuming the machine is depreciated using 1.5 declining balance and estimated to have
P100,000 of residual value. How much is the depreciation of the machine in 2023?
a. P757,314 c. P315,548
b. P662,650 d. P300,271

KENTUCKY Company purchased a tract of land with an old building. The old building has no
fair value on the date of acquisition. The entity razed an old building on the property to
construct a new building. Relevant information follows:

Purchase price of land and an old building 3,700,000

Demolition of old building 200,000
Proceeds from sale of salvaged materials 20,000
Legal fees for purchase contract and recording ownership 150,000
Title guarantee insurance 50,000
Payment of property taxes in arrears on land 100,000
Option paid for an alternative land not acquired 30,000
Special assessment for city improvements 120,000

19. How much is the correct cost of the Land?

a. 4,600,000
b. 4,120,000
c. 4,330,000
d. 4,300,000

On January 1, 2022, LOUISIANA Company purchased equipment with cost of P10,000,000, useful
life of 10 years and no residual value. The entity used straight line depreciation. On
December 31, 2022 and December 31, 2023, the entity determined that impairment indicators
are present. There is no change in useful life or residual value.

December 31, 2022 December 31, 2023

Fair value less cost of disposal 8,100,000 8,300,000
Value in use 8,550,000 8,200,000

20. What is the impairment loss for 2022?

a. 900,000
b. 450,000
c. 600,000
d. 0

21. What is the gain on reversal of impairment for 2023?

a. 400,000
b. 700,000
c. 600,000
d. 0

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

On January 1, 2023, MAINE Company showed land with carrying amount of P10,000,000 and
building with cost of P60,000,000 and accumulated depreciation of P18,000,000.

The land and building were revalued on same date and revealed the fair value of land at
P15,000,000 and the building at P70,000,000. The original useful life of the building is 20
years and depreciation is computed on the straight line. The income tax rate is 30%.

22. What is the revaluation surplus on January 1, 2023?

a. 33,000,000
b. 23,100,000
c. 28,000,000
d. 19,600,000

MARYLAND Corporation purchased a patent for P135,000 on September 1, 2020. It had a useful
life of 10 years. On January 1, 2022, the company spent P33,000 to successfully defend the
patent in a lawsuit. MARYLAND Corporation estimated that as of that date, the remaining
useful life is 5 years.

23. What amount should be reported for patent amortization expense for 2022?
a. 30,900
b. 28,200
c. 30,000
d. 23,400

On January 1, 2023, MASSACHUSETTS Company acquired both a License and a Trademark in exchange
for 1,000 shares of MASSACHUSETTS, P100 par ordinary shares. The shares are selling for
P125 per share on January 1, 2023. The trademark is worth thrice as much as the license.
The license may be used for five years while the trademark has a remaining useful life of
6 years. MASSACHUSETTS Company intends to renew the trademark continuously because the said
trademark is expected to contribute to net cash flows indefinitely.

24. How much is the amortization expense for the year 2023?
a. 21,875 c. 23,958
b. 6,250 d. 0

On January 31, 2022, MICHIGAN Company signed an agreement to operate as franchisee of

LANSING Company for an initial franchise of P780,000. Of this amount, P300,000 was paid
when the agreement was signed and the balance was payable in four annual payments of P120,000
each, beginning January 31, 2023. The agreement provides that the down payment is not
refundable and no future services are required of the franchisor. The implicit rate for
loan of this type is 12%. The agreement also provides the 1.5% of the revenue from the
franchise must be paid to the franchisor annually. MICHIGAN’s revenue from the franchise in
2022 was P9,500,000.

25. What is the carrying value of the franchise as of December 31, 2022?
a. P603,571 c. P604,381
b. P598,034 d. P599,384

MINNESOTA Company acquired an investment property costing P1,000,000 on July 1, 2023. The
property is being leased out under operating lease and the lessee pays P30,000 on a quarterly
basis. MINNESOTA Company depreciates its properties using the straight-line method over a
5-year useful life. The fair values of the building at the end of 2023 and 2024 were
P1,200,000 and P 850,000, respectively. Estimated cost to sell is P50,000 on December 31,
2024.

26. How much is the total net increase/decrease in profit or loss for the year 2023
assuming the company is using the cost model?
a. 40,000
b. 140,000
c. 340,000
d. 160,000

27. How much is the carrying value of the investment properties on December 31, 2024
assuming the company is using the fair value model?
a. 1,200,000
b. 850,000
c. 800,000
d. 700,000

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

The following information pertains to the living plant and agricultural produce of
MISSISSIPPI Company. On January 1, 2023, the cost of the living plant was P20,000,000 with
an estimated useful life of 10 years. The company is using the straight-line method of
depreciation. As of December 31, 2023, MISSISSIPPI Company determines the following:

Fair value of the fruits after the harvest on December 31, 2023 P5,000,000
Estimated cost to sell of the fruit 100,000
Estimated cost to sell of the living plant 500,000

With the assistance of valuation experts, MISSISSIPPI Company determines that the fair value
of the living plant including the fruit as of December 31, 2023 is P26,000,000.

28. Statement 1: The carrying value of the living plant on December 31, 2023 under PAS 16
is P20,500,000.
Statement 2: The carrying value of the living plant on December 31, 2023 under PAS 41
is P18,000,000.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false

On January 1, 2022, MISSOURI Company has a building with a cost of P4,000,000 and accumulated
depreciation of P3,100,000. The company commits to a plan to sell the building by January
1, 2023. On January 1, 2022, the building has an estimated selling price of P800,000 and it
is estimated that the selling costs associated with the disposal of the building will be
P120,000. On December 31, 2022, the estimated selling price of the building has increased
to P1,200,000 and the estimated selling costs remain at P120,000.

29. How much is the total net effect in profit or loss for the year 2022 in relation to
the noncurrent asset held for sale?
a. 0
b. 220,000 increase
c. 220,000 decrease
d. 400,000 increase

FINANCIAL LIABILITIES

MONTANA Company reported accounts payable of P540,000 on December 31, 2023 before any year-
end adjustments relating to the following:
• Goods with invoice cost of P30,000 were in transit to MONTANA on December 31, 2023.
The purchased goods on account shipped FOB shipping point were received and
recorded on January 3, 2024.
• Goods with an invoice cost of P15,000 which were shipped FOB shipping point on
December 26, 2023 were lost in transit. On December 29, 2023, MONTANA filed a
P15,000 claim against the courier. The related purchases were not recorded as of
December 31, 2023.
• Goods with an invoice cost of P10,000 shipped FOB destination on December 28, 2023
were received by MONTANA on December 29, 2023. The related purchases were recorded
on December 30, 2023.

30. What amount should MONTANA report as accounts payable on its December 31, 2023
statement of financial position?
a. 585,000 c. 570,000
b. 595,000 d. 590,000

On January 1, 2023, NEBRASKA Company acquired a tract of land for P 5,250,000. NEBRASKA
Company paid P1,250,000 down and signed a non-interest-bearing note for the balance which
is due on January 1, 2027. There was no established exchange price for the land and the
note had no ready market. The prevailing interest rate for this type of the note was 12%.

31. How much is the interest expense for the year 2024?
a. 305,040 b. 341,645 c. 382,642 d. 480,000

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

On January 1, 2023, NEVADA Corporation issued 4-year bonds of P 5,000,000 for P5,662,260 to
yield 8%. Interest is payable annually on December 31 at 12%. NEVADA paid a bond issue cost
amounting to P345,320. The effective rate as a result of transaction cost is 10%.

32. How much is the carrying value of the bonds payable on December 31, 2023?
a. 6,007,580 c. 6,008,338
b. 5,316,940 d. 5,248,634

On January 1, 2023, NEW HAMPSHIRE Company issued P2,000,000 of 16% bonds at 102. Each
P1,000 bond has one detachable warrant that allows the holder to purchase ten shares of P50
par value stock at P70 per share. The bonds would have been issued at 99 without the
warrants.

33. Assuming that all the warrants were exercised, how much is the total net effect on
equity upon exercise of the warrants on December 31, 2024?
a. 1,400,000 b. 1,460,000 c. 460,000 d. 400,000

On December 31, 2023, NEW JERSEY Company had an outstanding P5 million face value convertible
bonds maturing on December 31, 2027. Each P1,000 bond is convertible into 20 shares of P25
par value ordinary shares. The unamortized discount as of December 31, 2023 is P225,000.
The balance of the Share Premium from Bond Conversion Privilege is P240,000. On December
31, 2023, bonds with a face value of P2,000,000 were converted into ordinary shares when
the market value of the ordinary shares is P50.

34. How much is the gain or loss taken to profit or loss on the conversion of the bonds?
a. 0 c. 1,006,000
b. 910,000 d. 2,006,000

On July 1, 2023, NEW MEXICO Company issued P 5,000,000, 14% bonds at 105. Each P1,000 bond
is convertible into 5 shares of P150 ordinary share. Without the conversion feature, the
bonds would have been sold at 102. At a later interest date, prior to maturity date of the
bonds, NEW MEXICO retired P2,000,000 face value bonds at 103. After appropriate premium
amortization and interest payment, the premium on bonds payable has a balance of P30,000 on
the date of retirement. Without the conversion privilege, these bonds would have been sold
on this date at 101.

35. How much is the gain or loss on retirement of bonds that should be taken to profit or
loss?
a. 8,000 loss c. 48,000 loss
b. 8,000 gain d. 48,000 gain

36. How much is the amount of gain on cancellation of conversion privilege taken to
equity?
a. 0 c. 40,000
b. 20,000 d. 60,000

NON-FINANCIAL LIABILITIES

On December 25, 2022, an employee filed a P3,000,000 lawsuit against NEW YORK Company for
damages suffered when one of NEW YORK’s equipment malfunctioned in August of 2022. The legal
counsel of the company believes that it is probable that NEW YORK will pay the damages
ranging between P500,000 to 1,000,000 but P820,000 is considered to be the best estimate of
the obligation. On March 31, 2023, the employee has offered to settle the lawsuit out of
court for P925,000 and the company accepted the offer and settled the amount. The financial
statements were authorized to be issued on March 1, 2023.

37. How much is the provision that should be recognized as of December 31, 2022?
a. 820,000 b. 925,000 c. 750,000 d. 1,000,000

NORTH CAROLINA Company sells plasma television sets with a two-year warranty and estimated
warranty costs as percentage of peso sales as follows: first year of warranty- 5%; second
year of warranty-8%. The company recorded sales of P 4,000,000 and P 7,000,000 in 2022 and
2023, respectively and incurred actual repair costs of P 150,000 and P 400,000 in 2022 and
2023, respectively.

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

38. How much is the provision for warranty on December 31, 2023?
a. 880,000 c. 160,000
b. 910,000 d. 370,000

NORTH DAKOTA Company is considering to give bonus for its new company CEO. The plan states
that the bonus would be equal to 15% based on profits after deducting bonus and tax. Profit
before income tax and bonus for 2023 is P10,000,000. Income tax rate is 30%.

39. How much is the amount of bonus under the plan?

a. 1,304,348 b. 1,099,476 c. 950,226 d. 1,004,785

OHIO Company operates a customer loyalty program. The entity grants loyalty points for
goods purchased. The loyalty points can be used by the customers in exchange for goods of
the entity. During 2023, the entity sold goods for a total consideration of P2,000,000 for
which P100,000 was allocated to award credits/loyalty points and 2,000 points were granted.
The company expects that 60% of the award credits shall be redeemed. During 2023, 720 of
the award credits were redeemed.

40. How much is the total amount of income that should be recognized for the year 2023?
a. 1,900,000 b. 60,000 c. 1,960,000 d. 2,000,000

SHAREHOLDERS’ EQUITY
OKLAHOMA Company reported the following amounts in the shareholders’ equity section of its
December 31, 2021, balance sheet:

10% Preference shares, P10 par (100,000 shares authorized, P400,000

40,000 shares issued)
Ordinary shares, P5 par (50,000 shares authorized, 20,000 shares 100,000
issued)
Share premium 190,000
Retained Earnings 1,200,000

The following transactions occurred during 2022:

Feb. 1-Purchased 4,000 shares of its own outstanding ordinary shares for P80,000.
March 1-Ordinary shares were split 2 for 1.
April 30-Reissued 2,000 treasury ordinary shares for cash at P15 per share.
June 30-Issued 10,000 shares of preference shares at P15 per share.
August 1-Purchased 3,000 preference shares from June 30 issuance at P 12 per share.
Sept. 1-Declared a 10% stock dividend on the outstanding ordinary shares when the stock
is selling for P6 per share. Issued the share dividend on September 30.
Dec. 1-Declared the annual dividend on preference shares and the P2.00 per share dividend
on ordinary shares. These dividends are payable in 2023.
Dec. 31-Registered a net income for 2022 at P800,000.

Determine the adjusted balances of the following accounts on December 31, 2022:
A B C D

41. Total SHE 2,728,200 2,602,200 2,632,200 2,623,200

OREGON Company’s December 31, 2023 balance sheet reports the following shareholders’ equity:

10% Cumulative Preference share capital, P100 par value per share,
30,000 shares issued and outstanding, liquidation value of P105 P3,000,000
Ordinary share capital, P100 par value, 60,000 shares issued 6,000,000
Share premium 500,000
Treasury Stock, (ordinary) 5,000 shares at cost 600,000
Retained Earnings 4,000,000
Subscribed ordinary share, net of P400,000 subscription receivable 1,000,000
Revaluation surplus 700,000

Preference dividends have not been paid since last year up to the end of 2023.

42. What is the book value per share on ordinary share?

a. 173.08 b. 163.04 c. 166.92 d. 157.25

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

On September 30, 2023, PENNSYLVANIA Company declared its non-current asset as a dividend
with a carrying value of P 2,000,000 and has a current fair value of P 1,800,000. On December
31, 2023, the non-current asset has a fair value of P 1,700,000. The non-current asset was
distributed on March 1, 2024 when its fair value was P 1,600,000.

43. What amount shall be taken to profit or loss as a result of remeasurement of liability
on December 31, 2023?
a. 0 b. 100,000 c. 200,000 d. 300,000

For two consecutive years, the RHODE ISLAND Company Company failed to recognize accruals,
prepayments and other transactions in its records. Reported net income and a listing of the
errors appear below:
2021 2022
REPORTED PROFIT 500,000 750,000
a. Failed to record accrued income 15,000 5,000
b. Understatement of ending inventory 60,000 40,000
c. Failed to record accrued interest on notes payable 20,000 15,000
d. Failed to recognized the asset portion of prepayments 35,000 10,000
e. Failed to record purchases on account. Purchases were 50,000 20,000
recorded when paid in the subsequent year. Inventories
were not included at the end.
f. Major Repairs incurred during the year were 100,000 200,000
erroneously expensed. Full year depreciation at annual
rate of 10% is provided in the year that the asset is
recognized.

44. What is the correct net income in 2022?

a. 890,000 c. 900,000
b. 870,000 d. 880,000

45. What is the net adjustment to Retained earnings on January 1, 2023?

a. 300,000 debit c. 120,000 credit
b. 300,000 credit d. 180,000 credit

OTHER TOPICS

SOUTH CAROLINA Company leased a new machine from COLUMBIA Company. On January 1, 2022, SOUTH
CAROLINA provided the following information pertaining to the lease:

Annual rental payable at beginning of each lease year, starting Jan. 1, 2022 P400,000
Lease term 10 years
Useful life of machine 12 years
Implicit interest rate 14%
Present value of an annuity of 1 in advance for 10 periods at 14% 5.95
Present value of an ordinary annuity of 1 for 10 periods 5.22
Present value of 1 for 10 periods at 14% 0.27
Guaranteed residual value 100,000

46. How much is the depreciation expense for the year 2022?
a. 240,700 c. 192,250
b. 200,583 d. 230,700

SOUTH DAKOTA Company leased equipment from PIERRE Inc. on July 1, 2022, for an 8-year
period. Equal payments under the lease are P600,000 and are due on July 1 of each year. The
first payment was made on July 1, 2022. The interest rate contemplated by SOUTH DAKOTA and
PIERRE is 10%. The carrying value of the equipment on PIERRE’s accounting records is
P2,800,000. Residual value of P100,000 at the end of lease term is guaranteed by SOUTH
DAKOTA. The lease is appropriately recorded as a sales-type lease.

Present value of an annuity of 1 in advance for 8 periods at 10% 5.87

Present value of an ordinary annuity of 1 for 8 periods at 10% 5.33
Present value of 1 for 8 periods at 10% 0.47

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

47. How much is the SALES that should be recognized by PIERRE Inc.?
a. 2,800,000 c. 3,569,000
b. 2,753,000 d. 3,522,000

TENNESSEE reported pretax financial income for the current year 2023 at P3,000,000. Included
in the determination of the said net income were:

Permanent differences:
Non-deductible expenses P100,000
Non-taxable revenues 500,000
Temporary differences:
Unrealized gain trading securities 400,000
Impairment loss on machinery 500,000
Provision for bad debts 900,000
Excess tax depreciation over accounting depreciation 420,000

The income tax rate is 30% and is not expected to change in the future.

48. How much is the deferred tax liability on December 31, 2023?
a. 954,000 c. 246,000
b. 780,000 d. 420,000

On January 1, 2021, TEXAS Company reported the fair value of plan assets at P6,700,000 and
defined benefit obligation at P6,100,000. Transactions affecting the balances for the
current year are as follows:

Current service cost P1,125,000

Past service cost 325,000
Contribution to the plan 990,000
Benefits paid to retirees at scheduled date 800,000
Benefits paid to retirees at early (CV is P340,000) 300,000
Actual return on plan assets 469,000
Decrease in defined benefit obligation due to changes in 135,000
actuarial assumption
Discount rate 10%

49. How much is the amount of defined benefit cost reported in its statement of
comprehensive income as a component of profit or loss?
a. 1,350,000 c. 66,000
b. 1,385,000 d. 336,000

50. How much is the amount of defined benefit cost reported in its statement of
comprehensive income as a component of OCI?
a. 1,350,000 c. 66,000
b. 1,385,000 d. 336,000

On January 1, 2022, the shareholders of UTAH Company approve a plan that grants the company’s
five executives options to purchase 3,000 shares each of the company’s P50 par value ordinary
shares. The options are granted on January 2, 2022 and may be exercised anytime from January
1, 2025 to December 31, 2025.

Based on an option pricing model used by UTAH Company, the fair value of the option on the
date of grant was P40. The market price per share on January 1, 2022 was P95, while the
option price is P60. Other information follow:

• The executives must be in the employ of the company when exercising the options
• 1 executive left the company during 2023
• The remaining options vested and all vested options were exercised in 2025

51. How much is the compensation expense for the year ended 2023?
a.120,000 c. 400,000
b. 200,000 d. 80,000

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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY FARAP Preweek 1
BATCH 46 – October 2023 CPA Licensure Examination

VERMONT Company has the following information for its five business segments for the year
2022:
Segment Intersegment revenue Segment Assets Revenue to external customers

A P 20,000,000 P 2,000,000 P 25,000,000

B 5,000,000 500,000 5,000,000
C 2,800,000 1,000,000 3,500,000
D 1,200,000 200,000 1,500,000
E 1,000,000 250,000 1,000,000

52. How much is the minimum amount that should be reported by the reportable segments?
a. 22,500,000 c. 49,500,000
b. 27,000,000 d. 6,600,000

FINANCIAL STATEMENTS
VIRGINIA Company’s transactions for the year ended December 31, 2023 included the following:
• Purchased equipment for P550,000 cash
• Sold land for P500,000 cash
• Cash dividend paid of P600,000
• Cash dividend received from equity investment of P1,000,000
• Interest paid of P100,000
• Interest received from debt investment of P800,000
• Issued 500 shares of ordinary shares for P 250,000
• Sold treasury shares for P125,000 cash
• Retired bonds payable for P450,000 cash
• Increased accounts receivable by P 100,000
• Increased accounts payable by P 200,000
• Decreased accrued expense by P300,000
• Decreased unearned income by P400,000
• Proceeds received from bank loan of P900,000
• Gain on conversion of ordinary shares of P10,000
• Acquired building by means of finance lease of P500,000
• Depreciation expense for the year of P700,000
• Issued preference shares for services received of P600,000
• Impairment loss on building of P350,000

53. Statement 1: the net cash used in investing activities for 2023 is P50,000.
Statement 2: The net cash used in financing activities for 2023 is P225,000.
a. Only statement 1 is TRUE
b. Only statement 2 is TRUE
c. Both statements are TRUE
d. Both statements are FALSE

WASHINGTON Company has 200,000 shares of ordinary shares outstanding on January 1, 2023.
On January 1, 2023, 100,000 shares of 10% cumulative preference share with par value of P10
were issued. The preference shares are convertible into 50,000 shares of ordinary shares.
On September 30, 2023, 9% convertible, P2,000,000 face value (equal to its liability
component) bonds were issued. Each 1,000 bonds are convertible into 40 ordinary shares.
Net income after income tax of P1,684,200 was reported by WASHINGTON for the entire year.
54. How much is the basic earnings per share?
a. 5.10 c. 4.80
b. 8.42 d. 7.92

55. How much is the diluted earnings per share?

a. 6.74 c. 7.41
b. 6.40 d. none of the choices

*END OF PREWEEK LECTURE*

“Don’t give up. All of your hard work will pay off soon.
Stick with what you’re doing no matter how hard it gets “

Page 16 of 16 0915-2303213/0908-6567516/02-82886922  [email protected]

CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila

FINANCIAL ACCOUNTING AND REPORTING PREWEEK LECTURE

OCTOBER 2024 CPALE BATCH 94

1. The Financial Reporting Standards Council is renamed

a. Financial and Sustainability Reporting Standards Council (FSRSC)
b. International Sustainability Standards Board (ISSB)
c. International Reporting Standards Council
d. Philippine Reporting Standards Council

2. The standard-setting board created by IFRS Foundation that sets IFRS Sustainability Disclosure standards
for general purpose financial statements is known as
a. International Sustainability Standards Board (ISSB)
b. International Sustainability Accounting Standards Board
c. International Sustainability Board
d. International Sustainability Reporting Standards Council

3. The Continuing Professional Development is required for

a. Renewal of CPA license
b. Accreditation to practice the accountancy profession
c. Both renewal of CPA license and accreditation to practice the accountancy profession
d. Neither renewal of CPA license nor accreditation to practice the accountancy profession

4. Which of the following statements that relate to the Continuing Professional Education for CPAs is true?
a. R.A. No. 10912 mandated the continuing professional education for CPAs for the renewal of CPA
license and accreditation to practice the accountancy profession every three years.
b. CPAs are required to comply with 120 CPA credit units for accreditation to practice the accounting
profession but only 15 CPA credit units are required for the renewal of CPA license.
c. A CPA upon reaching the age of 65 years shall be permanently exempted from CPD requirements
for renewal of CPA license but not for accreditation to practice the accountancy profession.
d. All of these statements are true.

5. Which of the following statements relate the accountancy profession is true?

a. The law regulating the practice of accountancy in the Philippines is R.A. 9298 otherwise known as
the Philippine Accountancy Act of 2004.
b. The Board of Accountancy is the body authorized by law to promulgate rules and regulations
affecting the practice of the accountancy profession in the Philippines.
c. Certified Public Accountants generally practice their profession in three main areas, namely
public accounting, private accounting and government accounting.
d. All of these statement are true.

6. Which of following statements that relate to the practice of public accounting is false.
a. Single practitioners for the practice of public accounting shall be registered CPAs in the Philippines
b. Partners of partnership formed for the practice of public accounting shall be registered CPAs in the
Philippines
c. The Securities and Exchange Commission can register any corporation organized for the
practice of public accounting
d. The Professional Regulation Commission upon favorable recommendation of the Board of
Accountancy shall issue certificate of accreditation to CPAs in public practice provided the registrant
has acquired a minimum of three years of meaningful experience in public practice.

7. The national professional organization of CPAs include all of the following, except
a. Association CPAs in Public Practice (ACCPAP)
b. Association of CPAs in Commerce and industry (ACPACI)
c. National Association of CPAs in Education (NACPAE)
d. Financial Executives Institute of the Philippines
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8. What is the authoritative status of the Conceptual Framework?

a. The Conceptual Framework has the highest level of authority
b. In the absence of a standard or an interpretation that specifically applies to a transaction, the
Conceptual Framework shall be followed
c. In the absence of a standard or an interpretation that specifically applies to a transaction,
management shall consider the applicability of the Conceptual Framework in developing and
applying an accounting policy that results in information that is relevant and reliable
d. The Conceptual Framework applies only when the IASB develops new standard

9. Which of the following statements that pertain to qualitative characteristics of financial statements is not
true?
a. Qualitative characteristics are either fundamental or enhancing.
b. The fundamental qualitative characteristics are relevance, faithful representation and
materiality.
c. The enhancing qualitative characteristics are comparability, understandability, verifiability and
timeliness.
d. Qualitative characteristics are the attributes that make the information provided in the financial
statements useful for the users.

10. Which of the following statements that pertain to the fundamental and enhancing qualitative
characteristics is true?.
a. Accounting information is considered relevant when it is capable of making a difference in a
decision.
b. Relevant information must possess predictive value and confirmatory value.
c. To achieve faithful representation, the financial statements must be complete, neutral and free from
error.
d. All of these statements are true.

11. Which of the following statements that pertain to the underlying assumptions is true?.
a. The term going concern means the ability to continue in operation for the foreseeable future.
b. The economic entity assumption is applicable only to corporate form of business organization.
c. When a parent and subsidiary relationship exists, consolidated financial statements are prepared in
recognition of legal entity.
d. Inflation is ignored in accounting due to accounting period assumption.

12. Which of the following statements that relate to the recognition and measurement of items in the financial
statements is not true?
a. Recognition is the process of including in the financial statements an item that meets the definition
of an asset, liability, equity, income and expense.
b. The measurement bases include historical cost and current value.
c. Current value includes fair value, value in use, fulfillment value and current cost.
d. Fulfillment value is the absolute amount of cash expected for the payment of liability.

13. Which of the following statements that relate to the accounting process is true?
a. Adjusting entries conform with accrual whereby revenue or expense recognition precedes
cash flow.
b. Closing entries are made after adjusting entries and reversing entries have been prepared.
c. Reversing entries apply to all adjusting entries.
d. The preparation of closing entries and reversing entries is optional.

14. The IASB declared that the merits of proposed standards are assessed
a. From a position of neutrality
b. From a position of materiality
c. Based on possible impact on behavior
d. Based on arguments of lobbyist

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15. What is the chronological order in the standard setting process?

a. Exposure draft, Research, Standard and Discussion paper
b. Research, Exposure draft, Discussion paper and Standard
c. Standard, Research, Discussion paper and Exposure draft
d. Research, Discussion paper, Exposure draft and Standard

16. IFRIC Interpretations

a. Are considered authoritative and must be followed.
b. Cover newly identified financial reporting issues not specifically addressed.
c. Cover issues where unsatisfactory or conflicting interpretations have developed
d. All of these are correct regarding IFRIC Interpretations

17. The due process system in developing financial accounting standards

a. Is an efficient system for collecting dues from members.
b. Enables interested parties to express their views on issues under consideration.
c. Identifies the accounting issues that are the most important.
d. Requires that all accountants must receive a copy of financial accounting standards.

18. Which inventory cost flow assumption would consistently result in the highest income in a period of
sustained inflation?
a. FIFO
b. LIFO
c. Weighted average
d. Specific identification

19. Which statement is incorrect regarding LCNRV?

a. Net realizable value is the estimated selling price less estimated cost to complete and estimated cost
of disposal.
b. In most situations, entities measure inventory on a total inventory basis.
c. The direct method may be used to record the income effect of valuing inventory at net realizable
value.
d. An entity may use an allowance account to reduce inventory to net realizable value.

20. An investor uses the equity method to account for a 30% ownership in an investee. At year end, the
investor has a receivable from the investee. How should the receivable be reported?
a. The total receivable should be reported separately.
b. The total receivable should be included as part of the investment, without separate disclosure.
c. Seventy percent of the receivable should be reported separately, with the balance offset against the
investee’s payable to the investor.
d. The total receivable should be offset against the investee’s payable to the investor.

21. Which statement is true for a bond maturing on a single date when the effective interest method of
amortizing bond discount is used?
a. Interest expense as a percentage of the bond carrying amount varies from period to period
b. Interest expense increases each six-month period
c. Interest expense remains constant each six-month period
d. Nominal interest rate exceeds effective interest rate

22. In theory, the proceeds from the sale of a bond would be equal to
a. The face amount of the bond
b. The present value of the principal amount due at the end of the life of the bond plus the present
value of the interest payments made during the life of the bond
c. The face amount of the bond plus the present value of the interest payments
d. The sum of the face amount of the bond and the periodic interest payments

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23. An operating segment is considered reportable when any of the following conditions is met, except
a. Segment revenue is 10% or more of the combined revenue of all of the entity’s segments
b. Segment assets are 10% or more of the combined assets of all segments
c. Segment liabilities are 10% or more of the combined liabilities of all segments
d. Segment profit or loss is 10% or more of the greater between combined profit of all profitable
segments and combined loss of unprofitable segments

24. A nonpublicly accountable entity can claim compliance with IFRS for SMEs when the entity
I. Complies with local tax requirements that are substantially the same as IFRS for SMEs
II. Complies with local tax requirements that are, except in name, word for word the same as IFRS for
SMEs
III. Complies with all the requirements of IFRS for SMEs
IV. Complies with full IFRS
a. I and III
b. II and III
c. II, III and IV
d. III and IV

25. Which statement is not correct with respect to IFRS for SMEs?
a. All borrowing costs are expensed immediately in the period when incurred
b. Intangible assets shall be measured using either cost method or revaluation model
c. Goodwill is amortized and tested for impairment where there is an indication of impairment
d. Investment in associate shall be accounted for using cost model, fair value model or equity method.

26. Which statement is incorrect concerning small entity?

a. Inventories are measured at the lower of cost or market value
b. Investment in associate shall be accounted for using cost model, fair value model or equity
method
c. Property, plant and equipment shall be accounted for using either the cost model or fair value method
d. The benefit obligation of a small entity is calculated under company policy if higher than R. A. 7641

27. Which statement is incorrect about small entity?

a. Investment property shall be measured using either cost model or fair value model
b. All borrowing costs shall be recognized as expense when incurred
c. Biological asset shall be measured using either cost model or current market price model
d. Leases are accounted for using either operating lease model or finance lease model

28. What standard shall be applied by SMES?

a. IFRS for SMEs
b. Full IFRS
c. Any acceptable accounting framework
d. Either IFRS for SMEs or full IFRS

29. Which standard shall be applied by micro entities?

a. Full IFRS
b. IFRS for SMEs
c. Any acceptable accounting framework
d. PFRS for Small Entities or Income Tax Basis

30. Which standard shall be applied by small entities?

a. PFRS for Small Entities
b. PFRS for SMEs
c. Full PFRS
d. Either PFRS for Small Entities or PFRS for SMEs

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31. Under IFRS 1, the first annual financial statements in which an entity adopts IFRS by an explicit and
unreserved statement of compliance with IFRS is called
a. IFRS financial statements
b. First IFRS financial statements
c. Opening IFRS statement of financial position
d. First audited financial statements

32. An entity that presents first annual financial statements that conform with IFRS is known as
a. An originating entity
b. A provisional presenter
c. A first time adopter
d. An initial reporter

33. What is the date of transition to IFRS?

a. The beginning of latest period in most recent annual financial statements under previous GAAP.
b. The end of latest period in most recent annual financial statements under previous GAAP
c. The beginning of the earliest period for which an entity presents full comparative information
under IFRS
d. The end of the earliest period for which an entity presents full comparative information under IFRS.

34. The statement of financial position at the date of transition to IFRS is best described as
a. Provisional IFRS statement of financial position
b. Closing IFRS statement of financial position
c. Opening IFRS statement of financial position
d. Originating IFRS statement of financial position

35. Which is not a required adjustment in an opening IFRS statement of financial position?
a. Recognize all assets and liabilities whose recognition is required under IFRS.
b. Derecognize assets and liabilities if IFRS does not permit such recognition
c. Disclose as comparative information all figures under previous GAAP alongside figures for the
current year presented under IFRS.
d. Measure all recognized assets and liabilities according to principles contained in IFRS.

End

7229
CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
FINANCIAL ACCOUNTING AND REPORTING PREWEEK LECTURE
OCTOBER 2023 CPALE BATCH 94

1. An entity provided the following account balances at year-end which had been adjusted except for
income tax expense:
Cash 3,600,000
Accounts receivable 3,500,000
Cost in excess of billings on long-term contracts 1,500,000
Billings in excess of cost on long-term contracts 700,000
Prepaid taxes 1,000,000
Property, plant and equipment, at carrying amount 4,000,000
Note payable - noncurrent 3,500,000
Share capital 2,000,000
Share premium 1,000,000
Retained earnings unappropriated 1,400,000
Retained earnings restricted for note payable 1,000,000
Earnings from long-term contracts 9,000,000
Costs and expenses 5,000,000
All receivables on long-term contracts are considered to be collectible with 12 months. During the year,
estimated tax payments of P1,000,000 were charged to prepaid taxes. The entity has not recorded income
tax expense. The rate is 25%.

I. The total current assets should be reported at P8,600.000.

II. The total noncurrent liabilities should be reported P4,200,000.
III. The retained earnings should be reported at P5,400,000
IV. Cash or cash equivalent restricted to settle a liability for more than twelve months after reporting
period should be classified as noncurrent.
a. All statements are true
b. All statements are not true
c. Only statements I and III are true
d. Only statements I,III and IV are true

2. An entity reported the following liabilities on December 31, 2023:

Accounts payable, after deducting debit balances in suppliers’ accounts of P500,000 2,000,000
Short-term borrowings 1,500,000
Bonds payable due December 31, 2024 3,000,000
Discount on bonds payable 200,000
Bank loan due June 30, 2024 1,000,000
Credit balances in customers’ accounts 400,000
Share dividend payable 600,000
Claims for increase in wages by employees covered in pending lawsuit 700,000
Estimated expenses in redeeming prize coupons 800,000
Deferred tax liability 1,200,000
The P1,000,000 bank loan was refinanced with a 5-year loan on January 31, 2024. The financial
statements were issued on March 1, 2024.

I. The total current liabilities should be reported at P9,000,000.

II. The total noncurrent liabilities should be reported at P2,200,000.
III. A financial liability due within twelve months after the reporting period should be classified as
noncurrent if the entity has an existing right at the end of reporting period to defer settlement for at
least twelve months after the reporting period.

a. All statements are true

b. Statements I and III are true
c. All statements are not true
d. Only statement III is true

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SITUATION – Four independent entities
Dean Company acquired 100% of Morey Company in the prior year. During the current year, the
individual entities included in their financial statements the following:
Dean Morey
Key officers’ salaries 750,000 500,000
Officers’ expenses 200,000 100,000
Loans to officers 1,250,000 500,000
Intercompany sales 1,500,000
Tanzania Company reported operating expenses other than interest expense for the year at 40% of cost of
goods sold but only 20% of sales. Interest expense is 5% of sales.
The amount of purchases is 120% of cost of goods sold. Ending inventory is twice as much as the
beginning inventory. The net income for the year is P2,250,000. The income tax rate is 25%.

Albania Company reported income before tax of P5,000,000 for the current year which included the
following amounts income before tax:
Equity in earnings of an associate 1,600,000
Dividend received from associate 300,000
Adjustment of profit of prior year for arithmetical error in depreciation (1,400,000)
Gain on sale of equity investment at FVOCI 1,000,000
Unrealized loss on foreign currency translation ( 500,000)

Roma Company provided the following data relating data to operating segments for current year:
Total revenue 50,000,000
Sales to external customers included in total revenue 10,000,000

3. What total amount should be reported as related party disclosures in the notes to Dean Company’s
consolidated financial statements for the current year?
a. 1,500,000
b. 1,550,000
c. 1,750,000
d. 3,000,000

4. What amount should Tanzania Company report as sales for the year?
a. 10,000,000
b. 15,000,000
c. 18,000,000
d. 12,000,000

5. What amount should Albania Company report as income before tax?

a. 5,600,000
b. 4,700,000
c. 5,100,000
d. 6,600,000

6. What amount of external revenue must at least be reported by Roma Company for reportable segments?
a. 30,000,000
b. 37,500,000
c. 7,500,000
d. 6,000,000

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7. On April 1, 2023, an entity had a machine with cost of P5,000,000 and accumulated depreciation of
P3,750,000. On April 1, 2023, the entity classified the machine as held for sale and decided to sell the
machine within one year. On April 1, 2023, the machine had an estimated selling price of P500,000 with
estimated cost of disposal of P50,000 and remaining useful life of 2years. On December 31, 2023, the
estimated selling price of the machine had increased to P750,000 with estimated cost of disposal of
P100,000.
I. An impairment loss of P800,000 should be recognized on April 1, 2023.
II. A gain on reversal of impairment of P200,000 should be recognized on December 31, 2023.
III. A noncurrent asset held for sale should be recorded at the lower between carrying amount and fair
value less cost of disposal and should no longer be depreciated.
a. All statements are true
b. Only one statement is true
c. All statements are not true
d. Only statements I and III are true

8. The entity had the following account balances on December 31, 2023:

Petty cash fund 50,000

Philippine Bank – current account 4,000,000
Manila Bank – current account (overdraft) (1,200,000)
Security Bank – value added tax account 200,000
Metrobank – payroll account 400,000
Cash on hand 500,000
Asia Bank – savings account for plant addition in 2024 1,500,000
Treasury bills 1,000,000
Treasury bonds 700,000
The petty cash fund included unreplenished December 2023 petty cash expense vouchers P5,000 and
employee IOU P5,000. The cash on hand included a P100,000 customer check payable to the entity dated
January 15, 2024. Check of P400,000 drawn against Philippine Bank current account dated and recorded
on December 31, 2023 was mailed to creditor on January 15, 2024.
I. The unrestricted cash should be reported at P5,440,000 under current assets.
II. The total amount of cash equivalents should be reported at P1,700,000
III. Cash set aside for the payment of bonds payable due on December 31, 2024 is included in
unrestricted cash under current assets.
a. All statements are true
b. All statements are not true
c. Statements I and II are true
d. Statements I and III are true.

9. Marjorie Company reported an imprest petty cash fund of P50,000 with the following details:
Currencies 20,000
Coins 2,000
Petty cash vouchers 9,000
A check drawn by the entity payable to the order of Anne Cruz, petty cash custodian,
representing her salary 15,000
An employee check returned by the bank marked NSF 3,000
A sheet of paper with names of several employees together with contribution for a
birthday gift to a co-employee. Attached to the sheet of paper is a currency of 5,000
I. The petty cash fund should be reported at P37,000
II. A cash shortage of P1,000 should be reported.
III. The replenishment of an imprest petty cash fund is recorded by debiting petty cash fund and
crediting cash in bank.
a. Statements I, II and III are true.
b. Statement II is not true.
c. All statements are not true.
d. Only statements I and II are true.

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SITUATION – Four independent entities

On December 5, 2023, Aye Company established a petty cash fund of P20,000. On December 31, 2023,
the petty cash fund was examined and found to have receipts and documents for miscellaneous expenses
amounting to P18,200. In addition, there was cash amounting to P2,200.

Bee Company provided the following information on December 31:

Credit memo for November recorded in December 600,000
Credit memo for December not yet recorded 800,000
Deposit in transit – December 31 1,500,000
Erroneous bank charge in December corrected by bank in December 200,000
Erroneous receipt by Bee Company in December not corrected until next year 100,000
Total book receipts for December 8,500,000
Total bank credits in December 8,000,000

Zee Company provided the following information for October and November:
Checks and charges recorded by bank in November, including a November service
charge of P5,000 and NSF customer check of P20,000 550,000
Service charge made by bank in October and recorded by depositor in November 10,000
Total credits to cash in all journals during November 620,000
Customer NSF check returned in October and redeposited in November but no entry
made by depositor in either October or November 40,000
Outstanding checks on October 31 that cleared in November 230,000

Dior Company used the net price method of accounting for cash discounts. In one of its transactions on
December 26, 2023, the entity sold merchandise with a list price of P1,000,000 to a client who was
given a trade discount of 20%, 10% and 5%. Credit terms were 4/10, n/30.

The goods were shipped FOB destination, freight collect. Total freight charge paid by the customer was
P25,000. On December 27, 2023, the customer returned damaged goods originally billed at P100,000.

10. What entry would Aye Company record to replenish the fund?
a. Debit petty cash P18,200, credit cash in bank P17,800, credit cash short and over P400
b. Debit expenses P18,200, credit cash in bank P17,800, credit short and over P400
c. Debit expenses P17,800, credit cash in bank P17,800
d. Debit petty cash fund P17,800, credit cash in bank P17,800

11. What amount should Bee Company report as deposit in transit on November 30?
a. 700,000
b. 600,000
c. 500,000
d. 900,000

12. What amount should Zee Company repost as outstanding checks on November 30?
a. 275,000
b. 300,000
c. 315,000
d. 290,000

13. What amount should Dior Company report as net realizable value of accounts receivable?
a. 559,000
b. 584,000
c. 535,640
d. 560,640

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14. At the beginning of current year, Mamba Company reported accounts receivable of P2,000,000 and
allowance for doubtful accounts of P100,000.
Credit sales during the year amounted to P7,200,000. Ninety percent of the credit customers did not
take advantage of the 5/10, N/30 terms. The customers who did not take advantage of the cash discount
paid P5,940,000. Sales returns from credit customers amounted to P80,000.
During the year, accounts totaling P60,000 were written off as uncollectible. Recoveries amounted to
P10,000 during the year. This amount was not included in the total collections from credit customers.
The allowance for doubtful accounts is adjusted so that it represented a percentage of the year-end
outstanding accounts receivable.
I. The year-end accounts receivable should be reported at P2,400,000 before allowance.
II. The doubtful accounts expense should be reported at P70,000 for the current year.
III. The net realizable value of accounts receivable should be reported at P2,280,000
IV. Under the allowance method, the collection of an account previously written of would not affect
the allowance account.
a. All statements are true
b. All statements are not true
c. Statements I, II and III are true
d. Only statements I and II are true.

15. From inception of operations, an entity carried no allowance for doubtful accounts. Uncollectible accounts
were expensed as written off and recoveries were credited to income as collected. During 2024, a policy
was established to maintain an allowance for doubtful accounts based on historical bad debt loss percentage
applied to year-end accounts receivable. The historical bad debt loss percentage is to be recomputed each
year based on all available past years up to a maximum of five years.
Year Credit sales Writeoffs Recoveries
2020 1,500,000 15,000 0
2021 2,250,000 38,000 2,700
2022 2,950,000 52,000 2,500
2023 3,300,000 65,000 4,800
2024 4,000,000 83,000 5,000
The entity reported accounts receivable of P1,250,000 on December 31, 2023 and P2,000,000 on December
31, 2024.
I. The allowance for doubtful accounts should be reported at P20,000 on December 31, 2023.
II. The allowance for doubtful accounts should be reported at P34,000 on December 31, 2024.
III. The doubtful accounts expense should be reported at P78,000 for 2024.
a. Statements I, II and III are true.
b. Only statements I and II are true
c. Only statement II is true
d. All statements are false.

16. Cynthia Company factored P750,000 of accounts receivable. Control was surrendered. The factor
accepted the accounts receivable subject to recourse for nonpayment. The fair value of the recourse
obligation was P20,000. The factor assessed a factoring fee of 2% and retained a holdback of 4% of the
accounts receivable. In addition, the factor charged 12% interest computed on a weighted-average time
to maturity of 51 days.
I. The cash received initially from the factoring amounted to P692,425.
II. The total amount of loss on factoring should be recognized initially at P27,575.
III. When an entity factored accounts receivable without recourse with bank, the transaction is best
described as sale of accounts receivable with risk of uncollectible accounts retained by Cynthia
Company.
a. Only statements I and II are true.
b. All statements are true
c. All statements are false.
d. Only statement I is true.

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Page 6
17. Celine Company provided the following data relating to an inventory:
Units Unit cost Total cost
June 1 Beginning balance 5,000 200 1,000,000
10 Purchase 5,000 250 1,250,000
15 Sale 7,000
16 Sale return 1,000
30 Purchases 16,000 150 2,400,000
31 Purchase return 5,000 150 750,000

I. Under the weighted average method, the inventory on January 31 should be reported at
P2,785,650.
II. Under the moving average method, the January 31 inventory should be reported at P2,550,000.
III. The cost of goods sold for January under the moving average method should be reported at
P1,350,000.
a. All statements are true
b. All statements are false
c. Only statement II is true
d. Only statements I and II are true

18. Harem Company started operations on January 1, 2023 and adopted the weighted average method:
2023 2024 2025
Sales 3,000,000 4,000,000 4,800,000
Cost at goods sold 1,500,000 2,000,000 2,400,000
Gross income 1,500,000 2,000,000 2,400,000
Expenses 800,000 900,000 1,000,000
Net income 700,000 1,100,000 1,400,000
The entity provided the following comparative inventory amount:
Weighted average FIFO
December 31, 2023 270,000 420,000
December 31, 2024 300,000 500,000
December 31, 2025 380,000 650,000
I. The net income under FIFO should be reported at P850,000 for 2023.
II. The net income under FIFO should be reported at P1,300,000 for 2024.
III. The net income under FIFO should be reported at P1,470,000 for 2025.
a. All statements are true.
b. All statements are false.
c. Only statements I and III are true.
d. Only statement III is true.

19. An entity reported accounts payable on December 31, 2023 at P900,000 before any necessary year-end
adjustments relating to the following:
• Goods were in transit from a vendor on December 31, 2023. The invoice cost was P50,000 and the
goods were shipped FOB shipping point on December 29, 2023. The goods were received on January
4, 2024.
• Goods shipped FOB shipping point on December 20, 2023 from a vendor were lost in transit. The
invoice cost was P25,000. On January 5, 2024, the entity filed a P25,000 claim against the common
carrier.
• Goods shipped FOB destination on December 21, 2023 from a vendor were received on January 6,
2024. The invoice cost was P15,000.
What amount should be reported as accounts payable on December 31, 2023?
a. 925,000
b. 940,000
c. 950,000
d. 975,000

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Page 7
20. An entity reported the following information for the current year:
Beginning inventory 5,000,000
Purchases 26,000,000
Freight in 2,000,000
Purchase returns and allowances 3,500,000
Purchase discounts 1,500,000
Sales 40,000,000
Sales returns 3,000,000
Sales allowances 500,000
Sales discounts 1,000,000
A physical inventory taken at year-end resulted in an ending inventory of P4,000,000. At year-end,
unsold goods out on consignment with selling price of P1,000,000 are in the hands of a consignee. The
gross profit rate is 40%.
I. Under the gross profit method, the estimated cost of ending inventory is P5,800,000 before
inventory shortage.
II. The estimated cost of inventory shortage should be reported at P1,200,000.
III. The gross profit method may not be used to estimate inventory for reporting of annual financial
statements.
a. All statements are true
b. All statements are false
c. Only statements I and II are true.
d. Only statement I is true.

21. An entity used the retail inventory method to estimate inventory at year-end.
Cost Retail
Beginning inventory 720,000 1,000,000
Purchases 4,080,000 6,300,000
Net markups 700,000
Net markdowns 500,000
Sales 6,800,000
Estimated normal shoplifting losses 100,000
I. Under conservative approach, the estimated cost of ending inventory is P360,000.
II. Under average cost approach, the estimated cost of ending inventory is P384,000
III. Under average cost approach, the cost of goods sold should reported at P4,416,000
IV. The conventional retail approach is designed to approximate inventory valuation at the lower of
average cost and net realizable value.
a. Only statements I and II are true.
b. Only statements I, II and IV are true.
c. All statements are true
d. Statement IV is false.

22. An entity is engaged in raising dairy livestock. The entity provided the following information during
current year:
Carrying amount on January 1 5,000,000
Increase due to purchases 2,000,000
Gain arising from change in fair value less cost of disposal attributable to price change 400,000
Gain arising from change in fair value less cost of disposal attributable to physical change 600,000
Decrease due to sales 850,000
Decrease in fair value due to harvest 200,000
I. The biological asset be reported at P6,950,000 at end of the current year.
II. The gain from biological asset should be reported at P800,000 for the current year.
III. In a forest plantation and farm, freestanding trees, land under trees and roads in forest should be
included in biological assets.
a. All statements are true.
b. All statements are not true
c. Only statements I and II are true
d. Only statement I is true.

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23. An entity insured the life of its president for P6,000,000. The entity is the beneficiary of the ordinary
insurance policy. The premium is P400,000. The policy is dated January 1, 2019. The cash surrender
values on December 31, 2022 and 2023 are P120,000 and P160,000, respectively. The entity follows the
calendar year as its fiscal year. The president died on October 1, 2023 and the policy was collected on
December 31, 2023. No premium was refunded on the insurance settlement. What is the gain on life
insurance settlement?
a. 5,620,000
b. 5,780,000
c. 5,740,000
d. 5,580,000

24. An entity acquired at the beginning of 2023 nontrading equity instrument for P5,000,000 including
transaction cost of P550,000 and irrevocably designated as financial asset at fair value through other
comprehensive income. The fair value was P5,900,000 at December 31, 2023 and the transaction cost
that would be incurred on the sale of the investment is estimated at P500,000. What amount of unrealized
gain should be recognized in OCI for 2023?
a. 900,000
b. 350,000
c. 400,000
d. 950,000

25. On January 1, 2023 an entity purchased nontrading equity securities designated irrevocably at fair value
through other comprehensive income. On December 31, 2023, the cost and market value were:
Cost Market
Security One 2,000,000 2,400,000
Security Two 3,000,000 3,500,000
Security Three 5,000,000 4,900,000
On December 31, 2024, the entity sold Security One for P2,500,000. What amount should be recognized
directly in retained earnings as a result of sale of financial asset in 2024?
a. 100,000 credit
b. 100,000 debit
c. 500,000 credit
d. 500,000 debit

26. An entity began operations at the beginning of current year. The entity provided the following
information relating to portfolio of equity securities at end of the year:

Trading Nontrading
Aggregate cost 4,000,000 6,000,000
Aggregate market value 3,700,000 5,500,000
Aggregate lower of cost or market value applied to each security 3,500,000 5,300,000

The nontrading securities are designated at fair value through other comprehensive income. The market
declines are judged to be other than temporary.
I. The amount of unrealized loss on the securities that should be reported in the income statements is
P300,000.
II. The amount of unrealized loss on the securities that should be reported as component of other
comprehensive income is P700,000
III. The irrevocable election to designate equity securities at FVOCI is applicable to both trading and
nontrading equity.
a. All statements are true
b. All statements are false
c. Only statements I and III are true
d. Only statement I is true.

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27. At the beginning of current year, Bliss Company acquired 20% of the outstanding ordinary shares of an
investee for P7,000,000. This investment gave Bliss Company the ability to exercise significant influence
over the investee. The carrying amount of the acquired shares was P6,000,000. The excess of cost over
carrying amount was attributed to an identifiable intangible asset which was undervalued on the
investee’s statement of financial position and which had a remaining useful life of ten years. The investee
reported net income of P1,800,000 and paid cash dividends of P600,000 and thereafter issued 5% share
dividend during the current year.
I. The investment income should be reported at P260,000 for current year.
II. The carrying amount of the investment in associate is P7,140,000 at end of year.
III. The implied goodwill from the acquisition amounted to P1,000,000.
IV. An investor that owned 20% of the associate should report separately any receivable from the
associate.
a. All statements are true.
b. All statements are not true.
c. Ony three statements are true.
d. Only two statements are false.

28. On January 1, 2023, Purl Company purchased as a long-term investment P5,000,000 face amount of
Shaw Company’s 8% bonds for P4,562,000. The bonds were purchased to yield 10% interest. The bonds
mature on January 1, 2028 and pay interest annually on December 31. The interest method of
amortization is used.
I. The interest income should be reported at P461,820 for 2024.
II. The carrying amount of the bond investment is P4,680,020 on December 31, 2024.
III. The interest method of amortizing bond discount provides for an increasing discount amortization
and increasing interest income.
a. Statements I, II and III are true
b. Statement II is not true.
c. Only statement II is true
d. Only statements I and II are true.

29. Galore Company ventured into construction of a state of art condominium in Makati. The board of
directors decided that instead of selling the condominium the entity would hold this property for
purposes of earning rentals by letting out space to executives. The construction was completed and the
property was placed on service on January 1, 2023. The cost of construction was P50,000,000. The useful
life of the condominium is 25years and the residual value is P500,000. An independent valuation expert
provided that the fair value of the property was P55,000,000 on December 21, 2023, P53,000,000 on
December 31, 2024 and P60,000,000 on December 31, 2025.
I. Under cost model, the investment property should be reported at P44,060,000 on December 31,
2025.
II. Under fair value model, the gain from change in fair value of the investment property should be
reported at P7,000,000 for 2025.
III. The cost of an investment property comprised purchase price, professional fees for legal services,
start up cost and other transaction cost.
a. Statements I, II and III are true.
b. Only statements I and II are true
c. Statements I, II and III are false
d. Only statements II and III are true.

30. An entity commenced construction of a building on March 1, 2023. The construction was completed on
September 1, 2023. The cost of the building P30,000,000 was paid in full to the contractor on March 1,
2023. The entity had outstanding during 2023 P16,000,000 note payable bearing interest at 10% and
P20,000,000 note payable bearing interest at 5.5%. None of the borrowings were specified for the
construction of the building.
I. The capitalizable borrowing cost should be reported at P1,125,000
II. The interest expense should be reported at P1,575,000 for 2023.
a. Statements I and II are true.
b. Statements I and II are not true.
c. Only statement I is true.
d. Only statement II is true.

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31. An entity had the following loans outstanding in 2023:

Specific construction loan – 8% 5,000,000
General purpose loan – 10% 20,000,000
The entity began the construction of a building on January 1, 2023 and the building was completed on
December 31, 2023. The expenditures during 2023 were January 1, P3,000,000, July 1 P6,000,000 and
November 1 P9,000,000.
I. The capitalizable interest should be reported at P650,000 for 2023.
II. The cost of the building should be reported at P18,650,000 on December 31, 2023.
III. The interest expense should be reported at P1,750,000 for 2023.
IV. The interest revenue on specific borrowing reduces interest expense reported in the income
statement.
a. All statements are true
b. All statements are not true.
c. Statements I, II and III are true
d. Only statements I and II are true.
32. An entity incurred the following costs in relation to property, plant and equipment:
Cash paid for purchase of land and an old building 2,500,000
Mortgaged assumed on the land purchased, including interest accrued P100,000 1,000,000
Realtor commission 300,000
Legal fees, realty taxes and documentation expenses 50,000
Amount paid to relocate persons squatting on the property 100,000
Cost of tearing down an old building on the land to make room for construction
of new building 200,000
Salvage value of old building demolished 50,000
Cost of fencing the property after construction 250,000
Amount paid to contractor for the building constructed 5,000,000
Building permit fee 50,000
Excavation 50,000
Architect fee 200,000
I. The cost of the land should be reported at P3,950,000.
II. The cost of the building should be reported at P5,450,000
III. The cost of demolishing an old building on land purchased without constructing a new building
should be expensed as incurred minus salvage proceeds.
a. All statements are true.
b. Only statements I and II are true
c. All statements are false.
d. Only statement II is false.

33. An entity reported an impairment loss of P250,000 in 2020. This loss was related to an equipment
acquired on January 1, 2012 for P2,000,000 with no residual value. Straight line annual depreciation on
the asset was recorded at P80,000 until 2020. Depreciation for 2021 was computed based on the
recoverable amount of the asset on December 31, 2020. The entity decided to measure the asset using
the revaluation model on December 31, 2023. On such date, the asset had a fair value of P1,650,000.
I. The recoverable amount of the equipment on December 31, 2020 is P1,030,000.
II. The gain on reversal of impairment on December 31, 2023 should be reported at P203,125.
III. The revaluation surplus should be recorded at P610,000 on December 31, 2023.
IV. The basis of reversal of impairment must be the recoverable amount of the impaired asset at the end
of reporting period.
a. All statements are true.
b. All statement are false
c. Only statements I, II and III are true.
d. Only statements I and II are true.

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34. An entity started business in 2023 and sold printers with a three-year warranty. The warranty cost is
estimated as a percent of sales 3% in the first year of warranty, 5% in the second year of warranty and
10% in the second year of warranty.

The entity was able to sell 7,500 units in 2023 and 10,000 units in 2024 at P4,000 per unit. The entity
incurrent actual warranty cost of P800,000 in 2023 and P2,400,000 in 2024. Sales and repairs occurred
evenly throughout the year.

1. What amount should be reported as adjusted warranty liability on December 31, 2024?
a. 9,675,000
b. 9,600,000
c. 9,300,000
d. 8,100,000

2. What amount should be reported as adjusted warranty expense for 2024?

a. 7,475,000
b. 6,925,000
c. 7,200,000
d. 7,400,000

Computation
January 1, 2023 sales
First contract year 2023 ( 3% x 15,000,000) 450,000
Second contract year 2024 ( 5% x 15,000,000) 750,000
Third contract year 2025 (10% x 15,000,000) 1,500,000

July 1, 2023 sales

First contract year July 1,2023 to June 30, 2024 450,000
Second contract year July 1, 2024 to June 30, 2025 750,000
Third contract year July 1, 2025 to June 30, 2026 1,500,000
Total warranty expense for 2023 5,400,000

2023 sales still under warranty on December 31, 2024

Third contract year January 1,2023 sales - 2025 1,500,000
Second contract year July 1, 2023 sales - January 1, 2025 to June 30, 2025 (750,000 x ½) 375,000
Third contract year July 1, 2023 sales - July 1, 2025 to June 30, 2026 1,500,000
2023 sales still under warranty on December 31, 2024 3,375,000

January 1, 2024 sales

First contract year 2024 ( 3% x 20,000,000) 600,000
Second contract year 2025 ( 5% x 20,000,000) 1,000,000
Third contract year 2026 (10% x 20,000,000) 2,000,000

July 1, 2024 sales

First contract year July 1, 2024 to June 30, 2025 600,000
Second contract year July 1, 2025 to June 30, 2026 1,000,000
Third contract year July 1, 2026 to June 30, 2027 2,000,000
Total warranty expense for 2024 7,200,000

2024 sales still under on December 31, 2024

Second contract year January 1, 2024 sales – 2025 1,000,000
Third contract year January 1, 2024 sales - 2026 2,000,000
First contract year July 1, 2024 sales - January 1, 2025 to June 30, 2025 (600,000 x ½) 300,000
Second contract year July 1, 2024 sales - July 1, 2025 to June 30, 2026 1,000,000
Third contract year July 1, 2024 sales - July 1, 2026 to June 30, 2027 2,000,000
2024 sales still under warranty on December 31, 2024 6,300,000

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35. An entity sells bedsheets for P3,000 per set. If a customer buys 4 sets in a single transaction the customer
shall receive a coupon for one additional set for free. It is expected that 80% of the free product coupons
will be redeemed.
During 2023, the entity sold 1,000 sets at P3,000 per set or P3,000,000. During 2024, the entity delivered
75 free additional sets to customers. The stand alone selling price of free product coupon is equal to the
selling price of the free product adjusted by the expected redemption.
I. The stand alone selling price of the free product coupons is P600,000.
II. The sales revenue for 2023 should reported at P2,500,000
III. The deferred revenue from coupons should be reported at P350,000 on December 31, 2024?
a. All statements are true
b. Only statements II and III are true
c. Statement III is false
d. All statements are false

36. An entity is a manufacturer and sells its product to retailers. The retailers sell the product to its customers
and for each product sold, a rebate discount coupon of P50 is given and may be used on future purchase
of the same product. The retailers are reimbursed for the discount by the manufacturer upon redemption
of the coupons.
During the current year, the entity sold 30,000 products to retailers at P150 each or P4,500,000. It is
expected that 75% of the rebate coupons will be redeemed. At the end of year, the manufacturer paid
P500,000 to the retailers as reimbursement.
The stand alone selling price of the rebate coupons is equal to the discount on the products sold during
the year adjusted by expected redemption.
I. The stand alone selling price of the rebate coupons P1,500,000.
II. The sales revenue for the current year should be reported at P3,600,000
III. The rebate liability should be reported at P900,000 at the end of year.
a. All statements are false.
b. All statements are true
c. Only statement II is true
d. Oly statement is false

37. An entity is a retailer that sells clothing. If customers buy clothing in a single purchase of P4,000, the
customers shall receive a “30% discount coupons” on future purchases.
During the current year, the entity sold clothing worth P5,400,000 and issued 500 “30% discount
coupons” It is expected that 80% of the coupons will be redeemed and customers using the coupons buy
clothing at an average price of P5,000.
The stand alone selling price of the discount coupons is equal to the amount of discount on future
purchases adjusted by expected redemption.
I. The stand alone selling price of the discount coupons is P600,000.
II. The sales revenue for the current year before redemption of coupons should be reported at
P4,860,000.
III. The sales revenue from the redemption of coupons should be recorded at P1,940,000.
a. All statements are true
b. Only statements I and II are true
c. All statements are false
d. Only statement, I is false

38. During the current year, an entity sold gift certificates worth P8,000,000 to customers in exchange for
future delivery of its product. The certificates are nonrefundable and the entity expected that 15% of the
gift certificates will not be redeemed. During the year the entity redeemed gift certificates worth
P5,100,000. What amount should be recognized as breakage revenue from gift certificates for current
year?
a. 1,200,000
b. 1,020,000
c. 900,000
d. 180,000

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39. On January 1, 2023, an entity issued 5-year 5,000 bonds with face amount of P1,000 per bond for
P5,380,000 to yield 10%. Interest of 12% is payable annually every December 31. On June 30, 2024, the
entity retired 2,000 bonds at 96 plus accrued interest. The entity used the interest method.
I. The gain on retirement of bonds payable should be recorded at P193,560 on June 30, 2024.
II. The carrying amount of the remaining bonds payable should be reported at P3,149,880 on
December 31, 2024.
III. The interest expense should be reported at P425,440 for 2024.
a. All statements are true
b. Only statements I and II are true.
c. Statement I is false
d. Only statement I is true

Date (12%) Interest paid (10%) Interest expense Amortization Carrying amount
1/1/2023 (2,000/5,000 x 5,380,000) 2,152,000
12/31/2023 240,000 215,200 24,800 2,127,200
June 30, 2024 120,000 106,360 13,640 2,113,560

1/1/2023 (3,000/5,000 x 5,380,000) 3,228,000

12/31/2023 360,000 322,800 37,200 3,190,800
12/31/2024 360,000 319,080 40,920 3,149,880

40. On December 31, 2023, an entity leased a machine for a five-year period. Equal annual payments
under the lease are P1,050,000 including P50,000 annual executory cost and are due on December 31
of each year. The first payment was made on December 31, 2023, and the second payment was made
on December 31, 2024. The five lease payments are discounted at 10% over the lease term. The present
value of minimum lease payments at the inception of the lease and before the first annual payment was
P4,170,000.
I. The carrying amount of the lease liability is P3,170,000 on December 31, 2023.
II. The interest expense is P417,000 for 2023.
III. The carrying amount of the liability is P2,487,000 on December 31, 2024.
IV. The interest expense is P317,000 for 2024.
a. All statements are true.
b. Only statements I and III are true.
c. Statement IV is false
d. Only Statements I, III and IV are true.

41. An entity leased equipment to a lessee on January 1, 2023 for an eight-year period. Equal payments
under the lease are P500,000 and are due on January 1 of each year. The first payment was made on
January 1, 2023. The selling price of the equipment is P2,900,000 and the carrying amount is
P2,000,000. The lease is appropriately accounted for as a sales type lease. The lessor incurred an initial
direct cost of P100,000. The present value of the lease payments at an implicit interest rate of 12% is
P2,780,000.
I. The unearned interest revenue should be reported at P1,100,000 on January 1, 2023.
II. The gross profit on the sale should be reported at P680,000 for 2023.
III. The interest revenue should be reported at P273,600 for 2023.
IV. The carrying amount of the lease receivable is P2,053,600 on January 1, 2024
a. All statements are true
b. Only statements II and III are true.
c. Statements I and II are false
d. Only statements II, III and IV are true

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42. At the beginning of current year, an entity sold an equipment with remaining life of 20 years and
immediately leased it back for 5 years at the prevailing market rental.
Sale price at fair value 5,000,000
Carrying amount of equipment 6,000,000
Annual rental payable at the end of each year 500,000
Implicit interest rate 6%
Present value of an ordinary annuity of 1 at 6% for 5 periods 4.21
I. The initial lease liability should be recorded at P2,105,000.
II. The cost of right of use asset should be recorded at P2,526,000.
III. The loss on right transferred should be reported at P579,000
IV. The cost of right of use asset includes the present value of lease payments, lease bonus, residual value
guarantee and leasehold improvement.
a. All statements are true
b. Only statements I, II and III are true.
c. Statement II is false
d. All statements are false

43. An entity reported pretax financial income of P6,000,000 for the current year. The income tax rate is
25%.
Tax return Accounting record
Rent received in advance 800,000 0
Depreciation 1,500,000 1,000,000
Payment of penalty 0 250,000
Premiums on officers’ life insurance 0 150,000
Doubtful accounts expense 200,000 300,000
Warranty cost 400,000 600,000
I. The current tax expense should be reported at P1,750,000.
II. The total tax expense should be reported at P1,500,000
III. The deferred tax liability should be reported at P125,000.
IV. The deferred tax asset should be reported at P275,000.
a. All statements are true.
b. Only statements I and II are true.
c. Statements I, III and IV are true
d. Two statements are false.

44. An entity provided the following information relative to its defined benefit plan for the current year:
Projected benefit obligation – January 1 4,500,000
Fair value of plan assets- January 1 4,000,000
Current service cost 1,700,000
Past service cost due to amendment of the plan 300,000
Benefits paid to retirees 1,000,000
Contribution to the plan 1,200,000
Actual return on plan assets 600,000
Actuarial gain due to remeasurement of projected benefit obligation 200,000
Discount rate 10%
I. The projected benefit obligation should be reported at P5,750,000 on December 31.
II. The fair value of plan assets should be reported at P4,800,000 on December 31.
III. The net remeasurement gain should be reported at P200,000 for the current year.
IV. The net interest in computing employee benefit expense comprises interest expense on beginning
PBO, interest income on beginning FVPA and interest expense on the beginning effect of asset
ceiling.
a. All statements are true
b. Statements I, II and IV are true
c. Only statements I and II are true
d. Statement II is false

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45. At the beginning of current year, King Company had 400,000 shares with P15 par value. During the
current year, the entity revealed the following transactions affecting treasury shares:
March 31 Purchased 50,000 treasury shares at P30 per share
June 30 Issued a 4-for-1 share split
July 31 Reissued 20,000 treasury shares at P20 per share
What amount should be reported as remaining cost of treasury shares?
a. 1,100,000
b. 1,350,000
c. 900,000
d. 600,000

46. On January 1, 2023, an entity had 200,000 ordinary shares outstanding.

March 1 120,000 ordinary shares were issued.
May 1 6,000 ordinary shares were reacquired as treasury.
October 1 100,000 cumulative preference shares were issued. Each preference share can be
converted into 3 ordinary shares. The preference dividend per share is P5.
November 1 A 10% bonus issue on the ordinary shares was distributed.
December 31 Net income for the year is P3,500,000.
I. The basic earnings per share should be reported at P9.21.
II. The diluted earnings per share should be reported at P8.58.
a. Statement I and II are true
b. Statements I and II are false
c. Only statement I is true.
d. Only statement II is true
Jan. 1 (200,000 x 1.10 x 12/12) 220,000
March 1 (120,000 x 1.10 x 10/12) 110,000
May 1 ( 6,000 x 1.10 x 8/12) ( 4,400)
Average shares – basic EPS 325,600
Oct. 1 (300,000 x 1.10 x 3/12) 82,500
Average shares – diluted EPS 408,100

47. On January 1, 2023 an entity had 100,000 ordinary shares outstanding.

February 1 21,000 ordinary shares were sold in the market.
April 1 Purchased 5,000 ordinary shares to be held in treasury.
July 1 Issued P1,000,000, 5-year, 10% bonds at face amount. Each P1,000 bond
is convertible into 50 ordinary shares.
July 1 35,000 ordinary shares were sold.
October 1 A 10% bonus issue was declared and distributed.
December 31 Net income for 2023 was P2,926,000. The income tax rate is 25%.
I. The basic earnings per share should be reported at P20.00.
II. The diluted earnings per share should be reported at P17.05.
III. Dilutive convertible bonds are deemed to have been converted into ordinary shares at the start
of the period.
a. All statements are true
b. Only statements I and II are true
c. Only statement I is true.
d. All statements are false.
Jan. 1 (100,000 x 1.10 x 12/12) 110,000
Feb. 1 ( 21,000 x 1.10 x 11/12) 21,175
April 1 ( 5,000 x 1.10 x 9/12) ( 4,125)
July 1 ( 35,000 x 1.10 x 6/12) 19,250
Average shares – basic EPS 146,300
July 1 (50,000 x 1.10 x 6/12 27,500
Average shares – diluted EPS 173,800

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48. An entity provided the following data:

December 31, 2023 December 31, 2024
Accounts receivable 840,000 780,000
Inventory 1,500,000 1,400,000
Accounts payable 950,000 980,000
Total sales were P12,000,000 for 2024 and P11,000,000 for 2023. Cash sales were 20% of total sales
each year. Cost of goods sold was P8,400,000 for 2024. Variable general and administrative expenses
for 2024 were P1,200,000. The variable expenses have varied in proportion to sales. Variable expenses
have been paid 50% in the year incurred and 50% the following year. Fixed expenses, including P350,000
depreciation and P50,000 bad debt expense, totaled P1,000,000 each year. Eighty percent of fixed
expenses involving cash were paid in the year incurred and 20% the following year. Each year there was
a P50,000 bad debt estimate and a P50,000 writeoff.
I. The total collections from customers amounted P12,060,000 during 2024.
II. The purchases amounted to P8,300,000 during 2024.
III. The total disbursements for purchases amounted to P8,270,00 during 2024.
IV. The total disbursements for fixed and variable expenses amounted to P1,750,000.
a. All statements are true.
b. Only three statements are true.
c. Two statements are false
d. All statements are false

49. At the beginning of current year, an SME acquired 20% of the equity of Entity A for P6,000,000 and
incurrent transaction cost of P500,000. Entity A recognized a net loss of P2,000,000 for the current year.
At the end of current year, SME determined the fair value of the investment in Entity A at P4,000,000.
Cost of disposal is estimated at 10% of the fair value.
I. Under the cost model, SME should recognize an impairment loss of P2,900,000 for the current year.
II. Under the equity method, SME should recognize an impairment loss of P2,500,000 for the current
year.
III. Under the fair value model, SME should recognize an impairment loss of P2,000,000 for the current
year.
IV. SME should recognize impairment loss on investments in associate on an individual basis.
a. All statements are true.
b. All statements are false
c. Only statements I, II and IV are true
d. Only statements I and II are true.

E n d

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