Baladad, Nexxus L.

BSA4
FINALS EXAM
SET B
I. MULTIPLE CHOICES
Direction: Choose the letter of the best answer.
For items 1-5. On January 1, 2021, Mendoza A Co. acquired 30% of the ordinary shares of an associate for
P5,000,000. On this date, all the identifiable assets and liabilities of the associate were recorded at fair value.
An analysis of the acquisition showed that goodwill of P400,000 was acquired.
The net income and dividend of the associate for 2021 and 2022 were as follows:
2021 2022
Net income P 2,500,000 P 4,000,000
Dividend paid 900,000 2,000,000
On January 3, 2021, Mendoza A Co. sold an equipment costing P300,000 to the associate for P400,000. The
equipment has a remaining life of 5 years.
In December 2021, the associate sold inventory to Mendoza A Co. for P350,000. The cost of the inventory
was P300,000. This inventory remained unsold by Mendoza A Co. on December 31, 2021. However, it was
sold by Mendoza A Co. in 2022.
In December 2022, Mendoza A Co. sold inventory to the associate for P550,000. The cost of the inventory
was P400,000. This inventory remained unsold by the associate on December 31, 2022.
1. Determine the investment income in 2021.
a. 575,000 b. 655,000 c. 670,000 d. 676,000
2. Determine the investment income in 2022.
a. 1,085,000 b. 1,106,000 c. 1,190,000 d. 1,215,000
3. Determine the carrying amount of the Investment in Associate on December 31, 2021.
a. 4,170,000 b. 4,440,000 c. 5,385,000 d. 5,835,000
4. Determine the carrying amount of the Investment in Associate on December 31, 2022.
a. 5,790,000 b. 5,870,000 c. 5,912,000 d. 5,975,000
5. Assuming the company is a medium entity and uses the equity method, the carrying amount of
investment on December 31, 2022 is
a. 5,790,000 b. 5,870,000 c. 5,912,000 d. 5,975,000
For items 6-10. On July 1, 2020, Mendoza R Corp. acquired 60,000 shares of the 200,000 shares outstanding
of Palad Inc. at P25 per share. The company incurred P2 transaction cost per share. The book value of Palad
Inc.’s net assets on this date amounted to P5,000,000. The fair value of one of its identifiable intangibles with
a 5-year remaining life higher than book value by P50,000 while its equipment having a remaining life of 8
years had a fair value P160,000 higher than book value. All other identifiable assets had fair value
approximating their book values.
Palad reported total net income in 2020 at P800,000 and distributed dividends at year end at P3,000,000. Fair
value of shares on this date was P32 per share while cost to sell is at P2 per share.
Palad reported total comprehensive income in 2021 at P1,250,000 which is net of a foreign translation loss
amounting to P150,000. It also distributed dividends at year-end at P500,000. Fair value of shares on this date
was at P30 per share while cost to sell remained P2 per share.
On January 1, 2022, Mendoza R Corp. sold 24,000 Palad Inc.’s share at P32 per share, its fair value on that
date, and reclassified the remaining shares to investment in equity securities designated as at fair value
through other comprehensive income.
6. What is the Investment in Associate balance on December 31, 2020?
a. 1,590,000 b. 1,645,500 c. 1,680,000 d. 1,740,000
7. The impairment loss on December 31, 2020 is
a. 34,500 b. 154,500 c. 181,500 d. nil
8. The impairment loss on December 31, 2021 is
a. 34,500 b. 154,500 c. 181,500 d. nil
9. The investment income to be recognized by the company in its income statement for 2021 should be
a. 150,000 b. 270,000 c. 411,000 d. 420,000
10. The total net gain (or loss) due to reclassification from Investment in Associate to Financial Asset at
Fair Value through Other Comprehensive Income to be recognized in 2022 profit and loss is
a. 96,000 b. 99,000 c. 144,000 d. 195,000
11. Which of the following is NOT a test primarily used to test property, plant, and equipment accounts
for overstatement?
a. Review of property tax bills
 b. Vouching retirements of plant and equipment
c. Investigation of reductions in insurance coverage
d. Examination of retirement work orders prepared during the year
12. The audit procedure of analyzing the repairs and maintenance accounts is primarily designed to
provide evidence in support of the audit preparation that all
a. Capital expenditure has been properly authorized
b. Expenditures for fixed assets have been capitalized
c. Noncapitalizable expenditures have been properly expensed
d. Expenditures for fixed assets have been recorded in the proper period

13. Which of the following best describes the auditors’ approach to the audit of the ending balance of
property, plant, and equipment for a continuing client?
a. Direct audit of the ending balance
b. Audit of changes in the accounts since inception of the company
c. Audit of selected purchases and retirements for the last few years
d. Agreement of the beginning balance to prior year’s working papers and audit of significant
changes in the accounts
14. Which of the following best describes the independent auditors’ approach to obtaining satisfaction
concerning depreciation expense in the income statement?
a. Establish the basis for depreciable assets and verify the depreciation expense
b. Verify the mathematical accuracy of the amounts charged to income as a result of depreciation
expense
c. Reconcile the amount of depreciation expense to those amounts credited to accumulated
depreciation amounts
d. Determine the method for computing depreciation expense and ascertain that is in accordance
with generally accepted accounting principles
15. A continuing audit client’s property, plant, and equipment and accounts receivable accounts have
approximately the same year-end balance. In this circumstance, when compared to property, plant,
and equipment, one would normally expect the audit of accounts receivable to require:
a. Approximately the same amount of audit time c. more audit time
b. Less audit time d. similar confirmation procedures
16. Which of the following is NOT one of the auditor’s objectives in auditing depreciation?
a. Establishing that the methods used are appropriate
b. Establishing that the methods are consistently applied
c. Establishing the reasonableness of depreciation computations
d. Establishing the reasonableness of the client’s replacement policy
17. When comparing an initial audit with a subsequent year audit for a particular client, the scope of audit
procedures for which of the following accounts would be expected to decrease the most?
a. Accounts receivable b. cash c. marketable securities d. property,
plant, and equipment
18. Ensuring that all retirements or disposal is recorded relates primary to the assertion of
a. Completeness c. presentation and disclosure
b. Existence d. rights and obligations
19. Which of the following account is NOT normally examined in conjunction with the audit of property,
plant, and equipment?
a. Depreciation expense c. repairs and maintenance expense
b. Lease expense d. sales return
20. The auditors are least likely to learn of retirements of equipment through which of the following?
a. Review of depreciation
b. Review of insurance policy riders
c. Review of the purchase returns and allowance accounts
d. Analysis of the debits to the accumulated deprecation accounts
For items 21-22. On January 1, 2023, Rosales Co. traded an old equipment for a newer model. Data before the
trade-in are as follows:
Old equipment New Equipment
Cost P 350,000 List price P 400,000
Accumulated depreciation 120,000 Cash price without trade in 340,000
Average published retail 60,000 Cash price with trade in 270,000
value

21. How much is the cost of the equipment to be recognized by Rosales Co.?
 a. 230,000 b. 270,000 c. 340,000 d. 400,000
22. How much is the gain (or loss) on trade in to be recognized by Rosales Co.?
a. (160,000) b. (10,000) c. 110,000 d. nil

For items 23-27. Your audit of Sabus Inc.’s property, plant, and equipment disclosed the following data at
December 31, 2021.
ASSETS Cost Accumulated Date Useful Life Salvage Depreciation Method
Depreciation Purchased Value
12/31/2021
Machinery D P 140,000 P92,800 2015 10 years P 12,400 Sum of years digit
Machinery R 204,000 140,800 2016 15,000 12,000 Activity
hours
Machinery I 320,000 60,000 2017 15 years 20,000 Straight line
Machinery A 320,000 64,000 2019 10 years 20,000 Double declining
balance
You noted that the client’s policy on depreciation is that no depreciation is recorded in the year an asset is
purchased, and full year depreciation is provided in the year an asset is disposed of. No depreciation has yet
been recorded in 2021.
The following transactions occurred during 2022:
i. On May 5, Asset D was sold for P52,000 cash. The company’s bookkeeper recorded this retirement
in the following manner in the cash receipts journal:
Cash 52,000
Asset D 52,000
ii. On December 31, it was determined that Asset R had been used for 2,100 hours during 2021.
iii. On December 31, before computing depreciation expense on Asset I, the management of Sabus
decided the useful life remaining from January 1, 2022 was 10 years.
iv. On December 31, it was discovered that a plant asset purchased in 2021 had been expensed
completely in the year. This asset cost P88,000 and has a useful life of 10 years and no salvage
value. Management has decided to use double declining balance method for this asset, which can be
referred to as Asset N
23. How much is the net gain or (los) on sale of Machinery D in 2022?
a. (16,400) b. (4,800) c. 4,800 d. 16,400
24. How much is the Accumulated Depreciation – Machinery R, December 31, 2022?
a. 166,400 b. 167,680 c. 169,360 d. 171,040
25. How much is the Accumulated Depreciation – Machinery I, December 31, 2022?
a. 84,000 b. 86,000 c. 90,000 d. 124,000
26. How much is the Accumulated Depreciation – Machinery A, December 31, 2022?
 a. 76,000 b. 76,800 c. 115,200 d. 128,000
27. How much is the total depreciation expense for 2022?
a. 113,680 b. 118,560 c. 122,480 d. 131,280
28. Silva Mining uses the replacement method to determine depreciation on its office equipment. During
2020, its first year of operations, office equipment was purchased at a cost of P14,000. Useful life of
the equipment averages four years and no salvage value is anticipated. In 2022, equipment costing
P5,000 was sold for P600 and replaced with new equipment costing P6,000. Silva would record 2022
depreciation of
a. 3,500 b. 4,400 c. 5,400 d. nil
For items 29-30. On January 1, 2023, Siorez Co. acquired an equipment by issuing two-year, noninterest
bearing note amounting to P1,000,000. The prevailing interest rate of the note is 12%.
29. Assuming the equipment has cash price equivalent of P800,000, how much is the cost of the
equipment?
a. 797,200 b. 800,000 c. 1,000,000 d. 1,690,050
30. Assuming the equipment has no cash price equivalent, how much is the cost of the equipment?
a. 797,200 b. 800,000 c. 1,000,000 d. 1,690,050
For items 31-35. The Princess Mae Co. bought a tract of land containing coal veils for P9,075,000. The tract is
expected to yield 1,100,000 tons of coal. The company likewise expects that the quantity which shall be mined
in each of the succeeding years will be twice the quantity mined in the first year of operations.
During the latter part of 2020, installations with an estimated useful life of ten years were set up at a cost of
P1,925,000. Mining equipment was purchased early in 2021 for P4,400,000 and the equipment has a useful life
of eight years and can be transferred conveniently to another location. The installations, on the other hand,
shall be abandoned when the coal deposits are exhausted.
The company started operations in January 2021. By the end of the year, the company mined and sold 100,000
tons of coal. Also, in 2022, the company incurred additional development cost of P750,000 and mined and sold
150,000 tons of coal.
31. How much should the company record as depletion expense for 2021?
a. 825,000 b. 907,500 c. 1,000,000 d. 1,650,000
32. How much should the company record as depreciation expense for 2021 of the Installations?
a. 130,000 b. 175,000 c. 192,500 d. nil
33. How much should the company record as depreciation expense for 2021 of the Mining Equipment?
a. 120,000 b. 540,000 c. 550,000 d. 592,500
34. How much should the company record as depletion expense for 2022?
a. 1,120,000 b. 1,237,500 c. 1,350,000 d. 1,550,000
35. How much should the company record as total depreciation expense for 2022?
a. 262,500 b. 550,000 c. 725,000 d. 812,500
For items 36-37. On January 1, 2019, Glecie Ann Co. acquired a property containing mineral resources at a
cost of P8,000,000. Exploration cost on the property amounted to P12,000,000. As part of the company policy,
all exploration cost and evaluation of mineral resources are capitalized. Intangible development costs incurred
amounted to P10,000,000. At the end of the economic life of the wasting asset, Glecie Ann Co. expects to sell
the land for P1,000,000 after incurring cost of P100,000. Geologists estimate that the mine will provide
approximately 4,000,000 units.
Actual units extracted from 2019 to 2021 totaled to 400,000. At the beginning of 2022, geologists estimate that
only 500,000 units will be extracted. Also, Glecie Ann estimates that after reserves are depleted, the land will
be sold for P800,000 after incurring cost of P200,000. Actual units extracted in 2022 totaled 200,000
36. How much is the depletion in 2022?
a. 5,916,000 b. 6,960,000 c. 10,560,000 d. 10,596,000
37. What is the carrying amount of the wasting asset on December 31, 2022?
a. 9,474,000 b. 11,040,000 c. 16,440,000 d. 16,494,000

38. Clyde Drexler Co. provides the following balances at the end of 2022:
Mineral deposit, at cost 20,000,000 Accumulated profits – unappropriated 9,000,000
Accumulated 7,000,000 Accumulated profits appropriated for 800,000
depreciation contingencies
Ordinary share capital 5,000,000 Inventory of resource deposits (120,000 1,440,000
units)
Share premium 2,000,000 Depletion rate per unit P6
Capital liquidated 800,000
How much is the maximum amount of dividends that can be declared by Clyde Drexler?
a. 9,000,000 b. 13,760,000 c. 14,480,000 d. 16,000,000
For items 39-40. On January 1, 2021, Jane Marie Mining Corp. acquired property containing mineral resources
for P150,000,000. Total costs of exploration and intangible development costs was P8,000,000. Jane Marie is
mandated by the Mining Act to restore the site after 4 years. Based on most reliable measurement, the amount
of restoration cost is P12,000,000 and current market-based discount rate is 10%. On the same date, Jane Marie
acquired movable and immovable tangible equipment amounted to P9,000,000. Geologists estimate that the
total units estimated to be extracted is 12,000,000. It is estimated that, on the average, 1,500,000 units will be
extracted each year during the useful life of the wasting assets.
The movable equipment has a useful life of 20 years while the immovable equipment has an estimated useful
life of 10 years.
Actual units extracted in 2021 and 2022 were 1,600,000 and 1,400,000, respectively.
39. How much is the initial cost of the mineral deposit?
a. 158,000,000 b. 158,196,161 c. 166,196,161 d.
170,000,000
40. How much is the depletion in 2021?
a. 21,066,667 b. 21,092,822 c. 22,159,488 d. 22,666,667

II. PROBLEM SOLVING (10 points)

a. Compute for the lifetime expected credit loss.

Expected Credit Loss = 20,000 per year

Effective Interest Rate = 12%

Lifetime Expected Credit Loss

2 0 , 000 20,000 20,000 20,000 20,000
= 1
+ 2
+ 3
+ 4
+ 5
(1+0.12) ( 1+0.12 ) (1+ 0.12) (1+0.12) (1+ 0.12)
= 17, 857 + 15,944 + 14,236 + 12, 710 + 11, 349
= 72, 096

b. Compute for the 12-month expected credit loss.

20,000
1 = 17,857
(1+0.12)