Theories

1. The estimated life of a building that has been depreciated 5 years of an originally estimated life of
25 years has been revised to a remaining life of 15 years. Based on this information, the accountant
should
adjust the accumulated depreciation to its appropriate balance through net income based on a 20-year
life and then depreciate the adjusted book value as though the estimated life always been 20 years.
depreciate the remaining book value over the remaining life of 15 years.
adjust the accumulated depreciation to its appropriate balance through retained earnings based on a
20-year life and then depreciate the adjusted book value as though the estimated life had always been
20 years.
continue to depreciate the building over the original 25-year life.

2. Which of the following indicates that the investor does not exercise significant influence over the
investee?
The investor has representation in the investee’s board of directors.
The majority ownership of the investee is concentrated among a small group of shareholders
who operate the investee without regard to the investor’s views.
There are material intercompany transactions between the investor and the investee.
There is an interchange of managerial personnel between the investor and the investee.

3. Which of the following statements would apply to both equity investments at fair value through profit
or loss and equity investments at fair value through other comprehensive income?
1. On the reporting date, they are measured at fair value.
2. Initially recognized at the purchase price plus transaction costs.
3. Generally, dividends received, or receivable are recorded as dividend revenue.
4. The change in fair value is not recognized unless there is a permanent impairment in value.
5. Dividends received are reported as a decrease in the carrying amount of the investment.
6. A bonus issue is not separately recognized in a formal accounting entry.
7. The disposal of these securities does not recognize gain or loss on sale taken to profit or loss.

4 and 5
1, 3, and 6
1, 2, 3 and 6
1, 3, 6 and 7

4. Under IFRS 9, which is a correct statement regarding the reclassification of debt investments?
Reclassification may result from a change in management’s intention for holding the
financial asset.
Reclassification is necessary if a particular market for the instrument temporarily disappears.
A reclassification is allowed if assets are transferred between existing business models.
If a financial services entity decides to shut down its retail mortgage business and is now
actively trading its portfolio of debt securities, reclassification from amortized cost to fair
value is appropriate.

5. An entity moved to a new building. The previously occupied old building, classified as held for
sale, is being actively marketed for sale, and the entity expects to complete the sale in four months.
Which of the following statements is incorrect regarding the old building?
It will be measured at historical cost.
It will be reclassified as an asset held for sale.
It will be classified as a current asset.
It will no longer be depreciated.
6. Which of the following would be reported as agricultural produce?
picked tobacco leaves, harvested mango, logs and lumber, picked grapes
harvested rice grains, unprocessed milk, cheese, carcass,sausages
picked grapes, picked palm fruit, harvested mango, picked tea leaves
cured tobacco, dried mango, harvested mango, logs and lumber

7. A living plant that is used in the production or supply of agricultural produce and is
expected to bear produce for more than one period is called
agricultural harvest
agricultural products
bearer plant
biological asset

8. Biological assets are measured in the statement of financial position at

purchase price plus transaction costs
cost less accumulated depreciation and accumulated impairment losses
fair value
fair value less estimated cost to sell

9. Under the effective interest method of bond discount or premium amortization, the periodic interest
expense is equal to the
stated (nominal) rate of interest multiplied by the face value of bonds.
effective (yield) rate of interest multiplied by the face value of the bonds.
stated rate multiplied by the beginning-of-period carrying amount of the bonds.
effective rate multiplied by the beginning-of-period carrying amount of the bonds.

10. Alpha Company failed to amortize premium on outstanding 10-year bonds payable. What is the
effect of the failure to record amortization on interest expense, profit, and bond carrying value,
respectively?
Understate, overstate, understate
Overstate, understate, overstate
Understate, overstate, overstate
Overstate, understate, understate

11. Bonds with face value of P5.0 million carrying a stated interest rate of 12% payable semiannually
on March 1 and September 1 were issued on June 1. The total proceeds from the issue amounted to
P5,200,000. The best explanation for the excess amount received over the face value is that
the bonds were sold at a premium plus accrued interest
the bonds bear an interest rate lower than the market rate of interest at the date of bond issuance.
the bonds were issued at face value plus accrued interest.
the bonds were sold at a discount plus accrued interest.

12. Which of the following shall result in recognition of liabilities?

1. Signing of employment contract by a new employee.
2. Declaration of cash dividends on cumulative preference shares.
3. Declaration of share dividends on ordinary shares.
4. Receipt of goods to be sold for the account of the consignor.
5. Receipt of cash from a customer for goods to be delivered next month.
6. Withholding of taxes on employees’ compensation.
7. Sale of non-refundable tickets for a concert show that will be staged three months from
now.
 1, 3, and 4
2, 5, 6, and 7
2, 4, 5, and 7
1, 3, 4, and 7

13. If an amount being measured involves a large population of items and an outflow of resources
embodying economic benefits is probable and can be reasonably estimated to be within a
continuous range of possible outcomes, and each point in the range is as likely as any other, the
amount to be accrued is
the midpoint of the range.
the upper limit of the range.
the lower limit of the range.
zero.

14. Which of the following need not be disclosed in the financial statements or the notes thereto?
Probable losses not reasonably estimable
Possible assessments of additional taxes
Guarantees of indebtedness of others, outflow of resources is reasonably possible
Possible loss as a result of unspecified business risk.

15. Alpha, Inc. is being sued for illness caused to local residents as a result of negligence on the
company's part in permitting the local residents to be exposed to highly toxic chemicals from its
plant. Alpha's lawyer states that it is probable that Alpha will lose the suit and be found liable for
a judgment costing Alpha anywhere from P400,000 to P2,000,000. However, the lawyer states
that the best estimate of the expenditure required to settle the obligation is P1,200,000. As a result
of the foregoing facts, Alpha should accrue
a provision of P400,000 and disclose an additional contingency of up to P1,600,000.
a provision of P1,200,000 and disclose an additional contingency of up to P800,000.
a provision of P1,200,000 and not disclose any additional contingency.
no provision but disclose a contingency of P400,000 to P2,000,000.

16. Treasury share is appropriately presented on the statement of financial position as a

financial asset at fair value.
deduction at cost from total shareholders’ equity.
deduction at cost from total contingent liabilities.
deduction at par from total shareholders’ equity.

17. When would the issued ordinary shares of an entity exceed its ordinary shares outstanding?
When there is a declaration of a share split
When there is a declaration of bonus issue
When the entity purchase treasury shares
When the subscribed shares are fully collected

18. Dividends in arrears are shown on the financial statements as

Current liabilities
Contra-equity accounts
Contra-asset accounts
Note disclosures only
19. Under IFRS 2 Share-Based Payment, what is the basis for measurement of share options?
Fair value at the date of grant
Fair value at each reporting date
Expected fair value at the date of exercise
Intrinsic value at each reporting date

20. When should the compensation expense be recorded as a result of share options granted by the
enterprise to its employees?
During the year of grant
During the year that the options ultimately vest
During the years when services are required to be rendered by the employees
During the year when the option first becomes exercisable
Problems

1. Alpha Company provided the following information about the composition of its cash on December
21, 2022:
• A commercial savings account of P600,000 and a commercial checking account balance of
P900,000 are held at BPI.
• Money market fund account held by Citibank that permits Alpha Company to write checks in this
balance, P5,000,000.
• Travel advances of P180,000 for executive travel for the first quarter of next year (employee to
pay through salary deduction.)
• A separate cash fund in the amount of P1, 500,000 is restricted for the retirement of long-term
assets.
• Petty cash fund, P10,000.

What is the correct amount of cash and cash equivalents Alpha Company should report in its
December 31, 2022 statement of financial position?
610,000
1,510,000
6,400,000
6,510,000

600,000 + 900,000 + 5M + 10,000 = 6,510,000

2. The following information is taken from the records of Alpha Corporation:

Accounts receivable (net of 15,000 credit balance in customers' accounts), P150,000
Trade notes receivables, P25,000
Non-trade notes receivable (P15,000 collectible within 12 months), P45,000
Dividends receivable, P18,000
Subscription receivable, P20,000
Interest receivable, P7,200
Advances to officers and employees (due in 18 months), P60,000
Accounts payable (net of P3,500 debit balance in suppliers' accounts), P46,000

How much is the total current receivables?

230,200
253,700
218,700
233,700

150,000 + 15,000 + 25,000 + 15,000 + 18,000 + 7,200 + 3,500 = 233,700

3. The physical inventory on December 31, 2022 of Alpha Company showed merchandise at
P172,000. You discovered that the following items were included in this amount:
¨ Merchandise costing P31,500 shipped by a vendor FOB shipping point on December 31,
2022 and received by Alpha Company on January 5, 2023.
¨ Merchandise costing P40,000 shipped by a vendor FOB destination on December 30, 2022
and received by Alpha Company on January 4, 2023.
¨ Merchandise costing P12,500 which was shipped FOB destination to a customer on
December 29, 2022. The customer expected to receive the merchandise on January 6,
2023.
 ¨ Merchandise costing P28,500 which was shipped FOB shipping point to a customer on
December 29, 2022. The goods are scheduled to arrive at the destination point on January
2, 2023.

What is the correct amount of inventory that should appear on Alpha Company’s December 31, 2022
statement of financial position?
216,000
103,500
240,500
128,000

172,000 – 40,000 – 28,500 = 103,500

4. Alpha Forwarders exchanged a number of used trucks plus cash for a piece of land that will be
used as its parking lot and terminal. The following information is available for the trucks:
Cost P12,800,000
Accumulated depreciation 4,400,000
The purchasing agent of Alpha Forwarders has had previous dealings in the second-hand markets
and has indicated that the trucks’ fair value at this date is P10,000,000. In addition, the company
must pay P340,000 cash for the land.

What was the gain recognized by Alpha Company on the exchange of trucks?
1,260,000
1,600,000
1,940,000
2,800,000

10,000,000 – 8,400,000 = 1,600,000

5. On July 1, 2022, Alpha Company signed an agreement to operate as a franchisee of Joy Foods, Inc.
for an initial franchise fee of P700,000. Of this amount, P300,000 was paid when the agreement
was signed and the balance is payable in four equal annual payments starting July 1, 2023. The
payment is not refundable and no future services are required for the franchise. Alpha Company’s
credit rating indicates that it can borrow money at 14% for a loan of this type.

Information on present value factors is as follows: Present value of P1 at 14% for 4 periods –
P0.59; Present value of an ordinary annuity of P1 at 14% for 4 periods – P2.91.

What is the cost of the franchise acquired on July 1, 2022? Use appropriate present value factors
rounded to two decimal places.
P536,000
P591,000
P700,000
P600,000

100,000 x 2.91 = 291,000 + 300,000 = 591,000

6. The Alpha Company acquired a building on January 1, 2021 for P18,000,000. At that date, the
building had a useful life of 40 years. The fair value of the building was P20,000,000 at December
31, 2021 and P21,000,000 on December 31, 2022. At acquisition date, the building was
appropriately classified as investment property and accounted for using the fair value model.
What amounts shall be presented in the statement of financial position at December 31, 2022 and
recognized in profit or loss for the year then ended, respectively?
P20,000,000 and gain of P2,000,000
P21,000,000 and gain of P3,000,000
P21,000,000 and gain of P1,000,000
P17,100,000 and expense of P450,000

Fair value is P21M; Gain is P1M (21M-20M)

7. Alpha Corporation had 30,000 ordinary shares of Bravo Company which it acquired during 2021
for a total consideration of P1,800,000, including P30,000 directly attributable costs. The shares
were for trading purposes.

On December 31, 2021, the Bravo Company shares were selling at P65 per share.

In July 2022, Alpha Corporation received a 20% bonus issue. Subsequently, during the year, it
sold 15,000 shares at 70 per share. The fair value of Bravo Company ordinary shares on December
31, 2022, was P72 per share.

At what amount should Alpha Corporation report its remaining equity investments in Bravo
Company shares at December 31, 2022?
1,512,000
1,080,000
1,032,500
1,152,000

30,000 x 1.2 = 36,000; 36,000 – 15,000 = 21,000; 21,000 x 72 = 1,512,000

8. Alpha Corporation purchased 10,000 shares of Bravo Company at P60 per share. The shares
represent less than 5% ownership in Bravo Company. The shares are classified as financial assets
at fair value through profit or loss. Fair value on December 31, 2021, was P66. At the beginning
of 2022, Bravo Company issued rights to purchase one ordinary share for every five rights
submitted plus P50. Immediately after the rights were issued, the ordinary share was selling for
P70 per share.

Assuming that Alpha Corporation exercised all the rights when the market price of each Bravo
Company ordinary share was P75. At December 31, 2022, Bravo Company shares sell at P78.

At how much should Alpha Corporation record the equity investments in Bravo Company that were
acquired through the exercise of stock rights?
132,000
140,000
150,000
156,000

10,000/5 = 2,000; 2,000 x 75 = 150,000

9. On January 1, 2021, Alpha Company purchased P1,000,000 12% bonds of Bravo Company for
P1,063,394, which yields 10%. Interest on these bonds is payable every December 31. The bonds
mature on December 31, 2024. On April 1, 2023, Alpha Company sold P600,000 face value bonds
at 101 plus accrued interest to pay a maturing obligation. The market value of the bonds on different
dates is as follows:
December 31, 2021 108
December 31, 2022 106
December 31, 2023 104
Assume that the company intended to collect the principal and interest over the term of the bonds
and did not choose the fair value option.

What is the amount that Alpha Company should report as interest income from this debt
investments for the year ended December 31, 2022?
120,000
106,339
104,973
100,000

1,063,394 x 10% = 106,339; 1M x 12% = 120,000; 120,000 – 106,339 = 13,661

1,063,394 – 13,661 = 1,049,733; 1,049,733 x 10% = 104,973

10. On January 1, 2021, Alpha Company purchased P1,000,000, 12% bonds of Bravo Company for
P1,063,394, which yields 10%. Interest on these bonds is payable every December 31. The bonds
mature on December 31, 2024. On April 1, 2023, Alpha sold P600,000 face value bonds at 101
plus accrued interest to pay a maturing obligation. The market value of the bonds on different dates
is as follows:
December 31, 2021 108
December 31, 2022 106
December 31, 2023 104

Alpha Company classified the bonds as debt investments at fair value through profit or loss.

What is the amount of gain or loss that Alpha Company should report on the sale of the debt
investments on April 1, 2023?
30,000
24,000
12,000
0

1M x 1.06 = 1,060,000; (600,000/1M) x 1,060,000 = 636,000; 636,000 – 606,000 = 30,000

11. In 2019, Alpha Company purchased a P5,000,000 life insurance policy on its president and chief
executive officer, of which Alpha Company is the beneficiary. Information regarding this policy
for 2022 is as follows:
Cash surrender value, January 1 P100,000
Annual premium paid on January 1 200,000
Dividends earned on the policy 18,000
The dividends were applied to increase the cash surrender value.
 If the life insurance expense reported by Alpha Company in 2022 was P160,000, what is the cash
surrender value on December 31, 2022?
122,000
160,000
182,000
200,000

200,000 – 18,000 = 182,000 – 160,000 = 22,000; 100,000 + 22,000 = 122,000

12. On April 12, 2022, Alpha Company adopted a plan to accumulate P5,000,000 by July 1, 2026.
Alpha Company plans to make four equal annual deposits to a fund that will earn interest at 10%
compounded annually. Alpha Company made the first deposit on July 1, 2022. Future value
factors are as follows:
Future value of 1 at 10% for 4 periods 1.46
Future amount of ordinary annuity of 1 at 10% for 4 periods 4.64
Future amount of annuity in advance of 1 at 10% for 4 periods 5.11

How much annual deposit should Alpha Company make for four years to accumulate the desired
amount on July 1, 2026? (Rounded)
1,250,000
1,077,500
978,500
730,000

5M/5.11 = 978,473 of 978,500

13. A piece of equipment with a carrying amount of P42,000 on January 1, 2022 meets the criteria for
classification as Held for Sale on March 31, 2022. The equipment is being depreciated over 5 years
on a straight-line basis and has a remaining life of 3 years as of January 1, 2022. The following
additional information is available:
Fair value less cost to sell on March 31, 2022 P36,000
Fair value less cost to sell on December 31, 2022 40,000

How much is the impairment loss recognized upon classification of the equipment as non-current
held for sale on March 31, 2022.
0
6,000
2,500
20,000

42,000/3 years = 14,000; 14,000 x 3/12 = 3,500

42,000 – 3,500 = 38,500; 38,500 – 36,000 = 2,500
14. A piece of equipment costing P800,000 when acquired on January 1, 2020 meets the criteria for
classification as Held for Sale on March 31, 2022. The equipment is being depreciated over 8 years
on a straight-line basis. The following additional information is available:
Fair value less cost to sell on March 31, 2022 P400,000
Fair value less cost to sell on December 31, 2022 420,000

The entity realized that economic conditions affecting the use of the asset reversed in the middle
of 2023. It, therefore, decided on July 1, 2023 to put back the asset to operating use. On this date,
the asset’s recoverable amount is P500,000.

At how much would the equipment be recorded upon reclassification as held for use on July 1,
2023?
500,000
450,000
420,000
400,000

800,000- (100,000 x 3.5 years) = 450,000; Lower between 450,000 and 500,000.

15. A group of twenty 2-year-old cattle was held at January 1, 2022. On this date, five 2-year-old
cattle were purchased for P12,000 each and 5 calves were born. No cows or calves were
disposed of during the period. Per unit fair values less cost to sell were:
January 1, 2022
2-year old cattle P12,000
Newborn cattle 4,000
December 31, 2022
2-year old cattle 13,000
3-year old cattle 15,000
1-year old cattle 7,000
Newborn cattle 5,000
The company records separately the increase in fair value less cost to sell due to physical change and
change in fair value less cost to sell due to price change.

What amount shall be presented on the statement of financial position on December 31, 2022 under
the caption Biological Assets and the amount included in the entity’s gross profit for the year then
ended?
320,000 and 50,000
350,000 and 60,000
410,000 and 170,000
410,000 and 110,000

(25 x 15,000) + (5 x 7,000) = 410,000

25 x 12,000 = 300,000; 410,000 – 300,000 = 110,000
16. On June 1, 2022, the Alpha Corporation discounted its own P3,000,000 non-interest-bearing note
with the First Bank at 10%. The note is due on May 31, 2023.

What is the carrying value of the liability at December 31, 2022?

3,000,000
2,970,000
2,857,500
2,700,000

2,700,000 x 10% x 7/12 = 157,500; 2,700,000 + 157,500 = 2,857,500

17. Alpha, Inc. has P4 million of notes payable due June 15, 2023. At February 15, 2023, Alpha signed
an agreement to borrow up to P4 million to refinance the notes payable on a long-term basis. The
financing agreement called for borrowings not to exceed 75% of the value of the collateral Alpha
was providing. The value of the collateral was P4.8 million and was not expected to fall below
this amount. The financial statements are authorized for issuance on March 5, 2023.

What is the amount of liability reported by Alpha in its December 31, 2022 statement of financial
position as a result of the given data?
P4.0 M current liability
P4.0 M noncurrent liability
P3.6 M current liability
P3.6 M noncurrent liability

18. In October 2019, Alpha Corp. acquired a special equipment from Bravo, Inc. by paying
P1,000,000 down and signing a note with a face value of P4,000,000 due October 2022. Under
the terms of the financing agreement, Alpha had the discretion to roll over the obligation for at
least fifteen months. In October 2022, management of Alpha decided to exercise its discretion to
roll over the liability up to October 31, 2024.

Based on the given data, how should Alpha report the P4.0 M note in its statement of financial
position at December 31, 2022.
Current liability
Noncurrent liability

19. The Alpha Company’s accounts payable balance at December 31, 2022 was P540,000 before the
year-end adjustments relating to the following information:
a. Goods with an invoice cost of P30,000 were in transit from the vendor to Alpha Company
on December 31, 2022. The goods were shipped FOB shipping point on December 29, 2022
and were received on January 3, 2023. Alpha Company recorded the purchase when it
received the invoice on January 3, 2023.
b. Goods with an invoice cost of P15,000, which were shipped FOB shipping point on
December 22, 2022, from a vendor to Alpha Company, were lost in transit. On January 4,
2023, Alpha filed a P15,000 claim against the transportation company. Alpha recorded the
purchase when it received the invoice on December 26, 2022.
c. Goods with an invoice cost of P9,000, which were shipped FOB destination from a vendor
to Alpha were received on January 5, 2023. Alpha also received and recorded the invoice on
that date.
 What amount should Alpha Company report as accounts payable on its statement of financial
position as of December 31, 2022?
555,000
564,000
570,000
585,000

540,000 + 30,000 = 570,000

20. On July 1, 2022, the Alpha Corporation issued a three-year, non-interest bearing note with face
value of P3,000,000 for a piece of land purchased from Bravo Corporation. The note is payable in
annual installments of P1,000,000 every June 30, starting on June 30, 2023. The land has an
equivalent cash price of P2,400,000, a price that provides the note an effective interest rate of 12%.

How much is the interest expense for the year ending December 31, 2022?
360,000
288,000
180,000
144,000

2,400,000 x 12% x 6/12 = 144,000

21. On January 1, 2022, Alpha, Inc. issued 10-year bonds with a face amount of P1 million and a stated
interest rate of 8% payable annually on January 1. The bonds were priced to yield 10%. Present
value factors are as follows:
At 8% At 10%
Present value of P1 for 10 periods 0.463 0.386
Present value of an ordinary annuity of P1 for 10 periods 6.710 6.145

What is the total issue price of the bonds?

1,000,000
980,000
965,800
877,600

(1M x 0.386) + (1M x 8% x 6.145) = 877,600

22. On December 31, 2021, the liability section of Alpha Company’s statement of financial position
included bonds payable of P10 million and unamortized premium on bonds payable of P180,000.
Further verification revealed that these bonds were issued on December 31, 2019 and will become
due on December 31, 2029. Interest at 12% is payable every June 30 and December 31.

On April 30, 2022, Alpha Company retired P4,000,000 of these bonds at 97 plus accrued interest.

How much was the total amount of cash paid for the retirement of bonds on April 1, 2022?
P3,950,000
P4,000,000
P4,040,000
P4,080,000

(4M x .97) + (4M x 12% x 4/12) = 4,040,000

23. In the statement of financial position of Alpha, Inc. as of December 31, 2021, the following
accounts appear:
18% Bonds Payable, due January 1, 2023 P1,000,000
Discount on Bonds Payable 70,000
Accrued Interest on Bonds Payable 90,000

Interest is payable semi-annually on January 1 and July 1. On January 1, 2022, Alpha, Inc.
redeemed the bonds at 96 plus accrued interest.

How much is the gain (or loss) on the redemption of the bonds?
30,000
(30,000)
110,000
(110,000)

1M – 70,000 = 930,000 – 960,000 = 30,000 Loss

24. On December 31, 2022, Alpha Corporation is experiencing extreme financial pressure and is in
default in meeting interest payment on its long-term note of P6,000,000 due on December 31, 2022.
The interest rate is 10% payable every December 31.

In an agreement with the creditor, Alpha Corporation obtained the following changes in the terms
of the note:
• The accrued interest of P600,000 on December 31, 2022 is forgiven.
• The principal is reduced by P1,000,000.
• The new interest rate is 12%.
• The new date of maturity is December 31, 2027.
At the time of restructuring, the market rate of interest was 10%. Round off present value factors
to three decimal places.

What is Alpha Corporation’s gain on debt restructuring?

P1,979,180
P1,600,000
P1,220,400
P0

6M + 600,000 = 6,600,000; (5M x 0.621) + (5M x 12% x 3.791) = 5,379,400

6,600,000 – 5,379,400 = 1,220,400

25. On January 1, 2022, Alpha Company received P1,032,880 for P1,000,000 face amount, 12% bonds,
a price that yields 10%. Interest is payable semi-annually every June 30 and December 31.

How much is the interest expense for the year ended December 31, 2022?
123,946
120,000.
103,288
102,870

1,032,880 x 5% = 51,644; 1M x 6% = 60,000; 60,000 – 51,644 = 8,356

1,032,880 – 8,356 = 1,024,524; 1,024,524 x 5% = 51,226; 51,644 + 51,225 = 102,870
26. Alpha, Inc. had outstanding 10%, P1 million face value, convertible bonds maturing on December
31, 2024 on which interest is paid on June 30 and December 31.

After amortization through June 30, 2022, the unamortized balance in the bond premium account
was P30,000. The share premium from bond conversion privilege had a balance of P50,000. On
that date, all of these bonds were converted into 40,000 ordinary shares with P20 par value. At that
time, each share of Alpha ordinary share capital sells for P23. Alpha incurred expenses of P10,000
in connection with the conversion.

The conversion of the bonds to ordinary shares shall result to an increase in share premium by
160,000
270,000
280,000
210,000

1M + 30,000 + 50,000 = 1,080,000; 40,000 x 20 = 800,000;

1,080,000 – 800,000 – 10,000 = 270,000

27. Alpha Company sells 3-year service contracts for air conditioning units for P1,500 each. Sales of
service contracts and repairs are made evenly throughout each year. The company estimates that
20% of repairs are done in the first year from the date of sale, 30% in the second year and 50% in
the third year. Service contracts sold are as follows
2020 2021 2022
Number of service contracts sold 140 182 165

How much is the unearned revenue from service contracts as of December 31, 2022 and the revenue
from service contracts recognized for the year then ended?
452,700 and 177,000
334,500 and 236,400
247,500 and 273,000
273,000 and 210,000

(90% x 247,500) + (65% x 273,000) + (25% x 210,000)

222,750 + 177,450 + 52,500 = 452,700
(10% x 247,500) + (25% x 273,000) + (40% x 210,000)
24,750 + 68,250 + 84,000 = 177,000

28. Alpha Company started selling a new product that carried a two-year warranty against defects. The
warranty provides assurance that the new product will function as intended based on agreed-upon
specifications. Based upon past experience with other products, the estimated warranty costs
related to peso sales are computed as follows:
First year of warranty 3%
Second year of warranty 5%

Total sales and actual warranty repairs for 2022 and 2023 are as follows:
2022 2023
Sales P4,200,000 P6,960,000
Actual warranty expenditures 148,800 180,000
 How much is the warranty expense for the year ended December 31, 2023?
556,800
336,000
564,000
376,800

8% x 6,960,000 = 556,800

29. During 2022, Alpha Company sold 1,000 gift certificates to its customers for P500 each. Alpha
operates on a gross margin of 60%. At December 31, Alpha determined that 85% of the gift
certificates had already been presented for redemption.

How much revenue pertaining to the gift certificates should be deferred at December 31, 2022?
500,000
425,000
300,000
75,000

1,000 x 500 x 15% = 75,000

30. Alpha Marketing sells split type air-conditioners. The company provides its customers an option
to purchase warranty contract for a two-year period for P2,250 for every unit of the air-conditioner
purchased priced at P45,000. If the customer chooses not to buy the warranty contract, the air-
conditioner sells for P42,750.

Sale of warranty contracts and repairs are made evenly throughout the year. Based on past records
of the entity, 40% of repairs are done in the first year from the date of sale and 60% in the second
year.

During 2022, Alpha sold 500 packages of the air-conditioners and warranty contracts. Cost of
servicing the units during 2022 amounted to P95,000.

Based on the given data, how much should Alpha Company should report as profit from warranty?

355,000
337,500
225,000
130,000

2,250 x 500 x 40% x ½ = 225,000; 225,000 – 95,000 = 130,000

31. Alpha Marketing launched a new sales promotional program. For every 20 seals of proof of
purchase of their product, customers receive a double-layer reversible umbrella costing P200 each.
This umbrella may separately be sold for P300 each. The company estimates that 75% of the seals
of proof of purchase reaching the consumer market will be redeemed.

Product sales with seals of proof of purchase - 20,000 units for a total of P12,000,000
Premiums distributed to customers – 500 umbrellas
 How much of the total transaction price is allocated to the premium? Apply IFRS 15.
150,000
225,000
300,000
220,859

20,000/20 = 1,000 x 75% = 750; 750 x 300 = 225,000

(225,000/12,225,000) x 12M = 220,859

32. Alpha Company inaugurated a sales promotional campaign on August 31, 2022 in its desire to
improve sales. Alpha placed a coupon redeemable for a premium in each ream of bond papers sold.
Each premium costs Alpha P30 and five coupons must be presented by a customer to receive a
premium. Alpha estimated that only 70% of the coupons issued would be redeemed. The
company records premiums as an expense, under IAS 37. For the four months ended December
31, 2022, the following information is available:
Reams Premiums
of bond paper sold purchased Premiums redeemed
400,000 30,000 20,000

How much is the estimated liability for premium claims outstanding at December 31, 2022?
720,000
1,080,000
1,800,000
3,600,000

400,000 x 70% = 280,000; 280,000/5 = 56,000;

56,000 – 20,000 = 36,000; 36,000 x 30 = 1,080,000

33. Alpha, Inc. distributes annual bonuses to its sales manager and two sales agents. The company
reported P2,000,000 profit for 2022 before bonuses and income taxes. Income taxes of Alpha, Inc.
average 30%. How much is the total amount of bonus if bonus of each is computed at 15% of
profit after taxes and bonuses?
190,045
397,476
479,087
570,135

B = 45% x [(2M – B - .30 (2M - B )] = 479,087

34. The Alpha Company had 100,000 shares of Ordinary Share Capital on December 31, 2021. The
company’s statement of financial position on that date showed the following shareholders’ equity
balances:
Ordinary Share Capital, P10 par P1,000,000
Share Premium 300,000
Retained Earnings 700,000
The following treasury share transactions took place (in chronological order) in 2022:
(1) Reacquired 10,000 ordinary shares at P14 per share.
(2) Sold 4,000 of the treasury shares at P15 per share.
(3) Sold 5,000 of the treasury shares at P13 per share.
(4) Retired the remaining treasury shares.
 Profit for the year 2022 amounted to P480,000 and cash dividends declared and paid is P260,000.

How much is the total shareholders’ equity at December 31, 2022?

2,205,000
2,220,000
2,000,000
2,195,000

2M + 480,000 – 260,000 – (10,000 x 14) + (4,000 x 15) + 5,000 x 13) = 2,205,000

35. The capital accounts for the Alpha Company on July 1, 2022 are as follows:
Ordinary Share Capital, P10 par, 100,000 shares issued and outstanding P 1,000,000
Share Premium 500,000
Retained Earnings 3,135,000
The company’s ordinary shares are currently selling at P20. On this date, Alpha Company declared
and issued 10% bonus issue.

How much is the total shareholders’equity and the amount of retained earnings, respectively, after
recording the bonus issue on July 1, 2022?
4,635,000 and 2,935,000
4,635,000 and 3,035,000
4,535,000 and 3,035,000
4,435,000 and 2,935,000

1M + 500,000 + 3,135,000 = 4,635,000

3,135,000 – (10,000 x 20) = 2,935,000

36. The Alpha Enterprises had the following shareholders’ equity balances at December 31, 2022:
Preference Share Capital, P20 par, 100,000 shares authorized P2,000,000
Ordinary Share Capital, P30 par, 100,000 shares authorized 1,800,000
Share Premium – Preference Share 160,000
Share Premium – Ordinary Share 250,000
Retained Earnings 800,000
The preference share is convertible into ordinary share on a share for a share basis.

Assuming that 10,000 preference shares were converted, what is the effect of this conversion in
the total shareholders’ equity of Alpha Enterprises?
300,000 increase
200,000 decrease
100,000 decrease
No effect
37. The Alpha Company paid a total of P610,000 dividends in 2022 to its 250,000 shares of P10 par
ordinary share and 20,000 shares of 9%, P100 par preference share. Dividends of P50,000 were
in arrears at January 1, 2022.

If the preference share is cumulative and participating up to 12%, how much is the total share of
the ordinary shareholders in the dividends for 2022?
311,111
320,000
290,000
338,889

50,000 + (12% x 2M) = 290,000; 610,000 – 290,000 = 320,000

38. Alpha Corporation was incorporated on January 2, 2022. The following information pertains to
Alpha’s ordinary share transactions during the year.
January 1 Number of shares authorized 80,000
February 1 Number of shares issued 60,000
July 1 Number of shares reacquired but not canceled 5,000
December 1 3 for 2 share split

What is the number of Alpha Corporation’s ordinary share outstanding at December 31, 2022?
82,500
110,000
36,667
55,000

60,000 – 5,000 = 55,000; 55,000 x 3 = 165,000; 165,000/2 =

39. Of the 125,000 ordinary shares issued by Alpha Company, 25,000 were held as treasury shares on
December 31, 2021. During 2022, transactions involving Lay’s ordinary shares were as follows:

January 1 through October 31 - 13,000 treasury shares were distributed to officers as part of share
compensation plan.
November 1 - A 3-for-1 share split took effect.
December 1 - Alpha purchased 5,000 of its own shares to discourage an unfriendly takeover. These
shares were not retired.

At December 31, 2022, how many shares of Alpha Company’s ordinary share capital were
outstanding?
125,000
324,000
334,000
375,000

100,000 + 13,000 = 113,000; 113,000 x 3 = 339,000; 339,000 – 5,000 = 334,000

40. At December 31, 2022, Alpha Company had 30,000 shares of P100 par, 5% cumulative preference
share outstanding. No dividends were in arrears as of December 31, 2020. Alpha did not declare
a dividend during 2021. During 2022, Alpha paid a cash dividend of P100,000 on its preference
share. Alpha should report dividends in arrears in its 2022 financial statements as a/an

Accrued liability of P150,000

Disclosure of P150,000
Accrued liability of P200,000
Disclosure of P200,000

30,000 x 100 x 5% = 150,000; 150,000 x 2 = 300,000; 300,000 – 100,000 = 200,000

41. On December 29, 2021, Alpha Company was registered at the Securities and Exchange
Commission with 100,000 authorized ordinary shares of P100 par value. On the same date, 40,000
shares were sold and issued at P105 per share. On May 14, 2022, the corporation purchased 600
shares of its ordinary share capital at P110 per share. On September 15, 2022, 400 treasury shares
were sold at P95 and the remaining treasury shares were sold at P100. During 2022, the corporation
realized a profit after tax of P990,000 and paid a cash dividend of P380,000.

What is the total shareholders’ equity of Bay on December 31, 2022?

10,602,000
4,820,000
4,802,000
4,352,000

(40,000 x 105) – (600 x 110) + (400,000 x 95) + (200 x 100) + 990,000 – 380,000 = 4,802,000

42. On July 1, 2022, Alpha Company granted share options to key employees for the purchase of
20,000 of the company’s ordinary share capital at P25 per share. Based on an option-pricing model
used by the company, the fair value of each share option on this date was P9.

The options are intended to compensate employees for the next two years. The options are
exercisable within a four-year period beginning July 1, 2024 by grantees still in the employ of the
company. The market price of Alpha’s ordinary share was P33 per share at the date of grant. No
share options were terminated during the year.

How much should Alpha charge to compensation expense for the year ended December 31, 2022?
45,000
80,000
90,000
180,000

20,000 x 9 = 180,000 /2 = 90,000/year; 90,000 x 6/12 = 45,000

43. Alpha Corporation granted share options to its employees with a fair value of P4,500,000 on
January 1, 2022. The options vest in three years and the options are exercisable starting January 1,
2025 until December 31, 2025.

On December 31, 2022, it was estimated that 5% of employees will leave the entity during the
vesting period. This estimate was revised to 6% during the year 2023. On December 31, 2024,
 employees’ record indicates that 90% of them remained in the employ of the company and became
entitled to the options.

What would be the expense charged during the year ended December 31, 2023?
1,350,000
1,395,000
1,410,000
1,500,000

2022: 4.5M x 95% x 1/3 = 1,425,000

2023: 4.5M x 94% x 2/3 = 2,820,000; 2,820,000 – 1,425,000 = 1,395,000

44. On April 1, 2023, Alpha Company purchased Bravo Corporation, 9% bonds with a face value of
P4,000,000 for P3,756,000. The debt investments are carried at amortized cost. The effective interest
rate at that time is 10%. The bonds are dated April 1, 2023 and mature on March 31, 2033. The bonds
pay interest annually on March 31. Market quotation for the debt securities at December 31, 2023 is
99.

What is the carrying amount of the debt investment at amortized cost at December 31, 2023?
4,000,000
3,767,700
3,771,600
3,960,000

4M x 9% = 360,000; 3,756,000 x 10% = 375,600; 375,600 – 360,000 = 15,600;
15,600 x 9/12 = 11,700; 3,756,000 + 11,700 = 3,767,700

45. On July 31, 2022, Alpha Company purchases 30% interest in Bravo Corporation for P1,200,000, at
which time, the carrying value of Bravo’s net assets is P3,600,000. Both Alpha Company and Bravo
Corporation are calendar-year corporations. At that time, Investee Corporation has an item of
property, plant and equipment with carrying amount of P4,200,000 and fair value of P4,500,000. Said
item of property, plant and equipment has a remaining useful life of 5 years as of July 31, 2022. The
remainder of the excess is attributable to unidentifiable assets of the entity.

During the year 2023, Bravo Corporation reported profit of P1,320,000, which was earned evenly
throughout the year. On December 20, it declared cash dividends of P250,000 to its shareholders of
record on December 31, 2022, payable on January 15, 2023.

What is the investment’s carrying value at December 31, 2022?

1,503,000
1,328,000
1,282,500
1,200,000

30% x 1,320,000 x 5/12 = 165,000

300,000 x 30% = 90,000/5 = 18,000; 18,000 x 5/12 = 7,500
165,000 – 7,500 = 157,500
1,200,000 + 157,500 – (30% x 250,000) = 1,282,500