College of Accountancy

Qualifying Examination Financial Accounting Part 1

March 2015 Set
The physical inventory of Pangasinan Company on December 31, 2012, showed merchandise with a cost of
P4,000,000 was on hand at that date. You also discovered the following items were all excluded from the count:
a. Merchandise costing P160,000, which was held by Pangasinan on consignment. The consignor is a
subsidiary.
b. A special machine, fabricated to order for a customer costing P400,000, was finished and specifically
segregated in the back part of the shipping room on December 31, 2012. The customer was billed on that
date and the machine excluded from inventory although it was shipped on January 4, 2013.
c. Merchandise costing P80,000, which was shipped by Pangasinan f.o.b. destination to a customer on
December 31, 2012. The customer expects to receive the merchandise on January 3, 2013.
d. Merchandise costing P120,000 which was shipped by Pangasinan f.o.b. shipping point to a customer on
December 29, 2012.
e. Merchandise costing P50,000 shipped by a vendor f.o.b. shipping point on December 28, 2012 and
received by Pangasinan on January 10, 2013.
1. The corrected balance of Pangasinans inventory should be
a. P4,530,000 c. P4,480,000
b. P4,130,000 d. P4,690,000

Londinium Corp. values its inventory by using the retail FIFO method. The following information is available
for the year just ended:
Cost Retail
Beginning inventory P 80,000 P140,000
Purchases 297,000 420,000
Freight in 4,000 ` -
Breakage 8,000
Markups (net) 10,000
Markdowns (net) 2,000
Sales 400,000
2. At what amount would Londinium report its ending inventory?
a. P112,000 c. P117,600
b. P113,400 d. P119,000

Newcastle Ltd uses many kinds of machines in its operations. It constructs some of these machines itself and
acquires others from the manufacturers. The following information relates to machine A that it has recorded
in during 2012.

Cash paid for equipment, including VAT of P9,600 P89,600

Costs of transporting machine insurance and transport 3,000
Labor costs of installation by expert fitter 5,000
Labor costs of testing equipment 4,000
Insurance costs for 2012 1,500
Costs of training for personnel who will use the machine 2,500
Costs of safety rails and platforms surrounding machine 6,000
Costs of water devices to keep machine cool 8,000
Costs of adjustments to machine to make it operate more
efficiently 7,500
3. Determine the amount at which machine A should be recorded in the records of Newcastle Ltd.
a. P105,500 c. P113,500
b. P116,000 d. P121,500

Seasons INC. acquired an asset that had a cost of P130,000. 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 P10,000.
4. The loss/gain if the asset is sold for P38,000 at the end of third year is
a. P 4,000 gain c. P68,000 loss
b. P20,000 gain d. P92,000 loss
 On January 1, 2012, the historical balances of the land and building of Floridablanca Company are:

Cost Accumulated Depn

Land P50,000,000 P 0
Building 300,000,000 90,000,000
The land and building were appraised on same date and the revaluation revealed the following:
Fair value
Land P80,000,000
Building 350,000,000
5. There were no additions or disposals during 2012. Depreciation is computed on the straight line. The
estimated life of the building is 20 years. The depreciation of the building for the year ended December 31,
2012 should be
a. P25,000,000 c. P10,000,000
b. P15,000,000 d. P17,500,000

6. Possible data for the computation of total intangible assets

Deposits with advertising agency which will be used
to promote goodwill P45,000
Excess of cost over fair value of net assets of purchased subsidiary 400,000
Franchise to operate in Cebu 100,000
Marketing costs of introducing new products 150,000
Organization costs 50,000
Patents 244,000
Research and development costs expected to benefit
future periods 420,000
Research and development costs not expected to
benefit future periods 300,000
Unamortized bond discount 155,000
a. P964,000 c. P1,214,000
b. P814,000 d. P 744,000

Nagcarlan Company purchased a patent on January 1, 2009, for P3,570,000. The patent was being amortized
over its remaining legal life of 15 years. During 2012 Nagcarlan determined that the economic benefits of the
patent would not last longer than ten years from the date of acquisition.
7. What amount should be reported in the balance sheet as patent, net of accumulated amortization, at
December 31, 2012?
a. P2,618,000 c. P2,520,000
b. P2,448,000 d. P2,142,000

As of June 30, 2012, the bank statement of Ang Po Trading had an ending balance of P373,612. The following
data were assembled in the course of reconciling the bank balance:
The bank erroneously credited Ang Po Trading for P2,150 on June 22.
During the month, the bank charged back NSF checks amounting to P2,340 of which P800 had been
redeposited by the 25th of June.
Collection for June 30 totaling P10,330 was deposited the following month.
Checks outstanding as of June 30 were P30,205.
Notes collected by the bank for Ang Po Trading were P8,150 and the corresponding bank charges were
P50.
8. The adjusted bank balance on June 30, 2012 is
a. P351,587 c. P353,927
b. P358,147 d. P359,687

Smart Company has P3,000,000 note receivable from sale of plant bearing interest at 12% per annum. The
note is dated June 1, 2011. The note is payable in 3 annual installments of P1,000,000 plus interest on the
unpaid balance every June 1. The initial principal and interest payment was made on June 1, 2012.
9. The interest income for 2012 is
a. P300,000 c. P210,000
b. P290,000 d. P140,000
 On November 30, 2012, accounts receivable in the amount of P900,000 were assigned to Kaban Finance Co.
as security for a loan of P750,000. Kaban charged a 3% commission on the accounts; the interest rate on the
note is 12%. During the December 2012, Kalan collected P350,000 on assigned accounts after deducting
P560 of discounts. Kalan wrote off P530 assigned account. On December 31, 2012, Kalan remitted to Kaban
the amount collected plus one months interest on the note.
10. How much is Kalans equity in the assigned accounts receivable as of December 31, 2012?
a. P149,470 c. P141,410
b. P141,970 d. P148,910

On December 31, 2011, Bottle Company sold used equipment to Glass Corp. and received a non interest
bearing note requiring payment of P50,000 annually for ten years. The first payment is due December 31,
2012, and the prevailing rate of interest for this type of note at date of issuance is 12%. (round off present
value factors to 4 decimal places)
11. In its December 31, 2012 balance sheet, Bottle should report the carrying amount of the note at
a. P316,410 c. P266,410
b. P304,380 d. P282,510

The cash account of Peter Corp. on December 31, 2012 has a balance of P127,600 and it consists of the
following:
Bills and coins on hand P52,780
Petty cash including petty cash voucher of P650 1,000
Balance in savings account w/ a bank closed by BSP 36,000
Customers check dated Jan. 15, 2011 8,000
Credit memo from supplier for purchase returns 6,500
Postage stamps 120
Money order 800
IOU of an employee 400
Checking account balance in Bank of the Philippine Islands 22,000
12. The correct cash balance on December 31, 2012 of Peter Corp. is
a. P76,580 c. P75,130
b. P76,330 d. P75,930

On January 2, 2012, Faith Corporation bought 30% of the outstanding ordinary shares of Love Corporation for
P2,580,000 cash. Faith accounts for this investment by the equity method. At the date of acquisition of the
stock, Loves net assets had a book and fair value of P6,200,000. Loves net income for the year ended
December 31, 2012 was P1,800,000. During 2012, Love declared and paid cash dividends of P200,000.
13. On December 31, 2012, how much should Faith carry its investment in Love?
a. P2,340,000 c. P3,024,000
b. P3,060,000 d. P2,580,000

Maker Company purchased a held to maturity instruments with a face value of P5,000,000 on January 2,
2012. The bonds will mature on January 2, 2017 and the nominal rate of interest is 12%. Interest is payable
annually every December 30. The market rate of interest on this date is 10%
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
14. How much did Maker pay in acquiring the instruments?
a. P5,246,610 c. P5,348,580
b. P5,326,006 d. P5,379,600

Asian Bank acquired the following portfolio equity securities to other comprehensive income during 2012 and
reported the following balances:
Market Value
Security Historical Cost 2012 2013
A P600,000 P590,000 P620,000
 B 380,000 380,000 370,000
C 450,000 470,000 460,000
No sales occurred during 2013 and 2014. All declines are considered to be temporary.
15. What is the carrying value of the securities in Asians December 31, 2012 and 2013 statement of financial
positions, respectively?
a. P1,390,000 and P1,400,000
b. P1,400,000 and P1,450,000
c. P1,400,000 and P1,400,000
d. P1,440,000 and P1,450,000

During 2012, Ouchy Company purchased marketable securities and designated as investment in equity to
other comprehensive income. The cost and market value at December 31, 2012 were:
Securities Shares Cost Market
Summa 10,000 P1,340,000 P1,460,000
Cum 10,000 1,950,000 1,980,000
Laude 20,000 2,400,000 2,500,000
Ouchy sold 10,000 shares of Company Cum stock on January 31, 2013, for a net proceeds of P2,100,000
16. On the sale, how much should Ouchy report as realized gain?
a. None c. P150,000
b. P120,000 d. P170,000

Quirino, Inc. and its subsidiaries have provided you, their PFRS specialists, 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.
17. 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

On December 31, 2012, Agoda Company has the following information concerning its cash and cash
equivalents and some other items:
Coins and currency P 50,000
Checks received from customers 600,000
Certificate of deposit, term: 12 months 800,000
Petty cash fund 4,000
Postage stamps 600
Bank A, checking account balance 2,100,000
Post dated check, customer 10,000
Money order from customer 15,000
Cash in savings account 100,000
Bank draft from customer 40,000
Utility deposit to gas company, refundable 5,000
Cash advance received from customer 8,000
NSF check, C. Company 20,000
Cash advance to company executive, collectible upon demand 200,000
Bank B, checking account, overdraft 20,000
IOUs from employees 12,000
18. What amount of cash and cash equivalents should Agoda Company report in its December 31, 2012
statement of financial position?
a. P2,869,000 b. P2,874,000 c. P2,882,000 d. P2,909,000
 The following were taken from the current working papers in connection with your audit of the Waters
Companys financial statements for the year ended December 31, 2012.
Cash account consists of the following items:
Petty cash fund P25,000
Security Bank checking account (37,500)
Allied Bank current account 344,250
Total per GL P331,750
a) The count of the cashiers accountability on January 2, 2013 revealed total bills and coins of P9,000.
Unreplenished vouchers for various expenses totaled P16,000, of which P3,000 pertains to January 2013.
b) Bank reconciliation statement prepared by the cashier for the Allied Bank account follows:
Bank balance P310,500
Add: Deposit in transit P61,250
Bank service charge 1,250 62,500
Total P373,000
Less: Outstanding checks
Check no. Amount
214 P2,500***
219 20,750
225 6,000
228 8,500 28,750
Book balance P344,250
***
check certified by the bank in December 2012.
All reconciling items were traced to the bank statement. Further investigation indicated that the deposits
in transit include a customers post dated check amounting to P40,000. The check represents a
collection from account customer for sales made in the middle of October 2012.
19. How much is the adjusted balance of petty cash fund as of December 31, 2012?
a. P 9,000 b. P12,000 c. P13,000 d. P16,000
20. How much is the adjusted Allied Bank current account as of December 31, 2012?
a. P336,500 b. P305,500 c. P296,500 d. P330,250

Bruno received from a customer a one year, P375,000 note bearing annual interest of 8%. After holding the
note for six months, Bruno discounted the note to Super Bank at an effective interest rate of 10%.
21. How much should Bruno receive from the bank?
a. P371,428.50 c. P392,875.50
b. P384,750.00 d. P405,000.00
22. If the discounting is treated as a sale, what amount of loss on discounting should Bruno recognize?
a. None c. P 9,750
b. P5,250 d. P20,250

On July 1, 2012, Olive Corp. sold equipment to Popeye Co. for P250,000. Olive accepted a 10% note
receivable for the entire sales price. This note is payable in two equal installments of P125,000 plus accrued
interest on December 31, 2012 and December 31, 2013. On July 2, 2013, Olive discounted the note at a bank
at an interest rate of 12%.
23. How much was Olives proceeds from the discounted note?
a. P121,000 c. P125,875
b. P123,375 d. P129,250

Sad Company accepted a P200,000, 90 day, 12% interest bearing note dated November 15, 2012 from a
customer. On December 31, 2012, Sad discounted the note at Finance Company at 15% discount rate. Sad
Company informed the maker of the note regarding the discounting arrangement. On maturity date, the
maker of the note did not pay the note and as a result Finance Company charged Sad Company for the total
amount due plus P2,000 protest fee.
24. How much should Sad Company pay to Finance Company, when the maker fails to pay the note upon its
maturity?
a. None c. P206,000
b. P202,000 d. P208,000
25. What amount of interest income should Sad Company recognize related to the notes receivable in it
December 31, 2012 balance sheet?
a. None c. P2,000
b. P1,000 d. P3,000
 On March 1, 2013, Cursor Company sold goods to Matrix Company. Matrix Company signed a non interest
bearing note requiring payment of P60,000 annually for seven years. The first payment was made on March
31, 2013. The prevailing rate of interest for this type of note at the date of issuance was 10%.
Information on present value factors is as follows:
Present value of 1 PV of Ordinary Annuity of 1
Periods at 10% at 10%
6 0.56 4.36
7 0.51 4.87
26. How much should Cursor Company report as sales revenue in March 2013?
a. P214,200 c. P292,200
b. P261,600 d. P321,600

Twosome Company sold an equipment on December 30, 2012 in exchange for a non interest bearing note
requiring ten annual payments of P200,000. The first collection was made on December 30, 2012. The
market interest rate fro similar note was 8%. Present value factors at 8% are;
Present value of 1 PV of Ordinary Annuity of 1
Periods at 8% at 8%
9 0.50 6.25
10 0.46 6.71
27. In its December 31, 2012 balance sheet, what amount should Twosome report as note receivable?
a. P900,000 c. P1,250,000
b. P920,000 d. P1,342,000

The Apple Mining Co. on May 31, 2012, acquired the rights to a coal containing an estimated reserve of
1,000,000 tons of coal. The company estimated that 12,500 tons of coal would be extracted and sold each
month. Cost allocable to coal was P3,500,000.
Also on May 31, 2012, the company purchased an equipment to be used in the production, costing P95,000
which has an estimated useful life of 10 years. The equipment was expected to become obsolete after all the
coal deposits had been extracted from the mine and only P5,000 selling price of the equipment could be
expected. Production was in full blast since June 1, 2012.
28. What would be the depletion expense for the year ended December 31, 2012?
a. P525,000 c. P153,125
b. P262,500 d. P306,250
29. Using the data in #28, what would be the depreciation expense on the new equipment for the year ended
December 31, 2012?
a. P9,000 c. P7,875
b. P4,500 d. P8,313

A piece of machinery has a marked price of P550,000. It was purchased under the term, 15%, 10%, and 5%
discounts. The cost of freight and installation after deducting the P8,000 sales proceeds of the old machinery
which was replaced is P12,000.
30. The new machinery shall be recorded at a cost of
a. P411,712 c. P419,712
b. P405,000 d. P397,000

A used delivery truck was traded in for a new truck. Information relating to the trucks follows:
Used truck:
Cost P1,600,000
Accumulated depreciation 1,200,000
Estimated current fair value 320,000
New truck:
List price 2,000,000
Cash price without trade in 1,900,000
Cash price with trade in 1,560,000
31. The amount that should be capitalized as the cost of the new truck is
a. P1,560,000 c. P1,880,000
b. P1,900,000 d. P1,960,000
 Consolidate Company has a single investment property which had an original cost of P2,900,000 on January
1, 2009. On December 31, 2011 its fair value was P3,000,000 and On December 31, 2012 it had a fair value
of P2,950,000. On acquisition, the property had a useful life of 40 years.
32. What is the expense recognized in profit or loss for the year ended December 31, 2012 under cost model and
fair value model?
Cost Model Fair Value Model
a. P72,500 P73,750
b. P72,500 P50,000
c. P50,000 P72,500
d. P 0 P50,000

Data regarding Ball Corps investment of fair value through other comprehensive income follow:
Cost Market value
December 31, 2012 P150,000 P130,000
December 31, 2013 150,000 160,000
33. Differences between cost and market values are considered temporary. Balls 2013 other comprehensive
income would be
a. P30,000 c. P10,000
b. P20,000 d. P 0

Knot Company purchased 20,000 ordinary shares on March 1, 2012, for P1,440,000. The entity received a
P200,000 cash dividend on June 30, 2012. The investee declared a 10% stock dividend on December 2, 2012
to shareholders on record December 30, 2012. The dividend was distributed on January 15, 2013. The market
price of the share was P38 on December 2, 2012, P40 on December 30, 2012 and P42 on January 15, 2013.
34. What amount should be recorded as dividend income in 2012?
a. P360,000 c. P352,000
b. P200,000 d. P368,000

On July 1, 2012, Fun Company purchased 60,000 shares of Sad Companys 200,000 outstanding ordinary
shares for P200 per share. On December 10, 2012, Sad Company paid P1,000,000 in dividends. Sad
Companys net income for 2012 was P10,000,000 earned evenly throughout the year.
35. What is the amount of income from the investment should reported for 2012?
a. P3,000,000 c. P1,500,000
b. P2,500,000 d. P 300,000

On January 1, 2012, Fly Company purchased 30% interest in an investee for P5,000,000. On this date, the
investees shareholders equity was P10,000,000. The carrying amounts of the investees identifiable net
assets approximated their fair values, except for land whose fair value exceeded its carrying amount by
P4,000,000. The investee reported net income of P2,000,000 for 2012 and paid P1,000,000 dividend.
36. On December 31, 2012, what amount should be reported as investment in associate?
a. P5,300,000 c. P5,600,000
b. P5,520,000 d. P5,400,000

Vista Company owned a 20% of Vest Companys preference share capital and 50% of its ordinary share
capital. Vest Companys share capital outstanding on December 31, 2012 is as follows:
10% cumulative preference share capital P1,000,000
Ordinary Share Capital 7,000,000
Vest Company reported net income of P5,000,000 for the year ended December 31, 2012.
37. What amount should be reported as investment income for the year ended December 31, 2012?
a. P2,750,000 c. P2,650,000
b. P2,500,000 d. P2,450,000

On July 1, 2012, County Company paid P2,396,000 for 10% bonds with a face amount of P2,000,000 to be
held as financial assets at amortized cost. Interest is paid on June 30 and December 31. The bonds were
purchased to yield 8%. The entity uses the effective interest method.
38. What is the carrying amount of the bond investment on December 31, 2012?
a. P2,386,000 c. P2,391,840
b. P2,396,000 d. P2,415,800
 On January 1, 2012 Incredible Company adopted a plan to accumulate P8,000,000 by January 1, 2016. The
entity plans to make four equal annual deposits to a fund that will earn interest at 12% compounded
annually. The first deposit was made on January 1, 2012 and every January 1 thereafter. Future value factors
are:
Future value of an ordinary annuity of 1 at 12% for 4 periods 4.78
Future value of an ordinary annuity in advance of 1 at 12% for 4 periods 5.35
39. What is the required annual deposit to the fund?
a. P1,464,435 c. P2,000,000
b. P1,495,330 d. P1,673,640

Now and Forever is planning to get married 5 years from now. They made investment for 5 years at 12% per
annum compounded semiannually to equal P716,000 on the date of maturity, an amount enough for a
wedding grande. The future value of 1 at 12% for 5 periods is 1.76 and the future value of 1 at 6% for 10
periods is 1.79.
40. What amount must be deposited now at the compound interest to provide the desired amount?
a. P376,842 c. P400,000
b. P406,818 d. P423,668

Accept Company purchased a varnishing machine for P1,500,000 on January 1, 2012. The entity received a
government grant of P250,000 in respect of this asset. The accounting policy is to depreciate the asset over
5 years on straight line basis and to treat the grant as deferred income.
41. What is the carrying amount of the asset on December 31, 2012?
a. P1,500,000 c. P1,200,000
b. P1,250,000 d. P1,450,000
42. Using the information in #41, what amount of income from the government grant is recognized for 2012?
a. P250,000 c. P125,000
b. P 50,000 c. P 0

On January 1, 2012, Ham Company borrowed P3,000,000 at an annual interest rate of 10% to finance
specifically the cost of building a power plant. Construction commenced on January 1, 2012 with a cost of
P3,000,000.
Not all the cash borrowed was used immediately, so interest income of P40,000 was generated by
temporarily investing some of the borrowed funds prior to use. The project was completed on November 30,
2012.
43. What is the carrying amount of the plant on November 30, 2012?
a. P3,000,000 c. P3,260,000
b. P3,235,000 d. P3,275,000

During 2012, Lassie Company constructed a new manufacturing facility at a cost of P30,000,000. The
expenditures for the building which was finished late in 2012 were incurred evenly during the year. The
entity had the following loans outstanding on December 31, 2012:
10% note to finance specifically construction of the manufacturing facility, dated January 1, 2012,
P10,000,000.
The note is unpaid on December 31, 2012. Investments were made on the proceeds from the loan and
income of P100,000 was realized in 2012.
12% 20 year bonds issued at face value on April 30, 2011, P30,000,000.
8% 5 year note payable, dated March 1, 2011, P10,000,000.
44. What is the capitalizable borrowing cost?
a. P1,450,000 c. P1,550,000
b. P1,400,000 d. P1,500,000

Aliaga Corporation was incorporated on January 2, 2012. The following items relate to the Aliagas property and
equipment transactions:
Cost of land, which included an old apartment building appraised at P300,000 P3,000,000
Apartment building mortgage assumed, including related interest due at the time of purchase 80,000
Delinquent property taxes assumed by Aliaga 30,000
Payments to tenants to vacate the apartment building 20,000
Cost of razing the apartment building 40,000
Proceeds from sale of salvaged materials 10,000
 Architects fee for new building 60,000
Building permit for new construction 40,000
Fee for title search 25,000
Survey before construction of new building 20,000
Excavation before construction of new building
100,000
Payment to building contractor 10,000,000
Assessment by city for street project 15,000
Cost of grading and leveling 50,000
Temporary quarters for construction crew 80,000
Temporary building to house tools and materials
50,000
Cost of changes during construction to make new building more energy efficient 90,000
Interest cost on specific borrowing incurred during construction 360,000
Payment of medical bills of employees accidentally injured while inspecting building construction
18,000
Cost of paving driveway and parking lot
60,000
Cost of installing lights in parking lot 12,000
Premium for insurance on building during construction 30,000
Cost of open house party to celebrate opening of new building 50,000
Cost of windows broken by vandals distracted by the celebration
12,000
45. What is the cost of the land?
a. P3,220,000 c. P3,270,000
b. P3,425,000 d. P3,290,000
46. What is the cost of the building?
a. P10,810,000 c. P10,800,000
b. P10,890,000 d. P10,830,000

The following pertains to Smile Companys biological assets:

Price of the asset in the market P5,000
Estimated commissions to brokers and dealers 500
Estimated transport and other costs necessary to get asset
to the market 300
Selling price in a binding contract to sell 5,200
47. The entitys biological assets should be valued at
a. P4,700 c. P4,400
b. P4,500 d. P4,200

Cranston Inc. reported an impairment loss of 150,000 on its income statement for the year ended
December 31, year 3. This loss was related to long-lived assets which Cranston intended to use in its
operations. On the companys December 31, year 3 balance sheet, Cranston reported these long-lived assets
at 920,000 and, as of December 31, year 3, Cranston estimated that these long-lived assets would be used
for another five years. On December 31, year 4, Cranston determined that the fair values of its impaired
long-lived assets had increased by 25,000 over their fair values at December 31, year 3.
48. On the companys December 31, year 4 balance sheet, what amount should be reported as the carrying
amount of these long-lived assets? Assume straight-line depreciation and no salvage value for impaired
assets.
a. 761,000 c. 945,000
b. 736,000 d. 756,000

Synthia, Inc., a clothing manufacturer, purchased a sewing machine for 10,000 on July 1, year 2. The
machine had a ten-year life, a 500 salvage value, and was depreciated using the straight-line method. On
December 31, year 4, a test for impairment indicates that the undiscounted cash flows from the sewing
machine are less than its carrying value. The machines actual fair value on December 31, year 4 is 3,000.
49. What is Synthias loss on impairment on December 31, year 4?
a. 6,500 c. 4,625
b. 4,750 d. 4,150

Pinkerton Corp. uses the cost model for intangible assets. On April 10, year 3, Pinkerton acquired assets for
100,000. On December 31, year 3, it was determined that the recoverable amount for these intangible
 assets was 80,000. On December 31, year 4, it was determined that the intangible assets had a recoverable
amount of 84,000.
50. What is the impairment gain or loss recognized in year 3 and year 4 on the income statement?
Year 3 Year 4
a. 20,000 loss 16,000 loss
b. 20,000 loss 0
c. 20,000 loss 4,000 gain
d. 0 0

51. The objective of accounting is

a. To measure the periodic income of the economic entity
b. To provide information that the creditors of an economic entity can use in deciding whether to make
additional loans to the entity
c. To provide quantitative financial information about an entity that is useful in making rational economic
decisions.
d. To provide that information that the managers of an economic entity need to control its operations
52. An asset shall be classified as current asset when it satisfies any of the following criteria, except
a. It is expected to be realized or held for sale or consumption in the normal course of the entitys normal
operating cycle.
b. It is held primarily for the purpose of being traded.
c. It is expected to be realized within twelve months after the balance sheet date.
d. It is cash or a cash equivalent that is restricted from being exchanged or used to settle a liability for at
least twelve months after the balance sheet date.
53. The International Accounting Standards Board was formed to
a. Develop accounting standards for countries that do not have their own standard setting bodies.
b. Establish accounting standards for multinational companies
c. Develop a worldwide accounting standards
d. Enforce IFRS in foreign countries
54. What is the authoritative status of the Conceptual Framework?
a. The Conceptual Framework applies only when the Financial Reporting Standards Council develops new or
revised standards
b. In the absence of a standard or an interpretation that specifically applies to a transaction, management
shall consider the applicability of the Conceptual Framework in developing and applying an accounting
policy that results in information that is relevant and reliable
c. The Conceptual Framework has the highest level of authority
d. In the absence of a standard or an interpretation that specifically applies to a transaction, the Conceptual
Framework shall be followed.
55. Which of the following is not listed as a major objective of financial reporting?
a. Financial reporting shall provide information about entity resources, claims to those resources and
changes in them.
b. Financial reporting shall provide information useful in assessing cash flows prospects.
c. Financial reporting shall provide information useful in investment, credit and similar decisions.
d. Financial reporting shall provide information useful in evaluating managements stewardship.
56. The enhancing qualitative characteristics of financial information are
a. Comparability and understandability
b. Verifiability and timeliness
c. Comparability, understandability, and verifiability
d. Comparability, understandability, verifiability and timeliness
57. Which item should be excluded from cash and cash equivalents in the current year end statement of
financial position?
a. A customers check denominated in a foreign currency
b. Time deposit which matures in one year
c. The minimum cash balance in the entitys current account which is maintained to avoid service charges
d. A check issued by the entity on December 27 of the current year but dated January 15 of next year.
58. Nontrade receivables are classified as current assets only if they are reasonably expected to be realized in
cash
 a. Within the normal operating cycle
b. Within one year or within the operating cycle, whichever is shorter
c. Within one year or within the operating cycle, whichever is longer
d. Within one year, the length of the operating cycle notwithstanding
59. When allowance method of recognizing bad debt expense is used, the allowance for doubtful accounts would
be decrease when a (an)
a. Specific account receivable is collected.
b. Account previously written off is collected
c. Account previously written off becomes collectible
d. Specific uncollectible account is written off
60. In calculating the carrying amount of loan receivable, the lender adds to the principal
I. Direct origination cost
II. Indirect origination cost
III. Origination fee charged to borrower
a. I only
b. I and II only
c. I and III only
d. I, II and III
61. After being held for 40 days, a 120 day 12% interest bearing note receivable was discounted at a bank at
15%. What is the formula for the proceeds received from the bank?
a. Face value less the discount at 12%
b. Face value less the discount at 15%
c. Maturity value less the discount at 12%
d. Maturity value less the discount at 15%
62. Inventories are assets (choose the incorrect one)
a. Held for sale in the ordinary course of business
b. In the process of production for sale
c. In the form of materials or supplies to be consumed in the production process or in the rendering of
services
d. Held for use in the production or supply of goods or services
63. When using the moving average method of inventory valuation, a new unit cost must be computed after
each
a. Purchase c. Purchase and issuance from inventory
b. Issuance from inventory d. Month end
64. This costing method is appropriate for inventories that are segregated for a specific project and inventories
that are not ordinarily interchangeable
a. Specific identification
b. Standard cost
c. Relative sales price
d. Net realizable value
65. A gain or loss on the initial recognition of a biological asset and from a change in the fair value less cost to
sell of a biological asset shall be included in
a. A separate revaluation reserve
b. The profit or loss for the period
c. Other comprehensive income
d. A capital reserve within equity
66. Under PFRS 9, a financial asset shall be measured subsequently at amortized cost when
I. The business model of the entity is to hold the financial asset in order to collect contractual cash flows on
specified dates
II. The contractual cash flows are solely payments of principal and interest on the principal amount
outstanding
a. I only
b. II only
c. Either I or II
d. Both I and II
67. If there is any excess of the investors share of the net fair value of the associates identifiable assets and
liabilities over the cost of the investment, that is, bargain purchase, how should that excess be treated?
 a. It should be included as income in the determination of the investors share of the associates profit or
loss for the period
b. It should be included in other comprehensive income
c. It should be included in retained earnings
d. It should be disclosed separately as part of the investors equity
68. An investor uses equity method to account for its purchase of another entitys ordinary shares. On the date
of acquisition, the fair value of the investees inventory and land exceeded their carrying amount. How do
these excesses of fair value over carrying amount affect the investors reported equity in earnings of the
investee for the current year?
Inventory excess Land excess
a. Decrease Decrease
b. Decrease No effect
c. Increase Increase
d. Increase No effect
69. Which of the following statements is incorrect concerning the equity method?
a. The investment is associate is initially recorded at cost
b. The investment in associate is increased or decreased by the investors share of the profit or loss of the
investee after the date of acquisition
c. The investors share of the profit or loss of the investee is not recognized in the investors profit or loss
d. Distributions received from the investee reduce the carrying amount of the investment
70. Liquidating dividends are credited to
a. Income
b. Retained earnings
c. Investment account
d. Share capital
71. The effective interest rate on bonds is higher than the stated rate when bonds sell
a. At face value
b. Above face value
c. Below face value
d. At maturity value
72. An investor purchased a bond as a long term investment between interest dates at a premium. At the
purchase date, the cash paid to the seller is
a. The same as the face amount of the bond
b. The same as the face amount of the bond plus accrued interest
c. More than the face amount of the bond
d. Less than the face amount of the bond
73. All of the following financial assets shall be measured at fair value through profit or loss, except
a. Financial assets held for trading
b. Financial assets designated on initial recognition as at fair value through profit or loss
c. Investments in quoted equity instruments
d. Financial assets at amortized cost
74. Which of the following is an investment property?
a. Property being constructed or developed on behalf of third parties
b. Property that is being constructed and developed as investment property
c. Property held for future development and subsequent use as owner occupied property
d. Owner occupied property awaiting disposal
75. In case of property held under an operating lease and classified as investment property
a. The entity has to account for the investment property under the cost model only
b. The entity has to use the fair value model only
c. The entity has the choice between the cost model and the fair value model
d. The entity needs only to disclose the fair value and can use the cost model
76. If a government grant related to a biological asset is conditional on certain events, the grant shall be
recognized as
a. A deferred credit when the grant is approved
b. A deferred credit when the conditions attached to the government grant are met
c. Income when the grant has been approved
d. Income when the conditions attaching to the grant are met
77. Government grant related to depreciable asset is usually recognized as income
a. Immediately
b. Over the useful life of the asset using straight line method
c. Over the useful life of the asset using the sum of the years digits
d. Over the useful life of the asset and in proportion to the depreciation of the asset
78. Which of the following may not be considered a qualifying asset?
a. A power generation plant that normally takes two years to construct
b. An expensive private jet that can b purchased from a local vendor
c. A toll bridge that usually takes more than a year to build
d. A ship that normally tales one or two years to complete
79. The useful life of an item of property, plant and equipment shall be reviewed periodically and if expectations
significantly different from previous estimates, the depreciation charge for the
a. Current period only shall be adjusted
b. Future period only shall be adjusted
c. Prior periods shall be adjusted
d. Current and future periods shall be adjusted
80. If the qualifying asset is financed by general borrowing, the capitalizable borrowing cost is equal to
a. Actual borrowing cost incurred
b. Total expenditures on the asset multiplied by a capitalization rate
c. Average expenditures on the assets multiplied by a capitalization rate or actual borrowing cost incurred
whichever is lower
d. Average expenditures on the assets multiplied by a capitalization rate or actual borrowing cost incurred
whichever is higher
81. The production method of depreciation results in
a. Constant charge over the life of the asset
b. Charge based on the expected use or output of the asset
c. Decreasing charge over the life of the asset
d. Increasing charge over the life of the asset
82. Which of the following statements is incorrect concerning the depreciation methods?
a. Under the output method, the cost per unit of production is constant
b. The straight-line method is particularly appropriate where the asset is expected to decline in usefulness
as function of time and the expected use pattern of the asset is fairly constant over time.
c. The sum of the years digits method provides for a decreasing depreciation charge
d. First year depreciation under the double declining balance method is computed as the depreciable
amount multiplied by double the straight-line rate.
83. Depletion expense
a. Is usually part of cost of goods sold
b. Includes tangible equipment cost in the depletable amount
c. Excludes intangible development cost from the depletable amount
d. Excludes restoration cost from the depletable amount
84. Realized revaluation surplus is transferred to retained earnings
a. Only upon disposal or retirement of plant asset
b. Only during the period of use of the asset
c. Upon disposal or retirement of the asset or during the period of use of the asset
d. At no instance
85. Legal fees incurred by a company in defending its patent rights should be expensed when the outcome of
the litigation is
Successful Unsuccessful
a. Yes Yes
b. Yes No
c. No No
d. No Yes
86. The basic elements of the financial position of an enterprise include the following:
I. Resource controlled by an enterprise as a result of past events and from which future economic benefits
are expected to flow to the enterprise
II. Present obligations of an enterprise arising from past events, the settlements of which is expected to
result in an outflow of economic benefits
III. Increases in economic benefits during the accounting period other than those relating to contributions
from equity participants
IV. Decreases in economic benefits during the accounting period other that those relating to distributions to
equity participants.
V. Residual interest in the assets of the enterprise after deducting all its liabilities
a. All of these c. III and IV only
b. I, II, and V only d. III, IV and V only
87. Under the accrual basis of accounting, the effects of transactions and other events are
 a. Recorded in the accounting records when they occur but reported in the financial statements when cash
is received or paid.
b. Recorded in the accounting records when cash is received or paid but reported in the financial
statements when they occur.
c. Recorded in the accounting records and reported in the financial statement when they occur.
d. Recorded in the accounting records and reported in the financial statements when cash is paid or
received.
88. The FRSC issues its Standards in a series of pronouncements called PFRSs. These consist of
a. PFRSs c. Philippine Interpretations
b. PASs d. All of the above
89. An owner occupied property is held by an owner of finance lessee
I. For use in the production of goods or services
II. For administrative purposes
a. I only c. Both I and II
b. II only d. Neither I and II
90. What is the recoverable amount of an asset?
a. Fair value less cost to sell
b. Value in use
c. Fair value less cost to sell or value in use whichever is higher
d. Fair value less cost to sell or value in use whichever is lower
91. It is the smallest identifiable group of assets that generate cash inflows from continuing use that are largely
independent of the cash inflows from other assets or group of assets
a. Goodwill
b. Corporate asset
c. The entity as a whole
d. Cash generating unit
92. Value in use of an asset is equal to
a. Undiscounted future net cash flows from the use of the asset
b. Undiscounted future net cash flows from the use and eventual disposition of the asset
c. Discounted future net cash flows from the use of the asset
d. Discounted future net cash flows from the use and eventual disposition of the asset
93. The cost of internally generated asset included all of the following except
a. Cost of materials and services used in generating the intangible asset
b. Compensation costs of personnel directly engaged in generating the asset
c. Expenditures on training staff to operate the asset
d. Fees to register a legal right
94. Which of the following items does not qualify as an intangible asset?
a. Computer software
b. Registered patent
c. Notebook computer
d. Copyright that is registered
95. A purchased patent with a remaining legal life of 15 years should be
a. Expensed in the year of acquisition
b. Amortized over 20 years
c. Amortized over 15 years regardless of the useful life
d. Amortized over its useful life if less than 15 years
96. Which of the following should be expensed as incurred by the franchisee for a franchise with an estimated
useful life of ten years?
a. Amount paid to the franchisor for the franchise
b. Periodic payments to the franchisor based on the franchisees revenue
c. Payments to an entity, other than the franchisor, for that entitys franchise
d. Legal fees paid to the franchisees lawyers to obtain the franchise
97. Goodwill shall be recognized only when
a. It is purchased from another entity
b. It can be established that a definite benefit or advantage has resulted to an entity from some item such
as good name, capable staff or reputation
c. An entity reports super normal earnings for five or more consecutive years
d. It is acquired through the purchase of another business entity
98. It is an arrangement whereby a public sector entity grants a private concession operator to provide services
that give the public access to major economic and social infrastructure, such as expressway and
telecommunications network
a. Loan
b. Government grant
c. Government assistance
d. Service concession
99. A research and development activity for which the cost would be expensed as incurred is
a. Adaptation of an existing capability to a particular requirement or customer need
b. Quality control during commercial production
c. Design, construction and testing of preproduction prototype and model
d. Periodic design changes to existing products
100. Which of the following research and development costs should be capitalized and amortized over current
and future periods?
a. Research and development general laboratory building
b. Inventory used for a separate research project
c. Administrative salaries allocated to research and development
d. Research findings purchased from another entity to aid a particular research project currently in process