CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING APRIL 2021

FINAL PREBOARD EXAMINATION

SITUATION 1 – Data related to three different entities.

Adora Company had the following information for 2021:

Projected benefit obligation – January 1 Discount rate 12% 5,700,000
Fair value of plan assets – January 1 5,000,000
Current service cost 1,700,000
Past service cost 400,000
Contribution to the plan 1,200,000
Net remeasurement gain on plan assets 300,000
Benefits paid 1,500,000
Catra Company started constructing a new building on February 1, 2021. The total cost of the
construction P25,000,000 was paid on February 1, 2021. The cost was funded from general borrowings
and construction was completed on September 30, 2021. Borrowings outstanding throughout 2021 were
Bank A P5,000,000 at 8%, Bank B P10,000,000 at 5% and Bank C P15,000,000 at 6%
Bow Company provided the following data:
December 31, 2020 December 31, 2021
Inventory 1,200,000 1,600,000
Cost of goods sold 5,500,000
Accounts receivable 1,200,000 1,350,000
Accounts payable 1,500,000 1,850,000
During 2021, Cash receipts from customers were P8,000,000 after sales discounts of P500,000. Accounts
written off were P100,000 and sales returns with credit memo were P250,000. Cash refund to customers
for returned goods P50,000 was debited to accounts receivable. Cash payment to creditors amounted to
P5,000,000 after purchase discounts of P200,000 while purchase returns amounted to P400,000.

1. What is the fair value of plan assets of Adora on December 31, 2021?
a. 5,600,000
b. 5,000,000
c. 4,700,000
d. 5,300,000

2. What should be recognized by Catra for 2021 respectively as capitalized interest and interest
expense?
a. 1,500,000 and 300,000
b. 1,000,000 and 800,000
c. 1,200,000 and 600,000
d. 1,250,000 and 550,000

3. What amount was reported as gross sales by Bow in 2021 under accrual basis?
a. 8,950,000
b. 8,250,000
c. 8,900,000
d. 8,850,000

4. What amount was reported as gross purchases by Bow for 2021 under accrual basis?
a. 5,950,000
b. 5,750,000
c. 5,650,000
d. 5,250,000

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SITUATION 2 – Data about three different entities.

Aloha had the following account balances on December 31, 2021.

Petty cash fund 50,000
Cash in bank – current account 4,000,000
Cash in bank – set a side for bond payable due December 31, 2022 2,000,000
Cash on hand 500,000
Treasury bills 1,000,000
The petty cash find included unreplenished December 2021 petty cash expense vouchers P5,000 and
employee IOU P5,000. The cash on hand included a P100,000 customer check dated January 15, 2022.
In exchange for a guaranteed line of credit, Aloha Company has agreed to maintain a minimum balance
of P200,000 in the unrestricted current bank account.
Allura Company adopted the imprest system and established a petty cash fund balance of P50,000. At
the end of the current year, it was discovered that receipts evidencing expenses amounted to P35,000,
employee IOU P5,000 and currency P12,000. The fund was replenished at year-end.
Faye Company had the following bank reconciliation on June 30:
Balance per bank statement – June 30 3,000,000
Deposit in transit 400,000
Debit memo for service charge 50,000
Total 3,450,000
Outstanding checks ( 900,000)
Credit memo for note collected ( 750,000)
Balance per book – June 30 1,800,000
The records of the bank and Faye Company for the month of July showed the following:
Bank credits, including credit memo for note collected P500,000 9,000,000
Bank debits, including P150,000 debit memo for NSF check 7,000,000
Cash receipts per ledger 9,200,000
Cash disbursements per ledger 6,550,000

5. What total amount should be reported as cash and cash equivalents by Aloha on December 31,
2021?
a. 6,440,000
b. 7,440,000
c. 7,540,000
d. 5,440,000

6. Which is included in Allura’s entry to record the replenishment of the petty cash fund?
a. Debit cash short or over P2,000
b. Credit cash short or over P5,000
c. Credit petty cash fund P38,000
d. Credit cash in bank P38,000

7. What amount was reported by Faye as deposit in transit on July 31?

a. 350,000
b. 600,000
c. 200,000
d. 500,000

8. What amount was reported by Faye as outstanding checks on July 31?

a. 550,000
b. 450,000
c. 250,000
d. 900,000

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SITUATION 3 – Information about four entities.

On March 25,2020, Koran Company sold merchandise with a list price of P2,000,000. Koran gave the
customer a 20% and 10% trade discount. Credit terms of 5/10, n/30 were given to the customer. The
goods were shipped FOB destination, Freight collect. Freight of P100,000 was paid by the customer and
goods were returned to Koran at the invoice mount of P200,000 on March 27, 2020. Koran assesses that
most likely its customers take advantage of the discount period based on past experience and therefore
recognizes allowance for sale discount.

Mae Company reported the following information at year-end:

Trade accounts receivable 930,000

Allowance for uncollectible accounts ( 20,000)
Claim against shipper for goods lost in transit in November 30,000
Selling price of unsold goods sent out by Mae on consignment at 130% of cost and
not 260,000
included in Mae’s ending inventory
Security deposit on lease of warehouse used for storing some inventories 300,000

On January 1, 2021, Ott Company sold goods to Fox Company. Fox signed a noninterest-bearing note
requiring payment of P600,000 annually for seven years. The first payment was made on January 1,
2021. The prevailing rate of interest for this type of note at date of issuance was 10%.

PV of an ordinary annuity of 1 at 10% for 6 periods 4.36

PV of an ordinary annuity of 1 at 10% for 7 periods 4.87

On December 1, 2021, Nicole Company gave Dawn Company a P2,000,000, 12% loan. Nicole Company
paid proceeds of P1,940,000 after the deduction of a P60,000 nonrefundable loan origination fee.
Principal and interest are due in sixty monthly installments of P44,500, beginning January 1, 2022. The
repayments yield an effective interest rate of 12% at a present value of P2,000,000 and 13.4% at a present
value of P1,940,000.

9. What is the net realizable value of Koran’s accounts receivable on March 31, 2021?
a. 1,078,000
b. 1,140,000
c. 1,068,000
d. 1,240,000

10. What total amount should be reported by Mae as trade and other receivables under current assets
at year-end?
a. 940,000
b. 1,200,000
c. 1,240,000
d. 1,500,000

11. What amount should be recorded by Ott as sales revenue in January 2021?
a. 3,216,000
b. 2,922,000
c. 2,616,000
d. 2,142,000

12. What amount should Nicole report as accrued interest receivable on December 31, 2021?
a. 19,400
b. 22,333
c. 20,000
d. 21,663

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SITUATION 4 – Data about four independent entities.

Joy Company conducted a physical count on December 31, 2021 which revealed inventory with a cost
of P4,410,000. The following items were excluded from the physical count:

Merchandise held by Joy on consignment 610,000

Merchandise shipped by Joy FOB destination to a customer on December 31, 2021
and was received by the customer on January 5, 2022 380,000
Merchandise shipped by Joy FOB shipping point to a customer on December 31,
2021 and was received by the customer on January 5, 2022 460,000
Merchandise shipped by a vendor FOB destination on December 31, 2021 was
received by Joy on January 5, 2022 830,000
Merchandise purchased FOB shipping point was shipped by the supplier on
December 31, 2021 and received by Joy on January 5, 2022 510,000

Steven Company provided the following information during the first year of operations:

Total merchandise purchases for the year 7,000,000

Merchandise inventory on December 31 1,400,000
Collections from customers 4,000,000

Steven marked all merchandise to sell at 40% above cost. All sales are on a credit basis and all accounts
receivable are collectible.

Wine Company recorded purchases at net amount. On December 10, the entity purchased merchandise
on account, P4,000,000, terms 2/10, n/30. The entity returned P300,000 of the December 10 purchase
and received credit on account. The account had not been paid on December 31.

Chicago Company reported for an inventory historical cost P2,000,000, current replacement cost
P1,400,000, net realizable value P1,800,000, net realizable value less normal profit margin P1,700,000
and fair value P1,900,000.

13. What amount should be reported by Joy inventory on December 31, 2021?
a. 5,300,000
b. 4,690,000
c. 3,800,000
d. 4,920,000

14. What amount should Steven report as accounts receivable on December 31?
a. 1,000,000
b. 3,840,000
c. 5,000,000
d. 5,800,000

15. What adjusting entry should Wine prepare on December 31?

a. No adjusting entry
b. Debit accounts payable and credit purchase discount P74,000
c. Debit purchase discount lost and credit accounts payable P74,000
d. Debit purchase discount lost and credit accounts payable P80,000

16. What amount should Chicago report the inventory under LCNRV?
a. 2,000,000
b. 1,400,000
c. 1,800,000
d. 1,900,000

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SITUATION 5 – Information about four different entities.

Carmela Company acquired nontrading equity instrument for P4,000,000 on March 31, 2021. The
equity instrument is classified as financial asset at fair value through other comprehensive income..
The transaction cost incurred amounted to P700,000. On December 31, 2021, the fair value of the
instrument was P5,500,000 and the transaction cost that would be incurred on the sale of the investment
is estimated at P600,000.

At the beginning of current year, Well Company purchased 10% of Rea Company’s outstanding ordinary
shares for P4,000,000. Well Company is the largest single shareholder in Rea and Well’s officers are a
majority of Rea’s board of directors. The investee reported net income of P5,000,000 for the current year
and paid cash dividend of P1,500,000.

On January 1, 2021, Rome Company acquired 30% of the ordinary shares of another entity for
P2,000,000 which was equal to the carrying amount of interest acquired. The investee reported net
income of P1,500,000 for 2021 and paid dividend of P500,000 on December 31, 2021. The investee
reported net income of P1,000,000 for the six months ended June 30, 2022 and P2,500,000 for the year
ended December 31, 2022 but paid dividend of P1,000,000 on October 1, 2022. On July 1, 2022, Rome
Company sold half of the investment for P2,000,000. The fair value of the retained investment is
P2,200,000 on July 1, 2022 and P2,400,000 on December 31, 2022. The retained investment is to be
measured at FVPL.

Hazel Company entered into a call option contract with a bank at the beginning of current year. This
contract gave the entity the option to purchase 10,000 shares at P100 per share. The option expires on
April 30. The shares are trading at P100 per share at the beginning of current year, at which time the
entity paid P10,000 for the call option. The market price per share is P120 on April 30 and the time value
of the option has not changed.

17. What amount of gain should Carmela recognize in other comprehensive income for 2021?
a. 200,000
b. 900,000
c. 800,000
d. 0

18. What amount should Well Company report as investment in Rea Company at year-end?
a. 4,500,000
b. 4,350,000
c. 4,000,000
d. 3,850,000

19. What amount of gain on sale of investment should Rome report for 2022?
a. 850,000
b. 700,000
c. 775,000
d. 500,000

20. What total amount should Rome report as unrealized gain on the retained investment in 2022?
a. 1,100,000
b. 1,200,000
c. 900,000
d. 200,000

21. In order to settle the option contract, what would Hazel Company most likely do?
a. Pay the bank P200,000
b. Purchase the shares at P100 per share and sell the shares at P120
c. Receive P200,000 from the bank
d. Receive P190,000 from the bank

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SITUATION 6 - Data about three different entities

On November 1, 2021, Cassandra Company sold some limited edition art prints to Noritake Company
for ¥47,850,000 to be paid on January 31, 2022. The current exchange rate on November 1, 2021 was
¥110 = $1, so the total payment at the current exchange rate would be equal to $435,000. Cassandra
Company entered into a forward contract with a large bank to guarantee the number of dollars to be
received. According to the terms of the contract, if ¥47,850,000 is worth less than $435,000, the bank
will pay Cassandra Company the difference in cash. Likewise, if ¥47,850,000 is worth more than
$435,000, Cassandra Company must pay the bank the difference in cash. The exchange rate on December
31, 2021 is ¥120 = $1.

Grab Company purchased a ten-ton draw press at a cost of P3,600,000 with terms 5/15, n/45. Payment
was made within the discount period. Shipping cost was P90,000 which included P4,000 for insurance
in transit. Installation cost totaled P240,000 which included P80,000 for taking out a section of a wall
and rebuilding it because the press was too large for the doorway.

Joshua Company entered into a contract to acquire a new machine which had a cash price of P2,000,000.
Prior to use, installation cost of P50,000 was incurred. The machine has an estimated residual value of
P100,000.

Down payment 400,000

Note payable in 3 equal annual installments 1,200,000
20,000 ordinary shares with a par value of P25 and fair value of P40 per share 800,000

Claudia Company acquired a tract of land for P2,000,000 cash as a building site. A plant facility
consisting of land and building was also acquired in exchange for 200,000 shares of the entity. On the
acquisition date, each share had a quoted price of P45 on a stock exchange. The plant facility was carried
on the seller’s books at P1,600,000 for land and P5,400,000 for the building at the exchange date. Current
appraised values for the land and the building, respectively, are P2,000,000 and P8,000,000. The building
has an expected life of 20 years with a P200,000 residual value.

22. What amount in U.S. dollars should Cassandra report as derivative asset or liability on December
31, 2021?
a. 398,750 asset
b. 398,750 liability
c. 36,250 asset
d. 36,250 liability

23. What amount should Grab capitalize as cost of the ten-ton draw press?
a. 3,420,000
b. 3,670,000
c. 3,750,000
d. 3,715,200

24. What amount should Joshua record as cost of the machine?

a. 2,000,000
b. 2,400,000
c. 2,050,000
d. 2,450,000

25. What amount should Claudia report respectively as cost of land and building under property, plant
and equipment?
a. 3,800,000 and 7,200,000
b. 1,800,000 and 7,200,000
c. 3,800,000 and 7,000,000
d. 4,000,000 and 8,000,000

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SITUATION 7 - Data about four different entities.

Bubba Company determined that there had been a significant decrease in market value of an equipment
used in the manufacturing process. At year-end, the entity compiled the following information:
Original cost of equipment 8,000,000
Accumulated depreciation 5,000,000
Expected discounted net future cash inflows related to the continued use and
eventual disposal of the equipment 1,800,000
Fair value of equipment 1,600,000
Jacque Company had an equipment with carrying amount of P4,500,000 at year-end:
Expected discounted net cash flows 4,000,000
Fair value of similar asset 4,150,000
Fair value of the asset when sold stand-alone 4,280,000
Lobo Company reported an impairment loss of P2,000,000 in 2020, This loss was related to an item of
property, plant and equipment which was acquired on January 1, 2019 with cost of P10,000,000, useful
life of 10 years and no residual value. The straight line method is used in recording depreciation. On
December 31, 2020, the entity reported this asset at P6,000,000 which is the fair value on such date. On
December 31, 2021, the entity determined that the fair value of the impaired asset had increased to
P7,500,000.
Tower Company reported the following calculation relating to an impairment loss of P5,000,000 suffered
on December 31, 2021:
Goodwill Other assets
Carrying amount 3,000,000 9,000,000
Impairment loss (3,000,000) (2,000,000)
There has been a favorable change in the estimate of the recoverable amount of the assets. The
recoverable amount is now P8,000,000 on December 31, 2022. The carrying amount of the assets would
have been P7,200,000 on December 31, 2022 if there was no impairment loss recognized on December
31, 2021. Other assets are depreciated at 20% of reducing balance.

26. What amount of impairment loss should be reported by Bubba for the year?
a. 1,200,000
b. 1,400,000
c. 1,300,000
d. 0

27. What amount should Jacque report as impairment loss for the current year?
a. 500,000
b. 350,000
c. 220,000
d. 0

28. What amount of gain on reversal of impairment should be reported by Lobo for 2021?
a. 2,250,000
b. 1,750,000
c. 1,500,000
d. 0

29. What amount of gain on reversal of impairment should be recognized by Tower in 2022?
a. 1,000,000
b. 2,400,000
c. 1,600,000
d. 0

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SITUATION 8 – Information about four different entities.
Shade Company developed a new machine which it had patented. The following costs were incurred in
developing and patenting the machine.
Purchase of special equipment to be used solely for development of new machine 1,800,000
Research salaries and fringe benefits for engineers and scientist 200,000
Cost of testing prototype 250,000
Legal cost of filing patent 300,000
Fees paid to government patent office 500,000
Drawings required by patent office to be filed with patent application 400,000
Legal fees incurred in a successful defense of patent 200,000
Koral Company incurred the following costs during the current year:
Modification to the formulation of a chemical product 135,000
Trouble shooting in connection with breakdowns during commercial production 150,000
Design of tools, jigs, molds and dies involving new technology 170,000
Seasonal or other periodic design changes to existing products 185,000
Laboratory research aimed at discovery of new technology 215,000
On January 1, 2021 Rolex Company reported 9% bonds payable of P8,000,000 less unamortized
discount of P640,000. Further examination revealed that these bond were issued at a 10% yield. The
discount amortization was recorded using the effective interest method. Interest is paid semiannually on
June 30 and December 31. On July 1, 2021. The entity retired bonds with face amount of P2,000,000 at
103 before maturity.
On November 1, 2021, Mason Company issued P8,000,000 of 10-year, 8% term bonds dated October 1,
2020. The bonds were sold to yield 10% with total proceeds of P7,000,000 plus accrued interest. Interest
is paid every April 1 and October 1.

30. What amount should Shade Company capitalize of as cost of patent?

a. 1,200,000
b. 1,400,000
c. 1,450,000
d. 3,450,000

31. What total amount should Koral report as research and development expense for the current year?
a. 520,000
b. 470,000
c. 385,000
d. 335,000

32. What amount should Rolex recognize as loss on retirement of bonds payable in 2021?
a. 218,000
b. 220,000
c. 216,000
d. 240,000

33. What should Rolex report as carrying amount of the remaining bonds on December 31, 2022?
a. 5,526,000
b. 5,532,300
c. 6,000,000
d. 5,520,000

34. What amount should Mason report as accrued interest payable on December 31, 2021?
a. 175,000
b. 160,000
c. 116,667
d. 106,667

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SITUATION 9 – Data about three different entities.

On December 31, 2021, Glimmer Company had outstanding P3,000,000 8% convertible bonds that
mature on December 31, 2023. Interest is payable annually every December 31 and each P1,000 bond is
convertible into 30 ordinary shares with a P20 par value per share. The unamortized discount was
P200,000 and the equity component when the bonds were sold was P700,000. On the same date, 1,200
bonds were converted when the fair value of Glimmer’s share was P40

Magnum Company granted share options to its employees under a performance-based share option plan
on January 1, 2020. The number of share options to be granted is based on the net sales. The plan
provided for share options to be awarded to the employees on the following basis:

Net sales Options granted

Less than P5,000,000 30,000
P5,000,000 to P8,000,000 50,000
Above P8,000,000 80,000

Options become exercisable on December 31,2022. The option price is P100 while the par value is P50.
The market prices for 2020, 2021, and 2022 were P180, P220 and P240 respectively. The net sales for
2020,2021 and 2022 were P3,500,000, P8,500,000 and P7,500,000 respectively. The fair value of the
share options cannot be determined reliably. The options were exercised on December 31. 2022.

Isabel Company is a manufacturer and sells its product to local retailers. The sale price of the product to
the retailers is P80. Retailers sell the products to its customers and for each product purchased by the
customer, a coupon of P20 discount is given and may be used on future purchase of the product. Retailers
are reimbursed for the discount by Isabel Company when customers redeem their coupons. During the
current year, Isabel Company sold 15,000 products to the local retailers. It is expected that 80% of the
coupons issued will be redeemed. At year-end, Isabel Company paid the retailers P50,000 as
reimbursement.

35. What amount of share premium should Glimmer recognize as a result of the conversion?
a. 400,000
b. 680,000
c. 700,000
d. 760,000

36. What amount of compensation expense should Magnum recognize for 2022?
a. 7,000,000
b. 6,400,000
c. 800,000
d. 600,000

37. What amount should Isabel Company record as sales revenue for the current year?
a. 1,200,000
b. 1,000,000
c. 900,000
d. 600,000

38. What amount should Isabel Company report as rebate liability at year-end?
a. 200,000
b. 150,000
c. 100,000
d. 0

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SITUATION 10 – Data about four different entities

Wall Company leased office premises to Fox Company for five-year term beginning January 1, 2021.
Under the terms of the operating lease, rent for the first year is P1,000,000 and rent for next 2 years is
P1,250,000 per annum and the last 2 years P2,000,000 per year. However, as an inducement to enter the
lease, Wall granted Fox the first six months of the lease rent-free.

Miracle Company leased machinery with useful life of 10 years for 10 years on January 1, 2021. At that
date, the fair value of the machinery was P4,900,000. Annual rentals of P700,000 are payable in advance
on January 1 of each year beginning January 1, 2021. The rate interest implicit in the lease is 10%

Keith Company purchased for P1,900,000, 20,000 preference shares of Lance Company. The preference
shares have a P30 par value and pay dividend at 6%. Each preference share had one share warrant which
entitled Keith to purchase Lance’s ordinary share for P20 and exercising two warrants. The market price
of the preference share ex-warrant is P90 and the market price of the share warrant is P10

At the beginning of the current year, Holt Company was authorized to issue 100,000 shares with a P50
par value. The entity had the following share capital transactions during the year:

January 1 Sold 80,000 shares at P60 per share

April 1 Reacquired 4,000 treasury shares at P75 per share
May 1 Approved a 5-for 1 share split
September 30 Issued a 10% share dividend when the market value of a share was P30
November 30 Reissued 4,000 treasury shares at P40 per share
December 31 Net income for the year was P4,000,000

39. What amount should Wall Company report as rental income for 2021?
a. 1,400,000
b. 1,500,000
c. 700,000
d. 500,000

40. What total liability (principal and interest) should Miracle recognize on December 31, 2021?
a. 4,620,000
b. 4,690,000
c. 4,200,000
d. 5,390,000

41. What amount should Keith report as initial cost of investment in share warrants?
a. 345,455
b. 190,000
c. 380,000
d. 0

42. What amount should Holt report as additional paid in capital?

a. 1,560,000
b. 1,660,000
c. 1,420,000
d. 1,700,000

43. What amount of unrestricted retained earnings should Holt report at year-end?
a. 2,800,000
b. 2,560,000
c. 2,620,000
d. 2,860,000

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SITUATION 11 – Data about two different entities.

On January 1, 2021, Hagar Company had 200,000 ordinary shares outstanding. The following
transactions occurred during the year:

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.

During 2021. Niklaus Company reported sales P10,000,000, cost of goods sold P5,300,000 and operating
expenses P3,800,000. Beginning and ending balance were:

December 31 January 1
Prepaid operating expenses 1,000,000 700,000
Accounts payable 1,350,000 1,200,000
Inventory 2,500,000 2,100,000
Accounts receivable 1,400,000 1,375,000
Cash ? 1,000,000

44. What amount of basic EPS should Hagar present on December 31, 2021?
a. 10.71
b. 10.13
c. 8.69
d. 9.21

45. What amount of diluted EPS should Hagar present on December 31, 2021?
a. 7.35
b. 8.58
c. 8.74
d. 5.34

46. What amount of cash did Niklaus collect from the customers?
a. 9,975,000
b. 10,025,000
c. 10,975,000
d. 11,025,000

47. What amount of cash did Niklaus pay its suppliers of inventory?
a. 5,150,000
b. 5,700,000
c. 5,850,000
d. 5,550,000

48. What amount should Nicklaus report as cash balance on December 31, 2021?
a. 1,175,000
b. 1,225,000
c. 1,325,000
d. 1,925,000

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SITUATION 12 – Data about two different entities.
During the course of an audit of the financial statements of Jaya Company for the year ended December
31, 2021, the following data are discovered:
• Inventory on January 1, 2021 had been overstated by P300,000.
• Inventory on December 31, 2021 was understated by P500,000.
• An insurance policy covering three years had been purchased on January 1, 2020 for P150,000. The
entire amount was charged as an expense in 2020.
During 2021, Jaya received a P100,000 cash advance from a customer for merchandise to be shipped
during 2022. The amount had been credited to sales revenue. The gross profit on sales is 50%. Net
income per book was P2,000,000.
On January 1, 2018, SME acquired a trademark of a line of herbal products for P450,000. The SME
expects to continue marketing the products using the trademark indefinitely. An analysis provides
evidence that the line of trademark products may generate net cash inflows for an indefinite period. An
estimate of the useful life of the trademark is not possible. A competitor developed a technological
breakthrough in 2021 expected to result in a product that will reverse the demand for the SME’s patented
product line. At December 31, 2021, the recoverable amount of the trademark was P80,000. It is expected
that the demand for the SME’s product line will remain until December 31, 2023, when the competitor
launches the new product. The SME intended to continue manufacturing the patented products until
December 31, 2023.
49. What proper net income should be reported by Jaya for the current year?
a. 2,650,000
b. 2,350,000
c. 1,650,000
d. 2,050,000
50. What amortization of trademark should SME recognize for 2018 and 2021 respectively?
a. 15,000 and 150,000
b. 45,000 and 105,000
c. 45,000 and 45,000
d. 7,500 and 135,000

THEORY
51. If share options expired and were not exercised, an entity should
a. Adjust retained earnings for the cumulative expense during the vesting period
b. Recognize gain in the current year for the cumulative expense during the vesting period
c. Not adjust retained earnings nor recognize gain
d. Repurchase the share options and pay the counterparty cash
52. Which statement is true about an SME?
a. Loss on inventory writedown is a component of cost of goods sold.
b. The SME has a choice of using fair value or cost model for investment property.
c. The SME should amortize goodwill.
d. Borrowing costs may be capitalized under certain conditions.
53. An entity leased equipment to a lessee under a noncancelable lease with a transfer of title. The
lessor will record which of the following?
a. Depreciation and interest revenue
b. Interest revenue and no depreciation
c. Depreciation and no interest revenue
d. No depreciation and no interest revenue
54. Reclassification adjustments are
a. Amounts in other comprehensive income that are transferred to profit or loss
b. Amounts in profit or loss that are transferred to other comprehensive income
c. Amounts in profit or loss that are transferred to retained earnings
d. Amounts in retained earnings that are transferred to other comprehensive income
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55. Neutrality, completeness and freedom from error describe the fundamental quality of
a. Relevance
b. Verifiability
c. Faithful representation
d. Understandability
56. Which of the following would not qualify as an underlying?
a. Commodity price
b. Exchange rate
c. Equity shares
d. Insurance index
57. A nonpublicly accountable entity can claim compliance with PFRS for SMEs when
I. The entity prepares financial statements in accordance with local tax requirements that are
substantially the same as the PFRS for SMEs.
II. Th entity prepares financial statements in accordance with local tax requirements that are,
except in name, word for word the same as PFRS for SMEs.
III. The entity prepares the financial statements in accordance with PFRS for SMEs.
IV. The entity prepares the financial statements in accordance with full PFRS.
a. II, III and IV
b. I and II
c. III and IV
d. II and III
58. If an SME cannot determine the useful life on an intangible asset, management can estimate such
useful life but shall not exceed
a. Five years
b. Ten years
c. Fifteen years
d. Twenty years
59. An investor uses the equity method of accounting for a 30% ownership in an investee. At year-end,
the investor has a receivable of P100,000 from the investee, How should the receivable be reported
in the investor’s financial statements for the current year?
a. None of the receivable should be reported but the entire receivable should be offset against the
investee’s payable to the investor.
b. P75,000 should be reported separately and P25,000 should be offset against the investee’s
payable to the investor
c. The full amount of P100,000 should be included in the investment in associate balance without
separate disclosure
d. The full amount P100,000 should be disclosed separately.
60. An adjusting entry to accrue wages incurred but not yet paid is an example of
a. Aligning recorded costs with appropriate accounting periods
b. Aligning recorded revenue with appropriate accounting periods
c. Reflecting unrecorded expenses incurred during an accounting period
d. Reflecting unrecorded revenue earned during an accounting period
61. When are closing entries prepared?
a. At the end of the accounting period, after adjusting entries and financial statements have been
prepared
b. At the end of the accounting period, after adjusting entries but before financial statements have
been prepared
c. At the end of the accounting period after financial statements have been prepared but before
adjusting entries
d. At the end of the accounting period, but before adjusting entries and financial statements have
been prepared.
62. The gain or loss from extinguishment of financial liability by issuing equity instruments is
presented as
a. Other income or expense
b. Separate line item in the income statement
c. Component of other comprehensive income
d. Component of finance cost
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63. During 2020, an entity did not recognize any deferred tax asset when a loss from a discontinued
operation was carried forward for tax purposes. This was because it was not probable that taxable
income will be available against which the deferred tax asset can be used at that time. However,
during 2021, the tax benefit of the loss carried forward reduced current taxes payable on continuing
operations for 2021. How should the tax benefit from the carryforward be presented in the 2021
income statement?
a. As part of income from continuing operations
b. As part of gain or loss from discontinued operations
c. As a cumulative adjustment in retained earnings
d. As an extraordinary gain
64. Under IFRS, property, plant and equipment are measured using the
a. Revaluation model only
b. Cost model or revaluation model
c. Cost model or fair value model
d. Revaluation model or fair value model
65. An entity sells computers that include a five-year warranty, How should warranty costs be
recognized?
a. Evenly over five years
b. When costs are actually incurred
c. When the computers are sold
d. Warranty costs are never recognized
66. An entity issued bonds that pay interest semiannually. The interest rate to be used in computing the
cash payment is the
a. Nominal interest rate
b. Market interest rate
c. Effective yield
d. Nominal interest rate or market interest rate, whichever is lower
67. An entity disclosed in the notes to financial statements a significant number of unsecured accounts
receivable with entities that operate in the same industry. This disclosure is required to inform users
of financial statements the existence of
a. Risk of measurement uncertainty
b. Off-statement of financial position risk of accounting loss
c. Concentration of credit risk
d. Concentration of market risk
68. In measuring current service cost, IAS 19 Revised requires the
a. Unfunded accumulated benefit obligation
b. Expected return on plan assets
c. Unfunded vested benefit obligation
d. Projected benefit obligation
69. During the current year, an entity reported total revenue of operating segments at P60,000,000.
Included in this total revenue was sales revenue to external customers amounting to P20,000,000.
Under IFRS 8, the amount of external revenue to be reported by reportable segments should be at
least
a. 20,000,000
b. 15,000,000
c. 30,000,000
d. 45,000,000
70. On June 30, 2021, an entity incurred an apparently permanent inventory loss from market decline
amounting to P600,000. Under IAS 34, how is the inventory loss accounted for?
a. The full amount of loss should be reported in the second quarter
b. The loss should be ignored.
c. One-half of the loss is reported in the second quarter
d. The loss is allocated to the second, third and fourth quarter.
END 6871