Philippine Institute of Certified Public Accountants (PICPA)

FINANCIAL ACCOUNTING AND REPORTING (FAR)

Riyadh Chapter, Kingdom of Saudi Arabia
First Pre-Board Examination May 17, 2019

MULTIPLE CHOICE
INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer
for each item by shading the box corresponding to the letter of your choice on the sheet provided,
STRICTLY NO ERASURES ARE ALLOWED.

1. Which of the following is a discontinued operation?

a. An entity has three machines located in one plant. All of the machine produce the same
product. The entity significantly scales down it operations by disposing of one of the
machines.
b. An entity has three machines located in one plant. Each machine produces a completely
different product and each machine is managed as a separate business unit. The entity
significantly scales down its operations by disposing of one of the machines and in doing
so discontinues manufacturing one of its three products.
c. An entity has three plants that all produce the same product. Each Plant is located in a
separate continent and sells its output to customers local to the plant in which the
product is manufactured. The entity scales down it operations by disposing of one of the
plants.
d. Both b and c above.

2. Significant influence is:

a. The power to participate in the financial and operating policy decisions of the investee
but is not control or joint control over those policies.
b. Active participation in the financial and operating policy decisions of the investee but is
not control or joint control over those policies.
c. The power to govern the financial and operating policies of an entity so as to obtain
benefits from its activities.
d. The contractually agreed sharing of control over an economic activity.

3. A property developer must classify properties that it holds for sale in the ordinary course of
business as:

a. Inventory
b. Property Plant and Equipment
c. Financial Asset
d. Investment Property

4. In accordance with the PFRS for SME’s, in presenting a statement of financial position, an entity:

a. Must make the current/non-current presentation distinction.

b. Must present assets and liabilities in order of liquidity.
c. Must choose either current/non-current or the liquidity presentation format (i.e. a free
choice of presentation format).
d. Must make the current/non-current presentation distinction except when presentation
based on liquidity provides information that reliable and more relevant.
5. Which of TWO of the following model may be applied by entities for the measurement after
recognition of exploration and evaluation assets, in accordance with PFRS 6 Exploration for and
evaluation of mineral resources?

A – COST B – REVALUATION C – REALIZATION D – PRESENT VALUE

a. A and B c. C and D
b. B and C d. A and D

6. An entity should apply PFRS 4 Insurance Contracts to which of the following?

a. Contingent consideration receivable in a business combination.

b. Product warranties issued by an entity which is a manufacturer.
c. Employer’s asset and liabilities under employment benefit plans.
d. Reinsurance contract issued by the entity.

7. In accordance with PFRS 2 Share-base payment, how, if at all, should an entity recognize the
change in the fair value of the liability in respect of a cash-settled share based payment transactions?

a. Recognize in the statement of changes in equity

b. Recognize in other comprehensive income
c. Recognize in profit and loss
d. Do not recognize in the financial statements but disclose in the notes thereto

8. Are the following statements in relation to an interim financial report true or false, according to
PAS 34 Interim Financial Reporting?

1. An interim financial report may consist of a complete set of financial statements.

2. An interim financial report may consist of a condensed set of financial statements.
a. False, False
b. False, True
c. True, False
d. True, True

9. Which of the following is not a related party as envisaged by PAS 24?

a. A director of the entity

b. The parent company of the entity
c. A shareholder of the entity that holds 1% ownership
d. The son of the chief executive officer of the entity

10. The Atrato Company carried out the following four transactions during the year ended 31 March
2016. Which TWO of the four are related party transactions according to PAS 24 Related Party
Transactions?

A. Transferred goods from inventory to a shareholder owning 40% of the company’s

ordinary shares.
B. Sold company car to the wife of a managing director.
C. Sold an asset to the Little Company, a sales agent.
D. Took out P1 million bank loan

a. A and B
b. A and C
c. C and D
d. A and D
11. On January 15, 2016, ABC Corporation declared 40% stock dividends on 10,000 outstanding
shares of its common stock, with a par value of P100 per share, when the market value of the
company stock was P120 per share. Which of the following is false with regard to this transaction?

a. Retained earnings will decrease equal to the par value of the stock dividends declared.
b. Common stock will increase equal to the total par value of the stock dividend.
c. Additional paid in capital will increase at an amount equal to the difference between the
total market value over the total par value of the stock dividends declared.
d. The total assets and total stockholders’ equity will not be affected.

12. The Cullen Company is finalizing its annual financial statements, according to PAS 37 Provisions,
Contingent Liabilities and contingent assets, which one of the following should be disclosed in the
financial statements as contingent liability?

a. The company has accepted liability prior to the year end for unfair dismissal of an
employee and is to pay damages.
b. The company has received a letter from a supplier complaining about an old unpaid
invoice.
c. The company is involved in a legal case which it may possibly lose although it is not
probable.
d. The company has not yet paid certain claims under sales warranties.

13. Under PAS 36 Impairment of Assets, which of the following statements best describes “value in
use”?

a. The present value of estimated future cash flows expected to arise from the continuing
use of an asset and from its ultimate disposal.
b. The amount of cash or cash equivalents that could currently be obtained by selling an
asset in an orderly disposal.
c. The net amount which an entity expects to obtain for an asset at the end of its useful
life.
d. The amount at which an asset could be exchanged between knowledgeable willing
parties in arm’s length transactions.

14. On April 1, 2015 AGP Corporation took out a loan to finance the construction of a building, Work
on the building commenced on July 1, 2015 and was completed on March 31, 2016. The building was
brought into use on July 1, 2016. According to PAS 32 Borrowing costs, what is the period over which
borrowing costs relating to the project should be capitalized?

a. April 1, 2015 – March 31, 2016

b. April 1, 2015 – June 30, 2016
c. July 1, 2015 – March 31, 2016
d. July 1, 2015 – June 30, 2016

15. Which of the following statements regarding depreciation is true, according to PAS 16 Property,
Plant and Equipment?

a. An asset must be depreciated from the date of its purchase to the date of sale.
b. The annual depreciation charge should be constant over the life of the assets.
c. The total cost of an asset must eventually be depreciated.
d. If the carrying amount of the asset is less than the residual value, depreciation is not
charged.
16. According to PAS 41 Agriculture, which of the following items would be classified as biological
assets?
a. Oranges
b. Chickens
c. Eggs
d. Land in mango orchard

17. Santino Corporation declares and distributes cash dividends that is a result of current earnings.
How will the receipt of those dividends affect an investment account of the investor under each of
the following accounting methods?

Fair Value Method Equity Method

a. No Effect Decrease
b. Increase Decrease
c. No Effect No Effect
d. Decrease No Effect

18. Which of the following is correct about the effective-interest method of amortization?

a. The effective-interest method applied to debt investments is different from that applied
to bonds payable.
b. Amortization of discount decreases from period to period
c. Amortization of premium decreases from period to period
d. The effective-interest method applies the effective-interest rate to the beginning
carrying amount for each interest period.

19. TV commissions from advertising contracts are recognized

a. Upon receipt of the commission

b. Upon completion of the production of advertisement or commercial
c. When the related advertisement or commercial appears before the public
d. By reference to the state of completion of the advertisement or commercial production.

20. Which of the following is not among the situations in which an enterprise may retain.

a. When the enterprise retains obligation for unsatisfactory performance covered by

normal warranty provisions.
b. When the receipt of revenue from a particular sale is contingent on the derivation of
revenue by the buyer from its sale goods.
c. When the goods are shipped subject to installation and is a significant part of the
contract which has not yet been completed by the enterprise.
d. When the buyer has the right to rescind the purchase for a reason specified in the sales
contract and the enterprise is uncertain about the possibility of return.

21. One of the benefits of the statement of cash flows is that it helps user evaluate financial
flexibility. Which of the following explanations is a description of financial flexibility?

a. The nearness to cash of assets and liabilities.

b. The firm’s ability to respond and adopt to financial adversity and unexpected needs and
opportunities.
c. The firm’s ability to pay its debts as they mature.
d. The firm’s ability to invest in a number of projects with different objectives and costs.
22. Making and collecting loans and disposing of property, plant and equipment are

a. Operating activities
b. Investing activities
c. Financing activities
d. Liquidity activities

23. The statement of cash flows reports all the following except:

a. The net change in cash for the period

b. The cash effects of operations during the period
c. The free cash flows generated during the period
d. Investing Transactions

24. Which of the following is a current asset?

a. Cash surrender value of a life insurance policy of which the company is the beneficiary.
b. Investment in equity securities for purpose of controlling the issuing company.
c. Cash designated for the purpose of tangible fixed assets.
d. Trade installment receivables normally collectible in 18 months.

25. According to the Preface to International Financial Reporting Standards, which of the following
are objectives of IASB?
I. To harmonize financial reporting between IFRS and US GAAP and the European.
II. To work actively with national standard setters.
III. To promote the use and strict application of financial accounting standards.

a. I and II
b. I and III
c. II and III
d. I, II and III

26. Which of the following statements pertaining to Accounting is incorrect?

a. General purpose financial statements were developed primarily because all outside
party users have the same information needs.
b. The double entry system of accounting has been used for centuries.
c. The practice of accounting requires considerable professional judgement.
d. The objective of external financial statements is to communicate the economic effects of
completed transactions and other events in the entity to interested parties.

27. The process of identifying, measuring, analyzing and communicating financial information
needed by management to plan, evaluate and control an organization’s operation is called

a. Financial accounting
b. Tax accounting
c. Managerial accounting
d. Auditing

28. The major financial statements include all of the following, except:

a. Statement of financial position

b. Statement of changes in financial position
c. Statement of comprehensive income
 d. Statement of change in equity
29. Accrual accounting is used because

a. Cash flows are considered less important

b. It provides a better indication of ability to generate cash flows than the cash basis
c. It recognizes revenues when cash is received and expenses when cash is paid
d. It is less costly to apply

30. A soundly developed conceptual framework of concepts and objectives should

a. Increase financial statements user’s understanding of and confidence in financial

reporting
b. Enhance comparability among companies’ financial statements
c. Allow new and emerging practical problems to be more quickly solved
d. All of these

31. In the conceptual framework for financial reporting, what provides “the why” – the goals and
purposes of accounting?

a. Measurement and recognition concepts such as assumptions, principles and constraints.

b. Qualitative characteristics of accounting information.
c. Elements of financial statements
d. Objective of financial reporting

32. What is the objective of financial reporting as indicated in the conceptual framework?

a. Provide information that is useful to those making investing and credit decisions.
b. Provide information that is useful to the management.
c. Provide information about those investing in the entity.
d. All of the above

33. Which of the following are fundamental qualities of useful accounting information?

a. Relevance and faithful representation

b. Understandability and comparability
c. Materiality and timeliness
d. Neutrality and completeness

34. Under revised Conceptual Framework, which of the following are among the enhancing
qualitative objectives of financial accounting?

A. Relevance D. Faithful representation G. Comparability

B. Neutrality E. Verifiability H. Freedom from error
C. Understandability F. Timeliness I. Completeness

a. A, D and F
b. C, E, F and G
c. E, G, and H
d. C, D, E and F
35. Which of the following assets are initially and subsequently measured at fair value?

I. Biological Assets
II. Available for sale securities
III. Inventories
IV. Property and Equipment
V. Held for trading securities
VI. Intangible Assets

a. I and II only
b. I, II and V only
c. I, II, III and V only
d. I, II, IV and V only

36. The following were taken from the incomplete financial data of Sam Company, a calendar year
merchandising corporation:

December 31, 2015 December 31, 2016

Trade Accounts Receivable 840,000 780,000
Inventory 1,500,000 1,000,000
Accounts Payable 950,000 980,000
Accrued general and administrative expenses 130,000 170,000
Prepaid selling expenses 150,000 130,000
Property, plant and equipment 1,750,000 1,420,000
Investment in associate 550,000 720,000
Patent 425,000 300,000
Investment in equity to OCI 400,000 520,000

The following additional information were made available: cash payments for selling and
administrative expenses was P 900,000, payments for purchases, net of cash discounts of P
70,000.00 was P 1,530,000. Equipment with a book value of P 200,000 was sold for P 250,000. There
were no acquisitions of property, plant and equipment and other transactions affecting net income
during the period. There was no acquisition of investments during 2016. Income tax rate is 32%. If
the company reported a comprehensive income of P 285,600 net of tax. What is the amount of
collections on trade receivables in 2016?

a. P 3,295,000
b. P 3,355,000
c. P 3,595,000
d. P 3,655,000

37. The balance sheet at December 31, 2016 of Mall Company showed a cash balance of P 183,500.
An examination of the books disclosed the following:

Cash sales of P 24,000 from January 1-5, 2017 were predated as of December 28-31, 2016 and
charged to the cash account. Customers’ check totaling P 9,000 deposited with and returned by the
bank “NSF” on December 27, 2016 were not recorded in the books. Checks of P 11,200 in payment
of liabilities were prepared before December 31, 2016 and recorded in the books, but withheld by
the treasurer. Post-dated checks totaling P 6,800 are being held by the cashier as part of cash. The
company’s experience shows that post-dated checks are eventually realized. The cash account
includes P 40,000 being reserved for the purchased of a mini-computer which will be delivered soon.
Personal checks of officers, P 5,400, were redeemed on December 31, 2016, but returned to cashier
on January 2, 2017.

How much is the cash balance that should be shown in the December 31, 2016 balance sheet?

a. P 87,100
b. P 109,500
c. P 138,300
d. P 183,500

38. The following information was included in the bank reconciliation for Ramon Co. for July of
2016.

Checks and charges recorded by bank in July, including July service charge of P 2,800, P 932,600;
Service charge made by bank in June and recorded in books in July, P1,200; Customer’s NSF check
returned as a bank charge in July (no entry made in books), P6,000; Customer’s NSF check returned
in June, recorded by the company in July, P15,000; Outstanding checks in July 31, P300,000;
Outstanding checks for June, P255,000; Checks issued in July for P20,000 recorded by the company
as, P2,000; Erroneous bank charge in July, P20,000; Erroneous bank credit in June corrected in July,
P30,000 and Erroneous book receipt in June corrected in July, P5,000. What is the unadjusted
disbursement per book on July 31, 2016?

a. P 918,600
b. P 922,000
c. P 927,600
d. P 940,000

39. Baron Appliance Company’s accountant has been reviewing the firm’s past television sales. For
the past years, Baron has been offering a special service warranty on all television sold. With the
purchase of a television, the customer has the right to purchase a 3-year service contract for an
extra P 800. Information concerning past television and warranty contract sales is given below:

2016 2015
Television sales in units 1,100 920
Sales price per unit P 10,000 P 8,000
Number of service contracts sold 700 600
Expenses relating to television warranties P 77,040 P 26,800

Baron’s accountant has estimated from past records that the pattern of repairs has been 40% in the
year of sale, 36% on the first year after sale and 24% on the 2 nd year of sale. Sales of the contracts
are made evenly during the year. How much unearned service contract would be recognized in year
2016?

a. P 201,600
b. P 294,400
c. P 448,000
d. P 649,600

40. Due to adverse economic circumstances and poor management, Garfield Company has
negotiated a restructuring of its P 8,500,000 note payable to Paramount Bank. Paramount Bank has
agreed to reduce the face value of the note from P 8,500,000 to P 6,000,000, reduce the interest
rate from 14% to 10% and extend the due date one year from the date of restructuring. The
restructuring will occur on August 31, 2016, the last day of Garfield annual reporting period. There is
no unpaid interest on the restructuring loan at this time. What is the gain on debt restructuring?
 a. P 0
b. P 1,900,000
c. P 2,500,000
d. P 2,710,000
41. Honey Company reported the following amounts in the stockholder’s equity section of its
balance sheet dated December 31, 2015:

Preference share capital (P150 par value, 20,000 shares) P 3,000,000

Ordinary share capital (P37.50 par value, 100,000 shares) 3,750,000
Share premium reserve 6,000,000
Accumulated profits 4,500,000
Treasury stock, at cost (5,000 ordinary shares) 250,000

On January 2, 2016, Honey sold 20,000 additional shares of ordinary share for P 90 per share. Late in
2016, it was learned that because of mathematical error, an overstatement of depreciation expense
by P 375,000 had occurred in 2015. Honey reported net income of P 825,000 for 2016. Honey
declared cash dividends of P 150,000 on preference share and P 450,000 on the ordinary share
during 2016. All the treasury shares were re-issued for P 35 per share on December 31, 2016.
Income tax rate is 32%. What should be the accumulated profits balance on December 31, 2016?

a. P 4,275,000
b. P 4,905,000
c. P 5,025,000
d. P 5,100,000

42. Conan Company uses moving average cost method of valuing inventories. During August 2016,
the following inventory details were recorded.

Opening balances 3,000 units valued at P 20 each

August 5 purchase of 5,000 units at P 24 each
August 10 issue of 4,000 units
August 18 purchase of 6,000 units at P 25 each
August 23 issue of 2,500 units

The value of the month-end inventory for August 2016 was:

a. P 172,500
b. P 176,500
c. P 180,000
d. P 187,500

43. The following is an extract from the balance sheet of Forward Company for years ended July 31,
2015 and July 31, 2016:

2016 2015

Inventory P 500,000 P 800,000

Receivables 600,000 500,000
Trade Payables 350,000 300,000
Accruals of expenses 50,000 200,000

What effect would the movements in these items during the year have on cash generated from
operations, as reported in the cash flow statement of Forward Company?
 a. P 100,000 outflow
b. P 100,000 inflow
c. P 250,000 outflow
d. P 250,000 inflow

44. On July 1, 2016, Royal Corporation acquired a long-term investment in Blood Company’s 10-year
12% bonds, with face value of P 5,000,000, for P 5,386,300. Interest is payable semi-annually on
January 1 and July 1. The bonds mature on July 1, 2017. Bonds effective rate is 10%, what is the
carrying value of the bond investment and interest income to be reported in Royal’s financial
statements on December 31, 2016, respectively?

a. P 5,386,300 and P 269,315

b. P 5,386,300 and P 300,000
c. P 5,355,615 and P 300,000
d. P 5,355,615 and P 269,315

Items 45-46 are based on the following:

Rainbow Company has the following information pertaining to its biological assets for the year 2015:
A herd of 100, 2-year old was held at January 1, 2016. Ten animals aged 2.5 years were purchased on
July 1, 2016 for P 5,400, and ten animals were born on July 1, 2016. No animals were sold or
disposed of during the period. Per unit fair values less estimated point-of-sale costs were as follows:

2.0-year old animal at January 1, 2016 P 5,000

Newborn animal at July 1, 2016 3,500
2.5-year old animal at July 1, 2016 5,400
Newborn animal at December 31, 2016 3,600
0.5-year old animal at December 31, 2016 4,000
2.0-year old animal at December 31, 2016 5,250
2.5-year old animal at December 31, 2016 5,550
3.0-year old animal at December 31, 2016 6,000

45. How much of the increase in fair value of the biological assets due to price change?

a. None
b. P 25,000
c. P 26,500
d. P 27,500

46. How much of the increase in fair value of the biological assets due to physical change?

a. P 75,000
b. P 79,500
c. P 110,000
d. P 118,500

47. The Delap Company accounts for non-current assets using the cost model. On April 25, 2011,
Delap classified a non-current asset as held for sale in accordance with IFRS 5 (Non-current assets
held for sale and discontinued operations). At that date, the asset’s carrying amount was P 32,000,
its fair value was estimated at P 22,000 and the cost to sell at P 3,200. On May 15, 2011, the asset
was sold for net proceeds of P 18,400. In accordance with IFRS 5, what amount should be included
as impairment loss in Delap’s statement of comprehensive income for the year ended June 30,
2011?
 a. P 13,600
b. P 13,200
c. P 10,000
d. None

48. The Niagara Company owns three properties which are classified as Investment Properties
according to PAS40 Investment Property. Details of the properties are given below:

Initial Cost FV 12/31/2015 FV 12/31/2016

Property 1 P 270,000 P 320,000 P 350,000

Property 2 345,000 305,000 285,000
Property 3 330,000 385,000 360,000

Each property was acquired in 2012 with a useful life of 50 years. The Company’s accounting policy is
to use the fair value model for investment property. What is the gain or loss to be recognized in
Niagara’s profit or loss for the year ending December 31, 2016?

a. P 15,000 loss
b. P 18,900 loss
c. P 30,000 gain
d. P 45,000 loss

49. Bad Company’s trial balance reflected the following account balances on December 31, 2016:

Accounts receivable (net) P2, 400,000

Financial Asset at FVOCI 600,000
Acc. Depreciation-Equipment and Furniture 1,500,000
Cash 1,100,000
Inventory 3,000,000
Equipment 2,500,000
Patent 400,000
Prepaid Expenses 200,000
Land held for future business site 1,800,000

The inventory include goods held on consignment amounting to P 500,000. The patent was classified
as held for sale on December 31, 2016. What amount of total current assets should be reported on
December 31, 2016?

a. P 6,600,000
b. P 6,800,000
c. P 7,200,000
d. P 7,100,000

50. The office supplies account of Sick Company had a balance at the beginning of 2016 of P 80,000
before the reversing entry. Payments for purchases of office supplies during 2016 amounted to P
500,000 and were recorded as expense. A physical count at the end of 2016 revealed office supplies
costing P 95,000 were on hand. Reversing entries are recorded by Sick. The required adjusting entry
at the end of 2016 will include a debit to:
 a. Office supplies expense P 15,000
b. Office supplies P 15,000
c. Office supplies expense P 485,000
d. Office supplies P 95,000

51. Mount Company provided the following account balances on December 31, 2016:

Retained Earnings, January 1 P 3,000,000

Dividends declared 1,000,000
Sales 8,350,000
Dividend income 100,000
Merchandise Inventory, January 1 1,040,000
Purchases 3,720,000
Salaries 1,540,000
Contribution to employees’ pension fund 280,000
Distribution cost 205,000
Miscellaneous cost 125,000
Doubtful account expense 10,000
Depreciation expense 85,000
Loss on sale of securities 40,000
Loss from write down of obsolete inventory 150,000
Income tax 105,000

Inventory on December 31,2016 was valued at P 700,000 (P 850,000 less P 150,000 write down of
obsolete inventory). What is the balance of retained earnings on December 31, 2016?

a. P 2,000,000
b. P 4,000,000
c. P 3,850,000
d. P 5,000,000

52. Czech Company provided the following information on December 31, 2016:

Cash Balance per bank statement P 4,000,000

Check outstanding (including certified check of P 100,000) 500,000
Customer’s note collected by the bank for Czech 150,000
NSF checks of customers returned by bank 200,000
Bank service charge shown in December bank statement 20,000
Error made by Czech in recording a check that cleared the
Bank in December (check was drawn in December
For P 100,000, but recorded at P 10,000) 90,000
Deposit in Transit 1,300,000

What is the cash balance per ledger on December 31, 2016?

a. P 4,900,000
b. P 5,060,000
c. P 4,880,000
d. P 4,970,000

53. Bread Company sold goods to wholesalers on terms of 5/15, net 30. The entity has no cash sales
but 50% of customers take advantage of the discount based on past experience. The entity used the
gross method of recording sales. An analysis of accounts receivable on December 31, 2016 revealed
following:
 Age Amount Collectible
0-15 Days P 5,000,000 100%
16-30 days P 2,000,000 90%
Over 30 days P 1,000,000 P 700,000

What amount should be reported as net realizable value of accounts receivable?

a. P 7,875,000
b. P 7,375,000
c. P 7,500,000
d. P 8,000,000

54. Oreo Company started operations in 2014. The following data are abstracted from the purchase
and sales records:
2014 2015 2016
Number of units purchased 160,000 155,000 135,000
Number of units sold 100,000 145,000 130,000
Unit cost P 40 P 50 P 60

The entity used the FIFO method. What amount should be reported as cost of goods sold for 2016?

a. P 7,100,000
b. P 7,800,000
c. P 7,700,000
d. P 8,300,000

55. Jose Company is engaged in dairy livestock. The entity provided the following data for 2016:

Carrying amount of biological assets on January 1 P 5,000,000

Increase due to purchase 2,000,000
Gain attributable to price change of biological assets 1,000,000
Gain attributable to physical change of biological assets 600,000
Milk produced during the year but unsold at year end 100,000

What total amount of gain should be recognized in 2016?

a. P 1,700,000
b. P 1,600,000
c. P 1,100,000
d. P 700,000

56. On December 31, 2013, JB Bank has a 5-year loan receivable with a face value of P 6,000,000
dated January 1, 2012, that is due on December 31, 2016. Interest is payable annually December 31
at 9%. The borrower made the required interest payment on December 31, 2012 but informed the
bank that interest accrued on December 31, 2013 will be paid at maturity. There is a high probability
that remaining interest payments will not be paid because of financial difficulty. The prevailing
market interest rate at December 31, 2013 is 10%. The PV of 1 for 3 periods is 0.772 at 9% and 0.751
at 10%. What is the loan impairment loss on December 31, 2013?

a. P 1,908,000
b. P 1,628,460
c. P 1,491,120
d. P 1,368,000
57. During 2015, Woody Company purchased 200,000 ordinary shares for P 6,300,000 as non-
trading investment. The entity elected to measure the investment at fair value through other
comprehensive income. The fair value of these shares was P 6,000,000 on December 31, 2015. The
entity sold all of the shares for P 34 per share on December 31, 2016 incurring P 280,000 on
brokerage commissions.

What amount of gain on disposal of financial assets should be recognized in the income statement
for 2016?
a. P 520,000
b. P 800,700
c. P 220,770
d. P 500,000

58. On January 1, 2015, Elly Company purchased 12% bonds, having a face value of P 8,000,000 for P
8,607,000. The bonds provide the bondholders with a 10% yield, are dated January 1, 2015 and
mature January 1, 2020, with interest receivable December 31 of each year. The business model is to
hold these bonds to collect contractual cash flows. What amount of interest income should be
recognized for 2016?
a. P 960,000
b. P 860,700
c. P 850,770
d. P 900,000

59. On January 1, 2016, Aim Company acquired 25% of the outstanding ordinary shares of another
entity for P 5,000,000. The carrying amount of the acquired shares was P 4,000,000. The excess cost
over carrying amount was attributable to an unidentified asset which had an indefinite life. For the
year ended December 31, 2016, the investee reported net income of P 3,000,000 and paid cash
dividends of P 500,000 on ordinary shares and thereafter issued 10% stock dividend. What is the
proper carrying amount of the investment in associate on December 31, 2016?

a. P 5,000,000
b. P 5,750,000
c. P 5,625,000
d. P 5,575,000

60. On January 1, 2016, Rizal Company purchased a tract of land with an old building which was
razed shortly after acquisition. The costs incurred in connection with the acquisition were:

Purchase price P 5,000,000

Agent commission 250,000
Legal fees for the purchase contract 100,000
Title guarantee insurance 10,000
Cost of razing the old building 200,000
Salvage value of old building materials 50,000
Property taxes for 2015 & 2016 (equally each year) 300,000
Option paid for an alternative land which was not acquired 30,000
Cost of relocating squatters 20,000

What is the cost of the land?

a. P 5,680,000
b. P 5,830,000
c. P 5,660,000
d. P 5,530,000
61. During 2013, Sole Company construct a building costing P 18,500,000. The weighted average
accumulated expenditures on the building during 2013 totaled P 7,800,000. The entity borrowed P
4,000,000 at 7% on January 1, 2013. Funds not needed for construction were temporarily invested in
short-term securities and earned P 120,000 in interest revenue. In addition to the construction loan,
the entity had two other notes outstanding during the year, P 3,000,000, 10-year, 10% note payable
dated October 1, 2011 and a 5-year P 2,000,000, 8% note payable dated November 2, 2012.
What amount of interest should be capitalized on December 31, 2013?

a. P 574,000
b. P 620,000
c. P 509,600
d. P 629,600

62. On January 1, 2016, the accumulated depreciation account of Doer Company showed a balance
of P 3,700,000. At the end of 2016, after the adjusting entries were posted, it showed a balance of P
3,950,000. During 2016, one of the machines with cost of P 1,250,000 was sold for P 605,000 cash.
This resulted in a loss of P 40,000. No other assets were disposed of during the year. How much was
the depreciation expense for 2016?

a. P 855,000
b. P 935,000
c. P 250,000
d. P 605,000

63. Bercher Company purchased a machine for P 8,000,000 on January 1, 2015. The machine’s
useful life is 10 years with no residual value and is depreciated using the double declining balance
method. Also, on this date, the entity received a grant of P 500,000 and the entity’s policy is to
deduct the grant from the cost of the asset. On January 1, 2016, the entity violated certain
conditions attached to the grant and had to return P 500,000 to the government. What amount of
depreciation expense should be recognized for 2016?

a. P 1,200,000
b. P 1,280,000
c. P 1,380,000
d. P 1,500,000

64. Giger acquired a tract of land for P 7,000,000 containing an extractable mineral resource. The
entity is required by the purchase contract to restore the land to a condition suitable for recreational
use after it has extracted the mineral resource. Expected restoration cost at discounted amount was
P 1,500,000. Geological survey estimated that the recoverable reserves will be 5,000,000 tons and
the land will have a value of P 1,000,000 after restoration. The entity also used equipment to extract
the reserves. The equipment had a cost of P 1,500,000 and a 10 year useful life. It was determined
that the annual extraction is 1,000,000 tons. The equipment has no other use. The entity sold all
tons extracted for the year. What total amount should be recognized as depletion and depreciation
expense for the current year?

a. P 1,800,000
b. P 1,650,000
c. P 1,700,000
d. P 2,000,000

65. Foot Company is involved in litigation regarding a faulty product sold in prior year. The entity
has consulted with its attorney and determined that there is a 5% chance of losing the case. The
attorney estimated that the amount of payment would be P 500,000. What amount of liability is
recognized in the statement of financial position at the end of the current year?

a. P 500,000
b. P 300,000
c. P 200,000
d. P 0
66. Emily Company has sales of P 4,000,000 during December 2016. Experience showed that
merchandise equaling 7% of sales will be returned within 30 days and an additional 3% will be
returned within 90 days. Returned merchandise is readily resalable. In addition, merchandising
equaling 15% of sales will be exchanged for merchandise of equal or greater value. What amount
should be reported as net sales for December 2016?

a. P 4,000,000
b. P 3,600,000
c. P 3,000,000
d. P 3,400,000

67. On January 1, 2014, Vanessa Company acquired equipment to be used in its manufacturing
operations. The equipment has an estimated useful life of 10 years and estimated residual value of P
50,000. The depreciation applicable to this equipment was P 240,000 for 2016 computed under sum
of years’ digits. What was the acquisition cost of the equipment?

a. P 1,650,000
b. P 1,700,000
c. P 2,400,000
d. P 2,450,000

68. On January 1, 2016, BOQ Company reported accounts receivable of P 1,350,000 and allowance
for bad debts of P 21,000. During the year, sales (all on credit) amounted to P 4,200,000. Collections
from customers including recoveries of P 15,000 totaled P 4,450,000 net of discounts amounting to P
7,000. Likewise, P 12,000of receivables were written-off. BOQ Company uses an aging method in
determining bad debts, although BOQ Company provides interim bad debts provision equal to 0.50%
of gross credit sales. The following table shows the corresponding bad debt percentage of BOQ
Company’s accounts receivable.

A/R Balance Age % of uncollectibility

40% 30 days or less 1%
30% 31-60 days 3%
15% 61-90 days 5%
10% 91-120 days 9%
5% Over 120 days 15%

The year-end adjustments to bad debts expense is:

a. P 5,003
b. P (5,003)
c. P 4,448
d. P (4,448)

69. Wonderful Publishing provides home delivery of day, evening and Sunday newspaper to
subscriber who lives in the suburbs. Customer may pay a yearly subscription fee in advance or pay
monthly after delivery of their newspapers. The following data are available for subscription
receivable and unearned subscription at beginning and end of July 2016.
 July 1 July 31
Subscription Receivable P 190,000 P 230,000
Unearned Subscription P 570,000 P 490,000

The income statement shows subscription revenue for July of P 1,120,000. The amount of cash
received from customers for subscription during July is

a. P 1,240,000
b. P 1,180,000
c. P 1,160,000
d. P 1,000,000

70. During 2016, Dorothy Furniture purchased from a manufacturer a carload of wicker chairs for a
lump-sum of P 2,950,000. The manufacture is discounting operations and wishes to dispose of its
entire stock. Three types of chairs are included in the carload with the following selling price:

Type No. of chairs Estimated Selling Price

Long Chairs 250 P 3,800
Armchairs 500 P 3,420
Straight Chairs 400 P 2,850

During 2016, Dorothy Company sold 200 long chairs, 400 armchairs, and 220 straight chairs. The
inventory of straight chairs unsold at December 31, 2016 would amount to

a. P 597, 375
b. P 513,000
c. P 461,740
d. P 398,250