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Since 1977

FAR OCAMPO/OCAMPO
PREWEEK LECTURE OCTOBER 2024

1. Which statement pertains to the Professional 7. An entity provided the following data:
Regulatory Board of Accountancy (BOA)? Total assets, end P80,000
a. Its main function is to establish generally Share capital, end 15,000
accepted accounting principles in the Philippines. Retained earnings, beg. 22,000
b. Has a chairman who had been or presently a Net income 15,000
senior practitioner in public accountancy. Dividends declared 7,000
c. It has the authority to establish the accounting
framework to be used by companies under its Compute the total liabilities at year-end.
jurisdiction. a. P35,000 c. P50,000
d. It is composed of a chairman and six (6) members b. P43,000 d. P65,000
appointed by the President of the Philippines.
8. Which statement is incorrect regarding the Conceptual
2. The Bangko Sentral ng Pilipinas is represented in Framework for Financial Reporting?
I. FSRSC a. Its foundation is the objective of general purpose
II. PIC financial reporting.
III. PSRC b. It addresses the characteristics that make
IV. AASC financial information useful.
c. Serves as a guide in resolving accounting issues
a. I, II, III, and IV c. I, II and IV only that are not addressed directly in existing PFRSs.
b. I, II and III only d. I and IV only d. It may override a requirement of a PFRS.

3. Which statement is incorrect regarding CPD

requirements for CPAs? Use the following information for the next two questions.
a. OFWs are not covered by the CPD requirement.
b. Newly licensed CPAs are not covered by the CPD The accounts below were taken from the unadjusted trial
requirement for their first renewal cycle. balance of an entity as at Dec. 31, Year 1:
c. CPAs getting BoA accreditation will need 120 units Cash P124,000
of CPD training. Investment in shares, at cost 87,000
d. All other CPAs renewing their Professional ID Card Notes receivable 92,000
will need 15 CPD units of training under the Trade accounts receivable 122,000
technical competence area. Allowance for doubtful accounts 6,000
Merchandise inventory 136,000
4. In accordance with PRC Memorandum Order No. 98 Notes payable 150,000
Series of 2023, how many CPD credit units are Trade accounts payable 90,000
required for the renewal of Professional ID Card Employees’ income tax withheld 4,000
starting year 2027? Bonds payable 250,000
a. 15 c. 30 Share dividends payable 15,000
b. 20 d. 45 Income tax payable 28,000

5. Which of the following step in the accounting process Analysis of the above accounts disclosed the following:
comes first? • Bank overdraft of P13,000 was deducted from cash
a. Preparation of financial statements balance.
b. Preparation of post-closing trial balance • Investment in shares consists of 10,000 ordinary
c. Closing of nominal accounts shares with published price quotation at Dec. 31, Year
d. Preparation of adjusting entries 1 of P9 per share. These shares are designated as
FVTOCI and the entity expects to sell these in Year 2.
6. The following statements relate to accounting • Trade accounts receivable was net of customers’
process: deposit of P7,000.
I. Prepayments occur when cash flow precedes • A bank loan of P30,000 due Dec. 31, Year 3 was
expense recognition. included in the notes payable balance.
II. Failure to record the unexpired portion of • Accounts payable was net of accounts with debit
insurance premium paid would overstate profit. balance of P12,000.
III. Failure to record the unearned portion of rent • Bonds payable which was issued in Year 1 will mature
received in advance would overstate owner’s in five annual installments beginning June 1, Year 2.
equity.
IV. The adjusting entry to record the earned portion Compute for the following at Dec. 31, Year 1:
of rent received in advance may be reversed. 9. Total current assets
a. Only one statement is true. a. P587,000 c. P598,000
b. Only one statement is false. b. P590,000 d. P605,000
c. Only two statements are true. 10. Total current liabilities
d. All the statements are false. a. P272,000 c. P324,000
b. P289,000 d. P339,000

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11. The net income of an entity for the year was P28,000. 12/31/CY 12/31/PY
Selling expenses were equal to 18% of sales and 30% Credits
of the cost of sales. All other expenses were 12% of Allowance for uncollectible
sales. The cost of sales of the entity for the year was accounts P 1,300 P 1,100
a. P 84,000 c. P168,000 Accumulated depreciation 16,500 15,000
b. P112,000 d. P251,000 Trade accounts payable 25,000 17,500
Income taxes payable 21,000 27,100
12. Jimmy Corp. reported profit of P10,000,000 for the Deferred tax liability 5,300 4,600
current period. The auditor raised questions about the 8% callable bonds payable 45,000 20,000
following amounts that had been included in profit: Share capital 50,000 40,000
Unrealized loss on decline in value of FA at Share premium 9,100 7,500
FVTOCI P 500,000 Retained earnings 44,700 64,600
Loss on write-off of inventory due to a Sales 538,800 778,700
government ban net of tax 1,500,000 P756,700 P976,100
Adjustment of profit of prior year net-debit 2,000,000 • The entity purchased P5,000 in equipment during the
Loss from expropriation of property, current year.
net of tax 3,500,000
Exchange differences gain on translating • The entity allocated one-third of its depreciation
foreign operations 4,500,000 expense to selling expenses and the remainder to
Revaluation surplus realized 1,000,000 general and administrative expenses.
Equity in earnings of Joni Corp. 600,000 QUESTIONS:
Dividends received from Joni Corp. 300,000
Defined benefit expense 800,000 What amounts should the entity report in its statement of
cash flows for the current year ended for:
Additional information:
• The loss from expropriation was unusual in 14. Cash collected from customers?
occurrence in Jimmy’s line of business. a. P541,800 c. P536,000
• Jimmy owns 20% of Joni's ordinary shares. b. P541,600 d. P535,800
• Defined benefit expense includes: Service cost,
15. Cash paid for goods to be sold?
P500,000; Interest cost, P200,000; Actuarial loss
a. P258,500 c. P242,500
on defined benefit obligation, P100,000.
b. P257,500 d. P226,500
Jimmy Corp.’s current period statement of
16. Cash paid for interest?
comprehensive income should report profit of
a. P4,800 c. P3,800
a. P6,600,000 c. P6,800,000
b. P4,300 d. P1,700
b. P6,700,000 d. P7,000,000
17. Cash paid for income taxes?
13. An entity commits to a plan to dispose of one of its a. P25,800 c. P19,700
operating segments. The disposal meets the b. P20,400 d. P15,000
requirements for discontinued operations.
18. Cash paid for selling expenses?
Records and other information disclosed the following a. P142,000 c. P141,000
for the disposal group: b. P141,500 d. P140,000
Carrying amount P8,000,000
Fair value less costs to sell 6,500,000 19. How should an entity present cash flows that are part
Loss from operations 2,000,000 of a reverse factoring arrangement?
Expected operating loss prior to I. Operating activities
disposal 500,000 II. Investing activities
III. Financing activities
Disregarding income tax, how much will be reported
as loss from discontinued operations? a. I only c. I or III only
a. P4,000,000 c. P2,000,000 b. III only d. I, II or III
b. P3,500,000 d. P1,500,000
20. An entity reported cash and cash equivalents of
P2,100,000 in its statement of financial position. This
Use the following information for the next five questions. amount included the following:
• Credit card receipts representing sales on Dec. 31,
An entity uses the direct method to prepare its statement Year 1, P90,000.
of cash flows. Its trial balances at Dec. 31 current year • Cryptocurrencies, P360,000. These are not held
(CY) and prior year (PY) are as follows: for sale in the ordinary course of business nor for
investment purposes.
12/31/CY 12/31/PY
• Cash set aside for payment of income tax,
Debits
P140,000.
Cash P 35,000 P 32,000
• Cash surrender value of life insurance policy,
Accounts receivable 33,000 30,000
P33,000.
Inventory 31,000 47,000
• Investment in preference shares acquired on Dec.
Property, plant & equipment 100,000 95,000
28, Year 1, P240,000. The shares are redeemable
Unamortized bond discount 4,500 5,000
on Mar. 28, Year 2.
Cost of goods sold 250,000 380,000
• Customer’s check for P65,000 dated Jan. 2, Year
Selling expenses 141,500 172,000
2, received on Dec. 29, Year 1.
General and administrative
expenses 137,000 151,300 How much is the adjusted cash and cash equivalents?
Interest expense 4,300 2,600 a. P1,312,000 c. P1,672,000
Income tax expense 20,400 61,200 b. P1,552,000 d. P1,912,000
P756,700 P976,100

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21. If a petty cash fund is established in the amount of 27. Which statement is correct regarding classification of
P2,500, and contains P2,000 in cash and P450 in financial assets in accordance with PFRS 9?
receipts for disbursements when it is replenished, the a. A derivative may be classified as a financial asset
journal entry to record replenishment should include at fair value through other comprehensive
credit to the following accounts income.
a. Petty Cash, P450. b. An equity instrument may be classified as a
b. Petty Cash, P500. financial asset measured at amortized cost.
c. Cash, P450; Cash Over and Short, P50. c. An equity instrument acquired principally for the
d. Cash, P500. purpose of selling it in the near term may be
designated as a financial asset at fair value
22. The policy of an entity is to debit bad debt expense through other comprehensive income.
for 3% of all new sales. The following are the entity’s d. Reclassification of financial assets that are equity
sales and allowance for bad debts for the past four instruments is not allowed.
years.
Allowance
Sales for bad debts Use the following information for the next four questions.
Year 1 P3,000,000 P45,000 An entity purchased P5,000,000 of 8%, 5-year bonds on
Year 2 2,950,000 56,000 Jan. 1, Year 1 with interest payable on June 30 and Dec.
Year 3 3,120,000 60,000 31. The bonds were purchased for P5,100,000 plus
Year 4 2,420,000 75,000 transaction cost of P108,000 at an effective interest rate
of 7%. The business model for this investment is to collect
Compared to Year 3, the accounts written off in Year 4 contractual cash flows and sell the bonds in the open
decreased by market. On Dec. 31, Year 1, the bonds were quoted at
a. P10,000 c. P40,000 106.
b. P32,000 d. P57,600
28. What amount of interest income should be reported
23. An entity accepted a P10,000, 2%, 5-year interest- for Year 1?
bearing note in exchange for a machine with a list a. P200,000 c. P364,560
price of P8,000 and a cash price of P7,500. The entity b. P363,940 d. P400,000
should report the note receivable at
a. P7,500 c. P10,000 29. What is the adjusted carrying amount of the
b. P8,000 d. P10,400 investment on Dec. 31, Year 1?
a. P5,000,000 c. P5,174,560
24. An entity purchased a P20,000, 8%, 5-year note that b. P5,171,940 d. P5,300,000
required five equal annual year-end payments of 30. What amount should be recognized in OCI in the
P5,009. The note was discounted to yield a 9% rate to statement of comprehensive income for Year 1?
the entity. At the date of purchase, the entity a. P 92,000 c. P128,060
recorded the note at its present value of P19,485. b. P125,440 d. P300,000
What should be the total interest revenue earned by
the entity over the life of this note? 31. If the entity elected the fair value option, what total
a. P5,045 c. P8,000 amount of income should be recognized for Year 1?
b. P5,560 d. P9,000 a. P200,000 c. P492,000
b. P400,000 d. P600,000
25. Which of the following describes the ‘general
approach’ of accounting for impairment of financial SOLUTION GUIDE:
assets?
a. At each reporting date, an entity shall recognize a NI EI Prem. Gross
loss allowance based on either 12-month ECLs or Date (4%) (3.5%) Amort. CA
lifetime ECLs, depending on whether there has
1/1/Y1 5,208,000
been a significant increase in credit risk on the
financial instrument since initial recognition. 6/30/Y1 200,000 182,280 17,720 5,190,280
b. An entity shall always measure the loss allowance
at an amount equal to lifetime expected credit 12/31/Y1 200,000 181,660 18,340 5,171,940
losses.
c. An entity shall only recognize the cumulative
changes in lifetime expected credit losses since Use the following information for the next two questions.
initial recognition as a loss allowance.
d. An entity shall recognize a loss allowance if, and Both Rian Inc. and Bryan Corp. have 100,000 shares of
only if, there is objective evidence of impairment. no-par ordinary shares outstanding. Friendliness Inc.
acquired 10,000 shares of Rian for P6 per share and
26. An entity may use practical expedients when 25,000 shares of Bryan for P10 per share on Jan. 1, Year
measuring expected credit losses. An example of a 2. Changes in retained earnings for Rian and Bryan for
practical expedient is the calculation of the expected Year 2 and Year 3 are as follows:
credit losses on trade receivables using Bryan
a. Direct write off method.
Rian Inc. Corp.
b. Incurred loss method.
Retained earnings, (deficit),
c. Percent of net sales method.
Jan. 1, Year 2 P200,000 P(35,000)
d. A provision matrix.
Cash dividends, Year 2 (25,000) -
P175,000 P(35,000)
Net income, Year 2 40,000 65,000

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Retained earnings, 38. Entity A imported goods at a cost of P130,000,

Dec. 31, Year 2 P215,000 P30,000 including P20,000 non-refundable import duties and
Cash dividends, Year 3 (30,000) (10,000) P10,000 refundable purchase taxes. The risks and
rewards of ownership of the imported goods were
Net income, Year 3 60,000 25,000
transferred to the entity upon collection of the goods
Retained earnings,
from the harbor warehouse. The entity was required
Dec. 31, Year 3 P245,000 P 45,000
to pay for the goods upon collection. The entity
Fair value of shares: incurred P5,000 to transport the goods to its retail
Dec. 31, Year 2 P 7.00 P 12.00 outlet and a further P2,000 in delivering the goods to
Dec. 31, Year 3 7.50 11.00 its customer. Further selling costs of P3,000 were
incurred in selling the goods.
32. The total amount to be recognized by Friendliness Inc.
in its Year 3 profit or loss related to these investments How much is the total cost of inventory of Entity A?
is a. P120,000 c. P150,000
a. P 9,250 c. P14,250 b. P125,000 d. P155,000
b. P12,450 d. P24,250
39. In a period of declining prices, the use of the following
33. The carrying amount of Investment in Bryan Corp. as inventory cost flow method that would result in the
of Dec. 31, Year 3 is highest cost of goods sold is ___________.
a. P275,000 c. P261,250 a. Moving average method
b. P270,000 d. P253,750 b. Specific identification method
c. FIFO
34. In accordance with PIC Q&A No. 2016-02, how should d. Weighted average method
proprietary club shares held by an entity be accounted
for assuming the entity’s holding does not give it 40. Information on the inventory of an entity: Cost, P12;
control, joint control or significant influence over the Estimated selling price, P13.60; Estimated disposal
club? cost, P.20; Normal gross margin, P2.20; Replacement
a. As financial assets cost, P10.90. Under the lower of cost or net realizable
b. As intangible assets value rule, the measurement of the inventory item of
c. Either a or b the entity should be at ___________.
d. Neither a nor b a. P10.90 c. P12.00
b. P10.70 d. P11.20
35. The following are transactions related to a sinking
fund being managed by the entity itself. Which of the 41. An entity is engaged in raising dairy livestock. Data
following will increase the sinking fund? provided in the current year follows:

I. Purchase of securities Carrying amount on Dec. 31, P2,500,000; Increase

II. Sale of securities a gain due to purchases, P1,000,000; Gain arising from
III. Receipt of dividends change in fair value less costs to sell attributable to
price change, P200,000; Gain arising from change in
a. I, II and III c. II and III only fair value less costs to sell attributable to physical
b. I and II only d. III only change, P300,000; Decrease due to sales, P400,000;
Decrease due to harvest, P100,000.
36. During the current year, an entity pays an insurance
premium of P31,800 on a P1,000,000 life insurance The carrying amount of the biological assets on Jan. 1
policy covering the life of its president. The cash is
surrender value of the policy will increase from a. P1,000,000 c. P1,500,000
P165,000 to P175,200 during the year. The entity b. P1,400,000 d. P3,500,000
received dividends of P3,300 from the insurance
company during the year. The president died half-way 42. An entity reported property, plant and equipment of
through the year. The policy indicates that the cash P7,190,000 in its statement of financial position. This
surrender value is P170,100 at that date and 50% of amount consists the following:
the premium is refunded. The gain on life insurance Head office building P1,300,000
settlement is Factory building 1,450,000
a. P814,000 c. P 829,900 Store building 920,000
b. P826,600 d. P1,000,000 Building occupied by employees 870,000
Land held for a currently
37. An entity reported inventories of P5,400,000 in its undetermined future use 1,200,000
statement of financial position. This amount included Delivery vehicles 830,000
the following: Equipment for rental to others
• Equipment held for sale in accordance with PFRS under operating leases 240,000
5, at carrying amount, P52,000. Fair value less Bearer plants 380,000
costs to sell, P48,000. P7,190,000
• Goods held on consignment, P36,000.
• Goods out on consignment, P75,000. • The entity uses the cost model for all items of
• Goods in transit to customers (shipped FOB property, plant and equipment.
seller), P87,000. • The employees pay rent at market rates.
• Goods in transit to customers (shipped FOB • Fair value less costs to sell of bearer plants,
buyer), P73,000. P460,000.
• Office supplies, P12,000.
How much is the adjusted property, plant and
How much is the adjusted inventories? equipment?
a. P5,213,000 c. P5,227,000 a. P5,990,000 c. P5,120,000
b. P5,217,000 d. P5,573,000 b. P5,610,000 d. P4,880,000

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43. Entity A exchanged a car for a computer from X Corp. • The costs of training employees resulted in a team
to be used as a noncurrent operating asset. The of skilled staff.
following information relates to this exchange: • The entity cannot distinguish the research phase
Carrying amount of the car P30,000 from the development phase of its project to
Listed selling price of the car 45,000 create an intangible asset.
Fair value of the computer 43,000 How much is the adjusted intangible assets?
Cash difference paid by Entity A 5,000 a. P1,970,000 c. P810,000
How much profit should Entity A recognize on this b. P1,090,000 d. P350,000
exchange?
a. Nil c. P10,000 49. Entity S reported an impairment loss of P1,000,000 in
b. P8,000 d. P13,000 profit or loss for Year 2. This loss was related to an
equipment which was acquired on Jan. 1, Year 1 for
44. During Year 4, Entity L constructed a new building. P6,250,000, useful life of 10 years and no residual
The weighted average expenditures for Year 4 were value. The straight-line method is used in recording
calculated to be P8,500,000. The entity had the depreciation of this asset. On the Dec. 31, Year 2
following debt outstanding at Dec. 31, Year 4: statement of financial position, the entity reported this
• 7 percent, five-year note to finance construction asset at P4,000,000 (the recoverable amount on that
of the building, dated Jan. 1, Year 4, P6,000,000. date). The entity revised the remaining life of the
• 5 percent, 10-year bonds issued at face value on asset to 5 years starting Jan. 1, Year 3.
July 1, Year 1, P10,000,000. The bonds were On Dec. 31, Year 3, the entity decided to measure the
issued to finance the construction of another asset using revaluation model. This asset was then
building completed in Year 3. appraised at a fair value of P4,500,000.
• 8 percent, six-year note payable, dated June 30,
Year 3, P5,000,000. Compute the revaluation increase to be recognized in
Year 3 other comprehensive income.
Determine the amount of interest to be capitalized by a. P125,000 c. P1,175,000
Entity L for Year 4. b. P300,000 d. P1,300,000
a. P534,650 c. P595,000
b. P570,000 d. P620,000 50. Entity J accounts for non-current assets using the
revaluation model. On Oct. 1 of the current year, it
45. Which statement is correct regarding government classified an equipment as held for sale in accordance
grants? with PFRS 5. At that date the asset’s carrying amount
a. All government assistance are government grants. was P600,000 and the balance on the revaluation
b. Grants related to income are government grants surplus was P36,000. At that date its fair value was
whose primary condition is that an entity estimated at P595,000 and the costs to sell at P25,000.
qualifying for them should purchase, construct or At Dec. 31 of the current year, the asset's fair value
otherwise acquire long-term assets. was estimated at P588,000 and the costs to sell at
c. Government grants include free technical or P28,000.
marketing advice received from the government.
d. An entity shall disclose unfulfilled conditions and The impairment loss to be recognized in Entity J’s profit
other contingencies attaching to government or loss for the current year is
assistance that has been recognized. a. P 4,000 c. P35,000
b. P25,000 d. P40,000
46. On Jan. 1, Year 1, an entity acquired equipment at a
cost of P540,000. The entity used the sum-of-the- 51. Which of the following are measured at initial
years’-digits method of depreciation for this recognition at their cost?
equipment and had been recording depreciation over I. Inventories
an estimated life of eight years, with no residual II. Biological assets
value. At the beginning of Year 4, a decision was III. Property, plant and equipment
made to change to the straight-line method of IV. Investment properties
depreciation for this equipment. The depreciation V. Intangible assets
expense for Year 4 would be VI. Exploration and evaluation assets
a. P28,125 c. P 67,500 VII. Right-of-use assets
b. P45,000 d. P108,000 VIII. Financial assets
47. Which the following will likely qualify as investment a. All of these
property? b. I, II, III, IV, V and VI only
a. Telecommunications tower c. I, III, IV, V and VI only
b. Advertising billboard d. III, IV, V, VI and VII only
c. Both a and b
d. Neither a nor b 52. Which of the following may be measured subsequent
to initial recognition using the revaluation model?
48. An entity reported intangible assets of P2,280,000 in I. Biological assets
its statement of financial position. This amount II. Property, plant and equipment
consists the following: III. Investment properties
IV. Intangible assets
Patents P350,000 V. Exploration and evaluation assets
Trademarks 460,000 VI. Right-of-use assets
Costs of training employees 280,000
Research and development costs 880,000 a. All of these
Organization costs 310,000 b. II, III, IV, V and VI only
P2,280,000 c. II, IV, V and VI only
d. II, IV and V only

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53. An entity has an outstanding 10% note payable dated 57. An entity distributes to consumers coupons which may
Oct. 1, Year 1 and is payable in three equal annual be presented (on or before a stated expiration date)
payments of P600,000 plus interest. The first interest to grocers for discounts on certain products of the
and principal payment was made on Oct. 1, Year 2. In entity. The grocers are reimbursed when they send
the entity’s June 30, Year 3 statement of financial the coupons to the entity. In the entity’s experience,
position, what amount should be reported as accrued 50% of such coupons are redeemed, and generally
interest payable for this note? one month elapses between the date a grocer
a. P30,000 c. P 90,000 receives a coupon from a consumer and the date the
b. P45,000 d. P135,000 entity receives it. During the year, the entity issued
two separate series of coupons as follows:
54. The 10% bonds payable of an entity had a net Consumer Amount
carrying amount of P570,000 on Dec. 31, Year 2. The Issued Expiration Disbursed
bonds, which had a face value of P600,000, were On Total Value Date as of 12/31
issued at a discount to yield 12%. The amortization of 1/1 P500,000 06/30 P236,000
the bond discount was recorded under the effective- 7/1 720,000 12/31 300,000
interest method. Interest is paid on Jan. 1 and July 1
of each year. On July 2, Year 3, several years before The only journal entries to date recorded debits to
their maturity, the entity retired the bonds at 102. coupon expense and credits to cash of P536,000. The
The interest payment on July 1, Year 3 was made as Dec. 31 statement of financial position should include
scheduled. What is the loss that the entity should a liability for unredeemed coupons of
record on the early retirement of the bonds on July 2, a. Nil c. P 74,000
Year 3? b. P60,000 d. P360,000
a. P12,000 c. P37,800
b. P33,600 d. P42,000 58. An entity sells its products in reusable containers. The
customer is charged a deposit for each container
55. An entity is the defendant in a breach of patent delivered and receives a refund for each container
lawsuit. Its lawyers believe there is a 70 per cent returned within two years after the year of delivery.
chance that the entity will successfully defend the The entity accounts for the containers not returned
case. However, if the court rules in favor of the within the time limit as being retired by the sale at the
claimant, the lawyers believe that there is a 60 per deposit amount. Information for Year 3 follows:
cent chance that the entity will be required to pay Container deposits at Dec.
damages of P2 million (the amount sought by the 31, Year 2, from
claimant) and a 40 per cent chance that the entity will deliveries in
be required to pay damages of P1 million (the amount Year 1 P150,000
that was recently awarded by the same judge in a Year 2 430,000 P580,000
similar case). Other amounts of damages are unlikely. Deposits for containers
The court is expected to rule in late December of the delivered in Year 3 780,000
following year. There is no indication that the Deposits for containers
claimant will settle out of court. returned in Year 3 from
deliveries in
A 7 per cent risk adjustment factor to the cash flows Year 1 P 90,000
is considered appropriate to reflect the uncertainties Year 2 250,000
in the cash flow estimates. An appropriate discount Year 3 286,000 626,000
rate is 5%.
In the entity’s Dec. 31, Year 3 statement of financial
How much should the entity recognize as provision for position, the liability for deposits on returnable
damages at the end of the current year? containers should be
a. P1,500,000 c. P1,141,356 a. P494,000 c. P674,000
b. P1,712,000 d. Nil b. P584,000 d. P734,000

56. An entity began marketing a new soft drink product in 59. An entity maintains escrow accounts and pays real
the current year. To help promote the product, the estate taxes for mortgage customers. Escrow funds
management is offering a special mug to each are kept in interest bearing accounts. Interest, less a
customer for every 20 specially marked bottle caps of 20% services fee, is credited to the mortgagee's
the soft drink. The entity estimates that out of the account and used to reduce future escrow payments.
300,000 bottles sold during the year, only 50% of the The information regarding the escrow accounts kept
marked bottle caps will be redeemed. For the current by the entity follows: escrow accounts liability as of
year, 8,000 mugs were ordered by the entity at a Jan. 1 was P2,000,000, while the entity received
total cost of P360,000. A total of 4,500 mugs were payments from customers during the year amounting
already distributed to customers. What is the amount to P4,200,000. The entity paid real estate taxes
of the liability that the entity should report on its during the year in the amount of P3,500,000, while
statement of financial position at the end of the the interest earned on the escrow funds was
current year? P500,000. What amount should the entity report as
a. P135,000 c. P337,500 escrow accounts liability in its Dec. 31 statement of
b. P202,500 d. P360,000 financial position?
a. P2,300,000 c. P3,100,000
b. P2,700,000 d. P3,200,000

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60. An entity issued gift certificates with face value of 63. An entity’s computation of basic EPS for the current
P2,000,000. The gift certificates can be used to buy period is presented below:
goods from the entity. Gift certificates worth
Profit for the period P800,000
P1,200,000 were redeemed during the year.
Less dividends on convertible
The entity does not expect to be entitled to a preference shares 50,000
breakage amount. However, at the end of the current Profit attributable to ordinary
year, the likelihood of customers’ exercising 10% of equity holders 750,000
the gift certificates issued becomes remote. / WAN of OSO 300,000
Basic EPS P 2.50
Compute the total amount to be recognized as
revenue from the gift certificates for the current year.
The entity has potential ordinary shares outstanding
a. P1,200,000 c. P1,280,000
during the entire period with the following details:
b. P1,133,333 d. P1,400,000
• Preference shares convertible into 15,000
ordinary shares.
• Bonds payable convertible into 75,000 ordinary
Use the following information for the next two questions.
shares. The entity recognized P150,000 (after-
An entity reported the following amounts in the equity tax) interest expense for the period on these
section of its Dec. 31, Year 1, statement of financial bonds.
position. • Options to issue 20,000 ordinary shares for P5
per share. Average market price of ordinary
Share capital – Preference. 8%, P100 shares is P8 per share.
par (10,000 shares authorized,
2,000 shares issued) P200,000 The diluted EPS is
Share capital – Ordinary, P5 par a. P2.35 c. P2.44
(100,000 shares authorized, 20,000 b. P2.39 d. P2.50
shares issued) 100,000
Share premium 125,000 64. Which statement is incorrect regarding measurement
Retained earnings 450,000 of lease liabilities in accordance with PFRS 16?
Total P875,000 a. An entity measures lease liabilities at the present
value of future lease payments.
During Year 2, the entity took part in the following b. Lease liabilities include only economically
transactions concerning equity. unavoidable payments.
1. Paid the annual Year 1 P8 per share dividend on c. Lease liabilities include fixed payments (including
preference shares and a P2 per share dividend on inflation-linked payments) and only those optional
ordinary shares. These dividends had been declared on payments that the company is reasonably certain
Dec. 31, Year 1. to make.
2. Purchase 2,700 shares of its own outstanding ordinary d. Lease liabilities include variable lease payments
shares for P40 per share. The entity uses the cost linked to future use or sales.
method.
3. Reissued 700 treasury shares for land valued at 65. Which statement is incorrect if an entity entered into
P30,000. a contract to lease a plot of land for 20 years?
4. Issued 500 preference shares at P105 per share. a. The entity should recognize a right-of-use asset
5. Declared a 10% share dividend on the outstanding (ROUA).
ordinary shares when the shares are selling for P45 per b. If the entity will return the land to the lessor after
share. 20 years, the ROUA is depreciated over 20 years.
6. Issued the share dividend. c. If the rental contract transfers the ownership to
7. Declared the annual Year 2 P8 per share dividend on the land to the entity at the end of the lease term,
preference shares and the P2 per share dividend on the ROUA is not depreciated.
ordinary shares. These dividends are payable in Year d. None of these.
3.
8. Profit for Year 2 is P330,000. 66. On April 1, year 1, Hall Fitness Center leased its gym
61. The balance of Retained earnings account as of Dec. to Dunn Fitness Center under a four-year operating
31, Year 2 would be lease. Hall normally charges P6,000 per month to
a. P309,400 c. P639,400 lease its gym, but as an incentive, Hall gave Dunn half
b. P450,000 d. P693,400 off the first year’s rent, and one quarter off the
second year’s rent. Dunn’s rental payments were as
62. Total shareholder’s equity as of Dec. 31, Year 2 would follows:
amount to • Year 1 (12 × P3,000) = P36,000
a. P 760,000 c. P1,199,900 • Year 2 (12 × P4,500) = P54,000
b. P1,119,900 d. P1,919,900 • Year 3 (12 × P6,000) = P72,000
• Year 4 (12 × P6,000) = P72,000
Dunn’s rent payments were due on the first day of the
month, beginning on April 1, year 1. What amount
should Hall report as rent income in its monthly
income statement for April, year 3?
a. P3,000 c. P4,875
b. P4,500 d. P6,000

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Use the following information for the next three questions. Use the following information for the next two questions:
An entity is a dealer in equipment and uses leases to An entity sponsors a defined benefit pension plan. For the
facilitate the sale of its product. The entity expects a 12% current year ended Dec. 31, the following information
return. At the end of the lease term, the equipment will relevant to the plan has been accumulated:
revert to the lessor. Defined benefit obligation, 1/1 P10,000,000
Fair value of plan assets, 1/1 9,000,000
On Jan. 1, Year 1, equipment is leased to a lessee with Current service cost 3,000,000
the following information: Gain on settlement 500,000
Cost of equipment to the entity 3,500,000 Actual return on plan assets 630,000
Fair value of equipment 5,500,000 Increase in defined benefit
Residual value – unguaranteed 600,000 obligation due to changes in
Initial direct cost 200,000 actuarial assumptions 800,000
Annual rental payable in advance 900,000 Market yield on high quality
Useful life and lease term 8 years corporate bonds 6%
Implicit interest rate 12% Yield on bonds issued by the entity 8%
PV of 1 at 12% for 8 periods 0.40 Expected return on plan assets 9%
PV of an ordinary annuity of 1 at
12% for 8 periods 4.97 72. Calculate the amount that the entity would recognize
PV of an annuity due of 1 at 12% in current year profit or loss.
for 8 periods 5.56 a. P2,560,000 c. P2,580,000
First lease payment Jan. 1, Year 1 b. P2,570,000 d. P2,590,000

67. What is the total financial revenue? 73. Calculate the amount that the entity would recognize
a. P1,956,000 c. P2,196,000 in current year other comprehensive income.
b. P2,556,000 d. P2,796,000 a. P710,000 c. P800,000
b. P790,000 d. P890,000
68. What amount should be recognized as interest income
for Year 1? 74. Cyrene Company, a calendar-year corporation, has
a. P492,480 c. P536,760 the following income before income tax provision and
b. P521,280 d. P600,480 estimated effective annual income tax rates for the
69. What amount of cost of goods sold should be first three quarters of the current year:
recognized in recording the lease? Estimated
a. P3,260,000 c. P3,500,000 Income before effective annual
b. P3,460,000 d. P3,740,000 income tax tax rate at end of
Quarter provision quarter
70. An entity began operations on Jan. 1, Year 1. For First P60,000 40%
financial reporting, the entity recognizes revenue from Second 70,000 40%
all sales under the accrual method. However, in its Third 40,000 45%
income tax returns, the entity reports qualifying sales
Cyrene's income tax provision in its interim income
under the installment method. The entity’s gross
statement for the third quarter should be
profit on these installment sales under each method
a. P18,000 c. P25,500
was as follows:
b. P24,500 d. P76,500
Year Accrual method Installment method
1 P1,600,000 P 600,000 75. The following information pertains to an entity and its
2 2,600,000 1,400,000 operating segments for the current year. Sales to
unaffiliated customers; P10,000,000, intersegment
The income tax rate is 30% for Year 1 and future sales, P3,000,000; interest earned on loans to other
years. There are no other temporary or permanent segment, P500,000; traceable operating expenses,
differences. In its Dec. 31, Year 2 statement of P6,000,000; indirect operating expenses, P2,500,000;
financial position, what amount should the entity general corporate expenses, P90,000; interest
report as liability for deferred income taxes? expense P400,000; income taxes, P1,200,000. The
a. P360,000 c. P660,000 entity and all of its segments are engaged solely in
b. P600,000 d. P840,000 manufacturing operations and evaluates segment
performance based on controllable contribution. The
71. Balances of the deferred tax accounts of an entity entity has a reportable segment if that segment's
were as follows. operating profit is at least
12/31/Y1 12/31/Y2 a. P150,000 c. P410,000
Deferred tax liability P3,200 P2,000 b. P370,000 d. P450,000
Deferred tax asset 2,650 1,900
76. An entity with total liabilities of P100 million is
Income tax expense for the year ended Dec. 31, Year
considered as a
2 was P1,550. The current tax payable at Dec. 31,
a. Large and/or public interest entity
Year 2 is P200 less than the current tax payable at the
b. Medium-sized entity
preceding year-end. What was the amount of income
c. Small entity
tax paid during the year ended Dec. 31, Year 2?
d. Micro entity
a. P1,100 c. P2,000
b. P1,500 d. P2,200

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TEAM PRTC

LECTURE NOTES: Use the following information for the next two questions.
SEC Financial Reporting Frameworks An SME acquired an investment in equity instrument for
P500,000. The direct acquisition costs incurred were
Entities Size Criteria Framework P25,000.

Large and/or TA> P350M or TL> Full PFRSs At the end of the reporting period, the fair value of the
public interest P250M instrument was P600,000 and the transaction costs that
entities would be incurred on sale were estimated at P30,000.

Medium-sized TA> P100M-P350M PFRS for SMEs 78. If the fair value of the investment can be measured
entities or reliably without undue cost or effort, it should be
TL> P100M-P250M reported at the end of period statement of financial
position at
Small entities TA= P3M-P100M or PFRS for SEs a. P500,000 c. P570,000
TL= P3M-P100M b. P525,000 d. P600,000

Micro entities TA and TL< P3M Either: 79. If the fair value of the investment cannot be measured
• PFRS for SEs; reliably without undue cost or effort and the best
or estimate of the amount that the entity would receive
• Income tax for the sale of the investment is P600,000, the
basis investment should be reported at the end of period
statement of financial position at
a. P500,000 c. P570,000
77. Which statement is correct regarding an entity b. P525,000 d. P600,000
preparing its financial statements in accordance with
the PFRS for SMEs? 80. An entity, applying the PFRS for Small Entities, has a
a. The entity is required to measure its investments policy choice to measure which of the following?
in shares that are traded in an active market at I. Inventories
the lower of cost or fair value. II. Biological assets
b. The entity has a policy choice to measure III. Investment property
investment properties either at cost or at fair IV. Property, plant and equipment
value.
c. The entity has a policy choice of not recognizing a. I, II, III and IV c. II and III only
deferred taxes in the financial statements. b. II, III and IV only d. III and IV only
d. The entity is required to use the projected unit
credit method for its defined benefit plan only
when it could be applied without undue cost or - end of preweek lecture -
effort. J GOOD LUCK, YOU CAN MAKE IT! J

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