CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING OCTOBER 2024
FINAL PREBOARD EXAMINATION

1. The standard – setting process includes in the correct order

A. Exposure draft, research, discussion paper and accounting standard

B. Research, exposure draft, discussion paper and accounting standard
C. Research, discussion paper, exposure draft and accounting standard
D. Discussion paper, research, exposure draft and accounting standard

2. Which of the following is false about the Financial and Sustainability Reporting Standards Council (FSRSC)?
A. The FSRSC was established by the Philippine Institute of Certified Public Accountants to assist the Board
of Accountancy in carrying out its power and function to promulgate accounting standards in the
Philippines.
B. The FSRSC is the successor of Accounting Standards Council.
C. The FSRSC formed the Philippine Interpretations Committee (PIC) to assist the FSRSC in establishing
and improving financial reporting standards in the Philippines.
D. The FSRSC has full discretion in developing and pursuing the technical agenda for setting accounting
standards in the Philippines.

3. How many Continuing Professional Development (CPD) units are required to renew the CPA license?

A. 5
B. 10
C. 15
D. 20

4. A certificate of registration shall be issued to CPAs in public practice if such registrant has acquired a
minimum of how many years of meaningful experience in any area of public practice?

A. 2
B. 3
C. 4
D. 5

5. Which of the following is false about the Revised Conceptual Framework?

A. A purpose of the Revised Conceptual Framework is to assist IASB in developing IFRS.

B. The Revised Conceptual Framework is not an IFRS.
C. The qualitative characteristics are considered either fundamental or enhancing
D. Qualitative characteristics are broad classes of financial effects of transactions and other events.

6. Which of the following is true?

A. An asset is recognized in the financial statements if it is probable that benefits will flow to the entity.
B. Derecognition is the removal of all or part of an asset or liability from the statement of financial position.
C. Measurement base has two categories, namely historical cost, and fair value.
D. Financial capital is net assets in terms of physical productive capacity.

7. Deferral is best defined as adjusting entries where

A. Cash flow precedes revenue or expense recognition

B. Revenue or expense recognition precedes cash flow
C. Cash flow and expense or revenue recognition are simultaneous
D. Revenue or expense is recognized in the absence of cash flow evidence
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8. An entity provided the following trial balance on December 31, 2024 which had been adjusted except for
income tax expense:
Cash 300,000
Accounts receivable 1,400,000
Inventory 1,000,000
Property, plant and equipment, net 5,375,000
Accounts payable and accrued liabilities 900,000
Income tax payable 625,000
Deferred tax liability 350,000
Share capital 1,250,000
Share premium 1,625,000
Retained earnings, January 1 1,750,000
Net sales and other revenue 7,500,000
Costs and expenses 5,000,000
Income tax expense _925,000 __________
14,000,000 14,000,000
The accounts receivable included P500,000 due from a customer and payable in quarterly installments of
P62,500. The last payment is due December 31, 2025. During the year, estimated tax payment of P300,000
was charged to income tax expense. The income tax rate is 25%. Which of the following statements is true?
A. A potential investor would look at the statement of comprehensive income to assess financial flexibility.
B. Liabilities that are expected to be settled within the normal operating cycle are classified as noncurrent.
C. On December 31, 2024, total current assets amount to P2,700,000.
D. On December 31, 2024, total current liabilities amount to P1,225,000.
9. An entity provided the following information on December 31, 2024:
Sales 9,500,000
Share of income of associate – investment income 250,000
Other income 300,000
Decrease in inventory of finished goods 250,000
Raw materials and consumables used 3,500,000
Employee benefit expense 1,500,000
Translation gain on foreign operation 300,000
Depreciation 450,000
Impairment loss 600,000
Finance cost 350,000
Other expenses 450,000
Income tax expense 900,000
Unrealized gain on option contract designated as cash flow hedge 500,000
During 2024, the entity also approved the disposal of one of its major lines of business. This business segment
had an after-tax operating loss of P700,000 and after-tax gain on disposal of P250,000 on some of its assets
in 2024. Which of the following statements are true?
A. The purpose of reporting comprehensive income is to measure overall financial position.
B. The entity shall report income from continuing operations at P2,350,000 for the year 2024.
C. The entity shall report net income at P1,600,000 for the year 2024.
D. The entity shall report comprehensive income at P2,850,000 for the year 2024.
10. An entity reported the following remuneration and other payments made to its CEO during 2024:
Annual salary 3,000,000
Share options and other share-based payments 2,000,000
Contributions to retirement benefit plan 600,000
Reimbursement of travel expenses for business trips 2,400,000
What total amount should be disclosed as compensation to key management personnel?
A. 3,000,000 C. 2,600,000
B. 5,600,000 D. 8,000,000
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11. An entity provided the following information extracted from the accounting records at the end of each year:

2024 2023
Borrowings 5,000,000 1,600,000
Share capital 7,000,000 4,000,000
Retained earnings 1,900,000 1,500,000
Borrowings of P600,000 were repaid during 2024 and new borrowings included P400,000 vendor financing
arising on the acquisition of a property. The movement in retained earnings comprised net income for 2024
of P1,800,000 and dividend paid of P1,400,000. The movement in share capital arose from issuance of share
capital for cash during the year. There was no dividend payable reported at the beginning and end of the
current year.

Statement I: In preparing the statement of cash flows, financing activities include cash flows derived from
trade and nontrade liabilities, and equity.
Statement II: The cash flow provided by financing activities is P4,600,000.

A. Both statements are true.

B. Both statements are false.
C. Only statement I is true.
D. Only statement II is true.

12. An entity provided the following information at year-end:

2023 2024
Ordinary share capital 90,000 shares 120,000 shares
Convertible preference share capital 10,000 shares 10,000 shares
The entity issued 30,000 ordinary shares on September 1, 2024. During 2024, the entity paid dividends of
P10 per ordinary share and P20 per preference share. The preference share capital is convertible into 20,000
ordinary shares. The net income for 2024 was P3,700,000.
Statement I: Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders of the
parent entity by the weighted average number of ordinary shares outstanding during the period.
Statement II: The entity should report basic EPS at P29.17 for the year 2024.
Statement III: The entity should report diluted EPS at P29.17 for the year 2024.
a. Only statement I is true.
b. Statements II and III are true.
c. All statements are true.
d. All statements are false.

13. An entity provided the following transactions affecting shareholders' equity during 2024:
January 1100,000 ordinary shares outstanding
February 1Sold 21,000 ordinary shares in the market
April 1Purchased 5,000 ordinary shares to be held in treasury
July 1Sold 35,000 ordinary shares in the market
July 1Issued P1,000,000, 5-year, 10% bonds at face amount. Each P1,000 bond is
convertible into 50 ordinary shares.
October 1 A 10% bonus issue was declared and distributed.
December 31 Net income for the current year was P2,926,000. The income tax rate is 25%.
Which of the following statements is false?
a. Diluted EPS is calculated by adjusting the earnings and number of ordinary shares for the effects of
dilutive options and other dilutive potential ordinary shares.
b. The weighted average ordinary shares outstanding is 173,800.
c. The basic EPS for the year 2024 is P20.00.
d. The diluted EPS for the year 2024 is P17.05
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14. On December 31, 2024, an entity reported the following:
Cash on hand (including customer’s postdated check of P300,000) 800,000
Demand deposit 4,000,000
Certificate of deposit – 1 year 2,000,000
Investment in redeemable preference shares – 60 days 500,000
Petty cash fund 50,000
Traveler’s check 200,000
Manager’s check 100,000
Money order 150,000
The certificate of deposit and investment in redeemable preference shares were acquired on December 31,
2024. What amount of cash and cash equivalents should the entity report on December 31, 2024?
a. 7,500,000
b. 5,000,000
c. 7,000,000
d. 5,500,000
15. An entity kept all cash checking account. An examination of the bank statements for the month of December
revealed a bank statement balance of P12,705,000. A deposit of P1,425,000 placed in the bank’s night
depository on December 29 does not appear on the bank statement. Checks outstanding on December 31
amount to P405,000. The bank statement showed that on December 26 the bank collected a note for the entity
and credited the proceeds of P1,402,500 to the entity’s account net of P22,500 service charge. The entity
discovered that a check written in December for P274,500 in payment of an account had been recorded as
P207,000. Included with the December 31 bank statement was an NSF check for P375,000 that the entity had
received from a customer on December 20. The bank statement showed a P22,500 service charge for
December.
Statement I: The entity’s unadjusted balance per book is P12,787,500.
Statement II: The entity’s adjusted balance is P13,725,000
Statement III: The adjustment to the unadjusted balance per book is a net debit of P937,500.
a. All statements are true.
b. All statements are false.
c. Statements I and II are true.
d. Statements II and III are true.
16. On December 1, 2024, an entity established a petty cash fund of P100,000 using the imprest system. On
December 31, 2024, the petty cash fund comprised the following information: coins and currencies, P12,000;
petty cash vouchers for miscellaneous expenses,P92,000. The petty cash fund was replenished on December
31, 2024. In recording the journal entry to replenish the fund, which of the following is true?

a. Cash short / over account shall be debited for P4,000.

b. Cash short / over account shall be credited for P4,000.
c. The entity shall report petty cash fund of P104,000 on December 31, 2024.
d. The entity shall report petty cash fund of P12,000 on December 31, 2024.
17. During 2024, an entity purchased nontrading equity securities as long-term investment to be measured at fair
value through other comprehensive income. The cost and market value on December 31, 2024 were:
Security Cost Market value
A 1,000 shares 600,000 700,000
B 10,000 shares 3,400,000 3,100,000
C 20,000 shares 6,300,000 5,900,000
The entity sold 10,000 shares of B on January 5, 2025 for P3,500,000. What is the effect of the disposal in
2025?
a. Net credit adjustment to retained earnings of P400,000
b. Net credit adjustment to retained earnings of P100,000
c. Net debit adjustment to retained earnings of P100,000
d. Gain on sale in profit or loss of P400,000.
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18. On January 1, 2024, an entity purchased 10% bonds in the face amount of P3,000,000. The bonds mature on
January 1, 2034 and were purchased for P3,405,000 to yield 8%. The entity used the effective interest method
of amortization and interest is payable annually every December 31. The business model for this investment
is to collect contractual cash flows composed of interest and principal. On December 31, 2025, the entity
changed the business model for this investment to realize fair value changes. On January 1, 2026, the fair
value of the bonds was P2,845,000 at an effective rate of 11%.
Statement I: An entity shall reclassify debt-type financial assets (except those under the fair value option), if
the business model for this financial asset is changed.
Statement II: The interest income for the year 2024 is P272,400.
Statement III: The loss on as a result of the reclassification on January 1, 2026 is P502,592
Statement IV: The interest income for the year 2026 is P312,950.
a. All statements are true.
b. Only statements I and II are true.
c. Only statements I, II and III are true.
d. Only statements II, III and IV are true.
19. An entity sold goods to wholesalers. An analysis of the accounts receivable on December 31, 2024 revealed
the following:

Age Amount Collectible

0 – 15 days 5,000,000 100%
16 – 30 days 2,400,000 95%
31 – 60 days 500,000 90%
Over 60 days 100,000 50%
The entity had allowance for doubtful accounts of P150,000 on January 1, 2024 and wrote off P550,000 of
accounts during 2024. There were no recoveries. Which of the following statements are false?
a. Accounts receivable is subsequently measured at net realizable value.
b. Under the aging of AR method of estimating doubtful accounts, the resulting balance is the doubtful
accounts expense for the year.
c. The doubtful accounts expense for 2024 is P620,000.
d. The allowance for doubtful accounts on December 31, 2024 is P220,000.
20. An entity factored P6,000,000 of accounts receivable to a finance entity at the end of current year. Control
was surrendered by the entity. The factor accepted the accounts receivable subject to recourse for nonpayment.
The fair value of the recourse obligation is P100,000. The factor assessed a fee of 3% of the accounts
receivable and retained a holdback of 10% of the accounts receivable. The factor charged a 15% interest
computed on a weighted average time to maturity of the accounts receivable of 45 days.
Statement I: Factoring of accounts receivable with recourse is a sale transaction with risk of uncollectible
accounts retained by the seller.
Statement II: The loss on factoring at end of the current year is P390,959.
a. All statements are false.
b. Only statement I is true.
c. Only statement II is true.
d. All statements are true.
21. An entity, a bank, granted a loan to a borrower on January 1, 2024. The interest rate on the loan is 10% payable
annually starting December 31, 2024. The loan matures in five years on December 31, 2028. Principal amount
P5,000,000; origination fee received from borrower, P200,000; direct origination cost incurred, P457,500.
The effective rate on the loan after considering the direct origination cost incurred and origination fee received
is 8%. What is the interest income for the year 2024 and carrying amount of the loan receivable on December
31, 2024 respectively?

a. 500,000 and 5,000,000 c. 420,600 and 5,178,100

b. 420,600 and 5,000,000 d. 379,400 and 4,863,100
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22. On January 1, 2024 an entity purchased 25% of the outstanding ordinary shares of another entity for
P4,000,000. The investee’s shareholders’ equity on such date was P10,000,000. At the time of acquisition,
the fair values of the investee’s identifiable assets and liabilities were equal to their carrying amounts except
for an office building which had a fair value in excess of carrying amount of P2,000,000 and an estimated life
of 10 years. During 2024, the investee reported net income of P6,000,000 and paid cash dividend of
P3,000,000. Which of the following statements is true?
a. Under the equity method, distributions received from an investee are recognized as income.
b. Under the equity method, adjustments to the carrying amount are not necessary for changes in the
investor's proportionate interest in the investee arising from changes in the investee's other comprehensive
income.
c. The entity shall report investment income of P1,450,000 for 2024.
d. The carrying amount of the investment in associate is P4,750,000 on December 31, 2024.
23. An entity provided the following inventory card during the following periods:
Purchase Unit Total
Price Units Used Units
Jan. 10 100 20,000 20,000
31 10,000 10,000
Feb. 8 110 30,000 40,000
9 Returns from factory (Jan. 10 lot) ( 1,000) 41,000
28 11,000 30,000
Statement I: Cost of inventories include cost of purchase, cost of conversion, and other costs incurred in
bringing the inventories to their present location and condition.
Statement II: Standard cost and retail methods may be used for the measurement of cost, provided that
the results approximate actual cost.
Statement III: Using the weighted average method, the cost of inventory on February 28 is P3,180,000.
a. All statements are true.
b. All statements are false.
c. Only statements I and II are true.
d. Only statements I and III are true.
24. At year-end, an entity reported that a flood caused severe damage to the entire inventory. Based on recent
history, the entity had a gross profit of 25% of cost. The entity provided the following information for the
current year:
Inventory, January 1 500,000
Purchases 4,000,000
Purchase returns 200,000
Sales 5,600,000
Sales returns 400,000
Sales allowances 100,000
What amount should be reported as cost of inventory damaged by the flood?
a. 400,000
b. 475,000
c. 220,000
d. 140,000
25. An entity used the FIFO retail method of inventory valuation but had missing information. The entity provided
the following available information for the current year: beginning inventory, cost - P600,000; retail -
P1,500,000 purchases, cost -P3,000,000; retail – (?) net markups - P500,000 net markdowns - P1,000,000
sales revenue – (?). The cost ratio is 60% and it was determined that the ending inventory at retail is
P2,000,000. What is the sales revenue for the year?
a. 5,500,000 c. 5,000,000
b. 4,500,000 d. 6,500,000
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26. During 2024, an entity constructed asset costing P10,000,000. The weighted average expenditures totaled
P6,000,000. To help pay for construction P4,400,000 was borrowed at 10% on January 1, 2024. Funds not
needed for construction were temporarily invested in short-term securities yielding P90,000 in interest
revenue. Other than the construction funds borrowed, the only other debt outstanding during the year was a
P5,000,000, 10-year, 9% note payable dated January 1, 2023. Some of the proceeds from the P5,000,000 loan
was invested in short-term securities as well and earned interest revenue of P60,000.
Statement I: The capitalized borrowing cost for the year 2024 is P434,000.
Statement II: The cost of the asset to date on December 31, 2024 is P10,434,000.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.

27. On January 1, 2024, an entity purchased a machine for P5,000,000 subject to a 5% cash discount which was
not taken. The entity paid shipping cost P50,000 as well as installation cost of P150,000. The machine was
estimated to have a useful life of 10 years, an estimated residual value of P300,000 and the straight -line
method is used. In January 2026, additions costing P500,000 were made to the machine in order to comply
with pollution control ordinances. These additions neither prolonged the life of the machine nor did they have
any residual value.

Statement I: The initial cost of the machine is P4,950,000

Statement II: The depreciation for the year 2026 is P527,500

a. All statements are true.

b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.

28. An entity constructed a building costing P6,000,000 on the mine property. The estimated residual value will
not benefit the entity and will be ignored for purposes of computing depreciation. The building has an
estimated life of 10 years. The total estimated recoverable output from the mine is 500,000 tons. The
production of the first four years of operations was: first year - 100,000 tons; second year - 100,000 tons; third
year - shut down, no output; fourth year - 100,000 tons. What amount should be recorded as depreciation for
the fourth year?

a. 1,200,000
b. 450,000
c. 1,050,000
d. 750,000

29. An entity reported an impairment loss of P500,000 in 2021 related to an equipment acquired on January 1,
2013 for P4,000,000 with no residual value. Straight line annual depreciation was recorded at P160,000 until
2021. Depreciation for 2022 was computed based on the recoverable amount on December 31, 2021. The
entity decided to measure the asset using the revaluation model on December 31, 2024. On such date, the
asset had a fair value of P3,300,000.

Statement I: Depreciation for the year 2022 is P160,000.

Statement II: The gain on reversal of impairment in 2024 is P406,250
Statement III: The revaluation surplus on December 31, 2024 is P1,220,000.

a. All statements are true.

b. Statements I and II are true.
c. Statements I and III are true.
d. Statements II and III are true.
 Page 8
30. An entity acquired a building on January 1, 2024 for P9,000,000. At that date, the building had a useful life
of 30 years. On December 31, 2024, the fair value of the building was P9,600,000 and on December 31, 2025,
the fair value was P9,900,000. The building was classified as an investment property and accounted for under
the cost model. On January 1, 2026, the entity decided to use the building as property, plant and equipment.
What is the measurement of the building as property, plant and equipment on January 1, 2026?
a. 9,000,000
b. 8,400,000
c. 9,900,000
d. 9,600,000
31. An entity purchased a trademark and incurred the following costs on January 1, 2024:
Purchase price 2,000,000
Nonrefundable value added tax 100,000
Training of personnel on the use of new trademark 140,000
Research expenditures associated with the purchase of the new trademark 480,000
Legal cost incurred to register the new trademark 210,000
Administrative salaries 240,000
The trademark has an indefinite life. On December 31, 2024, the entity tested the trademark for impairment.
The entity determined that the trademark will generate annual cash flows of P150,000 for an indefinite period.
The appropriate discount rate is 8%.
Statement I: Intangible assets are initially measured at cost.
Statement II: The initial cost of the trademark is P2,310,000.
Statement III: The entity shall record no impairment loss for the year 2024.

a. Only statements I and II are true.

b. All statements are true.
c. Only statement I is true.
d. Only statements I and III are true.

32. An entity assembled the following data relative to Company A in determining the amount to be paid for net
assets and goodwill:
Assets at fair value before goodwill 5,200,000
Liabilities 1,800,000
Shareholder’s equity 3,400,000

Average net earnings of Company A over a five-year period is P500,000. Goodwill is measured by capitalizing
average earnings at 10% with normal rate of return at 8%. What is the goodwill of Company A?
a. 2,280,000
b. 2,850,000
c. 1,600,000
d. 2,000,000

33. An entity provided the following data:

Value of biological asset at acquisition cost on January 1, 2024 8,500,000
Fair valuation surplus on initial recognition at fair value on January 1, 2024 500,000
Increase in fair value to December 31, 2025 due to growth and price fluctuation 800,000
Decrease in fair value due to harvest in 2025 200,000
Which of the following statements is true?
a. Agricultural land is accounted for as a biological asset.
b. IAS 41 - Agriculture presumes that fair value of a biological asset cannot be measured.
c. The carrying amount of the biological assets on December 31, 2025 is P9,600,000.
d. The net gain to be reported in the 2025 income statement is P1,100,000.
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34. On January 1, 2024, an entity purchased a vineyard costing P8,000,000. It was determined that the grape vines
can produce fruit for a period of 25 years. During 2024, the entity harvested grapes with a fair value less cost
of disposal of P1,800,000. By the end of the year, the grapes were sold for P3,000,000. The entity incurred
operating expenses of P500,000. The entity used the perpetual method. Which of the following statements is
false?

a. Agricultural produce is measured at fair value less cost of disposal at the point of harvest.
b. Bearer plants are classified as property, plant, and equipment.
c. The entity shall recognize income before tax of P2,180,000.
d. The entity shall recognize a gross profit of P3,000,000.

35. An entity accounted for noncurrent assets using the cost model. On October 1, 2024, the entity classified a
noncurrent asset as held for sale. At that date, the carrying amount was P5,200,000, the fair value was
estimated at P4,900,000 and the cost of disposal at P300,000. On December 31, 2024, the asset was sold for
net proceeds of P3,800,000.
Statement I: The impairment loss in 2024 is P600,000.
Statement II: The loss on disposal in 2024 is P800,000.

a. All statements are true.

b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.
36. How should an entity calculate the net proceeds to be received from the bond issuance?
a. Discount the bonds at the market rate of interest
b. Discount the bonds at the market rate of interest and deduct bond issue cost
c. Discount the bonds at the stated rate of interest
d. Discount the bonds at the stated rate of interest and deduct bond issue cost
37. Debt issue cost
a. Is included in the measurement of debt measured at fair value through profit or loss
b. Will effectively decrease the market rate of interest
c. Will effectively increase the market rate of interest
d. Is amortized using the straight-line method over the life of the bonds

38. On January 1, 2024, an entity issued 5,000 convertible bonds payable. The bonds have a three-year term and
are issued at 110 with a face amount of P1,000 per bond. Interest is payable annually in arrears at a nominal
6% interest rate. Each bond is convertible at any time up to maturity into 100 ordinary shares with par value
of P5. When the bonds are issued, the prevailing market interest rate for similar debt instrument without
conversion option is 9%. The present value of 1 at 9% for 3 periods is. 77 and the present value of an ordinary
annuity of 1 at 9% for 3 periods is 2.53. On December 31, 2024, the bonds were converted into share capital.

Statement I: Convertible bonds have both a liability and an equity component.

Statement II: Interest expense for the year 2024 is P495,000
Statement III: The share premium to be recorded because of the conversion is P891,000.

a. All statements are true.

b. Only statements I and III are true.
c. Only statement III is true.
d. Statements II and III are false.

39. The nonredemption of gift certificates is called

a. Waiver
b. Breakage
c. Forfeiture
d. Rebate
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40. Disclosure usually is not required for
a. Contingent loss that is probable and not measurable
b. Contingent gain that is probable and measurable
c. Contingent loss that is remote and measurable
d. Contingent loss that is possible and measurable
41. Due to extreme financial difficulties, an entity had negotiated a restructuring of a 10% P8,000,000 note
payable due on December 31,2024. The unpaid interest on the note on such date is P800,000. The creditor
had agreed to reduce the face value to P6,000,000, forgive the unpaid interest, reduce the interest rate to 8%
and extend the due date three years from December 31, 2024. The entity paid P144,000 as arrangement tee to
the creditor. The market rate of interest is 12%. After considering the arrangement fee, the adjusted effective
interest rate is 11%. Below are the present value factors:
PV of 1 for 3 periods PV of an ordinary annuity of 1 for 3
periods
10% 0.75 2.49
11% 0.73 2.44
12% 0.71 2.40
Statement I: The gain to be recognized on the modification of terms in 2024 is P3,244,000.
Statement II: The interest expense for the year 2025 is P610,632.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.

42. An entity operates a customer loyalty program. The entity grants loyalty points for goods purchased. The
loyalty points can be used by the customers in exchange for goods of the entity. The points have no expiry
date. During 2024, the entity issued 50,000 award credits and expected that 80% of these award credits shall
be redeemed. The total stand-alone selling price of the award credits granted is reliably measured at
P1,000,000. In 2024, the entity sold goods to customers for a total consideration of P7,000,000 based on stand-
alone selling price. The award credits redeemed and the total award credits expected to be redeemed each year
are:
Redeemed Expected to be redeemed
2024 15,000 80%
2025 7,950 85%
2026 2,550 85%
2027 15,000 90%
Statement I: The revenue from the awards credits in 2024 is P262,500.
Statement II: The revenue from the award credits in 2026 is P525,000.

a. All statements are true.

b. All statements are false.
c. Only statement I is true.
d. Only statement II is false.

43. During 2024, an entity sold 1,500,000 boxes of brownies mix under a new sales promotional program. Each
box contained one coupon, which entitled the customer to a baking pan upon remittance of P40. The entity
paid P50 per pan and P5 for handling and shipping and estimated that 80% of the coupons would be redeemed,
even though only 900,000 coupons had been processed during 2024.
Statement I: The premium expense for 2024 is P18,000,000.
Statement II: The premium liability on December 31, 2024 is P4,500,000.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.
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44. On January 1, 2024, an entity was organized with authorized capital of 500,000 shares of P100 par value.

January 10 Issued 30,000 shares at P220 a share. Share issue cost amount to P500,000.
May 25 Issued 5,000 shares for legal services when the fair value was P340 a share.
October 30 Issued 10,000 shares for a tract of land when the fair value was P360 a share.
Which of the following statements is false?
a. Upon issuance of share capital, any excess over the par or stated value is credited to share premium.
b. Any share issue cost incurred is a direct deduction from equity.
c. On December 31, 2024, share capital should be reported at P4,500,000.
d. On December 31, 2024, share premium should be reported at P7,400,000.
45. At the beginning of current year, an entity issued 200,000 shares of P10 par value for P50 per share. During
the year, the entity reacquired 20,000 shares to be held as treasury at P150 per share. The entity sold 25% of
the treasury shares at P110 per share. Which of the following statements is true?
a. Purchase of treasury shares increase issued shares but decrease outstanding shares.
b. Treasury shares are presented as financial assets.
c. Entity shall debit retained earnings of P200,000 when reissuing 25% of the treasury shares.
d. Entity shall debit share premium – treasury shares of P200,000 when reissuing 25% of the treasury shares.
46. During the current year, an entity issued for P110 per share, 25,000 convertible preference shares of P100 par
value. One preference share may be converted into three ordinary shares of P30 par value at the option of the
preference shareholder. At year-end, all of the preference shares were converted into ordinary shares. The
market value of the ordinary share at the conversion date was P40. What amount is credited to share premium
– ordinary shares as a result of the conversion?
a. 500,000
b. 750,000
c. 250,000
d. 0
47. On December 31, 2024, an entity issued 3,000 ordinary shares of P100 par value in connection with a share
dividend. The market value per share on the date of declaration was P150.
The shareholders’ equity accounts immediately before issuance of the share dividend were:
Ordinary share capital P100 par, 20,000 shares issued and outstanding 2,000,000
Share premium 3,000,000
Retained earnings 1,500,000

Statement I: Declaration and issuance of share dividends increase total assets and total equity.
Statement II: The entity shall report retained earnings of P1,200,000 after the share dividend.

a. All statements are true.

b. Only statement I is true.
c. All statements are false.
d. Only statement II is true.

48. Which of the following statements is / are true about share capital and share issue costs?
Statement 1: If shares are issued for noncash consideration, they shall be measured by fair value of shares.
Statement 2: If shares are issued at par, any share issue costs incurred is debited to “Share Issuance Cost”,
which is an expense.
Statement 3: The share capital account is measured by the shares issued multiplied by the par value.
a. Statements 1 and 3 are true.
b. Statement 3 is true.
c. Statements 1 and 2 are true.
d. Statements 2 is true.
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49. An entity began operations on January 1, 2021. After three years of operations, the entity reported retained
earnings of P5,000,000. The entity provided the following information for 2024:
Income before income tax 5,000,000
Prior period error – understatement of 2023 depreciation before tax 500,000
Cumulative decrease in income from change in inventory method before tax 1,000,000
Dividend declared 2,000,000
Income tax rate 25%
What amount should be reported as retained earnings on December 31,2024?
a. 5,625,000
b. 5,250,000
c. 6,500,000
d. 6,150,000

50. An entity had incurred heavy losses since inception. At the recommendation of chief executive officer, the
board of directors voted to implement a quasi-reorganization, subject to approval of shareholders.
Immediately prior to the quasi-reorganization, the entity reported the following shareholder’s equity:

Share capital, P100 par, 500,000 shares 50,000,000

Share premium 5,000,000
Retained earnings (deficit) (8,000,000)

The shareholders approved the quasi-reorganization to be accomplished by reduction in inventory

P2,000,000, reduction in property, plant and equipment P4,000,000, writeoff of goodwill P1,000,000 and
appropriate adjustment to the capital structure against share premium first and any remaining deficit against
the share capital account. What amount should be reported as reduction in the share capital account to
implement the quasi-reorganization?
a. 10,000,000
b. 15,000,000
c. 20,000,000
d. 3,000,000

51. On December 31, 2024, an entity had outstanding, 60,000 5% cumulative and fully participating preference
shares, P100 par, and 400,000 ordinary shares, P10 par. The last dividend declaration for both preference and
ordinary shareholders was in 2022. On December 31, 2024, the entity declared dividend of P2,500,000.
Statement I: On December 31, 2024, the preference dividend is P1,320,000.
Statement II: On December 31, 2024, the ordinary dividend is P1,180,000.
a. All statements are true.
b. Only statement I is true.
c. Only statement II is true.
d. All statements are false.

52. An entity reported the following shareholders' equity on December 31, 2024.
6% noncumulative preference share capital, P100 par, liquidation value of P105 per 2,000,000
share
Ordinary share capital, P100 par 6,000,000
Retained earnings 1,500,000
Preference dividends have been paid up to December 31, 2024. What is the book value per ordinary share?
a. 121.33
b. 125.00
c. 123.33
d. 158.33
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53. On January 1, 2024, an entity granted to an employee the right to choose either:

• Share alternative equal to 25,000 shares with par value of P30.

• Cash alternative or cash payment equal to the market value of 20,000 phantom shares.
The grant is conditional upon the completion of three years of service. On the date of grant, January 1, 2024,
the share price is P51. After taking into account the effects of post-vesting restrictions, the entity has estimated
the fair value of the share or equity alternative at P48 per share. The share prices are P54 on December 31,
2024, P66 on December 31, 2025 and P65 on December 31, 2026. Which of the following statements is false?
a. If the counterparty has the right to choose either shares or cash as payment, the entity shall recognize a
compound financial instrument.
b. The compensation expense for 2026 is P480,000.
c. If the employee selected shares, the share premium from issue of shares is P750,000.
d. If the employee selected cash, the share premium is P180,000.

54. Which of the following is not a component of other comprehensive income?

a. Foreign currency translation adjustment
b. Change in fair value of financial asset held for trading
c. Deferred loss on derivative financial instruments designated as a cash flow hedge
d. Change in revaluation surplus
55. On January 1, 2024, an entity entered into a ten-year noncancelable lease requiring year-end payments of
P3,000,000. The entity's incremental borrowing rate is 12%, while the lessor's implicit interest rate, known to
the entity, is 10%. Present value factors for an ordinary annuity for ten periods are 6.145 at 10%, and 5.650
at 12%. On same date, the entity paid initial direct cost of P500,000 in negotiating and securing the leasing
arrangement. Ownership of the property remains with the lessor at expiration of the lease. There is no purchase
option. The leased property has an estimated economic life of 12 years.

Statement I: The initial cost of the right of use asset is P18,435,000.

Statement II: The depreciation of the right of use asset in 2024 is P1,536,250.
Statement III: On December 31, 2024, the lease liability is P17,278,500.
a. All statements are true.
b. Only statement III is true.
c. Statements I and III are true.
d. Statements I and II are true.
56. On January 1, 2024, an entity owned a building held as investment property using the cost model. The carrying
amount of the building was P9,000,000 with remaining useful life of 10 years. On April 1, 2024 the entity
leased the building to a lessee for three years at monthly rental of P300,000. The lessee paid the rental for one
year of P3,600,000 and P2,500,000 security deposit to be refunded upon expiration of the lease. On April 1,
2024, the lessee additionally paid P1,200,000 as a lease bonus and P600,000 to a broker as a finder fee. During
2024, the entity paid property tax of P250,000 and P150,000 insurance on the building. What is the net rental
income of the entity for the year ended December 31, 2024?
a. 1,775,000
b. 1,550,000
c. 2,175,000
d. 3,000,000
57. Which of the following statements is / are false?
Statement 1: The right of use asset shall be reported as a separate line item under current assets.
Statement 2: The lessee may use the operating lease model if the lease is short-term or if the lease involves
low- value assets.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.
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58. On January 1, 2024, an entity leased equipment to Company X under a sales type lease. Rentals are payable
at the end of each year, beginning December 31, 2024. The lease term is 6 years and the useful life of the
equipment is 8 years. The fair value of the equipment is P1,273,800 while the cost is P800,000. The implicit
rate in the lease is 12% which is known to the lessee. The lessee had the option to purchase the equipment for
P80,000 at the end of the lease term. It is reasonably certain that the lessee will exercise the purchase option.
The present value of 1 at 12% for 6 periods is 0.51 and the present value of an ordinary annuity at 12% for 6
periods is 4.11. Which of the following statements is false?
a. The annual rental is P300,000.
b. The total financial revenue is P606,200.
c. The gross profit on the sale is P1,273,800.
d. The interest income for the year 2024 is P152,856.
59. On January 1, 2024, an entity sold a building and immediately leased it back. The entity provided the following
data regarding the sale and leaseback transaction:
Sale price at above fair value 15,750,000
Fair value of building 14,000,000
Carrying amount of building 12,600,000
Annual rental payable at the end of each year 1,050,000
Remaining life of building 20 years
Lease term 4 years
Implicit interest rate 12%
Present value of an ordinary annuity of 1 at 12% for four periods 3.04
Statement I: The initial cost of the right of use asset is P1,442,000.
Statement II: The gain on the rights transferred to the buyer-lessor is P1,255,800
a. All statements are true.
b. All statements are false.
c. Only statement II is true.
d. Only statement I is true.
60. An entity is in the first year of operations and reported pretax accounting income of P10,000,000. The entity
provided the following information for the first year:
Premium on life insurance of key officer 300,000
Depreciation on tax return in excess of book depreciation 400,000
Tax-exempt interest income 100,000
Estimated warranty expense 180,000
Actual warranty repairs 60,000
Doubtful accounts expense 120,000
Writeoff uncollectible accounts 40,000
Rent received in advance 600,000
Income tax rate 25%
Statement I: Taxable income for the current year is P10,600,000.
Statement II: Total tax expense for the current year is P2,550,000.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is true.
61. An entity shall disclose for each reportable segment all of the following specified amounts included in the
measure of profit or loss, except
a. Depreciation and amortization
b. The entity’s interest in the profit or loss of associate
c. Income tax expense
d. General corporate expense
 Page 15
62. An entity had cumulative future taxable amount on January 1, 2024 and December 31, 2024 of P3,500,000.
The difference was expected to reverse P2,000,000 in 2025 and P1,500,000 in 2026. The related deferred tax
liability on January 1, 2024 was P1,050,000. During 2024, a new tax rate of 25% is enacted into law and is
scheduled to be effective in 2026. The taxable income for 2024 was P5,000,000.
Statement I: On December 31, 2024, the deferred tax liability should be reported at P875,000.
Statement II: The entity shall report total tax expense of P2,375,000 in 2024.
a. All statements are true.
b. All statements are false.
c. Only statement I is true.
d. Only statement II is false.
63. An entity provided the following information for the current year:
January 1 December 31
Fair value of plant assets 3,500,000 5,200,000
Projected benefit obligation 2,000,000 3,100,000
Prepaid/ accrued benefit cost – surplus 1,500,000 2,100,000
Asset ceiling 800,000 1,500,000
Effect of asset ceiling 700,000 600,000
The entity gathered the following information for the current year:
Current service cost 900,000
Contribution of the plan 1,200,000
Actual return on plan assets 500,000
Discount rate 10%
Statement I: The entity shall recognize net remeasurement gain of P320,000 in 2024.
Statement II: The entity shall recognize employee benefit expense of P820,000 in 2024.
Statement III: The entity shall report a prepaid benefit cost of P2,100,000 on December 31, 2024.
a. All statements are true.
b. All statements are false.
c. Only statements II and III are true.
d. Only statements I and II are true.
64. During the first quarter, an entity reported a loss from typhoon of P900,000 and payment of fire insurance
premium for calendar year of P500,000. What amount of expense should the entity report for the first quarter?
a. 1,025,000
b. 1,400,000
c. 350,000
d. 900,000
65. On January 1, 2024, an SME acquired a building for P9,000,000. The building has a useful life of 30 years
and is to be held for rentals. The fair value of the building cannot be determined on an ongoing basis. What is
the carrying amount of the building on December 31, 2024?
a. 9,000,000
b. 8,700,000
c. 8,400,000
d. 9,300,000
66. Which of the following applies in full IFRS but not in IFRS for SMEs?
a. Applying the revaluation model to property, plant and equipment
b. Prospective application of changes in accounting estimate
c. Presentation of noncurrent asset held for sale and discontinued operations
d. Effective interest method to compute amortized cost of debt instruments
 Page 16

67. On January 1, 2024, an SME acquired property consisting of ten identical freehold detached houses each with
separate legal title including the land on which it is built for P200,000,000, 20% of which is attributable to
the land. The units have a useful life of 50 years. The following costs are also incurred on such date:

• Nonrefundable transfer taxes not included in the purchase price 40,000,000

• Legal cost directly attributable to the acquisition 10,000,000
• Reimbursement to the previous owner for prepaying nonrefundable property taxes
for the six-month period ending June 30, 2024 5,000,000
On June 30, 2024, SME paid local property taxes of P5,000,000 for the year ending June 30, 2025. SME used
one of the ten units to accommodate the administration and maintenance staff. The other nine units were
rented out to independent parties under operating leases. On December 31, 2024, the fair value of each unit
was reliably estimated at P30,000,000. The fair value of the units can be measured reliably on an ongoing
basis without undue cost or effort.
I. The initial cost of the investment property is P225,000,000
II. The initial cost of the land is P50,000,000
III. The initial cost of the building is P200,000,000
IV. The gain from change in fair value of the investment property is P45,000,000
a. All statements are true
b. All statements are false
c. Only three statements are true
d. Only two statement is true.

68. An entity satisfies the definition of an SME and adopts for the first time IFRS for SMEs in preparing its
financial statements for the year ending December 31, 2024. Assuming a two-year comparative period, a
reconciliation of equity under the previous reporting framework to equity under IFRS for SMEs is made on

a. January 1, 2023 only.

b. January 1, 2023 and December 31, 2023.
c. January 1, 2024 and December 31, 2024.
d. December 31, 2023 only.

69. Under PFRS for Small Entities, lessees shall recognize leases using the

a. Operating lease model only

b. Finance lease model only
c. Operating lease model or finance lease model depending on some criteria
d. Leases are not discussed in PFRS for Small Entities

70. A small entity purchased shares with are actively traded in a market for P200,000, which includes transaction
cost of P20,000. At year-end, the shares were valued at P280,000. Under PFRS for Small Entities, at what
amount shall the small entity report the shares?

a. 280,000
b. 180,000
c. 200,000
d. 240,000

END