Far2

1. a. b. c. d.

Which statement is true about the IASB’s development of IFRSs? The IASB gives precedence to the balance sheet over Profit or Loss. The IASB gives precedence to fair value accounting over amortized cost. Both a and b. Neither a nor b.

2. In accordance with IAS7 Statement of cash flows, and treating it as a nonrecurring event, which classification of the cash flow arising from the proceeds from an earthquake disaster settlement would be most appropriate? (select one answer) A Cash flows from operating activities B Cash flows from investing activities C Cash flows from financing activities D Does not appear in the cash flow statement Question 6 - A The definition in IAS7 para 6 of operating activities includes "other activities that are not investing or financing", so will include disaster settlements. 3. Mackerel, a company listed on a recognized stock exchange, reports operating results from its North American activities to its chief operating decision maker. The segment information for the year is: Revenue PHP 3,675,000 Profit PHP 970,000 Assets PHP 1,700,000 Number of employees 2,500 Mackerel's results for all of its segments in total are: Revenue PHP39,250,000 Profit PHP 9,600,000 Assets PHP17,500,000 Number of employees 18,500 According to IFRS8 Operating segments, which piece of information determines for Mackerel that the North American activities are a reportable segment? A Revenue B Profit C Assets D Number of employees Question 8 - B The correct answer is profit, because it is the only criterion out of profits, revenue and assets that exceeds 10% of the total for all segments. The number of employees is not one of the criteria. See IFRS8 para 13. 4. Arrange in proper sequence the five-step approach that entities will follow in recognizing revenue in accordance with IFRS 15: I. Determine the transaction price II. Identify the contract(s) with the customer III. Identify the separate performance obligations in the contract IV. Recognize revenue when (or as) each performance obligation is satisfied V. Allocate the transaction price to separate performance obligations a. b. c. d.

I, II, III, IV and V II, III, I, V and IV III, II, I, V and IV II, III, V, I and IV

5. The directors of The Rangimoe Company decided at a board meeting on 28 February 2014 that a major machine tool should be sold. Trade magazines reported recent transactions in non-current assets of a similar age at P500,000, but the board decided that the asking price should be P750,000. The board

also decided that as a program of repairs to the tool needed to be carried out, an agent should not be contracted with for the sale of the item until the repairs were completed, which was on 31 May 2014. On 31 July 2014 the board agreed to reduce the asking price to P500,000. A deal was agreed with a buyer on 31 August 2014 and completion of the sale took place on 30 November 2014. In accordance with PFRS5 Non-current assets held for sale and discontinued operations, the asset should be classified as held for sale on a. 28 February 2014 b. 31 May 2014 c. 31 July 2014 d. 31 August 2014 6. A new drug named “EEE” was introduced by Genius Inc. in the market on December 1, 2005. Genius Inc.’s financial year ends on December 31, 2005. It was the only company that was permitted to manufacture this patented drug. The drug is used by patients suffering from an irregular heartbeat. On March 31, 2006, after the drug was introduced, more than 1,000 patients died. After a series of investigations, authorities discovered that when this drug was simultaneously used with “BBB,” a drug used to regulate hypertension, the patient’s blood would clot and the patient suffered a stroke. A lawsuit for P100,000,000 has been filed against Genius Inc. The financial statements were authorized for issuance on April 30, 2006. Which of the following options is the appropriate accounting treatment for this post–balance sheet event under IAS 10? a. The entity should provide P100,000,000 because this is an “adjusting event” and the financial statements were authorized to be issued after the accident. b. The entity should disclose P100,000,000 as a contingent liability because it is an “adjusting event.” c. The entity should disclose P100,000,000 as a “contingent liability” because it is a present obligation with an improbable outflow. d. Assuming the probability of the lawsuit being decided against Genius Inc. is remote, the entity should disclose it in the footnotes, because it is a nonadjusting material event. 7. An entity provides security services to local businesses. The security services take the form of the physical presence of guard dogs and their handlers, who are employees of the entity, at the clients’ premises. Which statement is correct? a. The dogs are biological assets (living animals) and are accounted for in accordance with PAS 41. b. The dogs are inventories and are accounted for in accordance with PAS 2. c. The dogs are investment properties and are accounted for in accordance with PAS 40. d. The salary payable to the dog handlers as they perform services for the entity constitutes employee benefits. 8. In accordance with PFRS 13, which of the following is not relevant when measuring fair value? a. The particular asset or liability being measured. b. For a non-financial asset, the highest and best use of the asset and whether the asset is used in combination with other assets or on a stand-alone basis. c. The market in which an orderly transaction would take place for the asset or liability. d. The entity’s intention to hold an asset or to settle or otherwise fulfill a liability. 9.

A company using a periodic inventory system neglected to record a purchase of merchandise on account at year end. This merchandise was omitted from the year end physical count. How will these errors affect assets, liabilities and equity at year end and net earnings for the year end? Assets Liabilities Equity Net Earnings a. No Effect Understated Overstated Overstated b. No effect Overstated Understated Understated c. Understated Understated No effect No effect d. Understated No effect Understated Understated

10. Which of the following errors would result in an overstatement of both current assets and shareholders’ equity? a. b.

An understatement of accrued sales commissions. Noncurrent note receivable principal is misclassified as current asset.

c. d.

Annual depreciation on manufacturing machinery is understated. Holiday pay expense for administrative employees is misclassified as manufacturing overhead.

11. An SME shall measure subsequently the intangible exploration and evaluation asset using: a. Cost model b. Fair value model c. Either cost model or fair value model d. Revaluation model 12. An example of a correction of an error in previously issued financial statements is a change a. From the FIFO method of inventory valuation to the average method b. In the service life of plant assets, based on changes in the economic environment c. From the cash basis of accounting to the accrual basis of accounting d. In the tax assessment related to a prior period 13. Accounting changes are often made and the monetary impact is reflected in the financial statements of a company even though, in theory, this may be a violation of the accounting concept of a. Materiality b. Consistency c. Prudence d. Objectivity

14. Which component of OCI of an SME is reclassified to profit or loss? a. Change in fair value of hedging instrument b. Revaluation surplus of property, plant and equipment c. Translation gain and loss d. Actuarial gain and loss 15. Which accounting treatment is not allowed under the IFRS for SMEs? a. Weighted average method for inventory b. Equity method for associates c. Revaluation model for intangible assets d. Temporary difference approach for deferred taxation

The next two items are based on the following: The following trial balance of Trey Co. at December 31, 20X5, has been adjusted except for income tax expense. Dr. Cr. Cash P 550,000 Accounts receivable, net 1,650,000 Prepaid taxes 300,000 Accounts payable P 120,000 Common stock 500,000 Additional paid-in capital 680,000 Retained earnings 630,000 Foreign currency translation adjustment 430,000 Revenues 3,600,000 Expenses 2,600,000 _______ P5,530,000 P5,530,000 Additional information: • During 20X5, estimated tax payments of P300,000 were charged to prepaid taxes. Trey has not yet recorded income tax expense. There were no differences between financial statement and income tax income, and Trey's tax rate is 30%. • Included in accounts receivable is P500,000 due from a customer. Special terms granted to this customer require payment in equal semi- annual installments of P125,000 every April 1 and October 1.

16. In Trey's December 31, 20X5, balance sheet, what amount should be reported as total current assets? a. P1,950,000 b. P2,200,000 c. P2,250,000 d. P2,500,000 A 550 + 1,650 – 500 + 250 (add only currently due P125 x 2) = 1,950 17. In Trey's December 31, 20X5, balance sheet, what amount should be reported as total retained earnings? a. P1,029,000 b. P1,200,000 c. P1,330,000 d. P1,630,000 C 630 + 3,600 – 2,600 – 300 (income tax expense) = 1,330 Use the following information to answer questions 18 to 21. Flax Company provided the following information for the preparation of a statement of cash flows: 2017 2016 Cash 35,000 32,000 Accounts receivable 33,000 30,000 Inventory 31,000 47,000 Property, plant and equipment 100,000 95,000 Unamortized bond discount 4,500 5,000 Cost of goods sold 250,000 380,000 Distribution costs 141,500 172,000 General and administrative 137,000 151,300 expenses Interest expense 4,300 2,600 Income tax expense 20,400 61,200 756,700 976,100 Allowance for doubtful accounts Accumulated depreciation Trade accounts payable Income tax payable Deferred tax liability 8% callable bonds payable Ordinary share capital Share premium Retained earnings Sales

1,300

1,100

16,500 25,000 21,000 5,300 45,000 50,000 9,100 44,700 538,800 756,700

15,000 17,500 27,100 4,600 20,000 40,000 7,500 64,600 778,700 976,100

The entity purchased P5,000 in equipment during 2017. The entity allocated one-third of depreciation expense to distribution costs and the remainder to general and administrative expenses. What amount should be reported in the statement of cash flows for the year ended December 31, 2017 for the following: 18. Cash collected from customers? a. P535,800 b. P536,000 c. P541,600

d. P541,800 19. Cash paid for goods to be sold? a. P226,500 b. P242,500 c. P257,500 d. P258,500 20. Cash paid for interest? a. P1,700 b. P3,800 c. P4,300 d. P4,800 21. Cash paid for income tax? a. P15,000 b. P19,700 c. P20,400 d. P25,800 22. During the year ended 31 December 20X8 the following events occurred at The Gosling Company: (1) It was decided to write off PHP80,000 from inventory which was over two years old as it was obsolete. (2) Sales of PHP60,000 had been omitted from the financial statements for the year to 31 December 20X7. According to IAS8 Accounting policies, changes in accounting estimates and errors, how much should be shown as a prior period adjustment in Gosling's financial statements for the year to 31 December 20X8? A PHP60,000 B PHP140,000 C PHP80,000 D PHP20,000 Question 7 - A The correct answer is PHP60,000. IAS8 para 32's list of examples of changes in accounting estimates includes inventory obsolescence. 23. The Pinder Company is completing the preparation of its draft financial statements for the year ended 31 May 20X7. On 24 July 20X7, a dividend of PHP175,000 was declared and a contractual profit share payment of PHP35,000 was made, both based on the profits for the year to 31 May 20X7. On 20 June 20X7, a customer went into liquidation having owed the company PHP34,000 for the past 5 months. No allowance had been made against this debt in the draft financial statements. On 17 July 20X7, a manufacturing plant was destroyed by fire, resulting in a financial loss of PHP260,000. According to IAS10 Events after the reporting period, which TWO amounts should be recognized in Pinder's profit or loss for the year to 31 May 20X7 to reflect adjusting events after the end of reporting period? (2 answers are required) A PHP175,000 dividend B PHP35,000 bonus C PHP34,000 allowance for uncollectible trade receivables D PHP260,000 loss on manufacturing plant Question 7 - B & C The correct answers are PHP35,000 bonus and PHP34,000 allowance. See IAS10 paras 9, 12 and 22. Also, dividends are recognized in the statement of changes in equity, not profit or loss

24. Fender Co. reported a net income of P270,000 in 2008, its first year of operation. Selected information follows: Depreciation expense, P30,000; Loss on sale of equipment, P3,500; Gain on sale of treasury stock, P5,000; Amortization of discount on bond investment, P1,500; Unrealized loss on non-current equity securities, P7,000. At the end of 2008, accounts receivable amounted to P20,000, inventory P34,700 and accounts payable P18,000. The net cash provided by operating activities in 2008 is a. P265,300 b. P338,700 c. P268,300 d. P267,300

25.An entity is planning to dispose of a collection of assets. The entity designates these assets as a disposal group. The carrying amount of these assets immediately before classification as held for sale was P20 million. Upon being classified as held for sale, the assets were revalued to P18 million. The entity feels that it would cost P1 million to sell the disposal group. What would be the carrying amount of the disposal group in the entity’s accounts after its classification as held for sale? (a) P20 million. (b) P18 million. (c) P17 million. (d) P19 million.

The next three items are based on the following information: Dice Corp.'s balance sheet accounts as of December 31, 1988 and 1987, and information relating to 1988 activities are presented below. December 31, Assets 1988 1987 Cash P 230,000 P 100,000 Available-for-sale investments 300,000 -Accounts receivable - net 510,000 510,000 Inventory 680,000 600,000 Held-to-maturity investments 200,000 300,000 Plant assets 1,700,000 1,000,000 Accumulated depreciation (450,000) (450,000) Goodwill 90,000 100,000 Total assets P3,260,000 P2,160,000 Liabilities and Stockholders' Equity Accounts payable and accrued liabilities P 825,000 P 720,000 Short-term debt 325,000 -Common stock, P10 par 800,000 700,000 Additional paid-in capital 370,000 250,000 Retained earnings 940,000 490,000 Total liabilities and stockholders' equity P3,260,000 P2,160,000 Information relating to 1988 activities • Net income for 1988 was P690,000. • Cash dividends of P240,000 were declared and paid in 1988. • Equipment costing P400,000 and having a carrying amount of P150,000 was sold in 1988 for P150,000. • A long-term investment was sold in 1988 for P135,000. There were no other transactions affecting long-term investments in 1988.

• 10,000 shares of common stock were issued in 1988 for P22 a share. • Short-term investments consist of treasury bills maturing on 6/30/89. 26. Net cash provided by Dice's 1988 operating activities was a. P690,000 b. P915,000 c. P940,000 d. P950,000 C 27. Net cash used in Dice's 1988 investing activities was: a. P1,115,000 b. P895,000 c. P865,000 d. P815,000 A 28. Net cash provided by Dice's 1988 financing activities was a. P305,000 b. P440,000 c. P455,000 d. P545,000 A Valix 2 36-6 29. Easy Company reported beginning and ending total liabilities at P840,000 and P1,000,000, respectively. At year-end, owners’ equity was P2,600,000 and total assets were P200,000 larger than at the beginning of the year. The new share capital issued exceeded dividends paid by P240,000. What is the net income or loss for the year? a. b. c. d.

P280,000 income P280,000 loss P200,000 loss P40,000 income

Valix 2 42-3 30. Henson Company had determined the 2016 and 2017 net income to be P4,000,000 and P5,000,000, respectively. In a first time audit of the financial statements, the following errors are discovered: Merchandise inventory was incorrectly determined – P50,000 overstatement for 2016 and P150,000 overstatement for 2017. Revenue received in advance in 2016 of P300,000 was credited to a revenue account when received. Of the total, P50,000 was earned in 2016, P200,000 was earned in 2017 and the remainder will be earned in 2018. P400,000 gain on sale of equipment in 2017 was erroneously credited to retained earnings. What is the corrected net income for 2017? a. P5,500,000 b. P5,450,000 c. P5,400,000 d. P5,550,000

31. An entity prepares quarterly interim financial reports in accordance with IAS 34. The entity sells electrical goods, and normally 5% of customers claim on their warranty. The provision in the first quarter was calculated as 5% of sales to date, which was P10 million. However, in the second

quarter, a design fault was found and warranty claims were expected to be 10% for the whole of the year. Sales in the second quarter were P15 million. What would be the provision charged in the second quarter’s interim financial statements? (a) P750,000 (b) P1.25 million. (c) P1.5 million. (d) P2 million. Answer: (d) [10% of (P10 + P15) – (5% of P10)], that is, P2 million

32. Erotomania Co. has committed the following errors in 2007:  Depreciation expense for the building was overstated by P7,200  Ending inventory was understated by P15,000  Amortization of patents was understated by P6,800  Unearned rent revenue was understated by P8,500. The company recognized advances for rent as revenue at the time of receipt. The rent was earned in 2008.  Cost of goods sold was overstated by P15,000.  Major improvements on a delivery truck in the amount of P35,000 was charged to expense. The delivery truck has a remaining life of five years. The company has a policy of providing full depreciation in the year of acquisition and none in the year of disposal. What are the effects of these errors on the 2007 and 2008 profits? 2007 2008 a. P34,900 under P 6,500 over b. 49,900 under 13,500 over c. 34,900 under 13,500 over d. 49,900 over 13,500 over

Ube 1-11 33. Western Company reported a total cash and cash equivalent of P6,325,000 on December 31, 2014 which includes the following information: i) Two certificates of deposits, each totaling P500,000. These certificates of deposits have a maturity of 120 days ii) A check that is dated January 2, 2015 in the amount of P125,000 iii) A commercial paper of P2,100,000 which is due in 120 days iv) Currency and coins on hand amounted to P7,700 Western Company has agreed to maintain a cash balance of P500,000 in one of its banks at all times and it is not available for withdrawal and to ensure future credit availability (this amount was included in the above balance). How much is the correct amount of cash and cash equivalents that Western Company should report in its December 31, 2014 statement of financial position? a. P2,600,000 b. P3,100,000 c. P5,200,000 d. P6,200,000

34. The following information has been extracted from the accounting records of Smooth Company: December 31, 2006 December 31, 2007 Land, at independent valuation P1,000,000 P1,500,000 Plant, at cost 2,100,000 2,550,000 Accumulated depreciation (200,000) (280,000) Available for sale listed investments, fair value 300,000 500,000 Goodwill 250,000 200,000 Additional information:

i. There are no disposals of land. ii. There were no disposals of plant or investment. iii. The land revaluation reserve increment is net of deferred tax of P64,000. iv. The investment revaluation reserve for the year is net of deferred tax of P32,000. What is the amount of investing cash flows should Smooth Company report?

a. b. c. d.

P300,000 P750,000 P450,000 P850,000

35. Guns Company has two divisions, Smith and Wesson. Both qualify as business components. In 2011, Guns decided to dispose of the Wesson division since it does not meet the long term goal of Guns. In 2012, the Wesson division had revenues of P5, 000,000 and expenses of P4, 500,000. Guns also disposed some of the division’s asset and incurred a loss of P1, 500,000. In 2011, the Wesson division had revenues of P4, 500,000 and expenses of P5, 700,000. If the income tax rate is 30%, how much should be reported as loss from discontinued operations in the 2012 comparative financial statements?

a. b. c. d.

2012 700,000 1,000,000 1,000,000 700,000

2011 0 1,200,000 0 840,000

Ube 6-3 36.The following information is available for the Cherubim Company for the three months ended March 31, 2014: Inventory, January 1, 2014 P1,200,000 Purchases 4,500,000 Freight-in 300,000 Sales 6,400,000 The gross margin was 25% of sales. What is the estimated inventory balance at March 31, 2014? a. b. c. d.

P880,000 P933,000 P1,200,000 P1,500,000 37. Zoe Company’s year-end December 31,2011 and the 2011 financial statements were authorized for issue on March 31, 2012. Zoe had the following events after reporting period:  On February 1, 2012, Zoe determined that the total cost of the equipment purchased is P3,300,000. The asset was purchased on November 12, 2011 and recorded at P2,000,000.  On March 15, 2012, Zoe discovered that its 2011 salary expense was understatement by p150,000.  On March 20,2012, Zoe issued 100,000 ordinary shares at par P10 per share. How much should be reported as adjusting events on December 31, 2011? a. 1,300,000 b. 1,450,000 c. 2,300,000 d. 2.450,000

38. On January 1, 2009 Mara Company purchased equipment for P3,000,000 with a 5-year useful life and no residual value. On January 1, 2010, Mara incurred repairs for P500,000 and inappropriately capitalized the entire amount. The error was discovered on January 1, 2011 and the asset’s residual value was estimated to be P400,000 also on the date. What amount should be recognized as a prior error in the opening balance of retained earnings on January 1, 2011? a. 500,000 b. 375,000 c. 125,000 d. 0 39. Ferrer Company kept its records on a cash basis. At the end of 2016, the accountant prepared the following cash basis income statement: Revenue 1,910,000 Expenses 809,000 Net income 1,101,000 In preparing the income statement, the following amounts of accrued, prepaid and unearned items were ignored at the end of 2015 and 2016: 2015 2016 Accrued revenue 91,000 73,000 Unearned revenue 66,000 108,000 Accrued expenses 49,000 65,000 Prepaid expenses 46,000 56,000 The net income on the accrual basis for 2016 should be: a. P1,167,000 b. P1,067,000 c. P1,035,000 d. P1,103,000 Unadjusted net income 1,101,000 Decrease in accrued revenue (18,000) Increase in unearned revenue (42,000) *Increase in accrued expense (16,000) **Increase in prepaid expenses

10,000 Adjusted net income c. 1,035,000

40. A change in accounting policy from one that is not generally acceptable to one that is generally acceptable should be treated as a. An error and corrected by prior-period adjustment. b. A change in accounting policy and the cumulative effect included in the net income. c. A change in accounting policy and prior period financial statements are related to profit or loss. d. A change in accounting policy and adjustments are made prospectively. 41. When converting from cash basis to accrual basis of accounting, which of the following adjustments should be made to cash collections from customers to arrive at the accrual bases of sales? a. Add beginning accounts receivable b. Subtract beginning accounts receivable c. Subtract ending account receivable d. Add ending accounts receivable 42. Benedict Company provided the following data for the current year (DIVIDE BY 2) Income from continuing operations 5,000,000 Income from discontinued operations 600,000 Unrealized gain on available for sale securities 900,000 Unrealized gain on futures contract designated as a cash flow hedge 400,000 Actuarial loss during the year fully recognized in the other comprehensive income 300,000 Foreign translation adjustment - debit 100,000 Revaluation surplus during the year 2,500,000 What is the comprehensive income for the current year? a. P8,400,000 b. P9,000,000 c. P8,000,000 d. P8,200,000 Income from continuing operations 5,000,000 Income from discontinued operations 600,000 Unrealized gain on available for sale securities 900,000 Unrealized gain on futures contract 400,000

Actuarial loss (300,000) Loss on foreign translation adjustment (100,000) Revaluation surplus 2,500,000

Valix 1 54-12 43. Congo Company commenced construction of a new plant on February 1, 2017. The cost of P18,000,000 was paid in full to the contractor on February 1, 2017 and was funded from existing general borrowings. The construction was completed on September 30, 2017. The borrowings during 2017 comprised the following: Bank A – 6% 8,000,000 Bank B – 6.6% 10,000,000 Bank C – 7% 30,000,000 What amount of borrowing cost should be capitalized in relation to the plant? a. P1,215,000 b. P810,000 c. P911,250 d. 0 Valix 1 5-10 (divide by 4) Rose Company, an investment entity, provided the following income and expenses for the current year: Dividend income from investments 9,200,000 Distribution income from trusts 500,000 Interest income of deposits 700,000 Income from bank treasury bills 100,000 Unrealized gain on derivative contract as cash flow 400,000 hedge Income from dealing in securities and derivatives 600,000 held for trading Writedown of securities and derivatives held for 150,000 trading Other income 250,000 Finance cost 300,000 Administrative staff costs 3,800,000 Sundry administrative costs 1,200,000 Income tax expense 1,700,000 44.What is the total income before tax? a. P11,200,000 b. P11,350,000 c. P10,700,000 d. P10,750,000

45.What is the total amount of expenses before tax? a. P5,450,000 b. P5,300,000 c. P5,000,000 d. P5,150,000 46.What is the net income for the current year? a. P5,900,000 b. P3,700,000 c. P4,200,000 d. P5,500,000 47.What is the comprehensive income for the current year? a. P4,200,000 b. P4,600,000 c. P3,800,000 d. P9,200,000 48.The retained earnings account of Jeric Corporation is reproduced below: RETAINED EARNINGS

Date 2009 Jan. 1 Dec. 31 2010 Jan. 10 Mar. 6 Dec. 31 2011 Jan. 9 Dec. 31

Item

Debit

Balance Net income for year Dividends paid Stock sold – excess over par Net Loss for year Dividends paid Balance

Credit P 81,000 18,000

P 15,000 32,000 11,200 15,000 89,800 P 131,000 P 131,000

The audit of the December 31, 2011, financial statements of the company reveals the following: a. Dividends declared on December 10, 2009 and 2010 had not been recorded in the books until paid. b. Improvements in buildings and equipment of P 9,600 had been charged to expense at the end of April 2008. Improvements are estimated to have an 8-year life. Antigua computes depreciation to the nearest month and uses the straight-line depreciation. c. The physical inventory of merchandise had been understated by P 3,000 at the end of 2009, and by P 4,300 at the end of 2010.

d. Merchandise in transit and to which the company had title at December 31, 2010 and 2011 was not included in the year-end inventories. These shipments of P 3,800 and P 5,500 were recorded as purchases in January of 2011 and 2012, respectively. e. The company had failed to recognize supplies on hand of P 1,200 and P 2,500 at the end of 2010 and 2011, respectively. f. The company had failed to recognize supplies on hand of P 1,200 and P 2,500 at the end of 2010 and 2011, respectively. g. The company reported a net loss of P 12,400 for the year ended December 31, 2011. What is the corrected net loss of Jeric Corporation for the year ended December 31, 2011? a. P 7,600 b. P 17,000

C. P 6,000 D. P 16,200

49.WAVSKI CO. Reported pretax incomes of P 505,000 and P 387,000 for the years ended December 31, 2010 and 2011, respectively. However, the auditor noted that the following errors had been made:

a. Sales for 2010 included amounts of P 191,000 which had been received in cash during 2010, but for which the related goods were shipped in 2011. Title did not pass to the buyer until 2011. b. The inventory on December 31, 2010, was understated by P 43,200. c. The company’s accountant, in recording interest expense for both 2010 and 2011 on bonds payable, made the following entry to an annual basis: Interest Expense Cash

75,000 75,000

The bonds have a face value of P 1,250,000 and pay a nominal interest rate of 6%. They were issued at a discount of P 75,000 on January 1, 2010, to yield an effective interest rate of 7%. d. Ordinary repairs to equipment had been erroneously charged to the Equipment account during 2010 and 2011. Repairs of P 42,500 and P 47,000 had been incurred in 2010 and 2011, respectively. In determining depreciation charges, Chile applies a rate of 10% to the balance in the Equipment account at the end of the year. What is the corrected pretax income for 2011? a. P 488,992 b. P 480,042

C. P 484,292 D. P 575,392

50.The December 31 year-end financial statements of Tarel Company contained the following errors: December 31, 2011 December 31, 2012 Ending inventory P 48000 understated P 40500 overstated

Depreciation expense

P 11500 understated

--------

An insurance premium of P 330000 was prepaid in 2011 covering the years 2011, 2012 and 2013. The entire amount was charged to expense in 2011. In addition, on December 31, 2012, a fully depreciated machinery was sold for P 75000 cash, but the sale was not recorded until 2013. There were no other errors during 2011 and 2012, and no corrections have been made for any error. Ignore income tax effects. What is the total effect of the errors on Tarel’s 2012 net income? a. P 27500 overstatement c. P 192500 understatement b. P 177500 understatement d. P 123500 overstatement 51.On January 1, 2010, Keith Corporation acquired machinery at a cost of P600,000. Keith adopted the straight-line method of depreciation for this machine and had been recording depreciation over an estimated useful life of ten years, with no residual value. At the beginning of2013, a decision was made to change to the double-declining balance method of depreciation for this machine. 51. Assuming a 30% tax rate, the effect of this accounting change on beginning retained earnings, is a. P67,200 b. P0 c. P78,960 d. P112,800 52. The amount that Keith should record as depreciation expense for 2013 is a. P60,000 b. P84,000 c. P120,000 d. P0

53. The general ledger trial balance of Central Corporation includes the following statement of financial position accounts at December 31, 2010: Inventory (including inventory expected in the ordinary course of operations to be sold beyond 12 months amounting to P70,000) P110,000 Trade receivables 120,000 Prepaid insurance 8,000 Listed investments held for trading purposes at fair value 20,000 Available for sale investments 80,000 Cash and cash equivalents 30,000 Deferred tax asset 15,000 Bank overdraft 25,000 The amount that should be reported as current assets on Central's statement of financial position is a. P218,000 c. P288,000 b. P368,000 d. P298,000

valix 2 46-1 Use the following information to answer questions 54 to 57. (divide by 2) Debbie Company provided the following data: Cash Accounts receivable, net

2017 350,000 840,000

2016 150,000 580,000

Merchandise inventory Prepaid expenses Long term investment Property, plant and equipment Accumulated depreciation Accounts payable Accrued expenses Dividend payable Note payable – long term debt Share capital Retained earnings Net credit sales Cost of goods sold Expenses Net income

660,000 50,000 80,000 1,130,000 110,000 530,000 140,000 70,000 500,000 1,200,000 560,000 6,400,000 5,000,000 1,000,000 400,000

420,000 100,000 0 600,000 50,000 440,000 130,000 0 0 900,000 330,000 4,000,000 3,200,000 520,000 280,000

All accounts receivable and accounts payable relate to trade merchandise. Accounts payable are recorded net and always paid to take all of the discounts allowed. The allowance for doubtful accounts at the end of 2017 was the same as at the end of 2016. No receivables were charged against the allowance during 2017. The proceeds from the note payable were used to finance a new store building. Share capital was sold to provide additional working capital. 54. What is the amount of cash collections from customers in 2017? a. P5,560,000 b. P5,850,000 c. P6,140,000 d. P6,400,000 55. What is the net cash provided by operating activities? a. P400,000 b. P100,000 c. P200,000 d. P110,000 56. What is the net cash provided by financing activities? a. b. c. d. 57. What is the net cash used in investing activities? a. P80,000 b. P530,000 c. P610,000 d. P660,000

P140,000 P300,000 P500,000 P700,000

58.Tan, Inc. is a calendar-year corporation whose financial statements for 2011 and 2012 included errors as follows: YEAR ENDING INVENTORY DEPRECIATION EXPENSE 2011 P 162,000 overstated P 135,000 overstated 2012 54,000 understated 45,000 understated Assume that purchases were recorded correctly and that no correcting entries were made at December 31, 2011, or at December 31, 2012. Ignoring income taxes, by how much should Tan’s retained earnings be retroactively adjusted at January 1, 2013? a. b. c. d.

P144,000 increase P36,000 decrease P18,000 decrease P9,000 increase

59.On January 1, 2011, Richmond Corp. acquired a machine at a cost of P500,000. It is to be depreciated on the straight-line method over a five-year period with no residual value. Because of a bookkeeping error, no depreciation was recognized in Richmond’s 2011 financial statements. The oversight was discovered during the preparation of Richmond’s 2012 financial statements. Depreciation expense on this machine for 2012 should be a. b. c. d.

P0 P100,000 P125,000 P200,000

60.The accrued interest on a 12%, 60-day note of a customer dated December 1, 2006 with a face value of P100,000 was not taken up as of December 31, 2004. The collection of the note, which matured on January 31, 2007, was recorded as Cash 102,000 Notes receivable 100,000 Interest Income 2,000 The error was discovered after collection. The correcting entry would require a a. P2,000 debit to cash. b. P2,000 debit to accrued interest receivable c. P1,000 debit to interest income d. P2,000 credit to interest income 61.A return of merchandise amounting to P4,500 which was previously purchased on account was recorded as Accounts payable Purchases

5,400 5,400

If the error had been discovered when the nominal accounts were still open, the correcting entry would require a a. P900 debit to purchase return b. P900 debit to accounts payable c. P900 credit to purchases d. P900 credit to accounts payable

62.While preparing its 2006 financial statements, Falfact Corp. discovered computational errors in its 2005 and 2004 depreciation expense. These errors resulted in overstatement of each year’s income by P25,000, net of income taxes. The following amounts were reported in the previously issued financial statements: 2005 2004 Retained earnings, 1/1 P 700,000 P 500,000 Net income 150,000 200,000 Retained earnings, 12/31 P 850,000 P 700,000 Falfact’s 2006 net income is correctly reported at P180,000. Which of the following amounts should be reported as prior-period adjustments and net income in Falfact’s 2006 and 2005 comparative financial statements? Year a. 2005 2006 b. 2005 2006 c. 2005 2006 d. 2005 2006

Prior period adjustment Net income P150,000 P (50,000) 180,000 (50,000) 150,000 180,000 (25,000) 125,000 180,000 125,000 180,000

63. The following information appeared on Blight Inc.’s December 31 financial statements: 2005 2006 Assets P 1,000,000 P1,200,000 Liabilities 750,000 800,000 Contributed capital 120,000 120,000 Dividends paid 100,000 60,000 In preparing its 2006 financial statements, Blight discovered that it had misplaced a decimal in calculating depreciation for 2005. This error overstated 2005 depreciation by P10,000. In addition, changing technology had significantly shortened the useful life of Blight’s computers. Based on this information, Blight determined that depreciation should be P30,000 higher in 2006 financial statements.

Assuming that no correcting or adjusting entries have been made and ignoring income taxes, how much should Blight report as 2006 net income? a. P 230,000

b. P 210,000

c. P 180,000

d. P 170,000

Valix 1 3-4 64.The audit of Anne Comppany for the year ended December 31, 2017 was completed on March 01, 2018. The financial statements were signed by the managing director on March 15, 20118 and approved by the shareholders on March 31, 2018/ The next events had occurred: On January 15, 2018, a customer owing P900,000 to Anne Company filed for bankruptcy. The financial statements included an allowance for doubtful accounts pertaining to this customer of P100,000. Anne Company’s issued share capital comprised 100,000 ordinary shares with P100 par value. The entity issues additional 25,000 shares on March 1, 2018 at par value. Equipment with carrying amount of P525,000 was destroyed by fire on December 15, 2017. Anne Company has booked a receivable of P400,000 from the insurance entity on December 31, 2017. After the insurance entity completed an investigation on February 1, 2018, it was discovered that the fire took place due to negligence of the machine operator. As a result, the insurer’s liability was zero on this claim. What total amount should be reported as “adjusting events” on December 31, 2017? a. P1,300,000 b. P1,200,000 c. P3,800,000 d. P3,700,000

Valix 1 5-5 65.Rosebud Company provided the following information for the current year: (divide by 4) Sales P5,000,000 Cost of goods sold 2,800,000 Foreign translation adjustment – credit 400,000 Selling expenses 700,000 Unusual and infrequent gain 400,000 Correction of inventory error 200,000 General and administrative expenses 600,000 Income tax expense 150,000 Gain on sale of investment 50,000 Proceeds from sale of land at cost 800,000 Dividends 300,000 What amount should be reported as income from continuing operations? a. P1,200,000

b. P1,350,000 c. P1,600,000 d. P2,000,000 Valix 1 5-9 Divina Company provided the following information for the current year: Income from continuing operations P4,000,000 Income from discontinued operations 500,000 Unrealized gain on financial asset – FVPL 800,000 Unrealized loss on equity investment – FVOCI 1,000,000 Unrealized loss on debt investment – FVOCI 1,200,000 Unrealized gain on futures contract designated as 400,000 a cash flow hedge Translation loss on foreign operation 200,000 Net “remeasurement” gain on defined benefit plan 600,000 Loss on credit risk of a financial liability at FVPL 300,000 Revaluation surplus during the year 2,500,000 66.What amount should be reported as net income for the current year? a. P4,000,000 b. P4,500,000 c. P5,300,000 d. P4,800,000 67. What net amount should be reported as OCI for the current year? e. P4,000,000 f. P3,500,000 g. P3,200,000 h. P700,000 68. What amount should be reported as comprehensive income for the current year? a. P5,200,000 b. P7,700,000 c. P8,500,000 d. P7,200,000

Valix 2 49-7 An SME prepared the following post-closing trial balance at the current year-end: Property, plant and equipment P2,300,000 Intangible assets 850,000 Investment in associate 1,100,000 Deferred tax asset 40,000 Inventory 500,000 Trade receivables 600,000 Cash on hand 1,150,000 Investment in nonputtable ordinary shares – listed 550,000

Investment in nonconvertible and nonputtable preference shares – unlisted Investment in term bonds Demand deposit in bank Loan receivable from employee – fixed term Loan receivable from associate – on demand Bank loans Other long-term employee benefits Obligations under finance leases Trade payables Warranty obligation Rent payable Interest payable Current tax liability Bank overdraft – on demand Share capital Retained earnings

500,000 400,000 200,000 10,000 300,000 1,100,000 250,000 400,000 550,000 20,000 10,000 20,000 210,000 40,000 4,000,000 1,900,000

69. What is the total amount of basic financial assets? a. P4,810,000 b. P3,710,000 c. P3,750,000 d. P3,160,000 70. What is the total amount of basic financial liabilities? a. P2,330,000 b. P2,120,000 c. P1,720,000 d. P1,930,000

26.The Tanager Company purchased a boring machine on 1 January 20X1 for PHP81,000. The useful life of the machine is estimated at 3 years with a residual value at the end of this period of PHP6,000. During its useful life, the expected units of production from the machine are: 20X1 12,000 units 20X2 7,000 units 20X3 5,000 units What should be the depreciation expense for the year ended 31 December 20X2, using the most appropriate depreciation method permitted by IAS16 Property, plant and equipment? A PHP27,000 B PHP21,875 C PHP23,625 D PHP25,000 Question 17 - B The correct answer is PHP21,875. See IAS16 para 56, which indicates that assets are consumed principally through their use. In this example the answer is calculated as (the original cost less the residual value) divided by total units produced in 3 years multiplied by total units produced in 20X2.

27.The Markab Company has acquired a trademark relating to the introduction of a new manufacturing process. The costs incurred were as follows: Cost of trademark PHP 3,500,000 Expenditure on promoting the new product PHP 50,000 Employee benefits relating to the testing of the proper functioning of the new process PHP 200,000 According to IAS38 Intangible assets, what is the total cost that should be capitalized as an intangible non-current asset in respect of the new process? A PHP3,750,000 B PHP3,700,000 C PHP3,500,000 D PHP3,550,000 Question 11 - B IAS38 paras 27-29 specify the costs attributable to a separately acquired intangible asset. This requires the trademark costs and costs of testing to be included.

52.Quirino, Inc. and its subsidiaries have provided you, their PFRS specialist, with a list of the properties they own:  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.  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.  A building owned by Quirino, Inc. being leased out to Status, Inc, a subsidiary of Quirino, Inc., P20,000,000. 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

Ube 2-27 53.On February 1, 2015, New York Corporation factored receivables with a carrying amount of P2,000,000 to Chicago Corporation. New York Corporation assesses a finance charge of 3% of the receivables and retains 5% of the receivables. If the factoring is treated as a sale, what amount of loss from sale should the company report in its 2015 statement of comprehensive income for the year 2015? a. None b. P60,000 c. P100,000 d. P160,000 Ube 12-9 54.Marker Company purchase a debt security instrument with a face value of P5,000,000 on July 1, 2014. The five-year 12% bonds were issued on January 2, 2014 and will mature on January 2, 2019. Interest is payable annually every December 30. Market rate of interest for a similar debt instrument at the time of acquisition is 10% that is also the market rate of interest for a similar debt instrument was issued. PV factor of 12% after 5 years 0.567 PV factor of 10% after 5 years 0.621 PV factor of annuity of 12% after 5 years 3.605 PV factor of annuity of 10% after 5 years 3.791 What is the fair value of the debt instrument at the time of acquisition? e. P5,348,580 f. P5,626,000 g. P5,648,580 h. P5,679,600

Ube 12-32 55.On January 1m 2914, Alarm Company purchased as long-term investment P5,000,000 face value of Clock Corporation’s 8% bonds for P4,638,000 to yield 10% interest per year. The bonds mature on January 1, 2018, and pay interest annually on January 1. On January 2, 2016, Alarm Company sold the debt security when the market rate of interest was 12%. If the company’s business model has the objective of collecting the contractual cash flows of the debt securities until maturity, what amount should Alarm Company report as gain or loss on the sale of the debt instrument? (Carry present value factors up to 3 decimal places) a. P165,430 b. P173,570 c. P240,700 d. P317,000 Valix 1 38-3 56.At the beginning of the 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. What amount should be reported as investment in Rea Company at year-end? a. b. c. d.

P4,500,000 P4,350,000 P4,000,000 P3,850,000

Valix 1 39-6 57.Chur Company acquired a 40% interest in Flim Copany for P1,700,000 on January 1, 2017. The shareholders’ equity of Flim Company on January 1 and December 31, 2017 is presented below.

Share capital Revaluation surplus Retained earnings

January 1 3,000,000 1,000,000

December 31 3,000,000 1,300,000 1,500,000

On January 1, 2017, all the identifiable assets and liabilities of Flim Company were recorded at fair value. Flim Company reported profit of P700,000, after income tax expense of P300,000 and paid dividend of P200,000 to shareholders during the current year. The revaluation surplus is the result of the revaluation of land recognized by Flim Company on the diminishing balance method whereas Chur Company used the straight line, the accumulated depreciation would be increased by P200,000. What is the carrying amount of the investment on associate on December 31, 2017? a. P2,420,000 b. P1,700,000

c. P1,900,000 d. P2,320,000 Valix 1 64-4 58.Harmonious Company acquired a patent for a drug with a remaining legal and useful life of six years on January 1, 2015 for P5,400,000. On January 1, 2017, a new patent is received for an improved version of the same drug, The new patent has a legal and useful life of twenty years. What is the amortization expense for 2017? a. P900,000 b. P200,000 c. P180,000 d. P300,000