REY OCAMPO ONLINE!

FINANCIAL ACCOUNTING AND REPORTING

DIAGNOSTIC EXAMINATION OCTOBER 2020 CPALE

TOS BASED ON FAR SYLLABUS EFFECTIVE MAY 2019 5. When an entity has not applied a new PFRS that
1.0 Development of Financial Reporting Framework and
has been issued but is not yet effective, the entity
Standard-Setting Bodies, Regulation of the shall
Accountancy Profession, Conceptual Framework and A. Do nothing.
Accounting Process (4 items) B. Request the auditor to disclose this fact in the
2.0 Presentation of Financial Statements (10 items) auditor’s report.
3.0 Financial Assets (10 items) C. Disclose this fact in the financial statements of
4.0 Non-Financial Assets (15 items) the period of first application.
5.0 Liabilities (7 items) D. Disclose this fact and known or reasonably
6.0 Equity (10 items) estimable information relevant to assessing the
7.0 Other Topics - BLIEISC (10 items) possible impact that application of the new
8.0 SMEs/Micro Enterprises (4 items) PFRS will have on the entity’s financial
statements in the period of initial application.
INSTRUCTION: Select the correct answer for each of the
following questions. Mark only one answer for each item 6. Statement of financial position as at the beginning
by shading the box corresponding to the letter of your of the earliest comparative period is not required
choice on the answer sheet provided. STRICTLY NO when an entity
ERASURES ALLOWED. A. Applies an accounting policy retrospectively.
B. Makes a retrospective restatement of items in
MULTIPLE CHOICE
its financial statements.
C. Reclassifies items in its financial statements.
1. Which of the following is least likely affected by the
COVID-19 pandemic? D. Changes an accounting estimate.
A. Impairment of assets
B. Leases 7. The statement of financial position shall include line
C. Ability of the entity to continue as going concern item for the following assets, except
D. Identification of related parties A. Trade and other receivables
B. Investments in associates
2. Continuing professional Development (CPD) is C. Assets classified as held for sale
required for___________ D. Right-of-use assets
A. Renewal of license
B. Accreditation to practice 8. The following are examples of non-adjusting events
C. Both a and b after the reporting period that would generally result
D. Neither a nor b in disclosure, except
A. Entering into significant commitments or
3. Qualitative characteristics that make useful contingent liabilities, for example, by issuing
information more useful include significant guarantees.
A. Relevance C. Comparability B. Changes in tax rates or tax laws enacted or
B. Faithful representation D. All of these announced after the reporting period that have a
significant effect on current and deferred tax
4. The accountant of Review Company made the assets and liabilities.
following adjusting entry on December 31. C. Abnormally large changes after the reporting
period in asset prices or foreign exchange rates.
Prepaid Rent P1,800 D. The determination after the reporting period of
Rent Expense P1,800 the amount of profit-sharing or bonus payments.
If annual rent is paid in advance every October 1, the
original transaction entry made was 9. In accordance with PAS 1, which of the following
A. Debit Prepaid Rent and credit Cash, P1,800. expenses need not be presented separately in the
B. Debit Rent Expense and credit Cash, P1,800. profit or loss section or the statement of profit or loss?
C. Debit Rent Expense and credit Cash, P2,400. A. Finance costs
D. Debit Rent Expense and credit Cash, P7,200. B. Share of loss of associates
C. Tax expense
D. Depreciation expense

Page 1 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

10. Entity X is an associate of Entity T. A reporting entity 14. Members’ shares in co-operatives and similar entities
is related to Entity X are equity if
A. If the reporting entity is a joint venture of Entity A. The entity has an unconditional right to refuse
T. redemption of the members’ shares.
B. If the reporting entity is an associate of Entity T. B. Redemption is prohibited by local law, regulation
C. In either a or b. or the entity’s governing charter if conditions—
D. In neither a nor b. such as liquidity constraints—are met (or are not
met).
11. An entity issued a financial liability designated at C. Either a or b.
FVTPL for P1 million. At the end of the reporting D. Neither a nor b.
period, the fair value of the financial liability
decreased by P100,000. Which statement is correct? 15. Which of the following are reported in the statement
A. The entity should recognize loss of P100,000. of changes in equity?
B. The entity should recognize gain of P100,000 in A. Economic resources and claims
OCI regardless of the nature of the change in fair B. Changes in economic resources and claims
value. resulting from financial performance
C. The entity should recognize gain of P100,000 in C. Changes in economic resources and claims not
profit or loss regardless of the nature of the resulting from financial performance
change in fair value. D. Inflows and outflows of cash and cash equivalents
D. The entity should recognize gain of P100,000 in
OCI for the amount of change in the fair value 16. In accordance with IFRIC 17, when an entity settles
that is attributable to changes in the credit risk of the dividend payable, it shall recognize the difference,
the liability. if any, between the carrying amount of the assets
distributed and the carrying amount of the dividend
12. Which of the following risk is most relevant to notes payable
payable? A. As a separate line item in profit or loss.
A. The risk that one party to a financial instrument B. As a separate component of OCI.
will cause a financial loss for the other party by C. As a separate line item in the statement of
failing to discharge an obligation. changes in equity.
B. The risk that the fair value or future cash flows of D. As a separate line item in the statement of
a financial instrument will fluctuate because of retained earnings.
changes in market prices.
C. The risk that an entity will encounter difficulty in 17. Many shares and most share options are not traded in
meeting obligations associated with financial an active market. Therefore, it is often difficult to
liabilities that are settled by delivering cash or arrive at a fair value of the equity instruments being
another financial asset. issued. Which of the following option valuation
D. All of the above. techniques should not be used as a measure of fair
value in the first instance?
13. Which statement is correct regarding settlement in A. Black-Scholes model.
the entity’s own equity instruments? B. Monte Carlo model.
A. A contract is always classified as equity C. Binomial model.
instrument if it may result in the receipt or D. Intrinsic value.
delivery of the entity’s own equity instruments.
B. An entity cannot have a contractual obligation to 18. Which statement is correct regarding operating
deliver a number of its own shares that varies so segments?
that the fair value of the entity’s own equity A. Start-up operations cannot be considered
instruments to be received or delivered equals the operating segments before earning revenues.
amount of the contractual obligation. B. An entity’s post-employment benefit plans are not
C. A contract cannot be classified as a financial operating segments.
liability of the entity if the entity must or can C. Segment manager is synonymous to chief
settle it by delivering its own equity instruments. operating decision maker.
D. A non-derivative contract is not an equity D. Operating segments that do not meet any of the
instrument if the entity uses a variable number of quantitative thresholds cannot be considered
its own equity instruments as a means to settle reportable.
the contract.

Page 2 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

SITUATIONAL • Eevee Corporation is preparing its statement of cash

flows and has provided this information:
SITUATION 1 - Information relevant to four different Net income before taxes P400,000
companies follows. Depreciation on property, plant and
equipment 200,000
• For the purpose of stating the working capital of Loss on sale of building 100,000
Snorlax Corporation on December 31, 2020, the Interest expense 150,000
following data are submitted: Interest payable, beginning of the year 100,000
Cash on hand and in bank, net of bank Interest payable, end of the year 50,000
of overdraft of P5,000 P 56,000 Income taxes paid 100,000
Petty cash (unreplenished petty cash Accounts receivable, beginning of the
expenses, P400) 1,000 year 500,000
Notes receivable, including discounted Accounts receivable, end of the year 850,000
notes of P25,000 75,000 Inventory, beginning of the year 500,000
Accounts receivable, including accounts Inventory, end of the year 400,000
with credit balance of P10,000 110,000 Accounts payable, beginning of the year 200,000
Merchandise inventory, including goods Accounts payable, end of the year 500,000
held on consignment of P18,000 148,000
Prepaid expenses 9,000 19. How much is the total current assets of Snorlax Corp.
Total current assets P399,000 on December 31, 2020?
A. P370,600 C. P365,600
Accounts payable, including accounts
B. P375,600 D. P360,600
with debit balance of P5,000 P 60,000
Notes payable in annual installment at 20. How much is the total current liabilities of Snorlax
P100,000 payable every May 31 200,000 Corp. on December 31, 2020?
Accrued expenses 8,000 A. P178,000 C. P188,000
Total current liabilities P268,000 B. P183,000 D. P173,000
21. What is the total amount of other comprehensive
• The accountant for Pinsir Corp. has determined the
income for Pinsir Corp. for the year ended 30 June
following information for the year ended 30 June
2020?
2020.
A. P36,000 C. P57,000
Profit or loss P300,000 B. P51,000 D. P72,000
Share of total comprehensive income
(after tax) of associates 20,000 22. The net cash provided by operating activities of Eevee
Share of profit (after tax) of associates 15,000 Corp. is
Exchange difference gain (net of tax of A. P750,000 C. P600,000
P3,000) on translation of foreign B. P700,000 D. P500,000
operation up to the date sold 23. Which of the following reserve of Pikachu Corp. cannot
(1 March 2020) 7,000 be presented as negative (i.e. equity deduction)?
Exchange difference gain (net of tax of A. Changes in revaluation surplus
P9,000) on disposal of foreign B. Changes in fair value of investments classified as
operation recognized in profit for fair value through other comprehensive income
the year 21,000 C. Changes in fair value of financial liabilities
Increase in asset revaluation surplus designated as fair value through profit or loss
(net of tax) 45,000 attributable to the liability’s credit risk
D. Remeasurements of defined benefit plans

Page 3 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

SITUATION 2 - Information relevant to five different Lender A considers all loans over 90 days past due to
companies follows. be credit-impaired based on historical experience
with recovering the associated debt.
• The following pertains to Miraflor, Inc. on December
Additional information taking into account historical
31 of the current year: Checking account balance
information, current conditions and forward- looking
P925,000; an overdraft in special checking account at
information, including actual loss experience and
same bank as normal checking account of P17,000;
recoveries from the sale of collateral, is as follows:
certificate of deposit P400,000; cash held in a bond
sinking fund P200,000; postdated check from Probability of default in the 2%
customer P11,000; certified check from customer next 12 months
P9,800; NSF check received from customer P15,000; Lifetime probability of default
cash advance to subsidiary of P300,000; postage Credit-impaired loans 100%
stamps on hand P620; utility deposit paid to electric Not credit-impaired loans 5%
company P8,000; currency and coins in a petty cash
fund (the company has not replenished the fund to 24. Miraflor, Inc. should report cash of
the imprest amount of P5,000) P800. A. P908,800 C. P1,318,600
B. P918,600 D. P1,322,800
• Char Company has prepared its bank reconciliation at
25. What was the balance as shown on Char Company’s
March 31 taking the following information into
bank statement at March 31?
account:
A. P760 C. P3,360
Deposits in transit P1,500 B. P885 D. P3,485
Outstanding checks 2,800
Bank charges shown in the bank 26. Compared to 2019, the accounts written off by Rotom
statement but not recorded in Company in 2020 decreased by
the cash book 125 A. P57,600 C. P32,000
B. P40,000 D. P10,000
The adjusted cash book balance per the bank
reconciliation was a debit balance of P2,060 27. The total loss allowance to be recognized by Lender A
at December 31, 2020 is
• The policy of Rotom Company is to debit bad debt A. P287,600 C. P282,400
expense for 3% of all new sales. The following are B. P283,600 D. P280,000
the Company’s sales and allowance for bad debts for 28. If Espion Corp. neither transfers nor retains
the past four years. substantially all the risks and rewards of ownership of
Allowance a transferred financial asset, the Espion shall
Sales for bad debts A. Derecognize the financial asset and recognize
2017 P3,000,000 P45,000 separately as assets or liabilities any rights and
2018 2,950,000 56,000 obligations created or retained in the transfer.
2019 3,120,000 60,000 B. Continue to recognize the financial asset.
2020 2,420,000 75,000 C. Determine whether it has retained control of the
financial asset.
• The following information pertains to Lender A’s loan D. Continue to recognize the transferred asset to the
portfolio at December 31, 2020: extent of its continuing involvement.
PV of Expected
Future Cash Past due
SITUATION 3 - Information relevant to five different
Loan Amount Flows status
companies follows.
1 P600,000 P360,000 91 days
2 500,000 450,000 Current
• On January 1, 2020, Alaska Corporation purchased
3 400,000 320,000 31 days P1,000,000 10% bonds for P1,051,510 (including
4 300,000 270,000 Current broker’s commission of P20,000). Interest is payable
5 200,000 160,000 61 days annually every December 31. The bonds mature on
6 100,000 60,000 91 days December 31, 2022. The prevailing market rate for
the bonds is 9% at December 31, 2020.

Page 4 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

• On June 1, 2020, Ping Corp. purchased 10,000 of 30. In relation to the investment of Ping Corp., which
Pong’s 50,000 outstanding shares at a price of P6.00 statement is correct?
per share. Pong had earnings of P3,000 per month A. Assuming that the investment is FVTPL, the total
during 2020 and paid dividends of P10,000 on March effect on Ping’s profit or loss for the year ended
1, 2020 and P12,500 on December 1, 2020. The fair December 31, 2020 is P2,500.
value of Pong’s shares was P6.50 per share on B. Assuming that the investment is FVTOCI, the total
December 31, 2020. effect on Ping’s profit or loss for the year ended
December 31, 2020 is P7,500.
• Kobe Company owns 50% of Lakers Company’s C. Assuming that the investment is an associate, the
cumulative preference shares and 30% of its ordinary total effect on Ping’s profit or loss for the year
shares. Lakers’ shares outstanding at December 31, ended December 31, 2020 is P3,600.
2020 include P10,000,000 of 10% cumulative D. After all closing entries for 2020 are completed,
preference shares and P40,000,000 of ordinary the effect of the increase in fair value on total
shares. shareholders' equity would be the same amount
under the FVTOCI and FVTPL approaches.
Lakers reported profit of P8,000,000 for the year
ended December 31, 2020. Lakers declared and paid 31. How much is the total amount to be recognized by
P1,500,000 preference share dividends during 2020. Kobe Company in its 2020 profit or loss related to
Lakers paid no preference share dividends during these investments?
2019. A. P2,450,000 C. P2,700,000
B. P2,600,000 D. P2,850,000
• Villaverde Company insures the life of its president
32. What is Villaverde Company’s gain on life insurance
for P8,000,000, the corporation being the beneficiary
settlement?
of an ordinary life policy. The premium is P200,000.
A. P7,875,000 C. P7,870,000
The cash surrender value on December 31, 2019 and
B. P7,890,000 D. P7,800,000
2020 are P60,000 and P80,000 respectively. The
corporation follows the calendar year as its fiscal 33. In relation to Entity A’s investment in convertible
period. The president dies on October 1, 2020 and bonds, which statement is correct?
the policy is collected on December 31, 2020. A. If the instrument is held for collection, Entity A
should recognize a derivative asset of P100,000.
• Entity A acquires at par value 1,000 convertible B. If the instrument is held for collection, Entity A
bonds with a maturity of five years. Each bond has a should classify the entire instrument as FA@AC.
par value of P1,000, a stated interest rate is 5% per C. If the instrument is held for collection and for
year, and is convertible into 5 ordinary shares of the sale, Entity A should recognize a derivative asset
issuer. The per-share price for the issuer’s share is of P100,000.
P15. Quotes for similar bonds issued by the issuer D. Entity A should classify the entire instrument as
without a conversion option (i.e., bonds with similar FA@FVTPL.
principal and interest cash flows) suggest that they
can be sold for P900,000.
SITUATION 4 - Information relevant to five different
29. Which statement is correct if Alaska Corp. classified companies follows.
the bonds as FA@FVTOCI?
A. The amount to be recognized in 2020 profit or loss • The following figures relate to inventory of materials
is P100,000. held by Axew Corp. at December 31:
B. The amount to be recognized in 2020 other Item X Item Y
comprehensive income is P33,900.
C. The amount to be reported on the entity’s Cost P200,000 P400,000
December 31, 2020 statement of financial position
is P1,035,630. Replacement cost 180,000 370,000
D. None of the above.
Estimated costs to convert
materials into finished goods 100,000 200,000

Estimated selling price of 320,000 610,000

finished goods

Estimated costs to sell 10,000 15,000

Page 5 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

• On May 6, 2020 a flash flood caused damage to the • NCT Corp. has a building classified as investment
merchandise stored in the warehouse of Cabanatuan property. The building was acquired on January 1,
Co. You were asked to submit an estimate of the 2016 at a cost of P50,000,000. The building has an
merchandise destroyed in the warehouse. The estimated life of 25 years and nil residual value. The
following data were established: following information is available:
a. Net sales for 2019 were P800,000, matched 12/31/19 12/31/20
against cost of P560,000. Fair value P45,000,000 P42,000,000
b. Merchandise inventory, Jan. 1, 2020 was Costs of disposal 4,000,000 3,500,000
P200,000, 90% of which was in the warehouse Value in use 43,000,000 39,500,000
and 10% in downtown showrooms.
c. For Jan. 1, 2020 to date of flood, you ascertained 34. Axew Corp. should recognize loss on write-down of
invoice value of purchases (all stored in the inventory of materials of
warehouse), P100,000; freight inward, P4,000; A. P50,000 C. P5,000
purchases returned, P6,000. B. P30,000 D. Nil
d. Cost of merchandise transferred from the
35. Assuming gross profit rate in 2020 to be the same as
warehouse to show-rooms was P8,000, and net
in the previous year, the Cabanatuan’s estimated
sales from January 1 to May 6, 2020 (all
merchandise destroyed by the flood was
warehouse stock) were P320,000.
A. P80,000 C. P50,000
B. P66,000 D. P46,000
• Secret Corp. is engaged in raising dairy livestock.
Data provided in 2020 follows: 36. The carrying amount of the biological assets of Secret
Corp. on December 31, 2020 is
Carrying amount on January 1, P2,500,000; Increase
A. P3,500,000 C. P3,900,000
due to purchases, P1,000,000; Gain arising from
B. P3,600,000 D. P4,000,000
change in fair value less costs to sell attributable to
price change, P200,000; Gain arising from change in 37. Compute Bugis Corp.’s total depreciation for the year
fair value less costs to sell attributable to physical 2020, assume that all the work mentioned above was
change, P300,000; Decrease due to sales, P400,000; completed at the beginning of 2020.
Decrease due to harvest, P100,000. A. P85,850,000 C. P90,950,000
B. P81,676,470 D. P81,600,000
• Bugis Corp. acquired a machine on January 1, 2012.
Details of the machine at December 31, 2019 are 38. If NCT Corp. used the fair value model instead of cost
given below: model, the 2020 profit would have been
Depreciation A. The same C. Lower by P1,000,000
Component Cost basis B. Higher by P500,000 D. Lower by P500,000
Engine P170,000,000 Useful life of
40,000 hours
Outer casings 510,000,000 25 years SITUATION 5 - Information relevant to five different
straight line companies follows.
Other 12 years
components 255,000,000 straight line • Autobots Bottling Corp. purchased for P800,000 a
P765,000,000 trademark for a very successful soft drink it markets
under the name OK!. The trademark was determined
During the year 2020, the following events took to have an indefinite life. A competitor recently
place: introduced a product that is in direct competition with
a) Engine, which had run for 30,000 hours till date the OK! product, thus suggesting the need for an
developed serious snags. It was replaced by a impairment test. Data gathered by Autobots
better engine with a cost of P238 million and suggests that the useful life of the trademark is still
estimated life of 50,000 hours. The new engine indefinite, but the cash flows expected to be
was used for 5,000 hours during the year. generated by the trademark have been reduced
b) Polishing and painting was done to the outer either to P30,000 per year (with a probability of
casings at a cost of P1.3 million. 80%) or to P60,000 per year (with 20% probability).
c) Other components were upgraded at a cost of The appropriate risk-free interest rate is 5%. The
P102 million. The remaining life of the other appropriate risk-adjusted interest rate is 10%.
components is 5 years.

Page 6 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

• Minero Corp. is involved in the exploration of mineral 39. The loss on impairment of trademark of Autobots
resources. It incurred the following expenditures: Bottling Corp.is
Million A. P440,000 C. P200,000
Conducting topographical, geological, B. P320,000 D. P 80,000
geochemical and geophysical studies P 30 40. In accordance with PFRS6, at what amount should
Constructing roads and tunnels 200 exploration and evaluation assets be initially recognized
Determining volume and grade of deposits 10 in the financial statements of Minero Corp.?
Exploratory drilling 50 A. P480 million C. P200 million
Examining and testing extraction methods B. P400 million D. P197 million
and metallurgical or treatment 5
processes 41. The revaluation increase to be recognized by Twig
Other expenditures relating to the Company in 2020 other comprehensive income is
subsequent development of the 300 A. P5,000,000 C. P1,500,000
resources B. P3,000,000 D. P 0
Permanent excavations 80 42. The total expense to be recognized by Goodra Corp. in
Researching and analyzing an area’s profit or loss related to the non-current assets held for
historic exploration data 12 sale is
Surveying transportation and infrastructure A. P42,000 C. P22,000
requirements, and conducting market B. P32,000 D. Nil
and finance studies 3
Trenching and sampling 90 43. Which of the following is true regarding the alternative
ways to apply the income approach to accounting of
The entity’s policy is to recognize exploration assets resources acquired through government grants?
and measure them initially at cost. A. Expenses will be higher and net income lower if
the grant is recorded as deferred income.
• Twig Company reported an impairment loss of B. Expenses will be higher and net income lower if
P4,000,000 in its income statement for the year the grant is accounted for as an adjustment to the
2019. This loss was related to an equipment which asset.
was acquired on January 1, 2018 with cost of C. Depreciation expense will be higher if the grant is
P25,000,000, useful life of 10 years and no residual recorded as an adjustment to the asset, but net
value. The straight-line method is used in recording income will be the same under the two
depreciation of this asset. On December 31, 2019 alternatives.
statement of financial position, Twig reported this D. Depreciation expense will be higher if the grant is
asset at P16,000,000 which is the recoverable recorded as deferred income, but net income will
amount on that date. On December 31, 2020, Twig be the same under the two alternatives.
decided to measure the asset using revaluation
model. This asset was then appraised at a fair value
of P19,000,000. SITUATION 6 - Information relevant to four different
companies follows.
• Goodra Corp. accounts for non-current assets using
the revaluation model. On 30 June 2020, the entity • The inventory on hand at December 31 for Fair
classified two items of non-current assets as held for Company valued at a cost of P947,800. The
sale in accordance with PFRS5. The following following items were not included in this inventory
information relates to these assets: amount:
Asset 1 Asset 2 a. Purchased goods, in transit, shipped FOB
Carrying amount before destination invoice price P32,000 which included
classification as held for sale P400,000 P300,000 freight charges of P1,600.
Revaluation surplus before b. Goods held on consignment by Fair Company at a
classification as held for sale 60,000 30,000 sales price of P28,000, including sales commission
Fair value, 30 June 2020 450,000 260,000 of 20% of the sales price.
Estimated costs to sell 20,000 12,000 c. Goods sold to Garcia Company, under terms FOB
destination, invoiced for P18,500 which includes
• Nadine Company received a P1,800,000 subsidy from P1,000 freight charges to deliver the goods.
the government to purchase manufacturing equipment Goods are in transit.
on January 2, 2020. The equipment has a cost of d. Purchased goods in transit, terms FOB seller,
P3,000,000, a useful life a six years, and no salvage invoice price P48,000, freight cost, P3,000.
value. Nadine depreciates the equipment on a e. Goods out on consignment to Manil Company,
straight-line basis. sales price P36,400, shipping cost of P2,000.

Page 7 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

• Company A had a machine with a carrying amount of SITUATION 7 - Information relevant to five different
P450,000. Company B had a delivery vehicle with a companies follows.
carrying amount of P300,000. Companies A and B
exchanged the machine and vehicle, and Company B • Togepi Corporation had accounts payable of
paid an additional P90,000 cash as part of the P5,000,000 recorded in the general ledger as of
exchange. Assume that the fair value of the delivery December 31, 2020 before consideration of the
vehicle is P420,000. The exchange has commercial following unrecorded transactions:
substance. Invoice Date Date
date Amount shipped received FOB terms
• As of January 1, 2020, Seniors Corp. decided to 1-3-21 P400,000 12-22-20 12-24-20 Destination
change the method of computing depreciation on its Shipping
sole piece of equipment from the sum-of-the-years' 1-2-21 650,000 12-28-20 1-2-21
point
digits method to the straight-line method. The Shipping
equipment, acquired in January 2017 for P520,000, 12-26-20 600,000 1-2-21 1-3-21
point
had an estimated life of five years and a salvage 1-10-21 450,000 12-31-20 1-5-21 Destination
value of P20,000.
• Funan Corp. purchases new specialized
• Quirino, Inc. and its subsidiaries have provided you, manufacturing equipment on July 1, 2019. The
their PFRS specialist, with a list of the properties they equipment cash price is P79,000. Funan signs a
own: Land held by Quirino, Inc. for undetermined deferred payment contract that provides for a down
future use, P5,000,000; A vacant building owned by payment of P10,000 and an 8-year note for
Quirino, Inc. and to be leased out under an operating P103,472. The note is to be paid in 8 equal annual
lease, P20,000,000; Property held by a subsidiary of payments of P12,934. The payments include 10%
Quirino, Inc., a real estate firm, in the ordinary interest and are made on June 30 of each year,
course of its business, P30,000,000; Property held by beginning June 30, 2020.
Quirino, Inc. for use in production, P1,000,000; A
hotel owned by Sugo, Inc., a subsidiary of Quirino, • Depressed Company has negotiated a restructuring
Inc., and for which Sugo, Inc. provides security of its P5,000,000 note payable to Benevolent Bank.
services for its guests’ belongings, P50,000,000; A Benevolent Bank has agreed to reduce the face value
building owned by Quirino, Inc. being leased out to of the note to P4,000,000 and extend the due date
Status, Inc, a subsidiary of Quirino, Inc., three years from the date of restructuring. However
P20,000,000. the interest rate was increased from 15% to 21%.
The restructuring will occur on December 31, 2020.
44. Assuming that the company's selling price is 140% of There is no unpaid interest on the restructured loan
inventory cost, the adjusted cost of Fair Company's at this time. The tax rate is 30%.
inventory at December 31 should be
A. P1,055,700 C. P1,039,300 • On 1 January 2015, Entity A issued a 10 per cent
B. P1,039,500 D. P1,037,300 convertible debenture with a face value of
45. Company A should record gain or loss of P10,000,000 maturing on 31 December 2024. The
A. P30,000 loss C. P120,000 loss debenture is convertible into ordinary shares of Entity
B. P60,000 gain D. P120,000 gain A at a conversion price of P25 per share. Interest is
payable half-yearly in cash. At the date of issue,
46. Seniors Corp.’s depreciation expense for 2020 is Entity A could have issued nonconvertible debt with a
A. P100,000 C. P50,000 ten-year term bearing a coupon interest rate of 11
B. P 60,000 D. P42,000 per cent.
47. How much will be reported as investment properties On 1 January 2020, the convertible debenture has a
in Quirino, Inc. and its subsidiaries consolidated fair value of P11,200,000. Entity A makes a tender
financial statements? offer to the holder of the debenture to repurchase the
A. P75,000,000 C. P95,000,000 debenture for P11,200,000, which the holder accepts.
B. P25,000,000 D. P45,000,000 At the date of repurchase, Entity A could have issued
non-convertible debt with a five-year term bearing a
coupon interest rate of 8 per cent.

Page 8 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

• Zomboss Corporation constructed a nuclear power SITUATION 8 - Information relevant to five different
plant at a cost of P110 million and started operating companies follows.
it on 1 January 2010. The plant has a useful life of
40 years. Zomboss is required to decommission the • The following balances are shown in the shareholders'
plant at the end of its useful life at an estimated equity of Tamarind Company on December 31, 2019:
amount of P80 million. The risk-adjusted rate is 5 Share capital - Preference, P10 par,
per cent. The entity’s financial year ends on 31 100,000 shares P1,000,000
December. Share capital - Ordinary, P10 par,
On 31 December 2019, the discount rate has not 500,000 shares, 5,000,000
changed. However, Zomboss estimates that, as a Share premium - preference 50,000
result of technological advances, the net present Share premium – ordinary 200,000
value of the decommissioning liability has decreased Retained earnings 100,000
by P8 million. Total P6,350,000
During 2020, the following transactions pertaining to
48. In Togepi Corp.’s December 31, 2020 statement of the shareholders' equity were completed: Retirement
financial position, the accounts payable should be of 5,000 preference shares at P11 per share;
reported in the amount of Purchase of 5,000 ordinary shares at P12 per share to
A. P5,000,000 C. P6,050,000 be held as treasury shares; Share split, ordinary, 2 for
B. P5,400,000 D. P7,100,000 1; Reissue of 2,000 treasury shares at P8 per share;
49. The carrying amount of Funan Corp.’s note payable on Profit for 2020, P300,000.
December 31, 2020 is
A. P66,115 C. P59,818 • The Retained Earnings account of Lester Corp. for the
B. P62,966 D. P56,329 year 2020 consists of the following items:
Debit Credit
50. In relation to the restructuring of Depressed
Balance, January 1, 2020 P112,500
Company’s note payable, which statement is correct
Write-off of organization costs P 6,000
in accordance with PFRS 9?
Excess of issuing price of share
A. This shall be accounted for as an extinguishment
capital over par value 24,000
of the original financial liability and the recognition
Loss on the sale of equipment 2,500
of a new financial liability.
Correction of error of prior year 10,500
B. A gain or loss should not be recognized.
Gain on sale of treasury shares 3,500
C. The difference between the original and modified
Cash and share dividends 60,000
cash flows should be amortized over the
Net income for the year 58,500
remaining term of the modified liability by re-
Balance, December 31, 2020 119,500 .
calculating the effective interest rate.
P198,500 P198,500
D. A gain or loss should be recognized in profit or
loss calculated as the difference between the
• The shareholders’ equity of Windy Company on
original contractual cash flows and the modified
December 31, 2020, consists of the following capital
cash flows discounted at the original effective
balances:
interest rate.
Preference share capital, 10%
51. Compute the amount to be recognized in Entity A’s cumulative, 3 years in arrears, P100
profit or loss as a result of the repurchase of the par, P110 liquidation price 150,000
debenture. shares P15,000,000
A. P1,577,200 C. P1,188,650 Ordinary share capital, P100 par,
B. P1,200,000 D. Nil 200,000 shares 20,000,000
52. The depreciation to be recognized by Zomboss Subscribed ordinary share capital, net
Corporation for the year ended December 31, 2020 is of subscription receivable of
A. P4.483 million C. P2.767 million P4,000,000 6,000,000
B. P2.834 million D. P2.750 million Treasury shares-ordinary, 50,000
shares at cost 4,000,000
Share premium 3,000,000
Retained earnings 20,000,000

Page 9 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

• The information below pertains to Prancer Company. SITUATION 9 - Information relevant to four different
Profit for the year P1,200,000 companies follows.
8% convertible bonds issued at par
(P1,000 per bond). Each bond is • During 2020, Grant Industries, Inc. constructed a
convertible into 40 ordinary shares 2,000,000 new manufacturing facility at a cost of P12,000,000.
6% convertible, cumulative preference The weighted average accumulated expenditures for
shares, P100 par value. Each share is 2020 were calculated to be P5,400,000. The
convertible into 3 ordinary shares. 3,000,000 company had the following debt outstanding at
Ordinary shares, P10 par value 6,000,000 December 31, 2020: 10 percent, five-year note to
Share options (granted in a prior year) finance construction of the manufacturing facility,
to purchase 50,000 ordinary shares at dated January 1, 2020, P3,600,000; 12 percent, 20-
P20 per share 500,000 year bonds issued at par on April 30, 2016,
Tax rate 40% P8,400,000; 8 percent, six-year note payable, dated
Average market price of ordinary shares P25 per share March 1, 2019, P1,800,000.

There were no changes during the year in the number • The Chemsee Company leased a canning machine with
of ordinary shares, preference shares, or convertible a fair value of P165,000. The present value of the
bonds outstanding. There is no treasury share. lease payments discounted at the rate implicit in the
lease is P158,400. The initial direct costs incurred in
• At the beginning of year 1, Tokyo Corp. grants negotiating the lease were P1,250. The asset has a
10,000 shares with a fair value of P27 per share to a useful life of 5 years and the lease is for a period of 4
senior executive, conditional upon the completion of years, after which the asset can be acquired for a near
three years’ service. By the end of year 2, the share zero cost, which is substantially below the expected
price has dropped to P21 per share. At that date, the value of the asset at that date.
entity adds a cash alternative to the grant, whereby
the executive can choose whether to receive 10,000 • The accounting profit before tax for the year ended
shares or cash equal to the value of 10,000 shares on December 31, 2020 for Kaya Corp. amounted to
vesting date. The share price is P18 on vesting date. P18,500 and included:
Depreciation – motor vehicle (25%) P 4,500
53. Tamarind Company’s total share premium at
Depreciation - equipment (20%) 20,000
December 31, 2020 is
Rent revenue 16,000
A. P251,500 C. P247,500
Royalty revenue (exempt from tax) 5,000
B. P249,000 D. P245,000
Doubtful debts expense 2,300
54. The correct balance of Lester Corp.’s retained Entertainment expense (non-deductible) 1,500
earnings on December 31, 2020 is Proceeds on sale of equipment 19,000
A. P119,500 C. P94,500 Carrying amount of equipment sold 18,000
B. P100,500 D. P92,000 Annual leave expense 5,000

55. The book value per share of ordinary of Windy The draft statement of financial position at December 31,
Company is 2020 contained the following assets and liabilities:
A. P156.00 C. P172.00 2020 2019
B. P190.00 D. P286.67 Assets
56. Prancer Company’s diluted earnings per share is Cash P 11,500 P 9,500
A. P1.70 C. P1.66 Receivables 12,000 14,000
B. P1.62 D. P1.26 Allowance for doubtful debts (3,000) (2,500)
Inventory 19,000 21,500
57. The net expense to be recognized by Tokyo Corp. in Rent receivable 2,800 2,400
year 3 is Motor vehicle 18,000 18,000
A. P90,000 C. P70,000 Acc. Dep. - motor vehicle (15,750) (11,250)
B. P60,000 D. P40,000 Equipment 100,000 130,000
Acc. Dep. - equipment (60,000) (52,000)
Deferred tax asset ? 5,550
P135,200
Liabilities
Accounts payable 15,655 21,500
Provision for annual leave 4,500 6,000
Current tax liability ? 7,600
Deferred tax liability ? 2,745
37,845

Page 10 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

Additional information SITUATION 10 - Information relevant to four different

(1) The company can claim a deduction of P15,000 companies follows.
(15%) for depreciation on equipment, but the
motor vehicle is fully depreciated for tax • Jessie Co. sponsors a defined benefit pension plan.
purposes. For the current year ended December 31, the
(2) The equipment sold during the year had been following information relevant to the plan has been
purchased for P30,000 two years before the date accumulated:
of sale. Defined benefit obligation, 1/1 P10,000,000
(3) The company tax rate is 30%. Fair value of plan assets, 1/1 9,000,000
Current service cost 3,000,000
• Durant Copr.’s defined benefit plan has the following Gain on settlement 500,000
information: Actual return on plan assets 630,000
12/31/19 12/31/20
Fair value of plan assets P10 million P12 million
Defined benefit obligation 8 million 9 million Increase in defined benefit
Discount rate 10% 10% obligation due to changes in
Present value of available actuarial assumptions 800,000
future refunds and Market yield on high quality
reduction in future corporate bonds 6%
contributions 1.6 million 2 million Yield on bonds issued by the entity 8%
Expected return on plan assets 9%
58. Determine the amount of interest to be capitalized by
Grant Industries for 2020. • On January 1, Lessor Company signed a 1-year rental
A. P360,000 C. P557,280 with quarterly payments of P100,000 due at the end
B. P563,220 D. P591,840 of each quarter. In addition, the lessee must pay
contingent rent of 5% of all sales in excess of
59. If Chemsee Company uses straight line method, what
P10,000,000. The contingent rent is paid in one
amount should be the annual depreciation expense?
payment on December 31. The same lessee has
A. P39,912 C. P31,930
used the building for the past 5 years, and in each of
B. P39,600 D. P31,680
those years the lessee reached the contingent rent
60. Kaya Corp.’s current tax expense for 2020 is threshold of P10,000,000 in sales. Sales of the
A. P6,030 C. P7,500 lessee for the first two quarters are as follows:
B. P6,930 D. P8,040
Quarter ended Amount
61. Kaya Corp.’s deferred tax expense (benefit) for 2020 March 31 P3,200,000
is June 30 3,000,000
A. P6,570 C. (P2,430)
B. (P3,270) D. (P1,080) • The following relate to Panda Company’s patents
assigned to other entities:
62. In relation to the asset ceiling, the amount that January 1 December 31
Durant Corp. would recognize in other comprehensive Royalties receivable P500,000 P1,500,000
income for the year 2020 is Unearned royalties 200,000 600,000
A. P1,000,000 C. P560,000
B. P 600,000 D. P400,000 During the year, Panda received royalty remittance of
P5,000,000.

• Lane Company acquires copyrights from authors,

paying advance royalties in some cases, and in
others, paying royalties within 30 days of year-end.
Lane reported royalty expense of P375,000 for the
current year ended December 31. The following data
are included in Lane’s balance sheets.
January 1 December 31
Prepaid royalties P60,000 P50,000
Royalties payable 75,000 90,000

Page 11 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

63. Calculate the amount that Jessie Co. would recognize • The trial balance of Entity S (a small entity) included
in profit or loss for the year in accordance with the the following assets:
revised PAS 19 Cash P 500,000
A. P2,560,000 C. P2,580,000 Accounts receivable 3,000,000
B. P2,570,000 D. P2,590,000 Inventories (at cost) 5,100,000
64. What amount of rent expense should be reflected in Investment in shares (at cost) 900,000
Lessee’s quarterly income statement for the three Property, plant and equipment 8,000,000
months ended June 30? Additional information:
A. P100,000 C. P130,000 • The probable selling price of inventories to willing
B. P125,000 D. P160,000 buyers as of reporting date is P5,000,000.
65. In its income statement for the current year, Panda • The shares held as investment are traded in an
should report royalty income of active market. Fair value as of reporting date is
A. P6,400,000 C. P4,400,000 P950,000.
B. P5,600,000 D. P3,600,000
67. In relation to the above investment, how much is the
66. During the year, Lane made royalty payments totaling net amount that Entity A should recognize in its profit
A. P350,000 C. P380,000 or loss for the year ended 31 December 2018, 2019
B. P370,000 D. P400,000 and 2020 respectively:
A. P2,000, P18,000, (P30,000).
B. P2,000, P6,000, (P30,000).
SITUATION 11 - Information relevant to four different C. (P4,000), P18,000, (P30,000).
companies follows. D. P204,000, P210,000, P180,000.

• On 31 December 2018 Entity A, medium-sized entity, 68. In relation to Crown Corp.’s production process, at the
acquired 30 per cent of the ordinary shares that carry end of 2020 the production process should be
voting rights of entity B for P200,000. Entity A recognized as an intangible asset at
incurred transaction costs of P2,000 in acquiring A. P1,000,000 C. P100,000
these shares. B. P 500,000 D. Nil
Entity A does not use the equity method to account 69. Culang Corp. is a medium-sized entity. Culang Corp.
for its investments in associates. may report which of the following assets in its
In January 2019 entity B declared and paid a dividend statement of financial position?
of P40,000 out of profits earned in 2018. No further A. Internally generated intangible assets.
dividends were paid in 2019, 2020 or 2021. B. Non-current assets held for sale.
C. Financial assets at fair value through OCI.
At 31 December 2018, 2019 and 2020, based on D. Land at revalued amount.
published price quotations, the fair values of its
investment in entity B are P204,000, P210,000 and 70. In accordance with the PFRS for Small Entities, Entity
P180,000 respectively. Costs to sell are estimated at S should report total assets of
P8,000 throughout. A. P17,400,000 C. P17,500,000
B. P17,450,000 D. P17,550,000
• Crown Corp., a medium-sized entity, is developing a
new production process. During 2020, expenditure
incurred was P1,000,000, of which P900,000 was
incurred before 1 December 2020 and P100,000 was J - end - J
incurred between 1 December 2020 and 31
December 2020. The entity is able to demonstrate
that, at 1 December 2020, the production process
met the criteria for recognition as an intangible asset.
The recoverable amount of the know-how embodied
in the process (including future cash outflows to
complete the process before it is available for use) is
estimated to be P500,000.

Page 12 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic

TEAM PRTC

Page 13 of 15 facebook.com/reyocampo.ol.3 FAR.Diagnostic