CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING JULY 2023
FIRST PREBOARD EXAMINATION BATCH 94

1. Macbeth Company provided the following assets on December 31, 2023:

Cash 600,000
Accounts receivable 1,600,000
Inventory 3,300,000
Prepaid expense 500,000
Property, plant and equipment 17,600,000
Accumulated depreciation 1,600,000
A P1,000,000 note payable to the bank, due on July 1, 2024, was deducted from the balance on deposit in the
same bank. The entity recorded checks of P400,000 in payment of accounts payable on December 31, 2023.
These checks were still on hand on January 15, 2024. An advance payment of P200,000 from a customer for
goods to be delivered in 2024 was deducted from accounts receivable. What total amount of current assets
should be reported on December 31, 2023?

a. 7,600,000
b. 7,200,000
c. 7,400,000
d. 7,800,000

2. Lee Company prepared draft financial statements that showed the income before tax for the year ended
December 31, 2023 at P4,500,000. The board of directors authorized the financial statements for issue on
March 20, 2024. A fire occurred at Lee’s site on January 15, 2024 with resulting damage amounting to
P3,500,000, only P2,000,000 is covered by insurance. The P2,000,000 insurance claim will be received on
February 20, 2024. On January 30, 2024, a customer owing P800,000 to Lee Company filed for bankruptcy.
Only 10% of this account will be collected on April 15, 2024. What amount should be reported as income
before tax for the year ended December 31, 2023?

a. 4,500,000
b. 2,280,000
c. 3,780,000
d. 3,000,000

3. Goddard Company the following information for the year ended December 31, 2023:

Gross profit 6,000,000

Share of income of associate 450,000
Total expenses, excluding income tax 3,550,000
Tax expense 900,000
Income from discontinued operations 400,000
Translation gain on foreign operations 300,000
Unrealized loss on debt investment at FVOCI 500,000
Revaluation surplus 1,600,000

Statement 1: The net income is P2,400,000.

Statement 2: The total other comprehensive income is P1,400,000.
Statement 3: Other comprehensive income that may be recycled to profit or loss is P1,100,000.
Statement 4: Comprehensive income is composed of profit or loss only.

Which of the following is / are true?

a. Statements 1, 2 and 3
b. Statements 1 and 2
c. Statement 1 only
d. Statements 1, 2 and 4
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4. On January 1, 2019, Yasmin Company purchased equipment for P8,000,000. The equipment has useful life
of 10 years and a residual value of P800,000. On January 1, 2023, the entity determined that the useful life of
the equipment was 12 years from the date of acquisition and the residual value was P960,000.
Statement 1: Change in useful life and residual value are changes in accounting policy.
Statement 2: The carrying amount of the equipment on December 31, 2023 is P4,600,000.
Statement 3: The depreciation for the year 2023 is P346,667.
Which of the following is / are false?
a. Statement 1 only
b. Statements 1 and 2
c. Statements 2 and 3
d. Statements 1 and 3
5. On September 1, 2023, Jean Company equipment costing P7,500,000 and was 60% depreciated on this date.
On September 1, 2023, the entity classified the equipment as held for sale. In the same date, the fair value is
P1,950,000 and the cost of disposal is P150,000. On December 31, 2023, the fair value increased to
P2,250,000 with cost of disposal of P75,000. What amount of gain on reversal of impairment loss should the
entity report on December 31, 2023?
a. 1,200,000
b. 300,000
c. 375,000
d. 450,000
6. On September 1, 2023, when the carrying amount of the net assets of a business segment was P35,000,000,
Max Company signed a legally binding contract to sell the business segment. The sale is expected to be
completed by January 15, 2024 at a sale price of P30,000,000. In addition, prior to January 15, 2024, the sale
contract obliged Max Company to terminate employment of certain employees of the business segment
incurring an expected termination cost of P2,500,000 to be paid on June 15, 2024. The segment revenue and
expenses were P20,000,000 and P22,500,000 respectively. The income tax rate is 25%. What amount should
be reported as loss from discontinued operation for 2023?
a. 5,250,000
b. 5,000,000
c. 10,000,000
d. 7,500,000
7. Hero Company revealed that the total external revenue of its reportable segments should be at least
P6,000,000. Also, the entity reported that its intersegment sales amounted to P3,500,000.
Statement 1: The segment revenue is P9,500,000.
Statement 2: To be a major customer, the revenue of such customer should be at least P600,000.
Statement 3: To be a reportable segment, the segment revenue should be at least P1,150,000.
Statement 4: The identity of a major customer is required to be disclosed.
Which of the following is / are true?
a. All statements are true.
b. Statement 3 is true.
c. Statements 1 and 2 are true.
d. Statements 3 and 4 are true.
8. Bagani Company is in the process of preparing its quarterly financial statements and has historically reported
doubtful accounts expense at 6% of sales. Sales for the first, second and third quarter are P2,000,000,
P1,500,000 and P2,500,000 respectively. However, during the third quarter, it was determined that the rate
has increased to 8% for the entire year.
Statement 1: Interim reporting is required by IFRS.
Statement 2: Doubtful account expense for the third quarter only is P200,000.
Statement 3: Doubtful account expense for the first quarter only is P120,000.
Statement 4: Doubtful account expense for the third quarter only is P270,000.
Which of the following is / are true statements?
a. Statements 3 and 4 are true.
b. Statements 1, 2 and 3 are true.
c. Statements 1, 3 and 4 are true.
d. Statement 4 only is true.
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9. On December 31, 2023, West Company had the following cash balances:
Cash in bank, current account – Bank A 3,600,000
Petty cash fund – all funds were reimbursed 100,000
Time deposit - Bank B 500,000
Time deposit – Bank C, which was closed by BSP 2,000,000
In exchange for a guaranteed line of credit, the entity has agreed to maintain a minimum balance of P1,200,000
in the unrestricted current bank account. Which of the following statements is / are false?
Statement 1: Cash and cash equivalents amounts to P3,000,000.
Statement 2: The time deposit in Bank C is classified as a noncurrent asset.
Statement 3: The compensating balance of P1,200,000 is part of cash and cash equivalents.
Statement 4: Cash and cash equivalents amounted to P6,200,000.
a. Statement 4 is false.
b. Statements 2, 3 and 4 are false.
c. Statements 2 and 3 are false.
d. Statements 1 and 4 are false.
10. Grass Company provided the following information on December 31, 2023:
Current account – First Bank 4,000,000
Current account – Second Bank (overdraft) (250,000)
Commercial paper – Third Bank 1,000,000
Time deposit – Fourth Bank 2,000,000
Equity investment held for trading 800,000
Investment in preference shares, mandatorily redeemable in 60 days from purchase 350,000
The time deposit is set aside for land acquisition early in 2024. What amount should be reported as cash and
cash equivalents on December 31, 2023?
a. 5,350,000
b. 5,000,000
c. 6,150,000
d. 7,000,000
11. During the year 2023, the first year of operations, Easy Company reported purchase of merchandise at
P14,000,000. Inventory on December 31, 2023 was P2,800,000 and collections of accounts receivable during
2023 amounted to P8,000,000. Merchandise was marked to sell at 20% above cost and all sales are on a credit
basis. On December 31, 2023, the entity estimated that 10% of the accounts receivable balance are doubtful.
What is the net realizable value of accounts receivable on December 31, 2023?
a. 5,440,000
b. 8,800,000
c. 4,896,000
d. 7,920,000
12. For the year 2023, Ladd Company records doubtful accounts at 0.5% of credit sales. On December 31, 2023.
The entity decided to change to the aging of accounts receivable method of estimating doubtful accounts. The
following schedule was prepared from an aging of accounts receivable outstanding on December 31, 2023:
Number of days outstanding Amount Probability of collection
0 – 30 days 5,000,000 98%
31 – 60 days 2,000,000 90%
Over 60 days 1,000,000 80%
Credit sales for the year amounted to P40,000,000 and the allowance for doubtful accounts on December 31,
2023 before changing to the aging of accounts receivable method had a debit balance of P20,000. Which of
the following statements is / are true?
Statement 1: The doubtful accounts expense to be reported is P520,000.
Statement 2: The adjustment to change to the aging of accounts receivable method will increase expense by
P520,000.
Statement 3: The doubtful accounts expense to be reported is P480,000.
Statement 4: The net realizable value of accounts receivable is P7,500,000.
a. Statements 3 and 4 are true. c. Statements 2 and 4 are true.
b. Statements 1 and 4 are true. d. Statement 4 only is true.
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13. Chewy Company factored P9,000,000 of accounts receivable to a finance entity at the end of the current year.
Control was surrendered by Chewy Company. The factor accepted the accounts receivable subject to recourse
for nonpayment, The fair value of the recourse obligation is P150,000. The factor assessed a fee of 3% and
retained a holdback equal to 5% of accounts receivable. In addition, the factor charged 15% interest computed
on a weighted average time to maturity of accounts receivable for 54 days. Which of the following statements
is / are false?
Statement 1: The initial cash receipt from the factoring is P7,930,274.
Statement 2: The initial cash receipt from the factoring is P8,080,274.
Statement 3: The initial loss from factoring is P619,726.
Statement 4: The initial loss from factoring is P469,726.
a. Statements 2 and 3 are false.
b. Statement 1 only is false.
c. Statements 1 and 3 are false.
d. Statements 1 and 4 are false.
14. After holding a note receivable from a customer for 2 months, Conquest Company discounted the note with
recourse at a 12% discount rate. The note has a face amount of P1,000,000, a term of 6 months and bears
interest at 8%. The entity records the discounting as a conditional sale with recognition of a contingent
liability. Which of the following statements is / are true?
Statement 1: The proceeds from discounting is P998,400.
Statement 2: The loss from discounting is P14,933.
Statement 3: The entry to record the sale will include a credit to Notes Receivable – Discounted, P1,013,333.
a. Statement 1 only is true.
b. Statements 1 and 2 are true.
c. Statements 1 and 3 are true.
d. Statements 1, 2 and 3 are true.
15. On January 1, 2023, Ram Company sold goods to Jet Company. Jet signed a noninterest bearing note requiring
payment of P800,000 annually for seven years. The first payment was made on December 31, 2023 and every
December 31 for succeeding payments. The prevailing rate of interest for this type of note 9%. The present
value of an ordinary annuity of 1 at 9% for 6 periods and 7 periods are 4.49 and 5.03 respectively. What is
the carrying amount of the note receivable on December 31, 2024?
a. 3,108,914
b. 4,000,000
c. 3,115,280
d. 3,586,160
16. On December 31, 2023, Ultimate Bank has a 5-year loan receivable with a face amount of P5,000,000 dated
January 1, 2022 that is due on December 31, 2026. Interest on the loan is payable at 10% every December 31.
The borrower paid the interest that was due on December 31, 2022, but informed the bank that interest accrued
in 2023 will be paid at maturity date. The remaining interest payments will not be paid because of financial
difficulty. The prevailing market rate of interest on December 31, 2023 is 12%. The present value of 1 for
three periods at 10% is 0.75 and 0.71 at 12%. Which of the following statements is / are true?
Statement 1: The impairment loss for 2023 is P1,595,000.
Statement 2: The impairment loss for 2023 is P1,375,000.
Statement 3: The carrying amount of the loan on December 31, 2024 is P4,537,500.
Statement 4: The carrying amount of the loan on December 31, 2024 is P4,373,600.
a. Statement 2 only is true.
b. Statement 1 only is true.
c. Statements 2 and 3 are true.
d. Statements 1 and 4 are true.
17. Cavalier Company included the following in inventory at year-end: Merchandise out on consignment at sales
price, including 30% markup on sales, P1,500,000; Goods purchased in transit, shipped FOB Seller,
P1,200,000; Goods held on consignment by Cavalier, P900,000. What amount should the inventory be
reduced?
a. 2,100,000 c. 1,350,000
b. 3,600,000 d. 2,400,000
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18. Empire Company revealed inventory on December 31, 2023 at P3,250,000 based on a physical count priced
at cost and before any necessary adjustments for the following:
• Merchandise costing P300,000 shipped FOB Destination from a vendor on December 31, 2023, was
received on January 5, 2024.
• Merchandise costing P380,000, shipped to a customer FOB shipping point on December 28, 2023, arrived
at the customer location on January 6, 2024.
• Merchandise costing P120,000 was being held on consignment by Colombia Company, a consignee of
Empire Company.
• Special merchandise costing P250,000, fabricated to order for a customer was finished and specifically
segregated at the back part of the shipping room on December 31, 2023. The special goods were shipped
on January 3, 2024.
What amount should be reported as inventory on December 31, 2023?
a. 3,750,000
b. 3,370,000
c. 3,620,000
d. 4,050,000
19. Albania Company accumulated the following data for the current year:
Raw materials – beginning inventory 180,000 units @ P7.00
July 1 purchase 150,000 units @ P8.00
December 1 purchase 240,000 units @ P8.50
The entity transferred 190,000 units and 200,000 units of raw materials to work in process on September 15
and December 15 respectively. Which of the following statements is / are true?
Statement 1: The cost of ending raw materials using FIFO is P1,530,000.
Statement 2: The cost of ending raw materials using weighted average is P1,420,200.
Statement 3: The average unit cost of raw materials under moving average is between P8.11 to P8.12.
a. Statement 1 only is true.
b. Statements 1 and 3 are true.
c. Statements 2 and 3 are true.
d. Statements 1, 2 and 3 are true.
20. Greece Company provided the following information pertaining to its ending inventory:
Product A Product B
Estimated selling price 4,000,000 6,000,000
Cost 3,000,000 3,600,000
General administration cost 600,000 1,600,000
Estimated selling cost 1,200,000 1,400,000
Greece recorded cost of goods sold of P5,000,000 before applying the LCNRV measurement. What amount
of cost of goods sold should Greece report in its income statement for the current year?
a. 5,000,000
b. 5,200,000
c. 4,800,000
d. 7,400,000
21. On January 1, 2023, Braun Company acquired 1,500 llamas for P2,220,000. The llamas will be sheared
annually and their wool will be sold to clothing manufacturers. During 2023, the increase in fair value due to
growth and price changes amounted to P141,000, the wool harvested but not yet sold had a fair value less cost
of disposal of P270,000, and the decrease in fair value of the llamas due to harvest amounted to P17,500.
Which of the following statements is / are true?
Statement 1: The llamas should be reported at P2,343,500 in the year-end statement of financial position.
Statement 2: The llamas should be reported at P2,613,500 in the year-end statement of financial position.
Statement 3: The wool harvested is classified as a biological asset.
Statement 4: The gain to be reported on the biological asset is P393,500.
a. Statements 1 and 4 are true.
b. Statements 2 and 4 are true.
c. Statement 1 only is true
d. Statements 2, 3 and 4 are true.
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22. On January 1, 2023, Farming Company has 10 “2-year-old” dairy cattle at P4,000,000 and 8 “2.5-year-old”
carabaos at P2,000,000. On June 30, 2023, the entity purchased 4 “1-year-old” dairy cattle at P1,500,000 and
6 “0.5-year-old” carabaos at P1,000,000. On December 31, 2023, the fair value less cost of disposal of each
animal is as follows:
2-year-old dairy cattle 520,000
2.5-year-old carabao 312,500
1-year-old dairy cattle 425,000
0.5-year-old carabao 200,000
3-year-old dairy cattle 580,000
3.5-year-old carabao 362,500
1.5-year-old dairy cattle 500,000
1-year-old carabao 250,000
There were no sales, newborns nor deaths of animals during 2023. What amount of total gain from change in
fair value less cost of disposal should be reported for the year 2023?
a. 3,700,000
b. 2,100,000
c. 1,700,000
d. 1,600,000

23. On September 30, Wray Company reported that a fire caused several damages to inventory. The entity had a
gross profit rate of 30% based on cost. The entity provided the following data for nine months ended,
September 30:

Inventory at January 1 1,100,000

Net purchases 6,000,000
Net sales 7,280,000

A physical inventory disclosed usable damaged goods which can be sold for P100,000. It was also revealed
that out of the net purchases, P200,000 was still in transit and shipped FOB Seller by the vendor. What amount
should be reported as estimated fire loss for the nine months ending September 30?

a. 1,400,000
b. 1,200,000
c. 1,904,000
d. 1,704,000

24. On December 31, 2023, a fire broke out in the warehouse of Roxy Company destroying all inventory. The
following were provided for the year 2023:
Accounts receivable – January 1 1,300,000
Accounts receivable – December 31 1,825,000
Collections from customers 4,750,000
Accounts written off 125,000
Inventory – January 1 800,000
Purchases during the year 3,500,000
Salvage value of inventory 50,000
Gross profit rate based on sales 35%
What amount should be reported as inventory fire loss on December 31, 2023?

a. 790,000
b. 871,250
c. 821,250
d. 740,000
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25. Moderate Company used the retail inventory method. The entity provided the following information for the
current year:
Cost Retail
Beginning inventory 3,300,000 4,400,000
Net purchases 7,450,000 9,900,000
Departmental transfer - credit 400,000 600,000
Net mark up 300,000
Inventory shortage 200,000
Employee discounts 400,000
Sales, including sales of P800,000 of items which were marked down from P1,000,000 8,000,000
Which of the following statements is / are false?
Statement 1: If the average retail method is used, the cost of ending inventory is P3,900,000.
Statement 2: If the conservative method is used, goods available for sale at retail is P14,000,000.
Statement 3: If the conservative method is used, the cost ratio includes net mark up only.
Statement 4: Normal shortages are deducted at cost and at retail.

a. Statements 1 and 3 are false.

b. Statement 2 only is false.
c. Statement 4 only is false.
d. Statements 2 and 4 are false.

26. Kaneki Company used the conventional retail method to account for inventory. Beginning inventory and net
purchases at cost and at retail were P6,000,000 and P9,200,000 respectively. Net mark ups are P400,000 while
net markdowns are P600,000. Sales for the current year were P7,800,000. What amount should be reported
as cost of goods sold for the current year?

a. 5,250,000
b. 5,200,000
c. 4,875,000
d. 5,150,000

27. On January 1, 2023, Ide Company purchased 1,600 ordinary shares of Owl Company for P528,000. Ide
irrevocably designated to measure the non-trading shares at fair value through other comprehensive income.
During 2023, Owl paid a cash dividend of P130 per share. On December 31, 2023, Owl shares were selling
for P380 per share. On September 1, 2024, Ide sold all the Owl shares for P450 per share. Which of the
following statements is / are true?
Statement 1: Ide shall recognize an unrealized gain in other comprehensive income of P80,000.
Statement 2: The dividend received of P208,000 shall be recognized in other comprehensive income.
Statement 3: The disposal in 2024 will result in a credit adjustment to retained earnings of P192,000.
Statement 4: The disposal in 2024 will result in a debit adjustment to retained earnings of P192,000.

a. Statements 1 and 4 are true.

b. Statements 2 and 3 are true.
c. Statements 1 and 3 are true.
d. Statement 1 only is true.

28. Mado Company owned 30,000 ordinary shares of Antique Company acquired on June 30 at a total cost of
P1,100,000. On November 1, Mado received 30,000 share rights from Antique. Each right entitled the holder
to acquire one share at P45. The market price of Antique’s share was P50 and the market price of the share
right was P10, both on November 1. On December 31, Mado exercised all of the rights. Which of the following
statements is / are true?
Statement 1: If the share rights are accounted for separately, the cost of the new investment is P1,650,000.
Statement 2: If the share rights are not accounted for separately, the cost of the new investment is P1,350,000.
Statement 3: If the share rights are accounted for separately, the share rights are classified as a financial asset.
a. Statements 1 and 3 are true.
b. Statements 2 and 3 are true.
c. Statements 1 and 2 are true.
d. All statements are true.
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29. At the beginning of the 2023, Glorious Company acquired 20% of the outstanding ordinary shares of Hint
Company for P8,000,000. Hint’s shareholder’s equity at the beginning of 2023 was P26,000,000. At the time
of acquisition, the fair values of Hint’s identifiable assets and liabilities were equal to their carrying amounts
except for equipment which had a fair value in excess of carrying amount of P4,000,000 and an estimated life
of 10 years. During the current year, Hint reported net income of P10,000,000 and paid cash dividend of
P4,000,000. Which of the following is / are true statements?
Statement 1: The acquisition resulted in a goodwill of P2,000,000.
Statement 2: The acquisition resulted in an excess fair value of P2,000,000.
Statement 3: The investment income amounted to P1,920,000.
Statement 4: Dividends received under the equity method are recognized as income.

a. Statements 2, 3 and 4 are true.

b. Statements 1 and 3 are true.
c. Statements 1 and 4 are true.
d. Statement 1 only is true.

30. Moses Company acquired 30% of the outstanding ordinary shares Jacob Company for P6,000,000 on January
1, 2023. The acquisition resulted in neither goodwill nor excess fair value. For the year 2023 and 2024, Jacob
reported net income of P2,500,000 and P3,000,000 respectively and paid dividends of P900,000 and
P1,100,000 for the year 2023 and 2024 respectively. On July 1, 2023, Jacob sold inventory to Moses costing
P500,000 for P800,000. The inventory remained unsold by Moses on December 31, 2023, but sold it in 2024.
What amount of investment income should Moses report for the year 2024?

a. 990,000
b. 900,000
c. 750,000
d. 660,000

31. On January 1, 2023, Touka Company acquired P1,000,000, 10-year, 10% bonds at a price of P1,064,180 to
yield 9%. Interest is payable each December 31. Touka’s business model for the bonds is to collect contractual
cash flows. The cash flows are composed of interest and principal. Which of the following statements is / are
true?
Statement 1: The bonds are measured at amortized cost.
Statement 2: Interest income for 2023 is P95,776.
Statement 3: The premium amortization will increase the carrying amount of the bonds.
Statement 4: If Touka elected the fair value option, interest income for 2023 is P106,418.

a. Statement 4 is true.
b. Statements 1 and 2 are true.
c. Statements 2 and 3 are true.
d. Statements 1, 2 and 3 are true.

32. On January 1, 2023, Hazel Company, purchased 6% bonds with face amount of P4,000,000 for P3,530,000
to yield 9%. The bonds mature on January 1, 2028. The business model for this financial asset is to collect
contractual cash flows and sell in the open market. The cash flows are composed of interest and principal.
Below are selected data pertaining to the investment:

December 31, 2023 December 31, 2024

Carrying amount based on “amortized cost” 3,607,700 3,692,393
Fair value 3,490,000 3,425,000

What amount of unrealized loss in other comprehensive income should be reported for the year 2024?

a. 267,393
b. 105,000
c. 149,693
d. 65,000
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33. Lulu Company reported the following items on December 31, 2023:
Land held for undetermined future use 2,500,000
Building leased out under an operating lease 6,000,000
Machine held for rentals 800,000
Building used in production of goods 5,000,000
Building under construction for use as investment property when completed 3,400,000
What total amount of investment property should the Lulu report on December 31, 2023?
a. 12,700,000
b. 9,400,000
c. 11,900,000
d. 8,500,000

34. On January 1, 2023, Elysee Company took out a P5,000,000 insurance policy on the life of the president, the
entity being the beneficiary. The accounting period is the calendar year. The annual premium on the policy is
P160,000. Data regarding dividends and cash surrender value are as follows:
2024 2025 2026
Dividends received on December 31 - 10,000 12,000
Cash surrender value on December 31 - 84,000 94,000
What amount of life insurance expense should Elysee report for the year ended December 31, 2026?
a. 160,000
b. 150,000
c. 138,000
d. 54,000

35. Beam Company had the following property, plant and equipment acquisitions during the year 2023:

• Acquired building with a fair value of P8,000,000 in exchange for 60,000 ordinary shares with a par value
of P100 per share and a quoted price of P150 per share.
• Exchanged an old packing machine which cost P2,000,000 and was 40% depreciated, for a new machine
and paid a cash difference of P250,000. The fair value of the old packing machine is determined to be
P1,700,000. Cash flows from the assets are not expected to be significantly different.
• Purchased land at the beginning of 2023 for P2,000,000 for a noninterest bearing note requiring four
payments of P500,000. The first payment as made at the beginning of 2023. The implicit rate for this note
at the date of issuance was 10%. The present value of an ordinary annuity of 1 at 10% is 3.17 for 4 periods
while the present value of an annuity in advance at 10% is 3.49 for four periods.
What is the total cost of the property, plant and equipment?

a. 12,195,000
b. 11,195,000
c. 11,695,000
d. 12,535,000

36. Allison Company summarized the following manufacturing and construction activities for the current year:
Finished Goods Machinery
Materials 6,000,000 1,000,000
Direct labor 8,000,000 2,000,000
Overhead for the prior year was 75% of the direct labor cost. Overhead in the current year related to both
product manufacture and construction activities amounted to P7,200,000. What is the total cost of the
machinery assuming that manufacturing activities are to be charged with overhead at the rate experienced in
the prior year?

a. 4,500,000
b. 4,440,000
c. 6,600,000
d. 4,200,000
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37. Molave Company acquired a plot of land for P3,000,000 as a plant site. There was a small office building on
the plot with a fair value of P600,000, which the entity will use with some modification and renovation. The
entity decided to construct a factory building and incurred the following costs:
Materials and supplies 4,000,000
Excavation 250,000
Labor on construction 1,500,000
Remodeling cost of office building 500,000
Legal cost of conveying the land 100,000
Cash discounts on materials purchased 120,000
Supervision by management 150,000
Compensation insurance premium for workers 40,000
Clerical and other expenses related to construction 55,000
Plans and specifications 350,000
Payment for claim injuries not covered by insurance 35,000
Legal cost of injury claim 25,000
Cost of changes during construction to make the factory building more energy efficient 180,000
What is the total cost of the land and factory building, respectively?

a. 3,100,000 and 6,405,000

b. 2,500,000 and 6,405,000
c. 2,500,000 and 6,525,000
d. 3,100,000 and 6,225,000

38. Gemini Company installed a new equipment at the production facility and incurred the following costs:
Cost of equipment, per supplier’s invoice 4,600,000
Initial delivery and handling cost 350,000
Cost of site preparation 850,000
Consultants used for advice on the purchase of equipment 700,000
Interest paid to supplier for deferred credit 400,000
Present value of dismantling cost to be incurred as required by contract 500,000
Operating losses before commercial production 200,000
Insurance for one year 150,000
What is the capitalized cost of the equipment?

a. 7,000,000
b. 7,150,000
c. 7,400,000
d. 7,150,000

39. On January 1, 2023, Peak Company received a government grant of P15,000,000 to install and run a windmill
in an economically backward area. The entity had estimated that such a windmill would cost P25,000,000 to
construct. The secondary condition attached to the grant is that the entity shall hire labor in the area where the
windmill is located. The construction was completed during the year 2023. The windmill is to be depreciated
over 10 years using the straight-line method. The entity’s policy is to treat the grant as deferred income and
to take a full year’s depreciation in the year when construction was completed. On January 1, 2026, Peak
violated certain conditions attached to the grant and had to repay back the grant. Which of the following
statements is / are true?
Statement 1: The repayment of government grant is treated as a change in accounting policy.
Statement 2: The loss on repayment of grant on January 1, 2026 is P4,500,000 and recognized in profit or loss
Statement 3: The loss on repayment of grant on January 1, 2026 is P4,500,000 and debited to retained earnings

a. Statement 1 only is true.

b. Statements 1 and 3 are true.
c. Statement 2 only is true.
d. Statements 1 and 2 are true.
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40. Luxen Company had the following loans outstanding for 2023:
Specific construction loan – 10% 6,000,000
General loan – 12% 30,000,000
The entity began self-construction of a building on January 1, 2023 and the building was completed on
October 1, 2023. The following expenditures were made during 2023: January 1 – P4,000,000; July 1 –
P6,000,000; September 1 – P1,800,000. Which of the following is / are true statements?
Statement 1: The capitalized borrowing cost is P4,200,000.
Statement 2: The cost of the building on October 1, 2023 is P12,268,000.
Statement 3: Interest expense for the year 2023 is P4,200,000.
Statement 4: The weighted average expenditures for 2023 is P6,200,000.
a. Statements 2 and 4 are true.
b. Statement 2 is only true.
c. Statements 1 and 2 are true.
d. Statements 1, 3 and 4 are true.
41. Telemundo Company purchased a vehicle costing P2,500,000 on January 1, 2023. The useful life in years is
5 years while the useful life in miles is 100,000 miles. The vehicle has a residual value of P500,000. Actual
miles driven in 2023, 2024 and 2025 were 30,000, 20,000, and 15,000 respectively. What amount of
depreciation for 2024 should be reported using sum of the year’s digits?
a. 666,667
b. 500,000
c. 533,333
d. 400,000
42. In January 2023, Sulo Company acquired a tract of resource land at a cost of P5,000,000. The entity also
acquired mining equipment for P1,000,000. The geological survey of the resource property indicated an
estimate content of 2,000,000 units. During the year, the entity mined 80,000 units, of which 75% were sold
at a price of P50 per unit. The entity paid mining labor and other direct cost of P2,500,000 and administrative
expense of P150,000 during 2023. What is the unit production cost of the resource?
a. 37.63
b. 35.75
c. 35.00
d. 31.25
43. On January 1, 2021 Gei Company purchased machine at a cost of P10,000,000. The equipment has a residual
value of P2,000,000, a useful life of 8 years and is depreciated using the straight-line method. Two years later,
it became apparent that the equipment suffered permanent impairment in value. In January 2023, management
determined the recoverable amount of the equipment to be only P3,500,000 with a 2-year remaining useful
life and a residual value of P500,000. What is the depreciation of the equipment for the year ended December
31, 2023?
a. 1,500,000
b. 4,500,000
c. 1,000,000
d. 2,000,000
44. Brandy Company has various cash generating units. One cash generating unit has the following carrying
amount of assets on December 31, 2023:
Cash 300,000
Inventory 700,000
Land 1,250,000
Plant and equipment 4,500,000
Accumulated depreciation 750,000
Goodwill 1,000,000
Management determined the value in use of the cash generating unit at P4,250,000. The fair value less cost
of disposal of inventory was greater than the carrying amount. What amount of impairment loss is allocated
to plant and equipment?
a. 437,500 c. 1,718,750
b. 1,750,000 d. 1,312,500
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45. On the date of revaluation, Prudent Company has a building costing P7,500,000 with a fair value of
P9,000,000. The building has a useful life of 40 years and is now 25% depreciated. The income tax rate is
25%. What is the revaluation surplus to be reported one year after the date of revaluation?
a. 1,096,875
b. 1,087,500
c. 2,446,875
d. 2,467,969
46. On January 1, 2018, Star Company purchased a new building at a cost of P6,000,000. Depreciation was
computed on the straight-line basis at 4% per year. On January 1, 2023, the building was revalued at a fair
value of P8,000,000. Star recorded the revaluation by debiting building, P2,000,000, and crediting retained
earnings, P2,000,000. If the entity uses the elimination method of treating accumulated depreciation, the entry
to correct the accounts will include a:
a. Debit to accumulated depreciation of P1,200,000
b. Credit to retained earnings of P1,200,000
c. Credit to revaluation surplus of P2,000,000
d. Credit to building of P2,000,000
47. Mariz Company acquired a trademark relating to the introduction of a new manufacturing process. The entity
incurred the following costs: cost of trademark, P3,500,000; Expenditure on promoting the new product,
P50,000; Employee benefit relating to testing of new process, P200,000. What is the total cost of the
trademark?
a. 3,750,000
b. 3,700,000
c. 3,500,000
d. 3,550,000
48. Montana Company incurred the following costs in 2023:
Acquisition of R and D equipment with a useful life of
4 years in various R and D projects 900,000
Start-up costs incurred when opening a new plant 210,000
Advertising expense to introduce a new product 1,050,000
Engineering costs incurred to advance a product to full
production stage (technical feasibility not achieved) 600,000
What amount should be recorded as research development expense in 2023?
a. 825,000
b. 1,110,000
c. 1,500,000
d. 1,710,000
49. Pearl Company reported income before tax of P5,000,000 for 2023 which included the following amounts.
Equity in earnings of Cinn Company – 40% interest 1,600,000
Dividend received from Cinn Company 400,000
Credit adjustment of profit of prior year for arithmetical error in depreciation 500,000
Gain on sale of equity investment at FVOCI 1,000,000
What amount should Pearl report as income before tax?
a. 4,100,000
b. 3,100,000
c. 5,500,000
d. 5,100,000
50. On December 31, 2023, Ace Company had P40,000,000 note payable due on February 28, 2024. On
December 31, 2023, the entity arranged a line of credit with City Bank which allows the entity to borrow up
to P35,000,000 at one percent above the prime rate for three years. On February 15, 2024, the entity borrowed
P25,000,000 from City Bank and used P5,000,000 additional cash to liquidate P30,000,000 note payable. The
financial statements were issued on March 31, 2024. What amount of the note payable should Ace report as
current liability?
a. 40,000,000 c. 5,000,000
b. 10,000,000 d. 0
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51. Which is not a purpose of the Conceptual Framework?

a. To provide definitions of terms and concepts.
b. To provide specific guidelines for resolving situations not covered by existing standards.
c. To assist CPAs in selecting among alternative accounting standards.
d. To assist IASB in the standard setting process
52. Which relates to both relevance and faithful representation?
a. Comparability
b. Predictive value
c. Neutrality
d. Free from error
53. Reversing entries apply to all of the following, except
a. Unearned revenue
b. Accrued wages
c. Prepaid insurance
d. Depreciation
54. Which should not be considered a component of other comprehensive income?
a. Actuarial gain
b. Foreign currency translation loss
c. Revaluation surplus
d. Dividend paid to shareholders
55. Which is a characteristic of a change in accounting estimate?
a. It usually need not be disclosed
b. It does not affect financial statements of prior period.
c. It requires restatement of financial statements
d. It requires reporting of proforma amount for prior periods.
56. Which is not permitted in accounting for uncollectible accounts receivable?
a. Percentage of accounts receivable
b. Percentage of sales
c. Direct writeoff method
d. Aging of accounts receivable
57. Equity investments irrevocably accounted for at FVOCI are
a. Nontrading investments of less than 20%
b. Trading investments of less than 20%
c. Investments between 20% and 50%
d. Investments of more than 50%

58. When equity investments are accounted for at fair value, cash dividends received are recorded as
a. Dividend income
b. Addition to investor’s share of the investee’s profit
c. Deduction from investment
d. Either dividend income or deduction from investment

59. The actual interest earned by the bondholder is

a. Effective rate
b. Yield rate
c. Market rate
d. Effective rate, yield rate or market rate

60. Interest revenue on specific borrowing for qualifying asset

a. Reduces the cost of the asset
b. Reduces the interest expense to be reported
c. Increases the cost of the asset
d. Must be credited to interest income
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61. What is the discount rate to be used to compute the present value of expected future cash flows from a debt
instrument to determine any expected credit losses?
a. Prevailing market rate of similar debt instruments
b. Original effective rate of the debt instrument
c. New interest rate from agreement between the debtor and creditor
d. Weighted average cost of capital
62. Which of the following does not describe the allowance method of recording inventory writedowns?
a. The presence of an allowance account indicates that cost exceeds net realizable value of inventory.
b. Loss on inventory writedown or reversal of such loss is reported separately but part of cost of goods sold.
c. Loss on inventory writedown or reversal of such loss is buried in cost of goods sold.
d. The cumulative loss on inventory writedown is maintained thru an allowance account.
63. Under IFRS, the following are classified as biological assets, except
a. Plants with dual use
b. Bearer animals
c. Bearer plants
d. Agricultural produce growing on a bearer plant
64. Which statement is incorrect concerning the equity method?
a. The investment in associate is initially recorded at cost.
b. The investor’s share of the profit or loss of the investee after the date of acquisition does not affect the
investment balance
c. The investor’s share of the profit or loss of the investee is recognized in the investor’s profit or loss.
d. Distributions received from the investee are recognized as liquidating dividends by the investor.
65. The following are considered investment property except
a. Land to be leased out under a finance lease
b. Building held for undetermined use
c. Building being constructed for use as investment property
d. Land held for capital appreciation
66. Repayment of government grant is treated as a
a. Change in accounting policy
b. Change in accounting estimate
c. Correction of error
d. Note disclosure only
67. The following are capitalized costs of a building except
a. Architect fee
b. Renovation costs prior to use
c. Property tax incurred after date of acquisition
d. Cost of temporary housing for construction workers
68. A noncurrent asset or disposal group is classified as “held for sale”. For the sale to be highly probable, the
sale should qualify for recognition as a completed sale within
a. Six months from the statement of financial position date.
b. Six months from the date of classification as held for sale.
c. One year from the statement of financial position date.
d. One year from the date of classification as held for sale.
69. The sum of the reportable segment’s external revenue must be a least equal to what percent of total operating
segment’s external revenue?
a. 100%
b. 75%
c. 50%
d. 65%
70. An inventory method which is designed to approximate inventory valuation at the lower of cost or net
realizable value is
a. LIFO
b. FIFO
c. Conventional retail method
d. Specific identification
END