Far

NATIONAL FEDERATION OF JUNIOR PHILIPINNE INSTITUTE OF ACCOUNTANTS – NATIONAL CAPITAL REGION FINANCIAL ACCOUNTING REPORTING (FAR) 1. Which choice correctly describes the following statements? Statement I:If an entity cannot distinguish the research phase from the development phase, it should treat an expenditure on a project as if it were incurred in the research phase only and recognize an expense accordingly. Statement II:If it is difficult to distinguish between a change in accounting estimate and a change in accounting policy, then the change is treated as a change in estimate and must be accounted for currently and prospectively. Statement III:In rare circumstances, when a retirement benefit plan has attributes of both defined benefit plan and defined contribution plan, the plan is deemed as a defined contribution plan. a. Only statement I is false b. Only statement II is true c. Only statement III is true d. Only statement III is false 2.

Which is the correct order of the following steps in the accounting cycle? Step 1: Preparation of financial statements Step 2: Making closing entries in the general journal Step 3: Posting transaction entries in the general ledger Step 4: Making reversing entries in the general journal a. 2,3,4,1 b. 3,1,2,4 c. 2,4,3,1 d. 3,1,4,2

3.

Which of the following terms is NOT descriptive of SMEs? a. b. c. d.

Private entities Listed companies Small and medium-sized entities Non-publicly accountable entities

4.

What PAS a. b. c. d.

criterion is excluded in the definition of cash equivalents under 7? Subject to an insignificant change in value Short-term, highly liquid investments Investment in high-quality instruments Readily convertible to known amounts of cash

5.

The following data pertaining to the cash transactions and bank account of Squires Company for May 2017: Cash balance, per accounting records, May 31, 2017 P171,940 Cash balance, per bank statement, May 31, 2017 319,480 Bank service charge for May 1,090 Debit memo for the cost of printed checks delivered by the bank: the charged has not been recorded in the accounting records 1,250 Outstanding checks, May 31, 2017 67,280 Deposit in May 30 not recorded by bank until June 1 48,800 Proceeds of bank loan on May 30, not recorded in the accounting records 57,000 Check number 1008 issued to a supplier entered in the accounting records as P21,000 but deducted in the bank statement at an erroneous amount of 12,000 Stolen check lacking an authorized signature, deducted from Squires account by the bank in error 8,000 Customer’s check returned by the bank marked NSF, indicating that the customer’s balance was not adequate to cover the check, no entry has been made in the accounting records to record the returned check 7,600 What is the correct cash balance of Squire Company for the month ended May 31, 2017?

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14 a. P291,150 b. P300,000 6.

c. d.

P309,000 P310,090

Which of the following is LEAST likely to be included in the cost of inventory? a. Freight In b. Cost to store goods c. Purchase cost of goods d. Excise tax on goods purchased

7. The proprietor of Patrick Company, has apprehensions of possible pilferage in merchandise inventory for December 31, 2017, he requested you to have test checks based on available information and report to him your findings. The following data were furnished to you: Physical inventory, at cost Sales, net Cost of sales Accounts receivable – trade Accounts payable – trade

12/31/16 450,000 4,000,000 2,400,000 200,000 500,000

12/31/17 P402,000

P

350,000 420,000

Additional information: In 2017, accounts receivable of P20,000 was written-off. Total Sales returns were P10,000 and purchase returns, P30,000. Cash receipts from customers (after P30,000 discounts) totaled P6,000,000 while cash payments to trade creditors amounted to P4,000,000. Assuming gross profit rate in 2017 is the same as in 2016, what is the amount of inventory shortage as of December 31, 2017? a. P220,000 c. P248,000 b. P230,000 d. P252,000 8. Omega Finance granted a 10%, 2-year P5,000,000 loan to Duchess Company on January 1, 2017. The interest is payable every December 31 for each year during the term of the contract. Omega Finance incurred an origination cost of P328,326 but charge Duchess Company P150,000 as origination fee. The effective rate is now 8% after considering the origination costs and origination fee. After paying the interest that is due on December 31, 2017, Duchess Company informed Omega Finance about their financial difficulty. Omega Finance has now considered that the loan to Duchess Company is now impaired. Reliable estimate shows that the projected cash flows from the loan are as follows: P2,000,000 on December 31, 2018 and P3,000,000 on December 31, 2019. What amount of impairment loss on the loan should Omega Finance recognize on December 31, 2017? a. None c. P462,963 b. P373,371 d. P668,723 9. Marceline Company has the following biological assets for the year 2017:

information

pertaining

to

its

A herd of 100, 2-year old animals was held at January 1, 2017. Ten animals aged 2.5 years were purchased on July 1, 2017 for P5,400, and ten animals were born on July 1, 2017. No animals were sold or disposed of during the period. Per unit fair values less estimated point-of-sale costs were as follows: 2.0-year old animal at January 1, 2017 Newborn animal at July 1, 2017 2.5-year old animal at July 1, 2017 Newborn animal at December 31, 2017 0.5-year old animal at December 31, 2017 2.0-year old animal at December 31, 2017 2.5-year old animal at December 31, 2017 3.0-year old animal at December 31, 2017

P5,000 3,500 5,400 3,600 4,000 5,250 5,550 6,000

What is the fair value of the biological assets as of December 31, 2017?

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14 a. P554,000 b. P581,500

c. d.

P700,000 P735,000

10. Which of the following shall be treated as part of PPE (Property, Plant & Equipment) according to PAS 38 on intangible assets? a. Operating system b. Application software c. Digitally stored database d. Outsourced online program 11. Margot Corporation has one of its many departments that perform machining operations on parts that are sold to contractors. A group of machines have an aggregate book value at the latest balance sheet date (December 31, 2017) totaling P369,000. It has been determined that this group of machinery constitutes a cash generating unit for purposes of applying PAS 36. Upon analysis, the following facts about future expected cash inflows and outflows become apparent based on the diminishing productivity expected of the machinery as it ages, and the increasing costs that will be incurred to generate output from the machines. Year 2016 2017 2018 2019 Total

Revenues P225,000 240,000 195,000 60,000 P720,000

Costs, excluding Depreciation P 84,000 126,000 165,000 45,000 P420,000

PV of Discount Rate of 5% .952 .907 .864 .823

The fair value less cost to sell of the machinery in this cash-generating unit is determined by reference to use machinery quotation sheets obtained from a prominent dealer. After deducting disposition costs, the net selling price is calculated as P253,500. What is the amount of impairment loss to be recognized by Margot Company on December 31, 2017? a. P93,105 c. P101,255 b. P99,215 d. P115,500 12. For purposes of measuring impairment losses under PAS 36, which of the following items shall be excluded in estimating future cash flows in determining the value in use of an asset? a. Cash inflows or outflows from financing activities or income tax receipts or payments b. Projections of cash inflows from the continuing use of the asset c. Projections of cash outflows that are necessarily incurred to generate the cash inflows from continuing use of the asset d. Net cash flows to be received (or paid) for the disposal of the asset at the end of its useful life 13.

On January 2, 2002, Beige Company has completed the construction of a building for a total cost of P15,000,000. The building is to be depreciated on a straight-line basis over its estimated useful life of 50 years. On January 2, 2017, Beige converted the building into a commercial establishment with only minor renovation costs incurred. In consultation with an appraiser, the building’s sound value as of January 1, 2017 was P14,700,000. In January 1, 2018, due to sudden change in the economic environment, Beige is evaluating possible impairment. Reliable estimate revealed that the building has a remaining useful life of 10 years and will provide a total net cash inflow of P1,500,000 per year. Implicit rate is 10%. What is the amount of impairment loss, if any, on January 1, 2018? a. none c. P 984,000 b. P948,000 d. P1,214,000

14. On January 2, 2016, Modern Company, a medium-sized entity, acquired all the net assets of Ancient Ltd for P3,000,000. The identifiable net assets of Ancient at the time of acquisition is P2,000,000. The net identifiable net assets of Ancient had a remaining life of 10 years.

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14 Ancient Ltd is a cash-generating-unit. On December recoverable amount of Ancient Ltd was P1,360,000.

31,

2016,

the

In year 2017, the business situation improves in the country and government policies change. As a result, management re-estimates the recoverable amount of Ancient Ltd. At the end of year 2017, the recoverable amount of Ancient Ltd is P1,910,000. Beginning of year 2017, Modern Company had decided to change it s depreciation rate to 10% per annum on carrying value of the net identifiable assets. What 2017 a. b.

amount of impairment recovery should Modern Company report in its profit or loss? None c. P440,000 P396,000 d. P686,000

15. Research and development cost for Headway Corporation for the year ended December 31, 2017: Project A. Expected total revenues P7,000,000, starting in early 2019. Expected total costs will be P5,000,000. Costs incurred to date, all in 2017, are P2,200,000. Project B. Expected total revenues P6,000,000. Costs incurred to date are P3,500,000. Expected total costs are P4,500,000. The commencement of commercial sales is uncertain due to problems in raising funds to cover the final development costs. Project C. Expected total revenues, P3,500,000 with P1,000,000 of revenue already earned in 2017. Total development costs incurred, all in 2017, were P3,800,000. Research projects.

Total costs spend in 2017 were P1,500,000.

What total amount should be charged against income in 2017 related to the research and development costs? a. 1,500,000 c. 5,300,000 b. 5,000,000 d. 6,300,000 16. Vital Company is engaged in the retail sale of high-definition televisions (HDTVs). Each HDTV has a 24-month warranty on parts. If a repair under a warranty is required, a charge for the labor is made. Management has found that 20% of the HDTVs sold require some work before the warranty expires. Furthermore, the average cost of replacement parts has been P1,200 per repair. At the beginning of January, the account for the estimated liability for product warranties had a credit balance of P286,000. During January, 112 HDTVs were returned under the warranty. The cost of the parts used in repairing the HDTVs was P175,300 and P188,840 was collected as service revenue for the labor involved. During January 2017, the month before the Super Bowl, Vital Company sold 450 new HDTVS. What is the balance of the warranty liability as of January 31, 2017? a. P175,300 c. P218,700 b. P208,700 d. P286,000 17. Any loss incurred from the sale of treasury shares shall be charged to a. Share premium from original issuance, share premium from treasury shares and then retained earnings. b. Loss on sale of treasury shares to be reported as other expense c. Retained earnings and then share premium from treasury shares d. Share premium from treasury shares and then retained earnings. 18. Salvation Corporation had two (2) issues of securities outstanding – ordinary share and an 8% convertible bond issue with a face amount of P16,000,000. Interest payment dates of the bond issue are June 30 and December 31. The conversion clause in the bond indenture entitles the bondholders to receive forty (40) shares of P20 par value ordinary share in exchange for each P1,000 bond. On June 30, 2017, the holders of P2,400,000 face value bonds exercised the conversion privilege. The equity component of the convertible debt at the time of issue is P950,000. The market price of the bonds on that date was P1,100 and

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14 the market price of the ordinary share was P35. The total unamortized bond discount at the date of conversion was P1,000,000. In applying the book value method, what amount should Salvation credit to the “Share Premium in Excess of Par” account as a result of this conversion? a. P160,000 c. P 472,500 b. P330,000 d. P1,440,000 19. Jason Company has taken out a foreign loan of $100,000 that is recorded at P4,400,000. At the reporting date, the carrying value of the loan is P4,000,000. The unrealized exchange gain of P400,000 is included in profit or loss, but will be taxable when the gain is realized on the repayment of the loan. If the current and future tax rates are 34% and 35% respectively, what amount of deferred tax asset should the company recognize? a. None c. P140,000 b. P136,000 d. P276,000 20.

Dividends in the form of noncash assets are measured at a. b. c. d.

21.

Fair value of the assets distributed Carrying amount of the assets distributed Either the carrying amount or fair value of the assets distributed Neither the carrying amount nor fair value of the assets distributed

On December 31, 2016, the shareholders’ equity section of Marvel Company’s balance sheet appeared as follows: Contributed capital: Common stock, P8 par value, 200,000 shares authorized issued and Outstanding 60,000 shares P 480,000 Additional paid in capital 1,280,000 Total P1,760,000 Retained earnings 824,000 Total P2,584,000 The following are selected transactions involving stockholders’ equity in 2017: On January 4, 2017 the board of directors obtained authorization for 20,000 shares of P40 par value non-cumulative preferred stock (that carried an indicated dividend rate of P4 per share and was callable at P42 per share. On January 14, the company sold 12,000 shares of preferred stock at P40 per share and issued another 2,000 in exchange for an equipment valued at P80,000. On March 8, the board of directors declared a 2 for 1 split on the common stock. On April 20, after the stock split, the company purchased 3,000 shares of common stock for the treasury at an average price of P12 per share, 1,000 of these shares subsequently were sold on May 4 at an average price of P16 per share. On July 15, the board of directors declared a cash dividend of P4 per share on the preferred stock and P.40 on common shares. The date of record was July 25 and the dividends were paid on August 15. The board of directors declared a 15% stock dividend on November 28 when the common stock was selling for P20 per share. The date of record was on December 15 and dividend was to be distributed on January 5, 2018. Net loss for the year, P218,000. What is the balance of the stockholders’ equity of Marvel Company as of December 31, 2017? a. P2,720,800 c. P2,802,800 b. P2,780,800 d. P2,820,800

22. For equity-settled share-based payment transactions, the entity shall measure the goods or services received and the corresponding increase in equity: Statement I: Directly at fair value of the goods or service received Statement II: Indirectly, by reference to the fair value of the equity instruments

granted, if the fair value of the goods or services received cannot be estimated reliably a.

Only statement I is true

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14 b. c. d.

Only statement II is true Both statements I and II are true Neither of the statements is true

23. Derby Company, a public limited company, has granted share options to its employees with a fair value of P12,000,000. The options vest in three years’ time. The company uses the fair value model to estimate the fair value of the options, the number of employees that will vest and the revision of estimates such as the following:  Grant date – January 1, 2016, estimate of employees leaving the company during the vesting period – 5%.  Revision of estimate – January 1, 2017 – estimate of employees leaving the company during the vesting period – 6%.  Actual number of employees leaving the company - December 31, 2018 – 5%.  What would be the amount of expense charged in the income statement for the year ended Dec. 31, 2018? a. P3,760,000 c. P3,880,000 b. P3,800,000 d. P4,000,000 24.

The classification of a share-based payment has an impact on its measurement. What are the classifications for share-based payment transactions under PFRS 2? a. b. c. d.

Vested, not vested Entity-settled and group settled Equity-settled, cash-settled and share option-settled Equity-settled, cash-settled, share based payment transactions with a settlement choice

25. Roberts Company, a public limited company, has granted 20 share appreciation rights to each of its 500 employees on January 1, 2016. The rights are due to vest on December 31, 2019, with payment being made on December 31, 2020. Assume that 80% of the awards vest. Share prices are as follows: January 1, 2016, P15; December 31, 2016, P18; December 31, 2019, P21; December 31, 2020, P19. How should the settlement 31, 2020? a. payment to employees b. payment to employees c. payment to employees d. payment to employees

of the transaction be accounted for on December of of of of

P32,000; P16,000, P48,000, P32,000,

no gain gain of no gain gain of

recorded P33,000 is recorded recorded 16,000 is recorded

26. Cruiser Company reported net income of P3,000,000 for year 2017. During 2017, Cruiser Company sold equipment costing P250,000 with accumulated depreciation of P120,000 for a gain of P50,000. In December 2017, the company purchased equipment costing P500,000 with cash and 12% note payable of P300,000. Depreciation expense for the year was P520,000. Changes occurred in several balance sheet accounts as follows: Equipment Accumulated depreciation Note payable

P250,000 increase 400,000 increase 300,000 increase

In Cruiser’s 2017 statement of cash flows, net cash used in investing activities should be a. P 20,000 c. P220,000 b. P120,000 d. P350,000 27. Island Company owes P2,000,000 plus P180,000 of accrued interest to First State Bank. The debt is a 10-year, 10% note. During 2014, Island's business deteriorated due to a faltering regional economy. On December 31, 2017, First State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of P3,900,000, accumulated depreciation of P2,210,000, and a fair market value of P1,900,000.

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14 How much should Island Company recognize as a finance income in its profit or loss as a result of the financial liability’s derecognition? a. P210,000 c. P310,000 b. P280,000 d. P490,000 28. Silver Company purchased a plot of land with a building at a cost of P10,000,000 in 2015. The land portion accounted for P2,000,000 of the purchase price. The building is depreciated on a straight-line basis over 50 years, charging a full year’s depreciation in the year of acquisition and none in the year of disposal. On January 2, 2017, the land and building was revalued upward. An independent professional valuer placed a valuation of P18,000,000 on the existing use basis, of which P4,000,000 was attributable to the land portion. The surplus was incorporated in the accounts. What is the total amount of revaluation surplus recognize on January 2, 2017? a. P2,000,0000 c. P6,320,000 b. P4,000,000 d. P8,320,000 29. Which of the following is NOT an instrument? a. A forward exchange contract b. A commercial bill contract c. A futures contract d. An option contract

example of

should

the

a derivative

company

financial

30. To encourage entities to expand their operations in a specified development zone, where it is difficult for entities to obtain financing for their projects, the government provides interest-free loans to fund the purchase of manufacturing equipment. On January 1, 2015, in accordance with the development scheme, an entity receives an interestfree loan from the government for P5,000,000 for a period of three years. The market rate of interest for similar loans is 5% per year (ie the market rate of interest for a similar three-year loan to the entity). There are no future performance conditions attached to the interest-free loan. What amount should be included immediately in the profit or loss on January 1. 2015? a. None c. P464,853 b. P238,095 d. P680,815 31. A herd of 5 four year old animals was held on 1 January 2017. On 1 July 2017 a 4½ year old animal was purchased. The fair values less estimated point of sale costs were as follows: 4 year old animal at 1 January 2017 P15,000; 4½ year old animal at 1 July 2017 P15,900; 5 year old animal at 31 December 2017 P17,250. What amount should the company recognize in its December 31, 2017 statement of comprehensive income related to the animals as a result of the change in their fair market value? a. P10,000 c. P15,900 b. P12,600 d. P28,500 32.

If the price of the underlying is greater than the strike or exercise price of the underlying, the call option is a. At the money b. In the money c. On the money d. Out of the money

33.

At the inception of the lease contract, the lease term is determined to be equivalent to 55% of the economic life of the leased property If the lease contract contains a bargain purchase option, the lessee should record the lease as a. Neither asset nor liability b. Asset but not liability c. Asset and liability d. Expense

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14 34.

The Minor Company leased a freehold building for 20 years, the useful life of the building, with effect from 1 January 2017. At that date the fair value of the leasehold interest was P7.5 million of which P6.0 million was attributable to the building. Annual rentals of P800,000 are payable in advance on 1January. How much should Minor recognize as an operating lease expense in the year ended 31 December 2017, according to IAS17 Leases? a. Nil c. P640,000 b. P160,000 d. P800,000

35.

What item appears first on the statement of cash flows prepared using the direct method? a. Net income b. Depreciation c. Retained earnings d. Cash receipts from customers

36.

Extracts from the draft financial statements of Delta for the year ended 31 December 2017, are set out below: Statement of comprehensive income Revenue Cost of sales Opening inventories P30,000 Purchases 218,000 Closing inventories (52,000) Gross profit Other operating expenses (all cash costs except for depreciation of P11,000) Profit from operations Statement of financial position extracts Trade receivables Trade payables

31 Dec 2017 68,000 21,600

What is the cash from operations for Delta for the December 2017 using the direct method? a. P22,500 net outflow c. P40,400 net outflow b. P38,600 net outflow d. P44,800 net outflow

P250,000 (196,000) 54,000 (21,600) 32,400 31 Dec 2016 23,000 42,800 year

ended

31

37. Cross Company holds a portfolio of receivables with carrying amount of P2,000,000. The company enters into a factoring arrangement with Finance Company under which it transfers the portfolio via an assignment to Finance Company in exchange for P1,800,000 of cash. All sums collected from debtors are paid by Cross Company to a specifically nominated bank account opened by Finance Company. Cross Company agrees to reimburse Finance Company in cash for any shortfall between the amount collected from the receivable and consideration received of P1,800,000. Once the receivables have been repaid, any sums collected above P1,800,000 less any interest on the initial payment the date the debtors pay, will be paid to Cross Company. What amount of receivable should Cross Company continue to recognize immediately after the transfer? a. none c. P1,800,000 b. P200,000 d. P2,000,000 38. Seadrill Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides consulting services and support to ensure smooth operation of the software. The total transaction price is P350,000. Based on standalone values, the company estimates the consulting services and support have a value of P100,000 and the software license has a value of P250,000. Assuming the performance obligations are not interdependent, the journal entry to record the transaction includes a. a credit to Sales Revenue for P250,000 and a credit to Unearned Service Revenue of P100,000.

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14 b. a credit to Service Revenue of P100,000. c. a credit to Unearned Service Revenue of P100,000. d. a credit to Sales Revenue of P350,000. 39. On January 2, 2014, Star Company originates a 10-year 7% P4,000,000. The loan carries an annual interest rate of 7% and is repayable at par at the end of year 10 (December 31, 2023). Star Company charges a 1.25% (P50,000) non-refundable loan origination fee to the borrower and also incurs P100,000 in direct origination costs. The contract specifies that the borrower has an option to pre-pay the instrument at approximately equal to instrument’s amortized cost at each exercise date, and that no penalty will be charged for pre-payment. But at the inception of the contract, Star Company expects the borrower not to prepay, the amortization period is equal to the instrument’s full term and for that reason the effective yield rate is determined at 6.823%. What is the amortized cost of the instrument on December 31, 2015? a. P4,050,000 c. P4,042,413 b. P4,046,331 d. P4,038,288 40. The following statements are based on PAS 28 (Investment in Associates): Statement I: An investment in an associate shall be accounted for using the equity method (benchmark) or cost method (alternative). Statement II: An investor shall discontinue the use of equity method from the date when it ceases to have significant influence over an associate and shall account for the investment in accordance with PAS 39. Statement III: On the loss of significant influence, the investor shall measure at

historical cost any investment the investor retains in the former associate.

a. b. c. d.

Only statement I is false Only statement II is true Only statement III is true All of the statements are false

41. On May 1, 2014, Golden Company purchased a short-term P4,000,000 face value 9% debt instruments for P3,720,000 excluding the accrued interest and classified it as a investment to profit or loss which is based on the business model of the entity to buy and sell portfolio of securities and to make profit for shorter movements in the market rate of interest. Golden Company incurred and paid P20,000 transaction cost related to the acquisition of the instrument. The debt instruments mature on January 1, 2017, and pay interest semi-annually on January 1 and July 1. On December 31, the fair market value of the instruments is P3,880,000 On February 2, 2015, Graham Company sold the debt security for P3,960,000. What amount should Golden Company report for short-term debt securities on December 31, 2014? a. P3,600,000 c. P3,880,000 b. P3,720,000 d. P3,960,000 42. On January 2, 2014, Marco Company purchased 200,000 shares (20%) of Polo Company’s ordinary share for P4,500,000. During 2014, Polo reported the following in its statement of comprehensive income a P4,000,000 net income and a P500,000 unrealized gain from its investment in available for sale. Polo Company paid cash dividends of P3,000,000 on December 31, 2014. On January 1, 2015, Marco Company sold 50,000 shares of Polo Company at the current market value of Polo’s shares at P32 per share. What amount of gain should Marco Company recognize from the sale of 50,000 shares? a. P400,000 c. P450,000 b. P425,000 d. P500,000 43. Which of the following items is an example of investment property? a. Property that is leased to another entity under a finance lease b. Property that is being constructed or developed on behalf of third parties

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14 c. d.

Property that is being constructed or developed for future use as investment property Property held for short-term sale in the ordinary course of business

44. On January 2, 2014, Haven Corporation acquired a track of land that is to be sold in the ordinary conduct of business. The purchase price of the property of P50,000,000 was paid in cash and a total transaction costs of P500,000 related to the acquisition of the property was also paid at a later date. The land was subdivided into 2,000 lots (200 square meters for every lot) for an additional cost of P5,500,000. On December 31, 2014, the market value of the lot was P1,500 per square meter. As of December 31, 20151, only 20,000 square meters are still unsold and market value of the lot had increased to P1,600 per square meter. On this date, Haven Corporation decided to transfer the remaining lots into investment property that is to be carried under the fair value model. There was no additional cost incurred on the change of intention on the property. What amount of gain should Haven Corporation recognize as a result of the transfer? a. P29,200,000 c. P29,475,000 b. P29,225,000 d. P29,500,000 45. Man Company purchased 10% of Kind Corporation’s 200,000 outstanding shares of ordinary shares on January 2, 2014 for P2,500,000. On January 2, 2014, Man Company purchased another 40,000 shares of Kind for P6,000,000. There was no goodwill as a result of either acquisition Kind reported earnings of P6,000,000 and P7,000,000 for the year ended December 31, 2014 and December 31, 2015, respectively. No dividends were declared in years 2014 and 2015, respectively by Kind Company. What amount of income from investment should Man Company report in its statement of comprehensive income related to its investment for the year ended December 31, 2015? a. none c. P1,400,000 b. P600,000 d. P2,100,000 46. At Dec. 31, 2014, Proof Company had 450,000 shares of ordinary shares outstanding. On September 1, 2011, an additional 150,000 shares of ordinary shares were issued. In addition, Proof had P10,000,000 of 6% convertible bonds outstanding at December 31, 2014 which are convertible into 300,000 shares of ordinary shares. The carrying value of the bonds as of December 31, 2014 and based on a rate of 8% is P9,205,800. No bonds were converted into ordinary shares in 2011. The net income for the year ended December 31, 2015 was P3,750,000. Assuming the income tax rate was 32%, what should be the diluted earnings per share for the year ended Dec. 31, 2015 of Proof Company? a. P5.20 c. P5.44 b. P5.31 d. P7.50 47. On January 2, 2011, Brand Company received a grant of P60,000,000 to compensate it for costs it incurred in planting trees over a period of five years. Brand Company will incur such cost in this manner: Years Costs

2011 P2,000,000

2012 P4,000,000

2013 P6,000,000

2014 P8,000,000

2015 P10,000,000

Actual costs incurred in planting the trees showed P2,000,000 and P4,000,000 in years 2011 and 2012, respectively. However, in 2013 and up to year 2014, the company has stopped planting trees. Due to the non-fulfillment of its obligation, the government is demanding an immediate repayment of the grant in the amount of P50,000,000 which is considered reasonable.

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14 What amount should be recognized as an expense related to the repayment of grant? a. None c. P44,000,000 b. P2,000,000 d. P50,000,000 48. In 2014, a typhoon completely destroyed a building belonging to Carpet Corporation. The building cost P2,500,000 and had accumulated depreciation of P1,200,000 at the time of the loss. Carpet received a cash settlement from the insurance company and reported a loss of P525,000. In Carpet’s 2014 cash flow statement, how much would be the net changes that would be reported in the cash flows from investing activities section? a. P250,000 increase c. P775,000 increase b. P525,000 increase d. P1,300,000 increase 49. Monk Company is experiencing financial difficulty and is negotiating trouble debt restructuring with its creditors to relieve its financial stress. Monk has a P3,000,000 note payable to Megabank. The bank is considering acceptance of an equity interest in Monk Company in the form of 200,000 ordinary shares valued at P12 per share. The par value of the ordinary share is P10 per share. Monkey Company incurred total transaction costs of P80,000 related to the issue of shares. What is the amount of share premium to be reported by Monk in its statement of financial position as a result of the restructuring assuming the issue of equity is a conversion of debt? a. None c. P 920,000 b. P200,000 d. P1,000,000 50. Dweller Inc. incurred P500,000 of capitalizable costs to develop computer software during 2015. The software will earn total revenues over its 4year life as follows: 2015 - P400,000; 2016 - P500,000; 2017 - P600,000; and 2018 - P500,000. What amount of the computer software costs should be expensed in 2015? a. P100,000 c. P175,000 b. P125,000 d. P500,000 51. Podium Company has incurred P200,000 of research expenditure on a project to develop a new type of fuel and has expensed these costs. On January 2, 2014, Portal Company purchases the research project, including certain patents that have been registered by Podium Company for P300,000 and recognizes the costs as and intangible asset. Subsequently, Portal Company incurred P400,000 of expenditure on completing the research phase and decides to develop the product commercially. It incurs a further cost of P600,000 in bringing the product to a stage where the conditions for recognizing development costs of an internally generated intangible asset are met. Further costs of P2,000,000 are incurred in bringing the product into a condition where it is ready for use in the manner the management intend. Initial marketing costs and losses are incurred of P400,000 before the product was successfully launched. What total amount should Portal Company recognize as an asset related to the above costs? a. P 300,000 c. P2,700,000 b. P2,300,000 d. P3,300,000 52. On January 2, 2015, Chronic Company is committed to a plan to sell a manufacturing facility and has initiated actions to locate a buyer. Chronic Company does not intend to transfer the facility to a buyer until after it ceases all operations of the facility and eliminates the backlog of uncompleted customer orders. The facility was constructed for a total cost of P6,300,000. Its estimated useful life was for a period of 30 years and with an estimated salvage value of P300,000. As of January 2, 2015, the carrying value of the facility is P4,300,000 and a recoverable value of P4,500,000. As of December 31, 2015, Chronic Company has yet to complete the customers’ orders and the facility has a recoverable amount of P4,275,000.

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14 On a. b. c. d.

December 31, 2015, Chronic Company should classify the facility as Property, plant & equipment valued at P4,300,000 Property, plant and equipment at P4,100,000 Non-current asset held for sale and valued at P4,500,000 Non-current asset held for disposal and valued at P4,275,000

53. Nestle Corporation, one of the largest mining company, paid P20,000,000 to the local government for the right explore and extract mineral reserves in an area of interest. The following costs were also incurred related to the exploration and evaluation activities of the entity: Total exploration costs, P7,000,000 and evaluation costs of P3,000,000. Results of the study revealed that the total estimated mineral reserves is 10,000,000 tons. Nestle Company started its commercial production in year 2014. The company produced 1,200,000 tons in 2014. What is the amount of amortization/depletion on the capitalized intangible exploration and evaluation cost for the year 2014? a. P2,000,000 c. P3,240,000 b. P2,760,000 d. P3,600,000 54. Barton, Inc. received the following information from its pension plan trustee concerning the operation of the company's defined-benefit pension plan for the year ended December 31, 2016. January 1, 2016 December 31, 2016 Fair value of pension plan assets P4,200,000 P4,500,000 Defined benefit obligation 4,800,000 5,160,000 Accumulated OCI—Net Gain / Loss -0(90,000) The service cost component of pension expense for 2016 is P360,000 and the past service cost due to an increase in benefits is P60,000. The discount rate is 10%. What is the amount of pension expense for 2016? a. P360,000 c. P480,000 b. P432,000 d. P531,000 55. At the end of the current year, Kennedy Co. has a defined benefit obligation of P335,000 and pension plan assets with a fair value of P245,000. The amount of the vested benefits for the plan is P225,000. Kennedy has an accumulated actuarial gain of P8,300. What account and amount related to its pension plan will be reported on the company’s statement of financial position? a. Pension liability of P74,300 c. Pension asset of P233,300 b. Pension liability of P90,000 d. Pension asset of P110,000 56. When a change in the tax rate is enacted into law, its effect on existing deferred income tax accounts should be a. handled retroactively in accordance with the guidance related to changes in accounting standards. b. considered, but it should only be recorded in the accounts if it reduces a deferred tax liability or increases a deferred tax asset. c. reported as an adjustment to tax expense in the period of change. d. applied to all temporary or permanent differences that arise prior to the date of the enactment of the tax rate change, but not subsequent to the date of the change. 57.Lehman Corporation purchased a machine on January 2, 2013, for P2,000,000. The machine has an estimated 5-year life with no residual value. The straight-line method of depreciation is being used for financial statement purposes and the following accelerated depreciation amounts will be deducted for tax purposes: 2013 2014 2015

P400,000 640,000 384,000

2016 2017 2018

P230,000 230,000 116,000

Assuming an income tax rate of 30% for all years, the net deferred tax liability that should be reflected on Lehman's statement of financial position at December 31, 2014, should be Deferred Tax Liability Current Noncurrent

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14 a. b. c. d. 58.

P0 P4,800 P67,200 P72,000

P72,000 P67,200 P4,800 P0

Statement III: Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. a. b. c. d.

Only Only Only None

statement I is false statement II is false statement III is false of the statements is false

59. Which of the following is the proper way to report a contingent asset when its realization is virtually certain? a. As an asset b. Disclose only c. As unearned revenue d. Research and development 60. Which of the following is not listed under the “faithful representation” characteristic of financial information based on the Conceptual Framework of Financial Reporting? a. Prudence b. Neutrality c. Completeness d. Freedom from error 61.

Determine the true statement regarding IFRS when referred collectively. a. b. c. d.

The The The The

term term term term

“IAS” generally covers “IFRS” “IFRS” generally covers “IAS” “IAS” generally covers “IFRIC” “IFRIC” generally covers “IFRS”

62. The investor’s interest income for a period would be lowest if the bonds is purchased at a. In between interest payment dates b. At the face value of the bonds c. A discount d. A premium 63. Other than financial liabilities measured at fair value through profit or loss, how are financial liabilities subsequently measured under PFRS? a. Fair value if acceptable to the entity. b. Amortized cost using the effective interest rate method. c. Amortized cost using the stated interest rate of the debt. d. The amount of undiscounted cash that would be required to settle the obligation at the end of the reporting period. 64. For small and medium entities, “SIRE” may under certain conditions replace which two (2) financial statements? a. Balance Sheet and Income Statement b. Balance Sheet and Statement of Comprehensive Income c. Income Statement and Statement of Changes in Equity d. Statement of Comprehensive Income and Statement of Changes in Equity 65. Under PAS 7, interest payments can be classified as part of either a. Investing or financing activities b. Operating or investing activities c. Operating or financing activities d. Operating, investing or financing activities 66.

The component of defined benefit cost include all of the following,EXCEPT: a. b.

Service cost Net interest

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14 c. d.

Remeasurements Plan contributions

67. Earnings per share disclosures are required only for a. Public entities b. Private entities c. Entities with complex capital structure d. Entities that change their capital structure during the reporting period 68. The failure to record an accrued expense at year-end will result in overstatement errors of Net income Working capital Cash a. No No Yes b. No Yes No c. Yes No No d. Yes Yes No 69.

An entity received an advanced payment for special order goods that are to be manufactured and delivered within six months. The advanced payment is reported in the statement of financial position as a. b. c. d.

70.

Deferred charges Current liability Contra asset account Noncurrent liability

Which of the following is NOT a description or a function of the Financial Reporting Standards Council (FRSC)? a. b. c. d.

It establishes generally accepted accounting principles in the Philippines. It assists the Professional Regulatory Board of Accountancy (BoA) in carrying out its power and function to promulgate accounting standards in the Philippines. It is the successor of Accounting Standards Council (ASC) and the creator of Philippine Interpretations Committee (PIC). It receives financial support principally from the Professional Regulations Commission (PRC).

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