Financial Accounting and Reporting seta : he best answer for INSTRUCTIONS: Select each of th, folowing questions. ALL questions are compulsory ang MUST be attempted. Mark only one answer for each item on the answer sheet provided. Strictly NO ERASURES ALLOWED Erasures will render your examination answer sheet INVALID, Use PENCIL NO. 2 only. GOODLUCK!G 1. Which statement is correct? a. A member of BOA must be a duly registered Certifies Pubic Accountant with at least ten (10) years of work experience in the practice of public accountancy. b. The Finencial Reporting Standards Council has the authonty to establish the accounting framework to be used by companies under its jurisdiction, c. The Burezu of Internal Revenue is not represented in the Auditing and Assurance Standards Council 4. The Commission of Audit is represented in the Philippine Interpretations Committee (PIC). 2. Which statement is incorrect? 2. PFRSs may set out such requirements for transactions and events that arise mainly in specific industries. b. The FRSC employs a “due process’ system, which requires that all accountants must receive @ copy of PFRSS. © Comment period for an exposure draft issued by the FRSC is usually at least 60 days. 9. As @ general rule, there is no need to expose proposed FIC implementation guidance for comment. 3. Which oF the following is less authoritative than the standard to which it relates? a. Interpretation issued by IFRS Interpretations Committee 2Copted by the FRSC. b. Implementation Gui oved by epee uidance issued by PIC and appr © Both 2 and b, G. Neither a nor b. rr a ers ee *aLaHe com ae > — Financial Accounting and Reporting SETA 4. Which statement is correct? a. IFRS standards bring transparency by helping investors to identify opportunities and risks across the world, thus improving capital allocation. b. The IFRS Monitoring Board provides @ formal vehicle for participation by organizations and individuals with an interest in international financial reporting c. Most of the members of the IASB are full-time, so that they commit all of their time to paid employment as an IASB member. d. The IFRS Interpretations Co: appointed by the IASB. tee members are Which of the following adjusting entries will not affect both the balance sheet and income statements? a. Accrued income b. Prepayments using the expense method ¢. Unearned income using the liability method d. None of the cheices, both statements are affected by adjusting journal entries Use the following information for the next two questions. following accounts and their balances appear in an unadjusted trial balance of an entity as of December 31, 2019: Cash P 35,500 Accounts receivable (net) 172,000 Inventory 48,000 Accounts payable 25,000 Notes payable 10,000 Additional information gathered for adjustment follows: The cash account includes collection in January 2020 of P10,000 from @ customer who was given a cash discount of P500 It also includes a January 2020 cash sale of °2,000._ Gross rofit on this sale was 25%, The entity uses perpetual inventory system w orecomph FAR ISPBIO.19Fanarcaai Accounting and Reporting Se TA Financial Accounting and Reporting c from the amount collected, the following payment S were made: + Accounts payable of P5,000 paid at a discou + A loan of P3,000 with interest of P1S0 accruing yan” ing January, 6 The adjusted total current assets is . 2. 261,900 Cc. P263, b. 263,250 3. P2635) 2. The adjusted total current liabilities is a. P42,750 c. P43, b. P43,150 a Pa3300 8. The following accounts and their balance ar: ea the trai balance of an entity: mena ease ky Sales 2,000, nventory, January 1 365,000 Purchases 1,555,000 Purchases return and allowances “15,000 Salanes 120,000 Delivery expense 22,000 Retained earnings, January 1 325,000 Dividend income 18,000 Income on sales of fixed asset 7,000 Light and power 80,000 Travel and transportation 18,000 Interest and bank charges 35,000, Miscellaneous operating expenses 6,000 Bad debts 4,000 Depreciation 15,000 Income tax 43,500 Dwidends declared but not yet paid 85,000 inventory, December 31 325,000 The profit for the year is 2 341,500 apie, ¢. P101,500 d. P 71,500 PTT D ibn = ME Soom oh a FAR SPB 10.5 sera 9. An entity's income statement for the year ended Decemb: aber 31, 2019, reported net income of P36, 0,0 finan statements also discloses the following informascns "M2! Amortization Depreciation eoioee Increase in accounts receivable 140,000 Increase in inventory 48,000 Decrease in accounts payable 76,000 Increase in salaries payable 28,000 Dividends paié 120,000 Purchase of equipment 150,000 Increase in long-term note payable 300,000 Net cash provided by operating activities for 2019 should be reported as a. P 84,000 c. P234,000 b. 204,000 4. 324,000 10. On December 31, 2019, an entity had cash accounts at three different banks. One account balance is segregated solely for a January 15, 2020 payment into a bond sinking fund. A second account, used for branch operations, is overdrawn. The third account, used for regular corporate operations, has a positive balance. How should these accounts be reported in the entity's December 31, 2019 classified statement ot financial position? a. The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability. b. The segregated and regular accounts should be reported as current assets, and the overdraft should be reported as a current liability c. The segregated account should be reported as 2 noncurrent asset, and the regular account should be reported as a current asset net of the overdraft. 4. The segregated and regular accounts should be reported as current assets net of the overdraft. S a Fan 1st 010. Fae saa wma com.o8Financal Accounting and Reporting _ 4 11. The cash account in the current asset section statement of financial position of an entity showed a Z the ance of P55,500. It was found to include the following items: petty cesh fund (P100 is in the form of paid * vouchers) p Checking account balance in Philippine Trust 500 Company, per bank statement (a P2,500 check is stil outstanding) i os Uncepasited receipts, including a post-dated check 500 for PS0O 12 Currencies and coins awaiting deposit a Bond sinking fund - cash a Check drawn by management, returned by bank 000 marked NSF zoo The correct cash balance for the entity's stat financial position is me 2 43,000 c. 42,400 b. 42,900 d. Pa0,400 12. An entity had the following transactions. in its first operations: Lt Sales (90 percent collected in the first year) 1,350,000 Disbursements for costs and expenses 1,080,000 Purchases of equipment for cash 360,000 Proceeds from issuance of share capital 450,000 Payments on short-term borrowings 45,000 Proceeds from short-term borrowings 90,000 Depreciation on equipment 72,000 Disbursements for income taxes 81,000 Bad debt write-offs 54,000 Wihat is the ca Mi ete sn belance at December 31 of the first year? pare c. P153,000 , 4. P135,000 Peta es i019 wmen.accom oh eee: | ~ FAR. 13tPB10.19 Financial Accounting and Reporting SETA 13. The cash baiance in @ company’s bank stat than the correct cash balanc wilng (Cia eee the situation, except balance. The following could explain Frroneous bank credit Outstanding checks Overstatement in recording deposits Deposits credited by the bank but net yet recorded by the company aoe Use the following information to answer the next two questions. An entity has just hired you as an accounting supervisor. You are reviewing the entity's bank reconciliations prepared by a junior clerk, and have decided to prepare your own reconciliation first, te compare it to the clerk's results. You have collected the following information as of December 31, 2019: Outstanding checks 22,000 NSF check returned by bank 1,500 Balance per bank statement on December 31 40,100 Check paid to supplier for cleaning services rendered in November 2019, which was incorrectly recorded by the company as PS,005, but correctly included on bank statement December 15, 2019 as PS,500 5,005 Deposit made December 31, 2019 but not recorded on January bank statement 10,000 40 Bank service charges 14. The unadjusted general ledger balance as of December 31, 2019 would be how much? a. P27,135 c. P30,135 b. P29,145 d. PS6,135 45. After completing the bank reconciliation and reviewing the ‘clerk's bank reconciliation, you have instructed the clerk te prepare all the journal entries necessary to correct, the general ledger. The net effect of the adjustments on 2019 net income would be how much? pan taPwTO Page Fol 52ers Som.oh zFeancal Acouning ane Reeorng Ser inancial Accounting and Report ny Financial Accounting and Reporting eae 2. Pa65 crease tome income eer ere b. PASS INcreDEE tO Oe me doubtful accounts 500 debit PASS decrease to ner ne Sales returns and allowances for credit sales 40,000 4, P535 decrease to net income Accounts receivable, beginning of the year 140,000 <6. Which statement is correct regarding revenue recognition jn > If bad debts are estimated to be 1 1/2% of ending accounts accordance with PFRS 15? a receivable, in the adjusting entry to recognize bad debts, you athe first step in the five-step model is to identify th separate performance obligations in the contract. . cc. P1,800 4. 1,300 b. Transaction price is the amount of cansideration to which ‘an entity expects to be entitled in exchange for _ transferring promiseé goods or services to a customer = including amounts collected on behalf of thire i ee ee ere site pas rd partes December 31, 2020; the note specified 8 percent interest c. Revenu “s passed, either over payable each December 31, The going rate of interest for this See eee at tata f debt was 15 percent, How much is the ca For the rf of determit the ict type of det as 7 uch is re carrying ae ee neg Transachon ‘pres, an. amount of the note receivable on December 31, 2019? ‘An entity sold a machine on January 1, 2019, for P5,000 cash plus a 20,000, two-year note. The principal is due on cemity shall assume that the ccntract may be cancelled SE pia 783 17. The December 31 balances of selected accounts of an entity b. Pi9,142 roe and pertinent information are shown below 20, An entity sold equipment on July 1, 2018. The equipment Inventory, January 1 2,000,000 eaoh price is 79,000. The buyer signed a deferred payment Purchases 7,500,000 Contract that provides for a down payment of P10,000 and an Purchases returns and allowances 500,000 S-year note for P103,472. The note is to be paid in 8 equal Sales returns and allowances 750,000 Snnual payments of P12,934. The payments include 10% Inventory at December 31 2,800,000 interest and are made on June 30 of each year, beginning Gross profit rate on net sales 20% June 30, 2019. + Gross sales for the current year amount to ‘The total interest income for the year ended December 31, a. 7,750,000 cc. P8,500,000 2019 is 6. 7,000,000 4d. P9.125,000 a. P6,900 c. 76,599 | b. 6,612 d, P5,982 18. Based on the information: Credit sales 1,720,000 720) i t five questions. Collections on accounts receivable during Use the following information for the next five qu the year 1,700,000 Lender A is applying PFRS 9 for the first time in its December 31, Cash sales 8,100,000 2019 financial statements. The following is information about its loan portfolio at December 31, 2019: ee ton a — _. a FAR TaPOTOTS ° rR 1st TE IF a ee |Francat Acooveting and Reporting aiae — All of the loans share simi mortgage !ans secured by collateral. All of the loans were originated at @ market rate of i Lender A considers all loans over 90 da mecrest. : YS past credit umpaired based on historical experience with wet? be the associated debt recovering The aging of Lender ‘'s loans on O =. A December 31, 2019 Current P1,400, More than 30 days past due 75,000 More than 60 days past due 100,000 More than 90 days past due __125/000 Total Px a A monitors certain loans more closely on an individual basis gv “significance and unique characteristic, Lisa ans are Not included in the P1,700,000 loan portfolio. ne following information is available without undue cost of effort an an individual loan basis: Past T ] Past PV of Expected] Future Cash on ms re borrower nas filed 8c 000! for bankruptcy. Not calculated 120,000] ly arrested for money from employer ¢ 1 "30,000] 60 days! The borrower recently, lost his Job due to an economic recession and was granted 3 concess) a ran sto IO Financal Accounting and Reporting = A | PV of Expected Fore cas 0 | Amount! Status | Other Information | aan carrer — Hans = + “Additional formation talang into account historcl information, current conditions and forward-looking information, including actual loss experience and recoveries from the sale of collateral, is as follows: Probability of default in the next 12 months 2% Lifetime probability of default Credit-impaired loans 100% Not credit-impaired loans 3% Loss given default on all loans 25% QUESTIONS: 21. The total loans classified under Stage 1 is a, P1,670,000 ¢. P1,550,000 b. 1,625,000 d. 1,400,000 22. The total loans classified under Stage 2 is a. P345,000 . P175,000 b. P295,000 d. P 75,000 23. The total! loans classified under Stage 3 is a. P595,000 c. 375,000 b. P495,000 é. 325,000 24. The total impairment loss to be recognized in 2019 profit or loss is a. P73,438 cc. P74,938 b. P74,188 d. P75,688 25. Which statement is correct regarding the general approach of applying the impairment requirements of PFRS 9? @. When the entity has no reasonable expectations of recovering the financial asset, full lifetime expected credit losses are recognized. b. An entity shail always measure the loss allowance at an aR RIOT Page 11 of 37 wenw.oric.com ph odFinancial Accounting and Reporting SETA amount equal to lifetime expected credit losses. c. An entity shall only recognize the cumulative cha, lifetime expected credit losses since initial recogates On as Financial Accounting and Reporting SETA and shipping disputes. Buyer was to collect the cash and Acknowledge sales discounts, but such discounts were te be charged to Seller. Credit losses were to be absorbed by Buyer. Seller has not recorded any bad debt expense related to the factored receivables. The following transactions pertain to this factoring arrangement: 2 loss allowance. d. Even if the credit risk increases significant ti Y 2nd the resulting credit quality is not considered to be | 4 recewable isk, interest revenue is still calculated based on the a as are sccwable records. were wensfenred to i nt He ons, carrying amount of tlie financial asset. 31 Buyer collected P234,000 during August after allowing for P9,000 of sales discounts. Sales 26. Which statement is correct regarding accounting for transfe watune and allowances during August totaled of receivables in accordance with PFRS 97 nS, 2,400. 3. The transfer of risks and rewards evaluated is evaluated Sept. 20 Buyer wrote off a P2,000 account efter learning by determining the transferee’s ability to sell the asset. ‘of the company's bankruptcy. b. A sale of a financial asset together with a total retun 30 Buyer collected 151,720 during September. swap that transfers the market risk exposure Dack to the ales returns and allowances during September entity is an example of a transfer that qualifies for totaled P88O. derecognition. Oct. 10 Seller and Buyer made a final cash settlement. cc. The entity shall determine whether it has retained control Which statement is incorrect? of the financial asset if an entity neither transfers nor a. This transaction is best described as a sale of Seller's retains substantially all the risks and rewards of accounts receivable to Buyer with the risk of uncollectible ownership of a transferred asset. accounts transferred to Buyer. d. The entity shall continue to recognize the transferred b. The net casi proceeds ultimately reelized Dy Seller from asset in its entirety if an entity neither transfers nor the factoring is ®376,720. retains substantially all the risks and rewards of c. The factor’s net income frem the factoring is P9,000. ownership of a transferred asset, and retains control of d. The Seller received P1,720 as final settlement from the the transferred asset factor. 28. On June 1, 2019, an entity acquired P12,000,000, 10 percent bonds at P'10,348,080. Interest is receivable semiannually on n 15 years. 27. Sellet Corp. factored P400,000 of accounts receivable with Buyer, Inc., on a without-recourse basis. The factor cher was 1.75% cf the amount of receivables, and an addition) May 31 and November 30, The bonds mature 4% was retained to cover probable adjustments. In addition The entity is 4 calendar-yeat corporation. to the factor charge, a finance charge was withneld «424° If the bond investment is held for collection only, the carrying 12% ‘arnwally for eny amounts advanced Pret to el amount of the bonds as of December 31, 2019 should Be lates of the receivables. This charge was based on WWE” a. 12,000,000 c. P10,372,65° the face value. The average credit term was 30 days from b, P10,391,103 d_ P10,368,965 the date of transfer. According to the terms of the factoring agreement, \ tt ds, allowel paecomph it, Seller was to handle returned goo Fooe 130032 verewnniRe.com.oh a — Fs Page i2 of 32 Supine ee pan TPB? gsFrancia Accounting ane Reporting sery 28. On December 1, 2019, an entity acqui ; ie Investee Corp. (2% of the outstanding Shee Corp.) for P100,000. The entity plans to sete shares to maximize its investment income, On Deeg ad® the 2019, Investee declared and paid a dividend of prot > 000 shares o¢ 5 Of Investor share. For the month of December 2019. 00 ber P1.50 per share. On December 31, 2019, wees earned were trading at P12.00 per share’ on the Philippine ome Exchange. How much stfould the entity report in promt tot for 2019 in relation to this investment? mare ise 2. 10,000 | c. PR b. , 20,000 d. ravaen 30. On April 1, 2019, Eddie Co. purchased 25,000 of Patty Co. at P180 per share which reflected buon vane’ of that date. At the time of the purchase, Patty had 100,000 ordinary shares outstanding. The shares are intended as a long term investment. The first quarter statement ending March 31, 2019 of Patty recorded profit of P480,000. For the year enced December 31, 2019, Patty reported profit of P2,400,000. Patty paid Eddie dividends of P60,000 on June 1, 2019 and again P60,000 on December 31, 2019. The sed of Patty are selling at P190 per share on December 31, The carrying amount of the investment in Patty Co. as of Decernber 31, 2019 should be @. 4,750,000 c. P4,950,000 b. P4,860,000 d. P5,070,000 31. On January 1, 2019, an entity adopted a plan to accumulate funds for 2 new plant building to be erected beginning July ly 2024, at an estimated cost of P6,000,000. The entity intends to make five equal annual deposits in a fund that earn interest at 8% compounded annually. The first deposit 15 made on July 1, 2019. Present value and future amount factors are as follows __ a pa iB Taped Tp re a Finoncial Accounting and Repéring sera present vaiue of 1 at 8% for 5 periods 068 Present value of 1 at 8% for 6 periods 0.63 Future amount of ordinary annuity of 1 at 8% for 5 periods 5.87 Future amount of annuity in advance of 1 at 8% for 5 periods 634 ‘The entity should make five annual deposits (rounded) of a. P1,022,150 ¢. P816,000 b. P 946,400 4. P756,000 32. Are there any circumstances when @ contract that is not a financial instrument would be accounted for as a financial instrument under PFRS 9? 2. No. Only financial instruments are accounted for as financial instruments. Yes. Gold, silver, and other precious metals that are readily convertible to cash are accounted for as financial instruments. Yes. A contract for the future purchase or delivery of a commodity or other non-financial item (e.9-, gold, electricity, or gas) generally is accounted for as a financial instrument if the contract can be settied net. d. Yes, An entity may designate any nonfinancial asset that can be readily convertible to cash as a. financial instrument. b. 33. Which statement is correct regarding cost of inventories? a. Foreign exchange differences arising directly on the recent acquisition of inventories invoiced in a foreign currency are included in cost of inventories b. Costs of purchase include variable manufacturing overheads. c. Storage costs may be included in the cost of inven d. Costs of conversion include direct materials. tories. 7s ran 15th IF Page Ts of 2Fieancal Accounting and Reporting Sera 34 foe tea i The accounting staff of an entity submitted an inventory j 2 December, 31, 2019 which showed a total value 5,000,000. The following information which may or may act be relevant to the inventory value submitted, are gyre’ below: 2. Excluded from the inventory were merchandise costing 80,000 because they were transferred to the delivers department for packaging on December 28 to be shipeey on January 2, 2020. - ®. The bill of lading and their import documents on a merchandise were delivered by the bank and the trust receipt accepted by the entity on December 26, 2019 * Taxes and duties have been paid on this shipment out the customs broker has not delivered the merchandise unti January 7, 2020. Delivered cast of shipment totaled 800,000. This shipment was not included in the inventory on December 2019. © A review of the company’s purchase orders shows a commitment to buy P100,000 worth of merchandise. This was not inciuded in the inventory because the goods were received on January 3, 2020. 4. Suppliers’ invoice for 30,000 warth of merchandise dated December 28, 2019 was received thru the mails on December 20, 2019 although the goods arrived only January 4, 2020. Shipment term is FOB, seller. This was included on December 31, 2019 inventory by the entity. *. Goods valued at P20,000 were received on December 28, 2019 for approval by the entity. The inventory team included this merchandise in the list but did not place value on it. On January 4, 2020, the entity informed the Supplier by long distance telephone of the acceptance of the goods and the supplier's invoice was received on January 7, 2020. f On December 27, 2019, an order for P25,000 worth of merchandise was placed. This was included in the year seach ventory although it was received only on January 5, 2020. Selier shipped goods FOB, buyer. Fan tetP 010.1 = —.— Financial Accounting and Reporting SETA @._The company performed net realizable value tec, NRV was correctly determined at P5,880,006, 78% THE om guch fs the adjusted value of inventory on December 31, 20197 2. P5,880,000 €. 5,825,000 b. 5,855,000 4. 5,055,000 35. An entity uses the perpetual inventory system. The entity's ventory transactions for the month of August ‘men’se follows: No. Unit co: Total cost 01 Aug. Beg. inventory 20 Pato me 07 Aug. Purchases 10 4.20 42.00 10 Aug. Purchases 20 430 86.00 12 Aug. Sales 15, 2 ? 16 Aug. Purchases 20 4.60 92.00 20 Aug. Sales 40 ? ? 28 Aug. Sales returns 3 £ ? Which statement is incorrect? a. Assuming that the entity uses the FIFO cost flow method, the 12 August sales should be costed at P4.00 per unit. », Assuming that the entity uses the FIFO cost flow method and that the sales returns relate to the 20 August sales, the sales return should be costed back into inventory at P4.60 per unit. ©. Assuming that the entity uses the weighted average cost flow method, the 12 August sales should be costed at P4,29 per unit. d. None of the above 36. An entity is @ retailer of Italian furniture and has five major Product lines: sofas, dining tables, beds, closets, and lounge chairs. At December 31, 2019, quantity on hand, cost per unit, and net realizable value (NRV) per unit of the product lines are as foll Product line Cost per unit NRW per unit FAR 1eePBI0.19France! Accounting and Reporting SETA Product ine Quantity Costper unit NRV per unit 100 P1,000 P1,020 bang tables 200 '500 450 300 1,500 1,600 Chosets 400 750 770 Lounge chairs 500 250 200 In the entity's December 31, 2019 statement of financial position, Inventory should be carried at 1,040,000 c. 1,080,000 >. 71,075,000 d. P1,115,000 37. The following figures relate to inventory held at the end of the reporting period: Cost of materials P100,000 Net realizable value of materials : 90,000 Estimated costs to convert materials into finished goods aoe Estimated selling price of finished goods 160,00 Estimated costs to sell 5,000 The entity should recognize loss on write-down of inventory of matenals of a. P15,000 cc. P5,000 b. 10,000 d. Ni 38. On June 30, 2019, a flash flood damaged the warehouse and factory of an entity, completely destroying the work in process inventory. There was no damage to either ihe matenals or finished goods inventories. A physical inventory teken alter the flood revealed the following valuation: Finished Goods 112,000 Work in-process 0 Raw Materials 52,000 The inventory on January 1, 2019, consisted of the following. 6 Goods 120,000 process 115,000 Rn BID worm wttccom ph J FAR. 1stP 810. Fnandal Accounting and Reporting sera Raw Materials Compute the value of the wo: June 30, 2019. a. P135,020 ©. P271,980 b. P119,020 4. P 92,220 "kin process inventory lost on 39. The: records of an entity 'Y report the following data for the month of January: Beginning inventory at cost P 440,000 Beginning inventory at sales price 800,000 Purchases at cost 4,500,000 Initial markup on purchases 2,900,000 Purchase returns at cost 240,000 Purchase returns at sales price 350,000 Freight on purchases 100,000 Additional mark up 250,000 Mark up cancellations 100,000 Mark down 600,000 Mark down cancellations 100,000 Sales 5,300,000 Sales allowances 300,000 Sales returns 400,000 Employee discounts 200,000 Theft and other losses 100,000 Using the average retail inventory method, the ending inventory at cost is 3. P1,024,000 c. P1,536,000 . P1,472,000 d. 1,664,000 Dea ate cam ph ra 077Franca! Accounting and Reporing 40. Whi 4 42 SET, statement agncultural activity? 2 Agncultural activity includes acean fishing. . Logis an example of agricultural produce’ € Incidental scrap sates would prevent satisfying the definition of a bearer plan the Plant ro d. PAS 41 takes the view that the fair value of Produce at the point of harvest can reliably i moveye by correct regarding accounting 5, for agricultural © Measured The following pertains to an entity’s biological assets: Fair value based on unobss: the asset Quoted price in an ~e¢5 si ise uetive market for similar Quoted price « . i Soted PRICE ss an active market for identical vable inputs for 4,900 5,300 au P ice ina binding contract to sel 5,600 sed commissions to brokers anc dealers 500 nated transport and other costs necessary 10 get asset to the market 300 The entity's bislogical arsets should be valued at 3 48 Cc. P4,500 >. 74,600 d. P4,400 At the end « - Unf 699 Ci the reporting period, a tomato grower's vines The hs vlc and bearing fully developed ripe tomatoes. accurnulated cost of the fruit-bearing vines is P12,500 <9 tei fair value 15 100,000. It is expected to cost the Entry P5,000 to sell the tomato crop at market. Once the ‘wnatoes have been harvested the then worthless vines Wl De abandoned. At the end of the reporting period: ® The entity measures the tomatoes at P82,500, the tomato wines at P12,500 and recognizes a gain of P8?,500 for the increase in faur value The entity measures the tomato-bearing vines at P95,000 b aia oa sore ericcaen 5h; | aR TsO rreanvial Accounting and Reporing e A and recognizes 9 gain of PS2,500 forthe increase in fair c. The entity measures the toma 100,000 anc recognizes a gain ingrease in fair value. 4, The entity measures the tomatoes at 95, vines at PO and recognizes a gain of increase in fair value. to-bearing vines at of P87,500 for the 000, the tornato 82,500 for the 43, Which of the following costs are included in the carrying amount of an item of property, plant and equipment a. Costs incurred while an item capable of operating in the manner intended by management has yet to be brought into use or is operated at less than full capacity. b. Initial operating losses, such as those incurred while demand for the item’s output builds up. <. ‘Costs of relocating or reorganizing part or all of an entity’s operations. 4. None of the above. 44. During the current year, an entity purchased a secondhand machine at @ price of P300,000. A cash down payment of 50,000 was made and a two-year, noninterest bearing note was issued for the balance. Recent transactions involving similar machinery indicate that the usec machine has a secondhand market value of P240,000. A new machine would cost P400,000. The following costs were incurred on the machine during the year: Cost of removing the old machine 2,000 Cash proceeds from the sale of the old machine 1,200 General overhaul and repair to recondition the Machine prior to use 10 Cost of spare parts purchased and set aside for breakdowns during the first two years of normal use of the machine ena Cost of labor to install the machine Fan ist 010.19Financial Accounting and Reporting ‘SETA Cost of the testing the machine prior to use 1,800 Cost of hauling the machine from th e vendor's place of business to the company’s premises Cost of repairing the damage to the machine when 5/00 it was dropped during installation 3, Repairs incurred during the first year of operations 7/209 Safety devices added to the machine to comply — with the terms of the collective bargaining agreement entered into with the employees’ union. 12,000 Cost of training workers to operate the machine 1,500 Determine the amount to be capitalized as cost of the Machine. a. P292,800 c. P272,800 b. P280,800 d. P262,800 45. On March 31, 2019, an entity traded in an old machine having @ carrying amount of P168,000, and paid a cash difference of P60,000 for a new machine having a total cash price of 205,000. The cash flows from the mew machine are expected to be significantly different than the cash flows from the old machine. On March 31, 2019, what amount of loss Should Nathaniel recognize on this exchange? 2. P60,000 c. P23,000 >. P37,000 d. P 0 46. An entity has the following items of Machinery at December 31, 2018; Machine No, Cost Acc. Dep. 1 100,000 95,000 2 200,000 160,000 3 300,000 210,000 4 400,000 240,000 Additional information: * All tems ~ useful is 10 years and the fair value is higher Page 2 oom are CBRE Som phy ——->—egp——————faq.tstP610.19 Financial Accounting and Reporting cera than the carrying amount at December 31, 2019 + Machine No. 2 - idle during 2019 + Machine No. 3 - retires from active use on June 1, 2019 put not yet derecognized at December 31, 2019 «Machine No. 4 - classified as held for sale in accordance with PFRS 5 on July 1, 2019 but still unsold at December 31, 2019 The total depreciation for the year 2019 is a. P95,000 . P75,000 b. P80,000 d. P57,500 47. An entity purchased an asset for P100,000 on 1 January 2017. It had an estimated useful life of 5 years and it was depreciated using the reducing balance method at a rate of 40%. On 1 January 2019 it was decided to change the method to straight line. What is the carrying amount of the asset at 31 December 2019? a. 10,800 c. P24,000 b. 21,600 d. P45,000 48. he following account balances relating to property, plant and equipment of an entity appear on the books on December 31, 2018: land P 6,000,000 Building 45,000,000 Accumulated depreciation 11,250,000 Plant, property and equipment have been carried acco ine their acquisition. The building was acquired on January X 2009. The straight-line method for depreciation Is el ics January 1, 2019, the company revalued property plant ang equipment and on the same date, competent appr submitted the following: Replacement cost Land ® 8,000,000 Building 60,000, tt ee sae 1stPB1019Farce! Accountng and Reporting SETA what 1s the revaluation surplus on December 31, 20199 a. P10,875,000 c. P13,250,000 b. P12,875,000 d. P16,500,000 Use the following information for the next two questions. An entity has @ building classified as investment pro, was acquired on January 1, 2015 se Nog S 50,000,000. The building has an estimated life of 25 years at nil residual value. The following information is available: ne 12/31/18 12/31/19 Fair value 45,000,000 — P42,000,000 Costs of disposal 4,000,000 3,500,000 Value in use 43,000,000 39,500,000 49. If the entity uses the cost model, the total expense to be recognized in 2019 profit or loss is a. P3,500,000 c. P2,000,000 b. P2,500,000 d. P 500,000 50. If the entity used the fair value model instead of cost model, the 2019 profit would have been a. The same c. Lower by P1,000,000 b. Higher by P500,000 d. Lower by P500,000 Which of the following internally generated intangible asset can be recognized? 2. Brend b. Masthead © Publishing title ©. None of the above 52. Burning 2019, an entity had the following transactions: + On January 2, purchased the net assets of another entity tor 360,000. The fair value of the other entity’ ‘denuiiabie net assets was P172,000, the entity believes that the ite of the resulting goodwill is unlimited. seems Fan aPeies9 aro necov0tig a3 OTNG SETA Fr on February 1, purchased a franchise to operate a ferry + Oe eee from the government for P60,000 and an annual Ber 19% of ferry cevenues. The franchise expires after five years. The entity received 20,000 of ferry revenues 019. Inn 5, was granted @ patent that had been applied for by the entity. During 2019, the entity incurred legal eigte of 951,000 to register the patent and an additional 85,000 to successfully prosecute a patent infringement ruit against a competitor. The entity estimates the patent’s economic life to be ten years. the entity Aas determined that it Is appropriate to amortize these intangibles on the straight-line basis over the maximum period permitted by generally accepted accounting principles, taking & full year's amortization in the year of acquisition Calculate the total expense to be recognized in 2019 income statement resulting from the foregoing intangible assets. a. P111,700 cc. P35,200 b. P102,300 d. 25,600 53. An entity is involved in the exploration of mineral resources. Its policy is to recognize exploration assets and measure them initially at cost. The entity incurs the following expenditure: Conducting topographical, geolagical, geochemical and geophysical studies Constructing roads and tunnels a Determining volume and grade of deposits % Exploratory drilling 2 Examining and testing extraction methods and G metallurgical or treatment processes Other expenditures relating to the subsequent 300 development of the resources 80 Permanent excavations a ay rah 0Psparcsi Accoureng nd REPOTIN, Sera sesearching end analyzing an area’s historic ‘exploration data sunveving transportation and infrastructure R Nequirements, and conducting market and finance studies Trenching and sampling 90 tn accordance with PFRS6, at what amount shou ano evaluation assets be initially recognized ragtsic rid statements of the entity? cial 2. P4B0 million a b. P400 million a. P200 million 197 million Which statement is correct evaluation assets? 3 PFRS 6 requires an entity to recognize exploration and evaluation expenditures as assets to the extent such expenditures are recoverable in future periods. b. An exploration and evaluation asset shall no longer be classified as such when the technical feasibility and commercial viability of extracting @ mineral resource are demonstrable. c. An entity shail classify exploration and evaluation assets as intangible assets. 4 An entity shall treat exploration and cvaluation assets 3 ‘an addition to property, plant and equipment oF intangible assets. regarding exploration and ‘a mineral mine for ted by geologica’ san estimated extracted. THE In January 2019, an entity purchased 3,400,000 with’ removable ore estimat surveys at 2,000,000 tons. The property ha value of P200,000 after the ore has bee Company incurred P1,000,000 of development costs Pre < rune for production. During 2019, 500,000 tons “J removed and 400,000 tons were sold. What 15 the moun Gepietion tnat the entity should expense for 2019? 2 P640,000 cP 840,000 600,000 J. 2,050,000 apne SETA ea rcsig TO REDON 2,800,000 constructed a building costing P2,600, s6.A muni oper. {te estimated residual value will not on the Oe ad will be ignored for purposes of the company @ eer ding has an estimated life of eeiation. The building compu Core eal estimated recoverable unts from the 40 ¥=2"500,000 tons. The company's production of the first Thur years of operations Was: fou year st year 100,000 tors Second year 200,000 tons Third year Shut down, no output Fourth year 100,000 tons What is tne depreciation for the fourth year? 2. 430,000 cc. P210,000 b. 560,000 d. P336,000 57, which statement is incorrect regarding impairment of an intangible asset not yet available for use? 2. Anentity shall test such asset for impairment annually by comparing its carrying amount with its recoverable amount. b. The ability of an intangible asset to generate sufficient future economic benefits to recover its carrying amount Is usually subject to greater uncertainty before the asset is available for use than after it is available for use. ©. The annual impairment test may be performed at any time during an annual period, provided it is performed at the same time every year. The annual impairment test is not required if such an intangible asset was initially recognized during the current annual period S8.In det fermining val include 9 value in use, estimates of future cash flows a Fi Future cash outflows or related cost savings (for example (iuctions in staff costs) or benefits that are expected to se from a future restructuring to which an entity Is NOt yet committed,Financial Accounting and Reposting ah b. Future cash outflows that will improve or enhance the ‘asset's performance or the related cash inflows that are expected to arise from such outflows. c. Future cash outflows necessary to maintain the level of ‘economic benefits expected to arise from the asset in its current condition. 4d. All of the above. 59. An entity has determined that one of its cash-generating units (CGUs) has sustained an impairment loss of P50,000, The carrying amounts of the assets within the CGU are as follows. Asset 1 P150,000 Asset 2 200,000 Asset 3 90,000 Total 400,000 The estimated fair value less costs of disposal of Asset 2 is 190,000, which is greater than its value in Use. How much is the carrying amount of Asset 1 after impairment loss is recognized? a. 135,000 cc. P125,625 b. P131,250 d. P120,000 nat meets the criteria for classification 23 held for but before the ts should be measured in 60. An asset sale after the - guthonization of the financial statement jal position at dance with apt ‘end of the reporting period the statement of financi Carrying amount in accor Fair value less costs to si The lower of 4 and b The higher of a and b. ange ‘An entity accounts for non-current snodel. On 30 October 2019 the entity © sified 2 non cute Geset as held for sale in accordance with PERSS. Al tna a the asset's carrying amount was 715,000,000, Hs f3¥ a. estimated at 11,000,000 and the costs pan iste 18 9 Page 78 A 32 mow pdc.com.p d nancial Accouiag and Reporting 1,500,000. On 20 November 2019 the asset was sold for net proceeds of 9,200,000. in accordance with PFRSS, what amount should be included as a, loss on disposal in the entity's statement of comprehensive income for the year ‘ended 31 December 2019? a Ni cc. P5,500,000 b, 300,000 ¢. P5,800,000 62. In 2020, before the entity’s 2019 financial statements were approved fer issue,a class action lawsuit was filed against the entity, The lawsuit seeks compensation for a community experiencing health problems allegedly caused by pollution from the entity's plant. Legal counsel advised management that there is a 30 per cent chance that the action will be successful. If successful, the court is likely to award the community compensation of between P1,000,000 and 2,000,000. Jin its financial statements for the year ended 31 December 2019, the entity should recognize a liability for the lawsuit of 2. P2,000,000 me b. P1,500,000 a 63.An entity was. incor authorized, 200,000, o-par ordinary shares, sates. valee . : res, state P10 ‘ane 10,000, 99% par value P30, preference ioe ions affecting company’s equity as of J were as follows: ne une 1 $0,000 ordinary shares were issued at P10 Assets with a tote! appreised value of P600,000 re acquired i S were a 9 exchange for 50,000 ordinary june 15 Subscriptions w ere received for Somciptondie 100,000 ordinar : shan md for 5,000 preference shares at lune 25 Payments i n full for the ordi shares subscribed lune 18 wore rane vont nee corresponding shares were tssued. Yond the ea — soups — a FAR 1stPBI0.19SETA Financial Accounting anc Reporting ais soa cog a RFID The total sharehalders’ equity as of June 30, 2019 is Increase a, P2,875,000 &. P2,750,000 tDectensa b. 2,300,000 4. P2,775,000 re capital 6,000, poser 1,000,000 Share premium 64. Capitalization of borrowing costs 3. Shall be suspended during temporary periods of delay b. May be suspended only during extended periods of delays in which active development is delayed © Should never be suspended once capitalization paid in the current year? a. 2,000,000 c. P7,000,000 commences d. Shall be suspended only during extended periods of b. 4,000,000 d. P9,000,000 Gelays in whieh active development is delayed come, assuming there were NO ‘nt except for the net 2,000,000 which was What should be the 2019 net entries in the retained earnings accou income and a dividend declaration of P. 67. An entity acquires patent rights from other enterprises and pays advance royalties in some cases and in others, royalties 65. An entity commenced the constructian of a new packaging plant on 1 February 2019. The cost of P1,800,000 was funded are paid within ninety days after year-end. The following from existing borrowings. The construction was completed on data are included in the entity's December 31 balance sheets: 30 September 2019. Prepaid royalties Fesuanl _2019 ‘The entity's borrowings during 2019 comprised: Royalties payable aa 7 On Loan from 800,000 at 6% per ennum; During 2019 thi ’ ‘ cae een gD0 Bank: Pi million at 6.6% per annum; and During 2019 the entity remitted royalties of F'300,000, In its The amount of borrowinig costs to be capitalized in relation to a. 285,000 pe cence a the packaging plant 1s b. P305,000 Ss i0.000. a. Nil cP 91,125 |. 330,000 68. On 1d ° 2 January 2019 an entity purcnase a plating machine with for 2019, except for of P23,S00 towards the capital cost. Ent pone as ane © grant as a reduction in the cost of the sect tah y pest b. P81,000 d, 121,500 66. Changes in account halances of an entity f retained earnings, are: 1 be the depreciati the asset. Wh: ee t jation expense (nose | fat should pee veo" ended 31 December 2018, Serres out cash 5,000,000 lated on a straight ne basis? 'g that depreciation is Accounts receivable, net a b. P24,300 c. P21,600 Inventory 2,000, a. 3 theese ¢, 500,90 cee Accounts payable (3,000, et “4,000,000 Bonds payable iPai0 Fe y—__ SOLA Sona —— >— Tage Wot FAR IstPai0.19Financial Accounting and Reporting SETA, 69. In relation to a grant that becomes repayable, which of the following will result in an amount recognized immediately in profit or loss? 3. Repayment of a grant related to an asset accounted for as a deferred income. b. Repayment of a grant related to income when the unamortized deferred ‘credit is more than the amount repayable. c. Repayment of a: grant related to income when the unamortized deferred credit is less than the amount repayable. 4. None of these. 70. An entity discovered errors in its ending inventory for the year ended December 31, 2018. The error was discovered in early 2019, after the books were closed. Some inventory in the amount of P12,000 was counted twice and inventory valued at P5,000 was excluded from the inventory count because it was in transit (with terms FOB shipping point). The tax rate is 30%. Which of the following would be included in the correcting journal entry to be done in 2019? a. Debit deferred incorne tax P1,500 b. Debit retained earnings P4,900 c. Debit cost of qoods sold P12,000 d. Credit inventory for P12,000 = end of examination - Please submit your answer sheet Keep the questionnaire : Thank you for taking the PRTC Open Pre-Board Examinations! © Pape oF wapaitcem-ph ———~ ‘ 198 32 OF 32 www pete com. ph FAR. 1stPB10.19