CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING JULY 2024
FIRST PREBOARD EXAMINATION BATCH 96
1. An entity provided the following information on December 31, 2024:
Cash 3,000,000
Accounts receivable 8,000,000
Inventory 16,500,000
Prepaid expenses 2,500,000
Property, plant and equipment 88,000,000
Accumulated depreciation 8,000,000
Accounts payable 12,500,000
Accrued expense 2,500,000
Bonds payable 40,000,000
Share capital 50,000,000
Retained earnings 5,000,000
A P5,000,000 note payable to the bank, due on July 1, 2025, was deducted from the balance on deposit in the
same bank. The entity recorded checks of P3,000,000 in payment of accounts payable on December 31, 2024.
These checks were still on hand on January 20, 2025. An advance payment of P2,000,000 from a customer
for goods to be delivered in 2025 was deducted from accounts receivable. Which of the following is false?
a. An entity shall classify assets and liabilities in the statement of financial position as current and
noncurrent, unless presentation based on liquidity is more relevant and reliable.
b. All financial statements are required to be presented with equal prominence.
c. The entity shall report total current assets at P40,000,000.
d. The entity shall report total current liabilities at P23,000,000.
2. An entity prepared draft financial statements that showed the income before tax for the year ended December
31, 2024 at P4,500,000. The board of directors authorized the financial statements for issue on March 20,
2025. A fire occurred at the entity’s site on January 15, 2025 with resulting damage amounting to P3,500,000,
only P2,000,000 which is covered by the insurance. The repairs will take place and be paid for in April 2025
and the P2,000,000 insurance claim will be received on February 20, 2025. Which of the following statements
is false?
a. The entity shall report income before tax of P3,000,000 for the year 2024.
b. An adjusting event is an event after the reporting period that provides further evidence of conditions that
existed at the end of the reporting period.
c. A non-adjusting event is an event after the reporting period that is indicative of a condition that arose after
the end of the reporting period.
d. The required disclosure of a non-adjusting event is the nature of the event and an estimate of its financial
effect or a statement that a reasonable estimate of the effect cannot be made.
3. An entity provided the following information for the year 2024:
Sales 2,500,000
Cost of goods sold 1,400,000
Unrealized gain on debt investment at FVOCI 200,000
Selling expense 350,000
Unusual and infrequent gain 200,000
General and administrative expense 300,000
Correction of understated inventory error 100,000
Income tax expense 268,750
Gain on sale of investment 25,000
Proceeds from sale of fully depreciated equipment 400,000
What amount should be reported as net income for the year 2024?

a. 406,250 c. 1,006,250
b. 806,250 d. 1,075,000
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4. During 2024, an entity decided to change from the FIFO inventory valuation to the weighted average method.
The income tax rate is 25%.
FIFO Weighted Average
January 1 inventory 10,000,000 13,000,000
December 31 inventory 14,000,000 18,000,000
Statement I: A change in accounting policy is accounted for according to the transitional provisions, or if no
provisions, it is applied retrospectively.
Statement II: Retrospective application means adjusting the opening balance of each affected component of
equity for the earliest prior period presented and the other comparative amounts disclosed for
each prior period presented as if the new accounting policy had never been applied.
Statement III: To effect the change, the entity shall increase retained earnings by P5,250,000.
a. All statements are true.
b. Only statement I is true.
c. Statements I and III are true.
d. Statements I and II are true.

5. On January 1, 2024, an entity acquired a machine for P27,500,000. The machine was depreciated using the
sum of years’ digit method based on a ten-year useful life with no residual value. On January 1, 2026, the
entity changed to the straight-line method of depreciation.
Statement I: A change in depreciation method is a change in accounting estimate.
Statement II: The effect of a change in an accounting estimate shall be recognized prospectively by including
in retained earnings.
Statement III: The entity shall report accumulated depreciation of P11,500,000 on December 31, 2026.
a. All statements are true.
b. Statements I and III are true.
c. Only statement I is true.
d. Only statement III is true.

6. An entity accounted for noncurrent assets using the revaluation model. On July 1, 2024, the entity classified
a land as held for sale. On such date, the carrying amount of the land was P29,000,000 and the balance of the
revaluation surplus was P2,000,000. On July 1, 2024, the fair value was P33,000,000 and the cost of disposal
was P2,000,000. On December 31, 2024, the fair value was P32,500,000 and the cost of disposal was
P2,500,000.
Statement I: On July 1, 2024, the entity shall not revalue the land.
Statement II: Impairment loss for the year 2024 is P2,000,000.
Statement III: The entity shall report no revaluation surplus on December 31, 2024.
a. All statements are false.
b. All statements are true.
c. Only statement II is true.
d. Only statements II and III are true.

7. On September 1, 2024, an entity approved a formal plan to sell a business segment. The sale will occur on
March 31, 2025. The segment had income of P5,000,000 from January 1, 2024 to August 31, 2024 and
P1,000,000 for the remaining months of 2024. On December 31, 2024, the carrying amount of the assets of
the segment was P8,000,000 and the fair value less cost of disposal was P6,000,000. The income tax rate is
25%. Which of the following is true?

a. The segment shall be classified as a discontinued operation in 2025.

b. The income or loss from discontinued operation shall be presented as a note disclosure only.
c. The loss from discontinued operation in 2024 is P750,000.
d. The income from discontinued operation in 2024 is P3,000,000.
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8. An entity and its divisions reported the following for the current year:
Sales to unaffiliated customers 40,000,000
Intersegment sales of products like those sold to unaffiliated customers 15,000,000
Interest earned on loans to other operating segments 5,000,000
The entity and all its divisions are engaged solely in manufacturing operations.
Statement I: To qualify as a reportable segment, the segment revenue should be at least P6,000,000.
Statement II: The total external revenue of the reportable segments should be at least P4,000,000.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.
9. An entity has historically reported bad debt expense of 5% of sales in each quarter. For the year 2024, the
entity followed the same procedure in the three quarters of 2024. However, in the fourth quarter, the entity
determined that the bad debt expense for the year 2024 should be P4,500,000. Sales in the first, second, third
and fourth quarters of 2024 were P20,000,000, P15,000,000, P25,000,000 and P40,000,000 respectively.
Statement I: An interim period is a financial reporting period shorter than a full financial year.
Statement II. IFRS mandates how soon or how frequent an entity shall publish interim financial reports.
Statement III: Bad debt expense for the fourth quarter shall be reported at P1,500,000.
a. All statements are true.
b. Only Statement I is true.
c. Statements I and III are true.
d. Statements I and II are true.
10. An entity provided the following data on December 31, 2024:
Cash on hand 300,000
Current account – Bank A 3,000,000
Cash in sinking fund for bonds payable due on October 25, 2025 1,500,000
Treasury bills, purchased November 1, 2024 and maturing January 31, 2025 2,500,000
Time deposit, purchased October 1, 2024 and maturing January 31, 2025 2,000,000
Equity investments held for trading at fair value 1,800,000
A check of P200,000 was drawn against the Bank A current account, dated and recorded on December 21,
2024, but delivered to payee on January 15, 2025. The cash on hand includes a P50,000 check payable to the
entity, dated January 10, 2025. Which of the following statements is false?
a. “Cash and cash equivalents” is a line item presented under current assets.
b. Highly liquid investments with a maturity date of three months or less from acquisition date may qualify
as cash equivalents.
c. An equity investment shall be classified as cash equivalent.
d. The entity shall report cash and cash equivalents of P7,450,000 on December 31, 2024.
11. An entity received some data for preparing a bank reconciliation for the month of July.
Balance per book, July 31 14,600,000
Note collected by bank 1,000,000
Interest earned on note 100,000
NSF check of customer 1,300,000
Bank service charges 50,000
Outstanding checks 2,000,000
Deposit of June 30 placed in the night depository 850,000
Check issued by another depositor, erroneously charged to the entity’s account 200,000
What amount should be reported as cash in bank on July 31?
a. 13,650,000 c. 14,550,000
b. 15,300,000 d. 14,350,000
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12. An entity provided the following information pertaining to its accounts receivable on December 31, 2024:
Days outstanding Amount Uncollectible
0 - 60 24,000,000 5%
61 - 120 18,000,000 10%
Over 120 20,000,000 20%
During 2024, the entity wrote off P1,000,000 in accounts receivable and recovered P500,000 that had been
written off in prior years. On January 1, 2024, the allowance for doubtful accounts was P3,000,000. Based on
further analysis, additional accounts of P300,000 should be written off on the “Over 120 days” classification.
Which of the following statements is false?
a. Under the allowance method of recording doubtful accounts, accounts written off reduces total assets.
b. Under the allowance method of recording doubtful accounts, recovery of accounts increases allowance.
c. The entity shall report doubtful accounts expense at P4,740,000 for the year 2024.
d. The entity shall report allowance for doubtful accounts at P6,940,000 on December 31, 2024.

13. An entity factored P12,000,000 of accounts receivable to a finance entity at the end of the current year. Control
was surrendered by an entity. The transaction met the criteria to be accounted for as sale but subject to recourse
for nonpayment. The fair value of the recourse obligation is P500,000. The factor assessed a fee of 5% and
retained a holdback equal to 8% of accounts receivable. In addition, the factor charged 12% interest computed
on a weighted average time to maturity of the accounts receivable of 54 days.
Statement I: Factoring of accounts receivable with recourse is a sale transaction and the risk of uncollectible
accounts is transferred to the factor.
Statement II: The cash receipt from the factoring amounts to P9,726,959
Statement III: The total initial loss on the factoring amounts to P813,041
a. All statements are true.
b. All statements are false.
c. Only statement II is true.
d. Only statements I and II are true.

14. On December 31, 2024, an entity sold goods in the ordinary course of business to a customer in exchange for
a noninterest bearing note requiring ten annual payments of P300,000. The entity made the first payment on
December 31, 2024. The market interest rate for similar notes at date of issuance is 11%. The present value
of an ordinary annuity of 1 at 11% for 9 periods and 10 periods were 5.54 and 5.89 respectively. The cost of
the goods sold was P1,500,000. Which of the following statements is true?

a. Long-term noninterest bearing notes receivable shall initially be measured at face amount.
b. The gross profit on the sale is P267,000.
c. The entity shall report interest income for the year 2025 at P215,820.
d. The carrying amount of the notes receivable on December 31, 2025 is P1,544,820.

15. An entity conducted a physical count on December 31, 2024 which showed an inventory balance of
P10,000,000. The following items were excluded from the count:
• A case containing goods costing P2,000,000 standing in the shipping room was not included in the count
because it was marked “hold for shipping instructions”.
• Goods in process costing P2,500,000 held by an outside processor for further processing.
• Special goods costing P4,500,000, fabricated to order for a customer, was finished and specifically
segregated at the back of the shipping room on December 31, 2024. These goods were excluded from the
count, although it was shipped to the customer on January 15, 2025.
• Goods sold to a customer which are being held for the customer to call at the customer’s convenience with
a cost of P1,500,000.
What amount should be reported as inventory on December 31, 2024?
a. 19,000,000 c. 14,500,000
b. 13,000,000 d. 12,500,000
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16. An entity records purchases at net amount. On December 10, 2024, the entity purchased goods on account for
P6,000,000 with credit terms, 2/10, n/30. On December 18, 2024, the entity returned P300,000 of the
December 10 purchase and received credit on account. The account had not been paid on December 31, 2024.
On December 31, 2024, the entity shall

a. Report zero purchase discount lost and accounts payable of P5,586,000.

b. Report purchase discount lost of P114,000 and accounts payable of P5,586,000.
c. Report purchase discount lost of P114,000 and accounts payable of P5,700,000.
d. Report zero purchase discount lost and accounts payable of P5,700,000.

17. An entity provided the following data relating to an inventory item:

Units Unit cost Total cost
Jan. 1 Beginning balance 5,000 200 1,000,000
10 Purchase 5,000 250 1,250,000
15 Sale 7,000
16 Sale return 1,000
30 Purchase 16,000 150 2,400,000
31 Purchase return 5,000 150 750,000
Statement I: If goods are ordinarily interchangeable, IFRS allows FIFO, LIFO, or Weighted Average as cost
flow assumptions.
Statement II: Under FIFO, the cost of inventory on January 31 is P2,250,000.
Statement III: Under moving average, the cost of inventory on January 31 is P2,550,000.

a. Statements II and III are true.

b. Only statement III is true.
c. Statements I and III are true.
d. All statements are false.

18. On December 31, 2024, an entity had ending inventory at cost of P6,000,000, and the allowance for inventory
writedown before any adjustment at P250,000.
Product A Product B Product C Product D
Cost 1,000,000 2,500,000 1,800,000 700,000
Net realizable value 850,000 2,000,000 2,200,000 800,000
Which of the following statements is false?
a. Any writedown to NRV should be recognized as an expense in the period in which the writedown occurs.
b. Any reversal of writedown should be recognized in the period in which the reversal occurs.
c. The entity shall report loss on inventory writedown of P400,000.
d. The entity shall report inventory of P6,000,000 on December 31, 2024.

19. An entity provided the following information:

June July August
Sales on account 14,400,000 14,720,000 15,200,000
Cash sales 1,440,000 1,600,000 2,080,000
All merchandise is marked up to sell at invoice cost plus 20%. Inventory at the beginning of each month is
30% of that month’s cost of goods sold. Which of the following is true?

a. The gross profit is used to verify the accuracy of the physical inventory.
b. The cost of goods sold for the month of July is P12,000,000.
c. The cost of goods sold for the month of August is P14,400,000.
d. The amount of purchase for the month of July is P12,240,000.
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20. During the current year, an entity reported the following

Cost Retail
Beginning inventory 5,600,000 10,000,000
Net purchases 40,280,000 62,000,000
Net sales 54,000,000
During the current year, the selling price of a certain inventory increased from P200 to P300. This additional
markup applied to 50,000 items but was later canceled on the remaining 10,000 items. The following
reductions were made in the retail price:
To meet price competition 500,000
To dispose of overstock 300,000
Miscellaneous reductions 1,200,000
Statement I: The retail method is often used in the retail industry for measuring inventories of large numbers
of rapidly changing items with similar margins for which it is impracticable to use other costing
methods.
Statement II: Using the average retail method, the cost of ending inventory is P12,400,000.

a. Statements I and II are true.

b. Statements I and II are false.
c. Only statement I is true.
d. Only statement II is false.

21. On January 1, 2024, 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, 2024, 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, 2024, 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 2024. Which of the following statements is true?
a. Biological assets are living animals or plants and measured at cost less accumulated depreciation.
b. The entity shall report biological assets at P8,500,000 on December 31, 2024.
c. The gain attributable to price change is P2,100,000.
d. The gain attributable to physical change is P3,700,000.

22. An entity began operations on January 1, 2024. The following information pertains to the portfolio of equity
securities on December 31, 2024:
Trading Nontrading
Aggregate cost 80,000,000 120,000,000
Aggregate market value 74,000,000 110,000,000
Aggregate lower of cost or market applied individually 70,000,000 106,000,000
The nontrading securities are irrevocably designated at fair value through other comprehensive income. Which
of the following statements is false?
a. The classification of a financial asset is made at the time it is initially recognized, namely when the entity
becomes a party to the contractual provisions of the instrument.
b. When financial assets are measured at fair value, gains and losses from fair value changes are recognized
in profit or loss only.
c. The amount of unrealized loss recognized in profit or loss is P6,000,000.
d. The amount of unrealized loss recognized in other comprehensive income is P10,000,000.
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23. An entity received the following dividends during 2024:

• P2,500,000 cash dividend from Company A in which the entity owned a 25% interest.
• P3,000,000 liquidating dividend from Company B in which entity owned an 8% interest.
• P2,000,000 cash dividend from Company C in which entity owned a 10% interest.
• Share dividend of 20,000 shares from Company D with the market price of P20 per share.
What amount should be reported as dividend income for the year 2024?
a. 2,000,000
b. 4,500,000
c. 2,400,000
d. 5,500,000

24. An entity owned 300,000 ordinary shares of Company X, acquired on July 1, 2024 at a total cost of
P6,000,000. On December 1, 2024, the entity received 300,000 share rights from Company X. Each right
entitled the holder to acquire one share at P40. The market price of Company X’s share was P60 on this date
and the market price of each right is P15. On December 31, 2024, the entity exercised 200,000 rights and
allowed the remaining rights to expire.
Statement I: The cost of the new investment by exercising the rights is P12,000,000.
Statement II: The loss on the expired rights is P1,500,000.
a. Statements I and II are true.
b. Statements I and II are false.
c. Only statement I is true.
d. Only statement II is true.

25. At the beginning of current year, an entity purchased 20% of the outstanding ordinary shares of another entity
for P8,000,000. The investee’s shareholders’ equity at the beginning of current year was P20,000,000. At the
time of acquisition, the fair values of the investee’s identifiable assets and liabilities were equal to their
carrying amounts except for an office building which had a fair value in excess of carrying amount of
P3,000,000 and an estimated life of 10 years. During the current year, the investee reported net income of
P4,500,000 and paid cash dividend of P1,500,000. Which of the following statements is false?

a. Under the equity method, distributions received from an investee reduce the carrying amount of the
investment.
b. Any goodwill from the acquisition of the investment in associate is accounted for as a separate asset.
c. The entity shall recognize investment income of P840,000 for the current year.
d. The carrying amount of the investment in associate at year-end is P8,540,000.

26. On January 1, 2024, an entity acquired 10% of the outstanding ordinary shares of Company Z for P8,000,000.
The investment was measured at fair value through profit or loss. On December 31, 2024, the investment has
a fair value of P8,800,000. On January 1, 2025, the entity gained the ability to exercise significant influence
over Company Z by acquiring an additional 20% for P12,000,000. On this date, the fair value of the net assets
of Company Z equaled its carrying amounts.

For the year ended December 31, 2024, Company Z reported net income and dividend declared of P5,000,000
and P1,500,000 respectively. For the year ended December 31, 2025, Company Z reported net income and
dividend declared of P6,500,000 and P2,500,000 respectively.

Statement I: The entity shall report total income of P150,000 in 2024.

Statement II: The entity shall report total income of P1,200,000 in 2025.
Statement III: The carrying amount of the investment is P22,000,000 on December 31, 2025.

a. Statements I, II and III are true.

b. Only statement III is true.
c. Statements II and III are true.
d. Only statement I is true.
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27. An entity acquired 30% interest in an associate for P5,000,000 on January 1, 2024. On such date, the
acquisition resulted in no goodwill nor excess fair value. For the year ended December 31, 2024, the associate
reported net income and dividend declared of P2,000,000 and P800,000 respectively. For the year ended
December 31, 2025, the associate reported net income and dividend declared of P3,000,000 and P1,000,000
respectively. On December 1, 2024, the entity sold inventory to the associate for P2,900,000. The inventory
had a cost of P2,000,000 and was still on hand on December 31, 2024. The associate sold the inventory during
2025. The entity uses the perpetual inventory system.

Statement I: Profits and losses resulting from upstream and downstream transactions are eliminated to the
extent of the investor's interest in the associate or joint venture.
Statement II: The entity shall recognize investment income of P600,000 in 2024.
Statement III: The carrying amount of the investment is P5,960,000 on December 31, 2025.

a. Statements I, II and III are true.

b. Only statements I and III are true.
c. Only statement III is true.
d. Only statements I and II are true.

28. On January 1, 2024, an entity paid P5,990,000 for a 10% bond with face amount of P5,000,000. Interest is
payable semiannually on June 30 and December 31. The bond was purchased to yield 8%. The bonds are held
to collect contractual cash flows composed of interest and principal. Which of the following statements is
false?

a. Measurement of debt investments will depend on the business model and cash flow characteristics.
b. If the bonds were purchased at a premium, the effective interest rate is lower than the stated interest rate.
c. Interest income for the year 2024 is P478,784.
d. The carrying amount of the investment in bonds on December 31, 2024 is P5,969,200.

29. On January 1, 2024, an entity purchased 9% bonds in the face amount of P6,000,000. The bonds mature on
January 1, 2029 and were purchased for P5,555,000 to yield 11%. The entity’s business model for the bonds
is to collect contractual cash flows and sell the financial asset. The cash flows are composed of interest and
principal. The fair value of the bonds on December 31, 2024 and December 31, 2025 were P5,450,000 and
P5,304,000 respectively. On December 31, 2025, the entity changed the business model for this financial asset
to collect contractual cash flows composed of interest and principal.

Statement I: Reclassification of debt-type financial assets shall be done prospectively from the date of
reclassification.
Statement II: The unrealized loss in other comprehensive income for the year 2025 is P400,916.
Statement III: Interest income for the year 2026 is P627,541.

a. Only statements I and III are true.

b. Statements I, II and III are true.
c. Statements II and III are true.
d. Only statement I is true.

30. An entity purchased P10,000,000 life insurance policy on its president of which the entity is the beneficiary.
The entity provided the following information for the current year:
Cash surrender value, January 1 870,000
Cash surrender value, December 31 1,080,000
Annual advance premium paid January 1 500,000
During the current year, dividend of P80,000 was applied to increase the cash surrender value of the policy.
What amount of life insurance expense should the entity report for the year?
a. 500,000
b. 290,000
c. 210,000
d. 220,000
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31. On January 1, 2024, an entity acquired property consisting of 10 detached houses with separate legal title
including the land on which it is built for P150,000,000, 20% of which is attributable to the land. The houses
have a useful life of 20 years. The following costs were also incurred on January 1, 2024:
Nonrefundable transfer tax not included in the purchase price 15,000,000
Legal cost directly attributable to the acquisition 3,750,000
Reimbursement to the previous owner for prepaying property tax for the six-month period 75,000
ending June 30, 2024
Payment of property tax on June 30, 2024 for the year ending June 30, 2025 150,000
The entity used 2 out of the 10 units to accommodate administration and maintenance staff. The other 8 units
are rented out to independent parties under an operating lease. On December 31, 2024, the fair value of each
unit is P22,500,000. The fair value of the units can be measured reliably. The entity elected to use the fair
value model for all its investment property.
Statement I: Investment property is defined as property held to earn rentals, or for capital appreciation or both.
Statement II. The gain from change in fair value of investment property for 2024 is P45,000,000
a. Statements I and II are true.
b. Statements I and II are false.
c. Only statement I is true.
d. Only statement II is true.

32. An entity acquired two items of machinery:

• A downpayment of P1,000,000 was made and 4 annual installments of P2,500,000 are to be made at the
end of each year. The cash equivalent price of the machine is P9,500,000. The entity incurred and paid
installation cost of P300,000.
• Exchanged an old machine with a carrying amount of P12,000,000 and a fair value of P20,000,000 for a
new machine and P2,000,000 cash. The cash flows from the new machine are expected to be significantly
different from the cash flows of the old machine.
Statement I: An item of property plant and equipment shall initially be recorded at cost.
Statement II: The total cost of the two machineries is P31,300,000.
Statement III: A gain on exchange of P2,000,000 should be recognized.
a. Statements I, II and III are true.
b. Statements I and III are true.
c. Only statement I is true.
d. Only statement II is true.

33. During 2024, an entity reported the following transactions related to land and building:
• Land A was acquired for P3,200,000. To be able to acquire the land, P350,000 was paid to a real estate
agent and P100,000 was incurred to clear the land. While clearing the land, timber and gravel were
recovered and sold for P50,000.
• Land B with an old building was acquired for P9,000,000. The appraiser valued the land at P4,000,000
and P2,000,000 respectively. Shortly after the acquisition, the building was demolished at a cost of
P200,000. A new building was constructed at a cost of P10,000,000 plus excavation fee of P100,000,
architect fee of P160,000 and building permit cost of P140,000.
• Land C was acquired for P4,000,000 and was held for undetermined future use.
Statement I: If an old building is acquired and demolished immediately, any allocated cost of the old building
is capitalized as cost of a new constructed building if the new building is property, plant and
equipment or investment property
Statement II: The total cost of the land classified as property, plant and equipment is P13,600,000.
Statement III: The cost of the new building is P10,600,000.
a. Statements I, II and III are true.
b. Only statements II and III are true.
c. Only statement II is true.
d. Only statement III is true
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34. An entity received a grant of P10,000,000 from the Japanese government for the construction of a building
costing P15,000,000 and a useful life of 5 years. The building was completed and ready for its intended use
at the beginning of the current year. The entity uses the straight-line method of depreciation and the deferred
income approach in accounting for government grants. What amount of income from the grant should the
entity recognize for the current year?
a. 10,000,000
b. 3,000,000
c. 2,000,000
d. 1,000,000
35. On January 1, 2024, an entity acquired a machine for P72,000,000 and received a grant of P10,000,000 toward
the capital cost. The accounting policy is to treat the grant as a reduction from the cost of the asset. The
machine is to be depreciated on a straight-line basis over 8 years. On January 1, 2027, the entire grant became
repayable due to noncompliance with conditions.
Statement I: A government grant is recognized only when there is reasonable assurance that the entity will
comply with any conditions attached to the grant and the grant will be received.
Statement II: The entity shall recognize depreciation of P7,750,000 in 2024.
Statement III: The entity shall recognize depreciation of P9,000,000 in 2027.
a. Only statements I and II are true.
b. Statements I, II and III are true.
c. Only statement I is true.
d. Statements II and III are true.
36. To help pay for construction, an entity borrowed P15,000,000 at 11% on January 1, 2024. Funds not needed
for construction were temporarily invested in short-term securities yielding P250,000 in interest income. The
constructed asset was completed on September 1, 2024. Which of the following statements is false?
a. Qualifying asset is an asset that takes a substantial period of time to get ready for its intended use or sale.
b. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying
asset form part of the cost of that asset.
c. The capitalized borrowing cost is P1,400,000.
d. The amount of interest expense is P550,000.
37. During 2024, an entity constructed a building costing P10,000,000. The weighted average expenditures during
the year amounted to P7,000,000. Payment to the contractor came from existing general borrowings
outstanding during 2024: P12,000,000, 10-year, 10% note payable; P8,000,000, 9%, 5-year note payable.
Some of the proceeds from the borrowing were invested in short-term securities and earned P200,000 interest.
Statement I: Capitalization of borrowing cost should commence when expenditures are being incurred,
borrowing costs are being incurred and activities that are necessary to prepare the qualifying
asset for its intended use or sale are in progress.
Statement II: The entity shall capitalize borrowing cost at P672,000.
a. Only statement I is true.
b. Only statement II is true.
c. Statements I and II are false.
d. Statements I and II are true.
38. An entity constructs equipment during the current year. The following costs are incurred:
Cost of materials to construct 7,000,000 Installation cost 1,200,000
Labor cost 4,300,000 Insurance for one year 200,000
Allocated overhead cost 2,200,000 Profit saved by self-construction 1,500,000
Allocated interest cost of financing equipment 1,000,000 Inspection cost prior to use 400,000
What amount should be capitalized as cost of the equipment?
a. 14,600,000
b. 16,100,000
c. 16,300,000
d. 15,100,000
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39. On January 1, 2024, an entity acquired machine for P7,500,000. The entity paid shipping cost and installation
cost of P75,000 and P180,000 respectively. The machine was estimated to have a useful life of 10 years, a
residual value of P450,000, and the straight-line method of depreciation is used. On January 1, 2026, additions
costing P540,000 were made to the machine to comply with pollution ordinances. These additions neither
prolonged the life of the machine nor did they have any residual value. Which of the following is true?
a. Depreciation is the cost allocated on a systematic basis over the asset's useful life.
b. The depreciation method used should not reflect the pattern in which the asset's economic benefits are
consumed by the entity.
c. Depreciation should always be capitalized as cost of another asset.
d. The entity shall recognize depreciation of P798,000 for the year 2026.

40. An entity purchased equipment which was installed and put into service on January 1, 2024 at a total cost of
P12,800,000 with estimated residual value of P800,000. The equipment is being depreciated over 8 years by
the double declining balance method. On January 1, 2027, the entity changed to the straight-line method of
depreciation. The entity can justify the change.
Statement I: A change in depreciation method is a prior period error.
Statement II: The entity shall report accumulated depreciation of P7,400,000 on December 31, 2026.
Statement III: The entity shall report depreciation of P1,080,000 for the year 2027.

a. Statements I, II and III are true.

b. Statements II and III are true.
c. Only statement II is true.
d. Statements I, II and III are false.

41. An entity was engaged in the rock and gravel business. The following transactions relate to the acquisition
and development of an expensive gravel pit:
2024 Cost of acquisition and development 1,920,000
Estimated output 2,400,000 tons
Production 1,000,000 tons
2025 Additional development cost 980,000
Production 600,000 tons
2026 Additional development cost 1,000,000
New estimate of remaining output 2,500,000 tons
Production 700,000 tons
Statement I: Depletion for the year 2025 is P900,000.
Statement II: Depletion for the year 2026 is P616,000.

a. Statements I and II are true.

b. Statements I and II are false.
c. Only statement I is true.
d. Only statement II is true.

42. An entity constructed a building costing P28,000,000 on the mine property. The estimated residual value will
not benefit the entity and will be ignored for purposes of computing depreciation. The building has an
estimated life of 10 years. The total estimated recoverable output from the mine is 500,000 tons. The entity
extracted 100,000 tons each year during the first and second year of operations. However, during the third
year, a shutdown occurred and there was no output. During the fourth year, production resumed and the entity
extracted 100,000 tons.
Statement I: The entity shall recognize no depreciation for the third year.
Statement II: The entity shall recognize depreciation of P4,900,000 for the fourth year.
a. Statements I and II are true.
b. Only statement II is true.
c. Only statement I is true.
d. Statements I and II are false.
 Page 12

43. An entity reported the following liabilities on December 31, 2024:

Accounts payable, net of suppliers account with debit balance of P2,000,000 20,000,000
Accrued expense 15,000,000
Bonds payable due December 31, 2025 30,000,000
Discount on the bonds payable 5,000,000
Loan payable, current portion P5,000,000 35,000,000
Loan payable due November 15, 2025 3,000,000
The P3,000,000 loan payable was refinanced with a 3-year loan on December 31, 2024. The 2024 financial
statements were authorized for issue on March 15, 2025. What amount should be reported as current liabilities
on December 31, 2024?
a. 70,000,000
b. 65,000,000
c. 42,000,000
d. 67,000,000
44. An entity reported income before tax of P9,000,000 for the current year which included the following:
Unrealized loss on bond investment at fair value through other comprehensive income 600,000
Equity in earnings of an associate – 25% interest 1,200,000
Dividends received from the associate 300,000
Share dividends received 250,000
Additional doubtful accounts due to a change into the aging of AR method 450,000
Gain on disposal of equipment 575,000
Realized revaluation surplus due to disposal of equipment 2,500,000
What amount should be reported as income before tax?
a. 6,550,000
b. 9,050,000
c. 7,000,000
d. 6,800,000
45. On April 1, 2024, an entity had a machine costing P10,000,000 and accumulated depreciation of P7,500,000.
On such date, the entity classified the machine as held for sale. On April 1, 2024, the machine had an estimated
selling price of P1,000,000, estimated disposal cost of P100,000 and remaining useful life of 2 years. On
December 31, 2024, the estimated selling price of the machine increased to P1,500,000 with estimated
disposal cost of P200,000. Which of the following statements is false?
a. Noncurrent assets classified as held for sale are not subject to depreciation.
b. A gain for any subsequent increase in fair value less costs of disposal of an asset can be recognized in
profit or loss without regard for any previous cumulative impairment losses.
c. The entity shall report impairment loss of P1,600,000 on April 1, 2024.
d. The entity shall report reversal of impairment loss of P400,000 on December 31, 2024.
46. An entity has reported the following items for the year ended December 31, 2024:
Sales 3,000,000 Operating expense 250,000
Cost of goods sold 1,400,000 Casualty loss 150,000
Gain on sale of equipment 50,000 Income tax rate 25%
Third quarter sales were 30% of total sales and for interim reporting purposes, a gross profit rate of 40% can
be justified. Of the total operating expenses, P200,000 is variable and P50,000 is fixed. Variable operating
expenses are allocated in the same basis as sales. Fixed operating expenses are allocated based on the
expiration of time. The equipment was sold on June 1, 2024 and the casualty loss occurred on September 1,
2024. What amount should be reported as income before tax for the quarter ending September 30, 2024?
a. 150,000
b. 250,000
c. 137,500
d. 187,500
 Page 13

47. An entity records sales return during the year as a credit to accounts receivable. However, at year -end, the
entity estimates the probable sales return and records the same by means of an allowance account. Also, the
entity uses the gross method of recording cash discounts. The following transactions occurred during the year:
Sale of merchandise on account, 2/10, n/30 40,000,000
Collection within the discount period 14,700,000
Collection beyond the discount period 10,000,000
Sales return granted 1,000,000
Sales return estimated at the end of the year 200,000
Doubtful accounts (10% of gross accounts receivable at year-end) ?
Statement I: The entity shall report net sales of P38,700,000 for the current year.
Statement II: The entity shall report the net realizable value of accounts receivable at P12,400,000.

a. Statements I and II are true.

b. Statements I and II are false.
c. Only statement II is true.
d. Only statement I is true.

48. An entity provided the following transactions:

January 1 Sold merchandise for P5,000,000 accepting a note of P5,000,000 for six months with interest to
be paid at 12% at maturity
March 1 Discounted the note with recourse at a local bank at 15%. The discounting is accounted for as
conditional sale with recognition of a contingent liability
July 1 The customer paid the bank in full
What amount of cash was received from the discounting on March 1?
a. 5,300,000
b. 5,035,000
c. 5,100,000
d. 5,000,000

49. Myriad Company provided the following data on December 31, 2024:
Finished goods in storeroom, at cost 20,000,000
Finished goods in transit, purchased FOB Seller 2,500,000
Finished goods held by salesmen, at cost 1,000,000
Goods in process, at cost 10,000,000
Materials on hand 9,000,000
Materials in transit, purchased FOB Destination 500,000
Defective materials returned to suppliers 1,000,000
Factory supplies 4,000,000
What amount should be reported as inventory on December 31, 2024?
a. 42,500,000
b. 43,500,000
c. 23,500,000
d. 46,500,000

50. An entity reported wages expense of P6,000,000 for 2024. The wages payable at the beginning of year
amounted to P1,500,000. Wage payments during the year totaled P5,000,000. The previous year’s adjusting
entry for unpaid wages was reversed on January 1, 2024. What is the adjusting entry for accrued wages
payable on December 31, 2024?

a. Debit wages expense and credit wages payable P1,000,000

b. Debit wages expense and credit wages payable P1,500,000
c. Debit wages expense and credit wages payable P2,500,000
d. Debit wages payable and credit wages expense P2,500,000
 Page 14

51. The IASB employs a due process system which

a. Requires that all CPAs must receive a copy of IFRS.

b. Identifies the most important accounting issues.
c. Enables interested parties to express their views on issues under consideration.
d. Is an efficient system for collecting dues from members.

52. Objectivity is assumed to be achieved when a transaction

a. Is recorded in a fixed amount of pesos.

b. Involves an arm’s length transaction between two independent parties.
c. Involves the payment and receipt of cash.
d. Allocates revenue and expense in a rational and systematic manner.

53. Costs that can be reasonably associated with specific revenue but not with specific product should be

a. Expensed in the period in which the related revenue is recognized.

b. Capitalized and then amortized over a reasonable period.
c. Allocated to the specific product based on the best estimate of the product processing time.
d. Expensed in the period incurred.

54. If an expense has been incurred but not yet recorded, the adjusting entry would involve

a. An asset and a revenue

b. A liability and an asset
c. An expense and an asset
d. A liability and a revenue

55. Current assets should never include

a. Premium paid on a bond investment

b. Goodwill arising in a business combination
c. A receivable not collectible within one year
d. Current tax asset

56. The disclosure of accounting policies is important to financial statement users in determining

a. Net income for the year.

b. Whether accounting policies are consistently applied from year to year.
c. The measurement of obsolete inventory.
d. Whether the working capital position is adequate.

57. What is the purpose of reporting comprehensive income?

a. To report transactions with owners

b. To report a measure of overall entity performance
c. To replace net income with a better measure
d. To combine income from continuing operations with income from discontinued operations

58. When an entity decided to sell a component, the gain on disposal should be

a. Included in other comprehensive income.

b. Presented as other income.
c. Netted against the loss from operations of the component as a part of discontinued operation.
d. Presented as an adjustment to retained earnings.
 Page 15

59. A change in residual value of an asset arising because additional information has been obtained is

a. An accounting change reported in the period of change and future periods if the change affects both.
b. An accounting change that should be reported by restating the financial statements of all prior periods.
c. A correction of error.
d. Not an accounting change.
60. Highly liquid investments are cash equivalents if the maturity is 90 days or less

a. From the date the investments are acquired

b. From the end of the reporting period
c. From the date of issue of financial statements
d. From the beginning of the period
61. When an accounts receivable aging schedule is prepared, a series of computations is made to determine the
estimated uncollectible accounts. The resulting amount from this aging schedule

a. Is the amount of doubtful accounts expense for the year.

b. Is the amount that should be added to the beginning allowance for doubtful accounts to get the doubtful
accounts expense for the year.
c. When added to the total accounts written off during the year is the desired credit balance of allowance for
doubtful accounts at year-end.
d. Is the amount of desired credit balance of the allowance for doubtful accounts to be reported at year -end.
62. Which statement is true when accounts receivable are factored without recourse?

a. The financing cost should be recognized ratably over the collection period.
b. The factor assumes the risk of collectability and absorbs any credit losses in collecting the accounts
receivable.
c. The accounts receivable are used as collateral.
d. The transaction may be accounted for as either secured borrowing or sale.
63. The use of a discount lost account implies that the cost of a purchased inventory is

a. Invoice price
b. List price
c. Invoice price less the purchase discount allowable whether taken or not
d. Invoice price less purchase discount taken
64. Which of the following inventory method reports most closely the current cost of inventory?

a. FIFO
b. Specific identification
c. Weighted average
d. LIFO
65. How is goodwill arising on the acquisition of an associate dealt with in the financial statements?

a. It is amortized.
b. It is not recognized separately within the carrying amount of the investment.
c. It is tested for impairment individually.
d. It is written off as a loss.
66. What present value concept is used to compute the price to pay for a bond?

a. The future value of 1

b. The present value of 1 and present value of an ordinary annuity of 1
c. The present value of an ordinary annuity of 1
d. The present value of 1
 Page 16

67. Entity A and Entity B exchanged truck with fair value more than carrying amount. In addition, Entity A paid
Entity B cash to compensate for the difference in truck fair value. Entity A shall recognize

a. Neither a gain nor loss

b. A gain equal to the difference between fair value and carrying amount of the truck given
c. A gain determined by the proportion of cash paid to the total consideration
d. A loss determined by the proportion of cash paid to the total consideration

68. Which of the following may not be considered a qualifying asset?

a. A ship that normally takes one to two years to complete.

b. A toll bridge that usually takes more than a year to build.
c. An expensive jet that can be purchased from a vendor
d. A power generation plant that normally takes two years to construct

69. A machine with a four-year estimated useful life and an estimated 15% residual value was acquired at the
beginning of the current year. The increase in accumulated depreciation for the second year using the double
declining balance method would be

a. Original cost x 50% x 50%

b. Original cost x 50%
c. Original cost x 85% x 50%
d. Original cost x 85% x 50% x 50%

70. The most common method of computing depletion is

a. Production method
b. Percentage depletion method
c. Decreasing charge method
d. Straight-line method

END