Reviewer Cfas

Republic of the Philippines

BULACAN STATE UNIVERSITY COLLEGE OF BUSINESS ADMINISTRATION City of Malolos, Bulacan Telephone Number : 7964131 or 919-7800 loc 1058, 1057 Webpage: www.bulsu.edu.ph

DEPARTMENTALIZED MIDTERM EXAMINATION Conceptual Framework and Accounting Standards Name: _____________________________________________Year and Section: ___________ Date: ________________ Instruction: SHADE the letter of your chosen answer in the separate answer sheet provided. USE PENCIL No. 2 or 3 in shading your answer 1.

Which of the following statement(s) is/are correct? I. An increase in inventory balance would be reported in a statement of cash flows using the indirect method as a deduction from net income in arriving at net cash flow from operating activities. II. Declaration and distribution of a stock dividend is classified as financing activity. III. borrows P10,000 and signs a 90-day nontrade note payable is an operating activity. IV. Dividend received being a return of investment is a financing activity. V. Payment for a bank loan is an investing activity. A. One statement is correct C. Three statements are correct B. Two statements are correct D. Four statements are correct

2.

The accounting definition of American Accounting Association states that the very purpose of accounting is to provide quantitative information to be useful in making an economic decision. Which of the following components of it are true? I. Identifying as the formal component II. Measuring as the analytical component III. Communicating as the technical component A. I only B. I and II only C. I, II and III D. the aforementioned components are false

3.

All of the following are correct except. A. Change in the method of inventory pricing is a change in accounting policy B. Change from cost model to fair value model in measuring investment property is a change in accounting estimate. C. Change in residual value of a machinery is a change in accounting estimate D. Change in the loss rate on warranty costs is a change in accounting estimate

4.

Under PAS 2, which of the following inventory items is not valued at lower of cost and net realizable value? A. Retail inventory B. Manufactured inventory C. Biological inventory D. Industrial inventory

5.

Which of the following statement(s) is/are correct about borrowing cost? I. Capitalization of borrowing cost for the qualifying asset is discretion of the entity. II. For funds borrowed specifically for the purpose of acquiring the asset, actual borrowing costs incurred less any investment income must be capitalized. III. Investment income from general borrowings is deducted from capitalized borrowing costs. IV. Actual borrowing cost shall not exceed capitalizable borrowing cost. V. The difference between the actual borrowing cost and capitalizable borrowing cost is deferred aligned with the useful life of the qualifying asset. A. One statement is correct C. Three statements are correct B. Two statements are correct D. Four statements are correct

6.

Under PFRS 1, how should a first-time adopter of PFRS recognize the adjustments required to present the opening PFRS statement of financial position? A. Adjustments that are capital in nature should be recognized in retained earnings and adjustments that are revenue in nature should be recognized in profit or loss. B. Current adjustments should be recognized in profit or loss and noncurrent adjustments should be recognized in retained earnings. C. All of the adjustments should be recognized directly in retained earnings or, if appropriate, in another category of equity. D. All of the adjustments should be recognized in profit or loss

7.

Beyond the mere 20% threshold, which of the following is not an evidence of existence of significant influence. A. Representation in the board of directors C. Participation in policy making process B. Interchange of rank and file employees D. Material transaction between the investor and investee

8.

ABC Corporation prepares its financial statements in accordance with PFRS. Which of the following items are required disclosures on the income statement? A. Operating expense, non-operating expense and extraordinary items. B. Revenues, cost of goods sold, and advertising expense. C. Gross profit, operating profits, and net profit. D. Finance costs, tax expense, and income.

9.

Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the assets? A. Assets under construction for an enterprise's own use. B. Assets intended for sale or lease that are produced as discrete projects. C. Assets financed through the issuance of long-term debt. D. Assets not currently undergoing the activities necessary to prepare them for their intended use.

10.

What is the treatment to related rights pertaining to an entity’s rights that may be recognized as a separate asset, for example, legal ownership of a physical object? Such ownership includes such rights as to use the object, sell the object and pledge the object. A. Recognize a single asset only. B. Recognize each right as a separate asset. C. Recognize the physical object separately from the intangible rights. D. Have the option to recognize separate assets in some years and a single asset in other years.

11.

A company changes from straight-line to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change should include a A. debit to Accumulated Depreciation B. debit to Retained Earnings in the amount of the difference on prior years. C. debit to Depreciation Expense D. debit to loss account

12.

If the investor pays less than the equity interest on the net assets acquired, a journal would include A. Credit Income on the part of investee B. Credit Income on the part of investor C. Debit loss on the part of the investor D. Debit Excess would be attributed to undervaluation of investee’s assets and goodwill.

13.

Use of the double-declining balance method A. results in a decreasing charge to depreciation expense. B. means salvage value is not deducted in computing the depreciation base. C. means the book value should not be reduced below salvage value. D. none of these are incorrect

14.

The continuity (going concern) assumption is the basis for the rule that A. treasury stock should not be reported in the balance sheet as an asset. B. the cost of operating asset should be allocated to expense systematically over their useful lives. C. the cost of installing a machine should not be included in the recorded cost of the machine, but rather expensed immediately. D. the income statement should not include material gains and losses that are both unusual and infrequent.

15.

If a business entity entered into certain related party transactions, it would be required to disclose all of the following information except the A. nature of the relationship between the parties to the transactions. B. amounts due from or to related parties as of the date of each balance sheet presented. C. nature of any future transactions planned between the parties and the terms involved. D. peso amount of the transactions for each of the periods for which an income statement is presented.

16.

Which of the following statements are correct about impairment loss? I. Recoverable amount is the fair value less cost of disposal and value in use whichever is higher. II. If the recoverable amount is higher that the carrying amount, the asset suffered from impairment loss. III. The reversal of impairment loss shall be recognized as a gain on reversal on impairment loss aligned with the remaining useful life of the asset. IV. Reversal of an impairment loss shall not exceed the carrying amount that would have been determined as if there was no impairment loss has been recognized in the prior years. V. Impairment loss for goodwill can be reversed but to the extent only of the impairment loss recognized. A. Two statements are correct C. Four statements are correct B. Three statements are correct D. All statements are correct

17.

A reversing entry should never be made for an adjusting entry that A. Accrues unrecorded revenue. B. Adjusts unexpired costs from an expense account to an asset account. C. Accrues unrecorded expenses. D. Adjusts expired costs from an expense account to an asset account.

18.

Under PFRS 13, fair value is defined as “the price that would be received to sell an asset or to transfer a liability in an orderly transaction between market participants at the measurement date.” Which of the four measurement bases mentioned in the Conceptual Framework is essentially used to mean fair value? A. Current cost B. Historical cost C. Realizable value D. Present value

19.

The intangible asset goodwill may be A. capitalized only when purchased. C. capitalized only when created internally. B. capitalized either when purchased or created internally. D. written off directly to retained earnings.

20.

50 milking cows were acquired at the beginning of the year. The milk harvested would include A. Debit biological asset C. Credit gain in Agricultural Produce B. Debit gain in Agricultural Produce D. Credit gain from biological asset.

21.

Which of the following statements are correct about impairment loss? I. Land held for undeterminable use is an investment property. II. Land held for operating lease is an investment property. III. Building lease out under finance lease is an investment property. IV. Building held as real estate firm and in the ordinary course of business is not an investment property. V. In case of partly investment and partly owner-occupied property, the property is an investment property if significant portion if help for administration purposes. VI. No depreciation is recorded for investment property if fair value model is used. A. Two statements are correct C. Four statements are correct B. Three statements are correct D. Five statements are correct

22.

Which of the following events after reporting period need adjustment? I. Bankruptcy of customer V. Issuance of ordinary shares II. Commencing major litigation VI. Settlement of a court case III. Discovery of fraud that show the financial statement is incorrect IV. Loss on earthquake A. Two statements need adjustment C. Four events need adjustment B. Three events need adjustment D. five statements are correct

23.

Which of the following statement(s) is/are correct about hyperinflation? I. Only nonmonetary items are restated. II. A decrease in general price index increased purchasing power. III. It is more advantageous to incur fixed obligations when price increases. IV. Retained earnings should not change its amount after reinstatement. V. In restating share capital, the date of issuance is used as a denominator. A. Two statements are correct C. Four statements are correct B. Three statements are correct D. Five statements are correct

24.

Accounting policies are modified for the following at interim dates. Revenue Losses Revenue Losses A. Yes Yes C. No Yes B. Yes No D. No No

25.

Information available prior to the issuance of the financial statements indicates that it is probable that, at the date of the financial statements, a liability has been incurred for obligations related to product warranties. The amount of the loss involved can be reasonably estimated. Based on the above facts, an estimated loss contingency should be A. classified as an appropriation of retained earnings. C. disclosed but not accrued. B. neither accrued nor disclosed. D. accrued.

26.

A decrease in projected benefit obligation A. will increase remeasurement gain B. will decrease remeasurement gain

C. will increase remeasurement loss D. will not affect remeasurement gain

27.

Which of the following is incorrect about employee benefits? A. Benefits paid is always deducted in computing employee benefits expense and projected benefit obligation. B. Past service cost will form part in computing employee benefit expense as well as in computing projected benefit obligation in year-end. C. Remeasurement gain/loss is the difference between actual return on plan assets and interest income on fair value of plan asset at the beginning of the year. D. The same discount rate is used when computing interest expense on PBO and interest income on Fair value of plan assets.

28.

What is the authoritative status of the Conceptual Framework? A. The framework applies when FRSC develops new or revised Standards. An enterprise is never required to consider this framework. B. If there is a Standard or Interpretation that specifically applies to a transaction, management should consider the applicability of Framework in developing and applying an accounting policy which results in information that is relevant and reliable. C. If there is a Standard or Interpretation that specifically applies to a transaction, it overrides the Framework. In the absence of a Standard or an Interpretation that specifically applies, the Framework should be followed. D. It has the highest level of authority. In case of conflict between the Framework and the Standard or Interpretation, The Framework overrides the Standard or Interpretation.

29.

Under PFRS 2, which of the following valuation techniques should not be used as a first instance measure of fair value for shares and share options not traded in an active market? A. Monte-Carlo model B. Intrinsic Model C. Binomial model D. Black-Scholes model

30.

What is the underlying concept that supports estimating a fixed asset impairment charge? A. Consistency B. Matching C. Faithful representation

D. Substance over form

31.

The following are done when using gross method of recording purchases, except I. Purchases discount is deducted from purchases when measuring cost of goods sold. II. Cash discounts taken are recorded in a purchases discount account at the time of payment. III. The cost of purchases is measured after deducting cash discounts allowable whether taken or not taken. A. I only C. III only B. II only D. I and III only

32.

Which statement best defines an accrual? A. Adjusting entries where revenue or expense recognition precedes cash flow. B. Adjusting entries where cash flow precedes revenue or expense recognition. C. Adjusting entries where cash flow and revenue or expense recognition are simultaneous D. Adjusting entries where revenue or expenses are recognized in the absence of cash flow evidence.

33.

ABC Corporation manufactures and sells household products. ABC experienced losses associated with the small appliance group. Operations and cash flows for this group can be clearly distinguished from the rest of the ABC’s operations. ABC decided to sell the small appliance group. The following are the latest point at which ABC shall report the small appliance group as a discontinued operation, except I. When ABC sells the majority of the assets of the segment. II. When ABC first sells any of the assets of the segment. III. When ABC receives an offer for the segment. IV. When ABC classifies it as held for sale. A. I only B. I and II only C. II and III only D. IV only

34.

S1. Under the Old Conceptual Framework, an asset is defined as a resource controlled by the entity as a result of past events and from which future economic benefits are expected to flow to the entity. S2. Under the Revised Conceptual Framework, an asset is defined as a present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits. S3. Under the Old Conceptual Framework, a liability is defined as a present obligation of the entity to transfer an economic resource as a result of past events. An obligation is a duty or responsibility that the entity has no practical ability to avoid. S4. Under the Revised Conceptual Framework, a liability is defined as a present obligation of the entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. A. True, True, True, True C. False, False, True, True B. True, True, False, False D. False, False, False, False

35.

What is the correct valuation approach for financial asset? A. Not held for collection at fair value and held for collection at amortized cost. B. Not held for collection at amortized cost and held for collection at fair value. C. Not held for collection at fair value and held for collection at fair value. D. Not held for collection at amortized cost and held for collection at amortized cost.

36.

ABC Company is required to consider which of the following in developing accounting policy for exploration and evaluation activities? A. Recent pronouncements of standard-setting bodies. B. The requirements and guidance in PFRS dealing with similar and related issues. C. Whether the accounting policy results in information that is relevant and reliable. D. The definitions, recognition criteria, and measurement concepts for assets, liabilities, income, and expenses in the Conceptual Framework.

37.

ABC Company has an asset that was classified as held for sale. However, the criteria for it to remain as held for sale no longer apply. What is the proper treatment of the asset? A. Measure the noncurrent asset at the lower of its carrying amount before the asset was classified as held for sale, adjusted for subsequent depreciation, amortization, or revaluations, and its recoverable amount at the date of the decision not to sell. B. Recognize the noncurrent asset at its carrying amount prior to its classification as held for sale, adjusted for subsequent depreciation, amortization, or revaluation. C. Leave the noncurrent asset at current carrying amount. D. Remeasure the noncurrent asset at fair value.

38.

Which statement regarding trial balance is incorrect? A. A trial balance helps to localize errors within an identifiable time period. B. A trial balance is a list of all of the open accounts in the ledger with their balances. C. A trial balance is a test of the equality of the debit and credit balances in the ledger. D. A trial balance proves that no errors of any kind have been made in the accounts during the accounting period.

39.

Under the new Implementing Rules and Regulations (IRR) of the Republic Act 10912 or the Continuing Professional Development (CPD) Law of 2016, through Professional Regulation Commission Resolution No. 2019-1146, the number required CPD units, for the renewal of professional license, is A. 15, every three years B. 30, every three years C. 45, every three years D. 60, every three years

40.

Which of the following properly describes a deferral? A. Cash is received after revenue is earned. C. Cash is received after expense is incurred. B. Cash is received before revenue is earned. D. Cash is paid at the same time period that an expense is incurred.

41.

Entity should separately report all of the following except A. assets and liabilities that have been financed with different types of instruments. B. assets that differ in their respective function in the entity’s central operations. C. assets and liabilities with different general liquidity characteristics. D. liabilities that differ in their amounts, timing and nature.

42.

The following statements pertain to the provision of Conceptual Framework on the concept of Capital and Capital Maintenance: S1. The principal difference between two concepts of capital maintenance is the treatment of the effects of changes in the prices of assets and liability of the entity. S2. The selection of the appropriate concept of capital by an entity should be based on the needs of the users of its financial statements. S3. The concept of capital maintenance chosen by an entity shall determine the accounting period used in the preparation of its financial statements. A. Only statement 1 is false C. Only statement 3 is false B. Only statement 2 is false D. None of the forgoing statements is false

43.

ABC Company is a large manufacturer of equipment. A major customer has placed an order for a special equipment for which has given a deposit to the entity. The parties have agreed on a price for the machine. As per the terms of the sales agreement, it is free on board contract and the title passes to the buyer when goods are loaded into the ship at the port. When should the revenue be recognized by the entity? A. When the deposit is received. C. When the customer orders the machine. B. When the machine is loaded at the port. D. When the machine has been received by the customer.

44.

The following conditions would require lease capitalization, which is/are not? I. The present value of the lease payments is significantly more than the fair value of the underlying asset. II. The lease term is significantly below the useful life of the underlying asset. III. There is purchase option that is not reasonably certain to be exercised. IV. The lease does not transfer title of the underlying assets to the lessee. A. I only C. II, III and IV only B. I, II and III only D. IV only

45.

“The entity should always report the important details about share capital, for example, the number of shares authorized, shares issued, shares in treasury, subscribed shares and par value”. The principle that best supports the quoted statement is A. Consistency C. Completeness B. Conservatism D. Matching

46.

If income is greater than expenses, the income summary account will be closed by A. Debiting cash and crediting income summary. B. Debiting income summary and crediting cash. C. Debiting income summary and crediting retained earnings. D. Debiting retained earnings and crediting income summary.

47.

As part of PFRS 8’s entity-wide disclosures, if revenues from a single external customer account for 10% or more of the entity’s total revenues, an entity shall disclose I. The identify of major customers. II. The identity of the segments reporting the revenues. III. The total amount of revenues from each major customer. IV. The total amount of revenues reported in each segment for the major customer. A. I and II C. II and IV B. II and III D. III and IV

48.

Members’ share in cooperative entities are classified as equity when A. the entity has an unconditional right to refuse redemption of the members’ shares. B. the entity has a conditional right to refuse redemption of the members’ shares. C. the redemption is conditionally prohibited by entity’s charter. D. the redemption is conditionally prohibited by law.

49.

Technically, offsetting in financial statements is accomplished when A. The allowance for doubtful accounts is deducted from accounts receivable. B. Gains or losses from disposal of noncurrent assets are reported by deducting from the proceeds the carrying amount of the assets and the related disposal cost. C. The accumulated depreciation is deducted from property, plant and equipment. D. The total liabilities are deducted from total assets to arrive at net assets.

50.

The following are not requirement for a component of an entity to be classified as a discontinued operation, except I. The component must have been a cash generating unit while being held for use II. The assets must have been classified as held for sale in the previous financial statements III. The activities must cease permanently prior to the financial statements being authorized for issue IV. The component must be a reportable segment A. I only C. II and III only B. I and II only D. IV only

51.

ABC Company provided the following information for the current year: Current service cost Present value of benefit obligation settled in advance Loss on plan settlement before normal retirement date Benefits paid to retirees Interest expense on PBO Actuarial loss on PBO during the year Interest income on plan assets Past service cost during the year Actual return on plan asset Contribution to the plan Discount or resettlement rate What amount should be reported as accrued benefit cost at year-end? A. P 2,000,000 B. P 1,750,000 C. P 1,500,000

500,000 950,000 250,000 1,000,000 600,000 200,000 350,000 300,000 850,000 1,500,000 10% D. P

500,000

52.

ABC Company reported a net income of 10,000,000. Shareholder’s equity shows that 400,000 shares of 7% Preference share capital, noncumulative P50 par value, 200,000 share of ordinary share capital with P80 par value including 25,000 treasury shares. Dividends were declared for the current year. What is the basic earnings per share? A. 43.00 B. 49.14 C. 50.70 D. 56.00

53.

During 2019, ABC Co. sold equipment that had cost P 98,000 for P 58,800. This resulted in a gain of P 4,300. The balance in Accumulated Depreciation—Equipment was P 325,000 on January 1, 2017, and P 310,000 on December 31. No other equipment was disposed of during 2017. Depreciation expense for 2019 was A. P 15,000. B. P 19,300. C. P 28,500. D. P 58,500.

54.

On the part of the investor which holds 25% equity interest, the investee’s declaration of 200,000 cash dividend and reporting of net loss of 500,000 would include A. Debit Investment in Associate P50,000 for the declaration of cash dividend and debit Investment in Associate P125,000 reporting of net loss. B. Debit Investment in Associate P50,000 for the declaration of cash dividend and credit Investment in Associate P125,000 reporting of net loss. C. Credit Investment in Associate P50,000 for the declaration of cash divided and debit Investment in Associate P125,000 reporting of net loss. D. Credit Investment in Associate P50,000 for the declaration of cash divided and Credit Investment in Associate P125,000 reporting of net loss.

55.

ABC Company reported income before tax of P 125,000 for 2018. The auditor questioned the following amounts that had been included in income before tax:  Unrealized gain on available-for-sale investment P 40,000  Equity in earnings of CBA Company 20,000  Dividends received from CBA Company 8,000  Adjustment to profit of prior years for arithmetical error (35,000) in depreciation ABC Company owns 40% of CBA’s ordinary shares. What amount should be reported as income before tax for 2018? A. P 152,000 C. P 112,000 B. P 117,000 D. P 85,000

56.

ABC, Inc. purchased equipment in the beginning of 2018 at a cost of P600,000 with 5 years life. Two years later it became apparent to ABC, Inc. that this equipment had suffered an impairment of value and it is estimated that the fair value is now only P240,000 and value in use is 220,000. The entry to record the impairment is A. Loss on Impairment of Equipment 380,000 Depreciation expense—Equipment 380,000 B. Loss on Impairment of Equipment 140,000 Depreciation expense—Equipment 140,000 C. Loss on Impairment of Equipment 120,000 Accumulated Depreciation—Equipment 120,000 D. Loss on Impairment of Equipment 140,000 Accumulated Depreciation—Equipment 140,000

57.

In 2019, ABC Company received an advance payment of 1,000,000 which was subject to tax but not reported in accounting income until 2020. The income statement and tax return showed the following: 2019 2020 Income before tax per income statement 6,000,000 9,000,000 Income before tax per tax return 7,000,000 8,000,000 Income tax rate 30% 30% In 2020, journal entry would include A. Debit Deferred tax liability 300,000 C. Credit deferred tax liability 300,000 B. Debit Deferred tax asset 300,000 D. Credit deferred tax asset 300,000

58.

The general ledger of ABC Corporation as of December 31, 2018, includes the following accounts: Copyrights P 20,000 Deposits with advertising agency (will be used to promote goodwill) 27,000 Discount on bonds payable 67,500 Excess of cost over fair value of identifiable net assets of acquired subsidiary 390,000 Trademarks 90,000 In the preparation of ABC's balance sheet as of December 31, 2018, what should be reported as total intangible assets? A. P594,500. B. P527,000. C. P500,000. D. P460,000.

59.

ABC Company provided the following share transactions for the current year: January 1 Share outstanding February 1 Issued for cash May 1 Acquired treasury shares August 1 25% share dividend September 1 Resold treasury shares November 1 Issued 3 for 1 share split What is the weighted average number of shares for EPS computation? A. P 103,720 B. P 305,000 C. P 311,250

44,000 56,000 25,000 10,000 D. P 307,500

60.

ABC Company followed the calendar year as the accounting period. The 2018 financial statements were authorized for issue on March 15, 2019.  On February 1, 2019, the entity determined that the total cost of equipment purchased on is P 3,700,000. The asset was purchased on November 12, 2018  On March 15, 2019, the entity discovered that the 2018 depreciation expense was overstated by P 470,000.  On March 20, 2019, the entity issued 100,000 ordinary shares at par of P 10 per share.  On march 27, 2019, the entity filed a case against another entity for patent infringement. The legal counsel assessed that it is probable that the entity will win the case for an amount of P 550,000. What total amount should be reported as adjusting entries on December 31, 2018? A. P 3,700,000 B. P 4,170,000 C. P 5,170,000 D. P 5,720,000

61.

ABC Company sold some of its plant assets during 2018. The original cost of the plant assets was P750,000 and the accumulated depreciation at date of sale was P700,000. The proceeds from the sale of the plant assets were P105,000. The information concerning the sale of the plant assets should be shown on Tobias’ statement of cash flows (indirect method) for the year ended December 31, 2018, as a(n) A. subtraction from net income of P55,000 and a P50,000 increase in cash flows from financing activities. B. addition to net income of P55,000 and a P105,000 increase in cash flows from investing activities. C. subtraction from net income of P55,000 and a P105,000 increase in cash flows from investing activities. D. addition of P105,000 to net income.

For items 62 and 63. ABC and CBA exchanged equipment.

62.

63.

ABC CBA Equipment 1,500,000 2,000,000 Accumulated depreciation 800,000 1,500,000 Fair value 500,000 800,000 Cash paid by ABC 100,000 100,000 If the exchange is without commercial substance, the entry would include, A. Debit Equipment New P800,000 in the books of ABC B. Debit Equipment New P600,000 in the books of CBA C. Credit Equipment Old P1,500,000 and Debit loss P200,000 in the books of ABC D. Credit Equipment Old P2,000,000 and Debit gain P200,000 in the books of CBA If the exchange is with commercial substance, the entry would include, A. Debit Equipment New P800,000 in the books of ABC B. Debit Equipment New P600,000 in the books of CBA C. Credit Equipment Old P1,500,000 and Debit loss P200,000 in the books of ABC D. Credit Equipment Old P1,500,000 and Debit gain P200,000 in the books of CBA

For Items 64 and 65. On July 1, the entity purchased a building for 12,000,000 with a residual value of 2,000,000 and useful life of 50 years. The government granted 3,000,000 related to the asset. 64. The entry to record a government grant using asset deduction and deferred grant approach respectively. A. Debit Building 3,000,000 and Debit Deferred Grant Income 3,000,000 B. Credit Building 3,000,000 and Credit Deferred Grant Income 3,000,000 C. Credit Building 3,000,000 and Debit Deferred Grant Income 3,000,000 D. Debit Building 3,000,000 and Credit Deferred Grant Income 3,000,000 65.

For the purpose of depreciating the asset, entry would include A. Debit Depreciation expense 70,000 if using asset deduction approach B. Debit Depreciation expense 70,000 if using deferred grant income approach C. Debit Depreciation expense 100,000 if using asset deduction approach D. Debit Depreciation expense 200,000 if using deferred income approach

66.

On July 31 of the current year, ABC Company purchased 25% of CBA Company outstanding shares for P 5,000,000. During the year, CBA Company reported a net income of P 3,000,000 and paid cash dividend of P 1,000,000. What is the carrying amount of the investment at year end? A. P 5,062,500 B. P 5,208,333 C. P 5,312,500 D. P 5,416,667

67.

ABC Company purchased an equipment for P 5,000,000 on January 1, 2019. The equipment had a useful life of five years with no residual value. On December 31, 2019, the entity classified the equipment as held for sale, on such date, the fair value equipment was P 4,000,000 and cost to sell of P 500,000. On December 31, 2020, the entity believed that the criteria for the classification as held for sale can no longer be met. Accordingly, the entity decided not to sell the equipment but to continue to use it. On December 31, 2020, the fair value of the equipment was P 3,000,000 and cost to sell of P 300,000. What amount should be included in profit or loss in 2020 as a result of the reclassification of the equipment to property, plant and equipment? A. P 800,000 gain B. P 300,000 gain C. P 800,000 loss D. P 300,000 loss

68.

ABC Company has historically reported bad debt expense of 5% of sales in each quarter. For the current year, the company followed the same procedure in the three quarters of the year. However, in the fourth quarter, the entity determined that the bad debt expense for the entire year should be 470,000. Sales on each quarter were P 1,000,000 (1st), P 2,500,000 (2nd), and P 3,000,000 (3rd). What amount of bad debt expense should be recognized in fourth quarter? A. P 325,000 B. P 145,000 C. P 795,000 D. P 615,000

69.

Equipment with a carrying amount of 500,000 was destroyed by fire on December 31, 2019 and on January 31, 2020, the investigation shows that a guard left a cigarette butt which caused the fire. On the other hand, the entity recorded a receivable from the insurance company for the amount of 300,000 but the entity will not receive any claim as the casualty is not covered by the insurance. A. The entity won’t have any adjustment since it already recorded a receivable of 300,000. B. The insurance company will recognize a liability. C. The entity will credit the claim receivable because the event is an adjusting event in 2019. D. There would be an adjustment, but it needs to be recorded in 2020 right after the investigation.

70.

A property acquired by issuing a 30,000 shares with par value of P50. At the time of acquisition, the fair value of the property is P2,000,000 and share is quoted at P80 per share. The entry to record the acquisition using the first order of priority would include. A. Debit property P2,400,000 and credit share capital P1,500,000 B. Debit property P1,500,000 and credit share capital P2,400,000 C. Debit property P2,000,000 and credit share capital P2,000,000 D. Debit property P2,000,000 and credit share capital P1,500,000

71.

ABC Company provided the following data for the current year: Sales P 60,000,000 Cost of Sales 28,000,000 Expenses 14,000,000 Depreciation 4,000,000 Income Tax Expense 4,000,000 The entity has two major reportable segments, A and B. An analysis revealed that P 1,000,000 of the total depreciation expense and P 2,000,000 of the expenses are related to general corporate activities. The remaining expenses and sales are directly allocable to segment activities according to the following percentages: Segment A Segment B Others Total Sales 40% 45% 15% 100% Cost of Sales 35% 50% 15% 100% Expenses 40% 40% 20% 100% Depreciation 40% 45% 15% 100% What amount should be reported as profit of Segment A? A. P 8,200,000 B. P 6,600,000 C. P 7,000,000 D. P 5,400,000

72.

ABC Company acquire a building on January 1, 2018 for 8,000,000 with a useful life of 50 years depreciated using straight line method. On December 31 2018, the fair value of the building is 8,500,000 and on December 31, 2019, the fair value is 7,500,000. Using fair value model, 2019 entry would include A. Debit depreciation expense 160,000 C. Credit gain 1,000,000 B. Debit loss 500,000 D. Debit loss 1,000,000

73.

ABC Company, a parent entity, approved on December 31, 2019 a plan to sell a subsidiary. The sale is expected to be completed on March 31, 2020. The year-end is December 31, 2018 and the financial statements were approved on March 1, 2020. The subsidiary had a net asset with carrying amount of P 15,000,000 including goodwill of P 1,500,000 on December 31, 2019. The subsidiary made a loss of P 3,000,000 from January 1 to March 1, 2020 and is expected to make a further loss of P 2,000,000 up to the date of sale. At the date of approval of the financial statements, the entity was in negotiation for the sale of the subsidiary but no contract had been signed. The entity expected to sell the subsidiary for P 9,000,000 and to incur cost of disposal of P 500,000. On December 31, 2019, what is the measurement of the subsidiary which is considered as a disposal group classified as held for sale? A. P 15,000,000 B. P 9,000,000 C. P 10,000,000 D. P 8,500,000

74.

ABC Company is in the business of leasing new sophisticated equipment. As lessor, the entity expects a 12% return. At the end of the lease term, the equipment will revert to CBA company. On January 1, 2019, an equipment is leased to another entity under a direct financing lease. Cost of equipment to CBA P 5,500,000 Residual value – unguaranteed 400,000 Annual rental payable in advance 959,500 Useful life and lease term 8 years Implicit interest rate 12% First lease payment January 1, 2019 What is the gross investment in the lease? A. P 5,900,000 B. P 8,076,000 C. P 5,500,000 D. P 7,676,000

75.

ABC Company has two products in the inventory Product A Selling price 2,000,000 Materials and conversion costs 1,500,000 General administration costs 300,000 Estimated selling costs 600,000 What amount should be reported as inventory using LCNRV? A. P 3,200,000 B. P 3,300,000 C. P 3,700,000

Product B 3,000,000 1,800,000 800,000 700,000 D. P 3,800,000

END OF MIDTERM EXAMINATION Prepared by:

Noted by:

______________________________ KEICY M. BENEDICTOS, CPA

________________________________ GREG O. SACLOT, CPA, LPT, CAT Program Chair, BS Accountancy

______________________________ BERNARD R. SALONGA JR., CPA

________________________________ DR. EMERLITA S. NAGUIAT Dean, College of Business Administration