FAR

EASY

1. The following are represented both to the FRSC and the AASC, except
a. Securities and Exchange Commission
b. Bangko Sentral ng Pilipinas
c. Commission on Audit
d. Bureau of Internal Revenue

2. Which of the following is not a common disclosure for inventories?

a. Inventory composition.
b. Inventory costing methods employed.
c. Inventory financing arrangements.
d. Inventory location.

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3. An entity provides security services to local businesses. The security services take the form of the physical presence

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of guard dogs and their handlers, who are employees of the entity, at the clients’ premises. The dogs should be
classified as

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a. Biological assets

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b. Inventories
c. Investment properties

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d. Property, plant and equipment
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4. If the transaction price differs from fair value, the entity shall
a. Recognize the resulting gain or loss in profit or loss.
b. Recognize the resulting gain or loss in other comprehensive income.
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c. Not recognize the resulting gain or loss.

d. Recognize the asset at the transaction price.
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5. An entity acquired a piece of land with existing building with the intention to demolish the old building right away in
order to construct a new building on its site as part of its planned redevelopment. In accordance with PIC Q&A No.
2012-02, it is appropriate for the entity to account for the carrying value of the old building as part of the cost of the
new building
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a. That will be used as an owner-occupied property

b. That will be held as an investment property
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c. That will be sold as an inventory

d. None of the above.
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6. The financial statements shall disclose, for each class of property, plant and equipment
a. The carrying amount of temporarily idle property, plant and equipment.
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b. The gross carrying amount of any fully depreciated property, plant and equipment that is still in use.
c. The carrying amount of property, plant and equipment retired from active use and not classified as held for sale in
accordance with PFRS 5.
d. Acquisitions through business combinations.
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7. Annual revaluation is required for items of property, plant and equipment

a. When fair value differs materially from its carrying amount.

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

b. That experience significant and volatile changes in fair value.

c. With only insignificant changes in fair value.
d. In all cases.

8. In accordance with PIC Q&A 2019-02, how should a company as an ‘issuer’ report crypto tokens in its financial
statements?
a. As financial liabilities
b. As equity instruments
c. As prepayments for goods and services from a contract with a customer
d. Any of the above

9. In accordance with PFRS 16, the lease term begins

a. At the inception date.
b. At the commencement date.
c. Earlier of a and b.
d. Later of a and b.

10. D’Silva Limited has a product warranty liability amounting to P10,000. The product warranty costs are not tax

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deductible until paid out to customers. The company tax rate is 30%. The company has:

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a. a deductible temporary difference of P10,000
b. an assessable temporary difference of P10,000

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c. a tax base of P10,000
d. a future deductible amount of P0

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

AVERAGE

1. Which of the following is not likely an effect of IFRS 16 on lessee’s financial statements?
a. Increase in assets and liabilities.
b. Increase in finance costs
c. Increase in operating expenses.
d. Increase in financing cash outflows.

2. The following figures relate to inventory held at 31 December 2018:

Cost of materials P100,000
Net realizable value of materials 90,000
Estimated costs to convert materials
into finished goods 50,000
Estimated selling price of finished goods 160,000
Estimated costs to sell 5,000
The entity should recognize loss on write-down of inventory of materials of
a. P15,000 c. P5,000
b. P10,000 d. Nil

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3. Company A had a machine with a carrying amount of P450,000. Company B had a delivery vehicle with a carrying

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amount of P300,000. Companies A and B exchanged the machine and vehicle, and Company B paid an additional
P90,000 cash as part of the exchange. Assume that the fair value of the delivery vehicle is P420,000. The exchange

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has commercial substance.

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How much gain or loss should be recorded by Company A?
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a. P30,000 loss c. P120,000 loss
b. P60,000 gain d. P120,000 gain
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4. Quirino, Inc. and its subsidiaries have provided you, their PFRS specialist, with a list of the properties they own:
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 Land held by Quirino, Inc. for undetermined future use, P5,000,000.

A vacant building owned by Quirino, Inc. and to be leased out under an operating lease, P20,000,000.
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
 Property held by a subsidiary of Quirino, Inc., a real estate firm, in the ordinary course of its business,
P30,000,000.
 Property held by Quirino, Inc. for use in production, P1,000,000.
 A hotel owned by Sugo, Inc., a subsidiary of Quirino, Inc., and for which Sugo, Inc. provides security services for its
guests’ belongings, P50,000,000.
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 A building owned by Quirino, Inc. being leased out to Status, Inc, a subsidiary of Quirino, Inc., P20,000,000.
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How much will be reported as investment properties in Quirino, Inc. and its subsidiaries consolidated financial
statements?
a. P75,000,000 c. P95,000,000
b. P25,000,000 d. P45,000,000
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5. An investor purchased Lemery Travel Corporation. Lemery has one asset whose value exceeds its book value by
P10,000. Lemery's Equity is P80,000. The investor agreed with Lemery that its excess earnings would last for 10
years. Lemery's average income for negotiation purposes is P40,000 and the industry average rate of return is 30%
on market value of net assets. Using the "present value of excess earnings" approach to the calculation of goodwill
and an appropriate discount rate of 10%, what is the purchase price paid for Lemery?
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a. P335,782 c. P169,880
b. P220,000 d. P 79,880

6. Autobots Bottling purchased for P800,000 a trademark for a very successful soft drink it markets under the name OK!.
The trademark was determined to have an indefinite life. A competitor recently introduced a product that is in direct
competition with the OK! product, thus suggesting the need for an impairment test. Data gathered by Autobots

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

suggests that the useful life of the trademark is still indefinite, but the cash flows expected to be generated by the
trademark have been reduced either to P30,000 per year (with a probability of 80%) or to P60,000 per year (with 20%
probability). The appropriate risk-free interest rate is 5%. The appropriate risk-adjusted interest rate is 10%.
The loss on impairment of trademark is
a. P440,000 c. P200,000
b. P320,000 d. P 80,000

7. Skipton Co. bought land in 2010 at a cost of P300,000. In 2013 the land was revalued to P350,000 and in 2018 it was
revalued again to P400,000. At the end of 2019 the land had a value in use of P270,000 and the fair value less costs
of disposal was P285,000.

How much of the impairment loss should be recognized in 2019 profit or loss?
a. P115,000 c. P15,000
b. P 30,000 d. Nil

8. The Verba Company accounts for non-current assets using the revaluation model. On 30 June 2019, Verba classified two
items of non-current assets as held for sale in accordance with PFRS5. The following information relates to these assets:
Asset 1 Asset 2

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Carrying amount before

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classification as held for sale P400,000 P300,000
Revaluation surplus before

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classification as held for sale 60,000 30,000

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Fair value, 30 June 2019 450,000 260,000
Estimated costs to sell 20,000 12,000

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The total expense to be recognized in profit or loss related to these assets is
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a. P42,000 c. P22,000
b. P32,000 d. Nil
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9. Lively Inc. received a consolidated grant of P120 million. Three-fourths of the grant is to be utilized to purchase a
college building for students from underdeveloped or developing countries. The balance of the grant is for subsidizing
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the tuition costs of those students for four years from the date of grant.
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The college building, which costs P100 million, will be depreciated using the straight-line method over 10 years.
Assuming that the tuition subsidy will be offered evenly over the period of 4 years, the amount that should be
recognized as income at the end of year 1 is
a. P12.0 million c. P16.5 million
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b. P10.0 million d. P17.5 million

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10. An entity issued a financial liability designated at FVTPL for P1 million. At the end of the reporting period, the fair
value of the financial liability decreased by P100,000. Which statement is correct?
a. The entity should recognize loss of P100,000.
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b. The entity should recognize gain of P100,000 in OCI regardless of the nature of the change in fair value.
c. The entity should recognize gain of P100,000 in profit or loss regardless of the nature of the change in fair value.
d. The entity should recognize gain of P100,000 in OCI for the amount of change in the fair value that is attributable
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to changes in the credit risk of the liability.

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

DIFFICULT

1. On 1 February 20X2, Entity A enters into a contract with Entity B to receive the fair value of 1,000 of Entity A’s
own outstanding ordinary shares as of 31 January 20X3 in exchange for a payment of P104,000 in cash (ie P104 per
share) on 31 January 20X3. The contract will be settled net in cash, net in shares or by an exchange of cash and
shares. The contract should be classified as
a. A financial asset c. An equity instrument
b. A financial liability d. Either a or b

2. The following errors were made in preparing a trial balance: the P1,350 balance of Inventory was omitted; the
P450 balance of Prepaid Insurance was listed as a credit; and the P300 balance of Salaries Expense was listed as
Utilities Expense. The debit and credit totals of the trial balance would differ by
a. P1,350 c. P1,800
b. P2,100 d. P2,250

3. At the beginning of year 1, the entity grants 10,000 shares with a fair value of P27 per share to a senior executive,
conditional upon the completion of three years’ service. By the end of year 2, the share price has dropped to P21 per
share. At that date, the entity adds a cash alternative to the grant, whereby the executive can choose whether to

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receive 10,000 shares or cash equal to the value of 10,000 shares on vesting date. The share price is P18 on vesting

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date.

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The net expense to be recognized in year 3 is

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a. P90,000 c. P70,000
b. P60,000 d. P40,000

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4. A lump sum benefit is payable on termination of service and equal to 1 per cent of final salary for each year of
service. The salary in year 1 is P10,000 and is assumed to increase at 7 per cent (compound) each year. The discount
rate used is 10 per cent per year. The entity does not fund its obligation to pay lump-sum benefits. The employee is
expected to leave at the end of year 5.
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The defined benefit liability (deficit) at the end of the second year is
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a. P275 c. P196
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b. P262 d. P187

5. Jessie Co. sponsors a defined benefit pension plan. For the current year ended December 31, the following
information relevant to the plan has been accumulated:
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Defined benefit obligation, 1/1 P10,000,000

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Fair value of plan assets, 1/1 9,000,000

Current service cost 3,000,000
Gain on settlement 500,000
Actual return on plan assets 630,000
Increase in defined benefit obligation due to changes in actuarial assumptions 800,000
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Market yield on high quality corporate bonds 6%

Yield on bonds issued by the entity 8%
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Expected return on plan assets 9%

What amount should Jessie contribute in order to report an accrued pension liability of P500,000 in its December 31
statement of financial position?
a. P2,060,000 c. P3,060,000
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b. P2,770,000 d. P3,770,000

6. On 1 January 2014, Entity A issued a 10 per cent convertible debenture with a face value of P10,000,000 maturing
on 31 December 2023. The debenture is convertible into ordinary shares of Entity A at a conversion price of P25 per
share. Interest is payable half-yearly in cash. At the date of issue, Entity A could have issued nonconvertible debt
with a ten-year term bearing a coupon interest rate of 11 per cent.

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

On 1 January 2019, the convertible debenture has a fair value of P11,200,000. Entity A makes a tender offer to the
holder of the debenture to repurchase the debenture for P11,200,000, which the holder accepts. At the date of
repurchase, Entity A could have issued non-convertible debt with a five-year term bearing a coupon interest rate of 8
per cent.

Compute the amount to be recognized in profit or loss as a result of the repurchase of the debenture.
a. P1,577,200 c. P1,188,650
b. P1,200,000 d. Nil

7. Open Sesame Company undertakes an IPO for the listing and issuance of 700,000 new shares and 300,000
existing shares. In relation to this, the company incurred the following costs:
Documentary stamp tax P 25,000
Fairness opinion and valuation report 125,000
Tax opinion 75,000
Newspaper publication 200,000
Listing fee 300,000
Other joint costs 275,000
P1,0000,000

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How much should be recognized immediately in profit or loss in accordance with PIC Q&A 2011-4?

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a. P300,000 c. P525,000
b. P442,500 d. P557,500

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8. The Waloneke Company has a policy of using non-current assets until they can no longer be operated and are

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worthless. On 1 January 2019 it acquired an item of plant and machinery for P100,000. It is being depreciated over 10
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years on a straight-line basis. For tax purposes there is an allowance of 20% per annum on a reducing balance basis.
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There are two rates of tax: 15% on trading profits and 25% on gains on disposals.
What deferred tax balance should Waloneke recognize at 31 December 2019, according to PAS12 Income taxes?
a. Deferred tax asset of P2,500
b. Deferred tax asset of P1,500
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c. Deferred tax liability of P2,500

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d. Deferred tax liability of P1,500

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9. Due to adverse economic circumstances and poor management, Depressed Company has negotiated a
restructuring of its P5,000,000 note payable to Benevolent Bank. Benevolent Bank has agreed to reduce the face
value of the note to P4,000,000 and extend the due date three years from the date of restructuring. However the
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interest rate was increased from 15% to 21%. The restructuring will occur on December 31, 2019. There is no
unpaid interest on the restructured loan at this time. The tax rate is 35%.
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Which statement is correct in accordance with PFRS 9?

a. This shall be accounted for as an extinguishment of the original financial liability and the recognition of a new
financial liability.
b. A gain or loss should not be recognized.
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c. The difference between the original and modified cash flows should be amortized over the remaining term of the
modified liability by re-calculating the effective interest rate.
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d. A gain or loss should be recognized in profit or loss calculated as the difference between the original contractual
cash flows and the modified cash flows discounted at the original effective interest rate.
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10. Santo, Inc. acquired 30% of Nino Corp.'s voting stock on January 1, 2018 for P360,000. During 2018, Nino earned
P150,000 and paid dividends of P90,000. Santo's 30% interest in Nino gives Santo the ability to exercise significant
influence over Nino's operating and financial policies.
Assume that 50% of the investment was classified as held for sale in accordance with PFRS 5 on December 31, 2018
and that the fair value of the investment was P390,000 on that date while costs to sell are immaterial. On December

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

31, 2018, the portion of the investment held for sale and the retained portion of the investment should be measured
at
Held for sale Retained
a. P180,000 P180,000
b. P189,000 P189,000
c. P189,000 P195,000
d. P195,000 P195,000

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PROFESSIONAL REVIEW and TRAINING CENTER, INC.

TIE BREAKER

1. Which statement is incorrect?

a. The Board of Accountancy is composed of a chairman and six (6) members appointed by the President of the
Philippines.
b. The Chairman and members of the FRSC are appointed by the PRC upon the recommendation of the BOA in
coordination with the accredited professional organization (APO) of CPAs.
c. The principal objective of the Philippine Interpretations Committee is to issue implementation guidance on PFRSs.
d. The PICPA is the accounting standard setting body in the Philippines.

2. Which statement is correct regarding the accounting process?

a. An adjusted trial balance that shows equal debit and credit columnar totals proves the accuracy of the adjusting
entries.
b. The trial balance is a listing of all the accounts and their balances in the order the accounts appear on the
statement of financial position.
c. Reversing entries are made at the end of the accounting cycle to correct errors in the original recording of
transactions.
d. Each adjusting entry affects one statement of financial position account and one income statement account.

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3. Mirr, Inc. was incorporated on January 1, 2018, with proceeds from the issuance of P750,000 in stock and borrowed

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funds of P 110,000. During the first year of operations, revenues from sales and consulting amounted to P82,000, and

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operating costs and expenses totaled P64,000. On December 15, Mirr declared a P3,000 cash dividend, payable to

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stockholders on January 15, 2019. No additional activities affected owners' equity in 2018. Mirr's liabilities increased
to P120,000 by December 31, 2018. On Mirr's December 31, 2018 balance sheet, total assets should be reported at

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a. P885,000 c. P878,000
b. P882,000
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d. P875,000
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4. A company has prepared its bank reconciliation at 31 March 2018 taking the following information into account:
Deposits in transit P1,500
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Outstanding checks 2,800

Bank charges shown in the bank
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statement but not recorded in

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the cash book 125

The adjusted cash book balance per the bank reconciliation was a debit balance of P2,060
What was the balance as shown on the bank statement at 31 March 2018?
a. P760 c. P3,360
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b. P885 d. P3,485
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5. On January 1, 2018, Karl Corporation acquired 25% of the shares of Pot, Inc. for P425,000. At this date all the
identifiable assets and liabilities of Pot, Inc. were recorded at amounts equal to fair value, and the equity of Pot
consisted of the following:
Share capital P1,000,000
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General reserve 300,000

Asset revaluation surplus 200,000
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Retained earnings 200,000

In 2018, Pot reported profit of P250,000. P50,000 of the asset revaluation surplus was realized in 2018. Pot paid a
P40,000 dividend and transferred P30,000 to general reserve. What is the carrying amount of the investment in Pot,
Inc. as of December 31, 2018?
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a. P477,500 c. P465,000
b. P490,000 d. P482,500

6. Chain, Inc. purchased a P1 million life insurance policy on its president, of which Chain is the beneficiary. Information
regarding the policy for the year ended December 31, 2018 follows:
Cash surrender value, 1/1/18 P87,000
Cash surrender value, 12/31/18 108,000

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 PROFESSIONAL REVIEW and TRAINING CENTER, INC.

Annual advance premium paid 1/1/18 40,000

During 2018, dividends of P6,000 were applied to increase the cash surrender value of the policy. What amount
should Chain report as life insurance expense for 2018?
a. P40,000 c. P19,000
b. P21,000 d. P13,000

7. Entity A exchanged a car for a computer from X Corp. to be used as a noncurrent operating asset. The following
information relates to this exchange that took place on July 31, 2018:
Carrying amount of the car P30,000
Listed selling price of the car 45,000
Fair value of the computer 43,000
Cash difference paid by A Corp. 5,000
On July 31, 2018, how much profit should Entity A recognize on this exchange?
a. P13,000 c. P8,000
b. P10,000 d. P 0

8. On January 1, 2015, Neal Corporation acquired equipment at a cost of P540,000. Neal adopted the sum-of-the-years’-
digits method of depreciation for this equipment and had been recording depreciation over an estimated life of eight

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years, with no residual value. At the beginning of 2018, a decision was made to change to the straight-line method of
depreciation for this equipment. The depreciation expense for 2018 would be

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a. P28,125 c. P67,500

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b. P45,000 d. P108,000

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9.
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Roller Ltd (Roller) is testing an asset for impairment. The carrying amount of the asset is P85,000. The following data
has been obtained by Roller in relation to the asset.
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 Future cash flows expected to be derived from the asset, P100,000.
 Estimated fair value of the asset, P80,000.
 Present value of future cash flows expected to be derived from the asset, P60,000.
Costs of disposal for the asset, P2,000.
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
How much should be recognized as impairment loss?
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a. P25,000 c. P5,000
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b. P 7,000 d. Nil

10. Connie Corp. has an outstanding 10% note payable dated October 1, 2016 and is payable in three equal annual
payments of P600,000 plus interest. The first interest and principal payment was made on October 1, 2017. In
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Connie's June 30, 2018 statement of financial position, what amount should be reported as accrued interest payable
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for this note?

a. P135,000 c. P90,000
b. P 45,000 d. P30,000
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- end -
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