PPL Cup - Difficult

DIFFICULT 1. The Fitness Health Spa charges a non refundable annual membership fee of P 6,000 for its services. For this fee, each member receives a fitness evaluation (value P 1,000 ), a monthly magazine (annual value P 320), and 2 hours use of the equipment each week (annual value P 7,000) . Each of the three elements of the annual membership can be purchased separately. The initial direct costs to obtain the membership are P1,200. The direct cost of the fitness evaluation is P 500, and the monthly direct costs to provide the other services are estimated to be P 150 per person. A membership was sold to a customer on April 1, 2009. The total fees earned by the company on this membership for the year ended December 31, 2009 is: a. P 6,000 b. P 4,600 c. P 4,500 d. P 4,750

2. On January 1, 2009, Rockets Corporation issued a P 3 million 6% convertible bonds at par. The bonds are redeemable at a premium of 10% on December 31, 2012 or it may be converted into ordinary shares on the basis of 50 shares for each P 1,000 bond at the option of the holder. The interest rate of the equivalent bond without the conversion rights would have been 10%. The issuance of convertible bonds on January 1, 2009 increased the entitys equity by (Round-off present value factors to four decimal places) a. P 175, 518 73,068 d. P 0 b. P 380, 418 c. P

3. Detroit Corp. sells equipment with a carrying amount P 150,000 to Pistons Corp. for P170,000 when the equipments fair value is P 100,000 and then enters into a cancelable operating lease agreement

to use the equipment for two years. In the current year, how much profit would Detroit Corp. record on the sale of the equipment. a. P 20,000 d. Nil b. P 70,000 c. P 50,000

4. Cavaliers Corporation made an accounting profit before tax of P 40,000 for the year ended June 2009. Included in the accounting profit were the following items of revenue and expenses. Donations to political parties ( non deductible) P 5,000 Depreciation machinery ( 20%) 15,000 Annual leave expense 5,600 Rent revenue 12,000 For the tax purposes the following applied: Annual leave paid P 6,500 Rent receive 10,000 Depreciation rate for machinery 25% Income tax rate 35% Calculate the current tax liability for the year ended 30 June 2009 a. P 13,423 b. P 15,750 c. 14,000 d. P 15,050

5. An entity grants to an employee the right to choose either 1,000 phantom shares, ie a right to a cash payment equal to the value of 1,000 shares or 1,200 shares. The grant is conditional upon the completion of three years service.

At grant date, the entitys share price is P 50 per share. At the end of years 1 and 2, the share price is P 52 and P 55 respectively. The entity estimates that the grant date fair value of the share alternative is P 48 per share. Computer for the amount to be recognize as compensation expense in year 2. a. P 21,867 b. P 15,750 c. P 14,000 d. P15,050 6. A director of an entity receives a retirement benefit of 10% of his final salary per annum for his contractual period of 3 years. The director does not contribute to the scheme. His anticipated salary over the three years is Year 1 P100,000, Year 2 P120,000 and Year 3 P144,000. Assume a discount rate of 5%. The pension liability at the end of the second year is a. P 29,520 b. P 22, 500 c. P 27,429 d. P 26,775

7. Magic Company had the following capital during the 2008 and 2009: Preference share capital, P 100 par, 10% cumulative, 100,000 shares P 10,000,000 Ordinary share capital, P 100 par, 400,000 shares 40,000,000 Magic reported profit of P 8,000,000 for the year ended December 31, 2009. Magic paid no preference share dividends during 2008 and paid P 1,500,000 preference share dividends during 2009. On January 31, 2010, prior to the date that financial statements are authorized for issue, Magic distributed 10% ordinary share dividend. In its 2009 income statement, what amount should Magic report as basic earnings per share?

a. P 17.50 P 14.77

b. P16.25

c. P 15.91

d.

8. Victoria Company had purchased equipment for P 10,000,000 on January 1, 2007. The equipment had a 5 year life and a residual value of 1,000,000. Victoria Company depreciated the equipment using the straight line method. OnDecember 31, 2009, Victoria questioned the recoverability of the carrying amount of this equipment. On December 31, 2009 the undiscounted expected net future cash flows related to the continued use and eventual disposal of the equipment totaled P 4,800,000. The equipments fair value on December 31, 2009 is P 4,000,000 while the discounted cash flows related to the equipment is P 4,200,000. After any loss on impairment has been recognized, what is the carrying amount of the equipment.? a. P 4,200,000 4,600,000 b. P 4,000,000 4,800,000 c. P d. P

9. On January 1, 2009 Major Company purchased a uranium mine for P 800,000. On that date, Major estimated that the mine contained 1,000 tons of ore. At the end of the productive years of the mine, Major Company will be required to spend P 4,200,000 to clean up the mine site. The appropriate discount rate is 8%, and it is estimated that it will take approximately 14 years to mine all of the ore. Major uses the productive output method of depreciation. During 2009, Major extracted 100 tons of ore from the mine. Compute the amount of depreciation for 2009. a. P 114,408 223,000 b. P 80,000 500,000 d. P c. P

10. Citimart Inc. was granted a parcel of land by a local government authority. The condition attached to this grant was that Citimart Inc. should clean up this land and lay roads by employing laborers from the village in which the land is located. The entire operation will take three years and is estimated to cost P 100 million. This amount will be spent in this way: P 20 million each in the first and second years and P 60 million in the third year. The fair value of this land is currently P 120 million. How much should be recognize as income from government grant at the end of the first year? a. P 20,000,000 40,000,000 b. P 24,000,000 c. P d. P 0

11. SEASONS INC acquired an asset that had a cost of P 130,000. The asset is being depreciated over a 5 year period using the sum of the years digit method. It has a salvage value estimated at P 10,000. The loss/gain if the asset is sold for P 38,000 at the end of the third year is a. P 4,000 gain c. P 68,000 loss b. P 20,000 loss d. P 92,000 loss 12. The Evita Company uses cash basis accounting for their records. During 2009, Evita collected P 500,000 from its customers, made payment of P 200,000 to its suppliers for inventory, and paid P 140,000 for operating costs. Evita wants to prepare accrual basis statements. In gathering information for the accrual bass financial statements, Evita discovered the following: e.Customers owed Evita P50,000 at the beginning of 2009 and P35,000 at the end of 2009. f. Evita owed suppliers P 20,000 at the beginning of 2009 and P 27,000 at the end of 2009. g. Evitas beginning inventory was P 42,000 and its ending inventory was P44,000.

h. Evita had prepaid expenses of P 5,000 at the beginning of 2009 and P 7,400 at the end of 2009. i. Evita had accrued expenses of P12,000 at the beginning of 2009 and P 19,000 at the end of 2009. j. Depreciation for 2009 was P51,000. Determine the accrual basis net income of Evita Company for the year ended December 31, 2009 a. P 84,400 b. P 79,600 c. P 91,400 d. P 98,400

CLINCHER 1. Smart Company has P 3,000,000 note receivable from sale of plant bearing interest at 12% per annum. The note is dated June 1, 2008. The note is payable in 3 annual installments of P 1,000,000 plus interest on the unpaid balance every June 1. The initial principal and interest payment was made on June 1, 2009. The interest income for 2009 is a. P 300,000 b. P 290,000

c. P 210,000 d. P 140,000

2. On December 1, 2009, Money Co. gave Home Co . a P 200,000 11% loan. Money paid proceeds of P 194,000 after the deduction of a P 6,000 non refundable loan origination fee. Principal and interest are due in 60 monthly present value of P 200,000 and 12.4% at a present value of P 194,000. What amount of income from this loan should Money report in its 2009 income statement? a. P 0 b. P 1,833 c. P 2,005 d. P 7,833

3. Included in the sales revenue of Imbiah Company for the year 2009 is an amount of P3 million relating to sales made under a special promotion in December 2009. Theses goods were sold with an accompanying voucher equal to the selling price. Five years after the sale, these vouchers will be exchanged for goods of the customers choice. The profit margin on these goods is expected to be 30% of the selling price and market research estimates that 50% of the vouchers will be redeemed. The present value ( at December 31, 2009) of P1 at the time the vouchers will be exchanged can be taken as 0.60. The provision for voucher scheme as of December 31, 2009 is a. P 1,050,000 b. P 692,300 c. P 900,000 d. P 630,000

4. A court case decided on 21 December 2009 awarded damages against Pylon. The judge announced that the amount of damages will be set at a future date, expected to be in March 2010. Pylon has received advice from its lawyers that the amount of the damages could be anything between P 20,000 and P 7,000,000. As of December 31, 2009, how much should be recognized in the balance sheet regarding this court case? a. P 20,000 b. P 7,000,000 c. P 3,510,000 d. P 0

5. On June 9, 2009, Pol Corp. sold merchandise with a list price of P 5,000 to Pot on account. Pol allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made FOB shipping point. Pol prepaid P 200of delivery cost for Pot as an accommodation. On June 25, 2009, Pol received from Pot a remittance in full payment amounting to a. 2,744 c. P 2,944 b. 2, 940 d. P 3,000

Suggested Answers Difficult

1. b 2. a 3. d 4. a 5. a 6. c 7. c 8. a 9. c 10. b 11. a 12. a Clincher 1. b 2. c 3. d 4. d 5. d