PRACTICAL ACCOUNTING 1

1. On January 1, 2012, Revenue Company sold specialized computers costing P760,000 to Income, Inc. for
P990,000. Revenue Companys trainers present numerous training sessions for Incomes employee during the
installation period. Income made a 50% down payment, with the balance due upon completion of installation.
How much revenue should Revenue Company recognize on its books on January 1, 2012?
a. P990,000 b. P760,000 c. P495,000 d. P-0-

2. SAMpple Company is an experienced home appliance dealer. SAMpple Company also offers a number of
services together with the home appliances that it sells (installation and maintenance). SAMpple Company sells
dishwashers on a standalone basis, it also sells installation and maintenance service or dishwashers.
Pricing for dishwashers is as follows:
Dishwasher only P16,000
Dishwasher with installation services 1,700
Dishwasher with maintenance services 1,950
Dishwasher with installation and
maintenance services 2,000
In cases where maintenance services are provided, the maintenance service is separately prices within the
arrangement at P350. Dishwashers are sold subject to a general right return. If a customer purchases a
dishwashers with installation and/or maintenance services, in the event SAMpple Company does not complete
the service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds P1,600.
On January 1, 2012, SAMpple Company sells 100 dishwashers to BB Complex, Inc. a developer of high-rise
condos. The dishwashers are installed and BB Complex Inc. purchases the dishwashers with the installation and
maintenance services. The total price for the 100 dishwashers is P190,000. How much revenue should SAMpple
Company allocate to the dishwashers?
a. P150,000 b. P152,000 c. P160,000 d. P190,000

3. Presented below are changes in all the account balances of Basic Company for 2012, except for accumulated
profits (losses):
Increase
(Decrease)
Cash P 790,000
Accounts receivable (net) 240,000
Inventory 1,270,000
Investments (470,000)
Accounts payable (380,000)
Bonds payable 820,000
Share capital 1,250,000
Share premium 130,000
What amount should net income for 2012 be, assuming that there were no entries in the accumulated profits
account except for net income and a dividend declaration of P190,000 which was paid in the current year?
a. P1,140,000 b. P1,080,000 c. P200,000 d. P10,000

4. Anne Publishing Co, publishes textbooks for colleges and universities. Bookstores purchase books with terms
f.o.b. shipping point and payment is due 60 days after shipment. The bookstore may return 40% of each order
(at the bookstores expense). Annes experience indicates that the normal return rate is 10% and the average
collection period is 72 days. Anne shipped and invoiced P300,000 of books during August 2012. The books were
recorded on Annes books for P120,000. What amount on net sales revenue will Anne record for the August
2012 sales?
a. P120,000 b. P180,000 c. P270,000 d. P300,000











5. On December 31, 2012, the cash account of The Voice Company shows the following composition: (M = million)

Petty cash fund P0.06M; Cash in bank (payroll fund) P4M; Travel fund P0.30M; Dividend and interest fund
P0.50M; Taxes (e.g., income tax, VAT, EWT, among others) fund P0.24M; Cash in bank (current) P6M;
Certificates of deposit (terms 90 days) P2M; Certificate of deposit (term 180 days) P3M; Cash in foreign bank
(restricted) P1M; Money market fund (60 days) P1M; Money market funds (6 months) P1.8M;
Customers check dated January 14, 2013 P0.12M; Customers check dated December 30, 2012 returned for
lack of funds P0.08M; A 30-day BSP treasury bill P2M; A 3-year BSP treasury bill acquired three months prior
to maturity date P2.4M; Bond sinking fund P1.6M; Preferred redemption fund

P0.8M; Contingent fund P0.6M; Insurance fund P0.40M; Fund for acquisition of a machine P1M; Travelers
checks P0.12M; Cashiers checks P0.20M; Savings deposit set aside for dividends payable on July 31, 2013
P1M; Pension fund P0.80M; Customers check outstanding for 18 months P0.10M; Savings deposit in closed
bank P0.10M.

What is the correct cash and cash equivalents balance to be reported by The Voice Company on December 31,
2012?
a. P19.820M b. P18.820M c. P16.420M d. P15.620M

6. The following information was included in the bank reconciliation for The Next, Inc., for June. Assume all other
reconciling items are listed:

Checks and charges recorded by bank in June (excluding a June service charge of P1,200) P687,200; Service
charge made by bank in May and recorded in the books in June P800; Total credits to Cash in all journals
during June P792,080; Customers check marked NSF returned as a bank charge in June (no entry made on
books) P4,000; Customers check marked NSF returned in May and re-deposited in June (no entry made on
books in either May or June) P10,000; Outstanding checks at June 30 P530,400; Deposits in transit at June 30
P24,000.

What was the total outstanding checks at the beginning of June?
a. P422,320 b. P426,320 c. P438,720 d. P638,480

7. On July 31, 2012, American Idol Company discounted at the bank, a customers P1.2 million, 6-month, 10%
notes receivable dated May 31, 2012. The bank discounted the note at 12%. How much net proceeds did
American Idol Company received from the discounted note?
a. P1,128,000 b. P1,152,000 c. P1,209,600 d. P1,234,800

8. During your review of the records of X Factor Corporation for the year 2012, you noted that X Factor sold a
machine with carrying amount of P640,000 (cost is P1.6M) on June 30, 2012. X Factor received an P800,000 non-
interest bearing note due in 3 years. There is no established market value for the machine. The yield rate for this
type of note is 12%. X Factor recorded the transaction by debiting Note receivable for P800,000 and crediting
Machinery for P640,000 and Gain on sale for the difference. Because of this, X Factors Profit for the year ended
December 31, 2014 had been overstated by
a. P230,576 b. P196,410 c. P81,125 d. P -0-

9. The trial balance of Revenge Company showed inventories of P164,000. The inventories include some goods
that have a production cost of P18,000. These goods have a manufacturing defect that will cost P6,000 to
correct. The normal selling price for these goods would be P25,000, but after the remedial work they will be sold
through an agent as refurbished goods at a discount of 20% on the normal selling price. The agent will receive a
commission of 10% of the reduced selling price. In relation to the defective goods, the company will recognize a
loss on inventory write down of
a. P-0- b. P1,000 c. P4,000 d. P6,000








10. The inventory on hand at December 31, 2012 for Arrow Company valued at cost of P947,800. The following
items were not included in this inventory amount:

a.) Purchased goods in transit, shipped FOB destination invoice price P32,000 which included freight charges of
P1,600.
b.) Goods held on consignment by Arrow Company at a sales price of P28,000, including sales commission of
20% of the sales price.
c,) Goods sold to Suits Company, under terms FOB destinations, invoiced for P18,500 which includes P1,000
freight charges to deliver the goods. Goods are in transit.
d.) Purchased goods in transit, terms FOB shipping point, invoice price P48,000, freight cost P3,000.
e.) Goods out on consignment to GG Company, sales price P36,400, shipping cost of P2,000

Assuming that the companys selling price is 140% of inventory cost, the adjusted cost of Arrow Companys
inventory at December 31, 2012 should be
a. P1,055,000 b. P1,039,500 c. P1,039,300 d. P1,037,300

11. On December 3, Oliver Company purchased inventory listed at P8,600 from Laurel Corp. Terms of the purchase
were 3/10, n/20. Oliver Company also purchased inventory from Tommy Company on December 10 for a list
price of P7,500. Terms of the purchase were 3/10, n/30. On December 16, Oliver paid both suppliers for these
purchases.

If Oliver uses the net method of recording purchases, the journal entry to record the payment on December 16
will include
a. A debit to Accounts payable of P15,875
b. A debit to Purchase Discounts Lost of P258
c. A credit to Purchase Discounts of P258
d. A credit to cash of P15,617

12. A physical inventory taken on December 31, 2012 resulted in an ending inventory of P1,440,000. Thea Company
suspects some inventory may have been taken by employees. To estimate the cost of missing inventory the
following were gathered:

Inventory, Dec. 31, 2012 P1,280,000
Purchased during 2012 5,640,000
Cash sales during 2012 1,400,000
Shipment received on December 26, 2012
included in physical inventory, but not
recorded as purchases 40,000
Deposits made with suppliers, entered as Purchases. Goods
were not received in2012 80,000
Collections on accounts receivable, 2012 7,200,000
Accounts receivable, January 1, 2012 1,000,000
Accounts receivable, Dec. 31, 2012 1,200,000
Gross profit percentage on sales 40%

At December 31, 2012 what is the estimated cost of missing inventory?
a. P160,000 b. P200,000 c. P240,000 d. P320,000








13. Diggle Company provided the following data:
Cost Retail
Beginning inventory P160,000 P400,000
Purchases 2,800,000 3,200,000
Freight in 40,000
Markup 300,000
Markup cancellation 30,000
Markdown 160,000
Markdown cancellation 40,000
Sales 3,000,000
Physical inventory at year end 500,000
Estimated normal shrinkage is 4% of sales
Assuming the company uses the average retail inventory method, the estimated inventory shortage is
a. P4,000 b. P104,000 c. P130,000 d. P200,000

14. The following information pertains to Booba Dairy Ltd. adjusted trial balance at 12/31/2012:
Dairy livestock immature P 52,060
Dairy livestock mature 372,990
Determine the amount to be presented under the non-current portion of the statement of financial position of
Booba Dairy for CY 2012.
a. P52,060 b. P372,990 c. P425,050 d. P -0-

15. The following pertains to Claudine Companys biological assets:

Price at the Makati market of bio-assets A P250,000
Price at the Davao market of bio-assets B 250,000
Total Price at the market of the bio-assets A & B 500,000

Selling price in a binding contract to sell bio-asset A P200,000
Selling price in a binding contract to sell bio-asset B 200,000
Total Selling Price in a binding contract to sell 400,000

Estimated commissions to brokers and dealers (total) 50,000
Estimated transport and other cost necessary
to get assets to Makati market 5,000
Estimated transport and other cost necessary
to get assets to Davao market 20,000
Average estimated transport and other cost necessary
to get assets to any market in the country (bio-asset A & B) 30,000

Determine the fair value of the entitys biological assets
a. P475,000 b. P470,000 c. P425,000 d. P420,000

16. Covenant Co. purchased land as a factory site for P1,000,000. Covenant paid P40,000 to tear down two buildings
on the land. Salvage was sold for P5,400. Legal fees of P3,480 were paid for the title investigation and making
the purchases. Income of P8,000 was earned through using the land as a car park before construction started.
Architects fees were P41,200. Title insurance cost P2,600. Excavation cost P10,440. The contractor was paid
P2,400,000. An assessment made by the city for pavement was P6,400. Interest costs during construction were
P170,000. Liability insurance cost during construction amounted to P2,600. The cost of the building that should
be recorded by Covenant Co. is
a. P2,624,240 b. P2,616,240 c. P2,622,640 d. P2,630,640










17. Leonicus Corp. has recently acquired a computer system for its central office in Cebu City. Determine the
acquisition cost of the new computer system given the following costs:
List price P152,000
Trade discount taken 56,000
Removal of old computer 16,000
Concrete slab poured as a base for the computer 43,200
Insurance in transit 1,920
Repairs incurred while in transit 4,800
Transportation costs 6,400
Purchase discount not taken 2%
a. P145,600 b. P160,800 c. P161,600 d. P166,400

18. Aries Company started construction on a building on January 1 of this year and completed construction on
December 31 of the same year. Aries had only two interest notes outstanding during the year, and both of these
notes were outstanding for all 12 months of the year. The following information is available:

Average accumulated expenditures P250,000
Ending balance in construction in progress
before capitalization of interest 360,000
6% note incurred specifically for the project (all disbursed on Jan. 1) 150,000
9% long-term note 500,000

What amount of interest should Aries capitalize for the current year?
a. P15,000 b. P18,000 c. P22,500 d. P27,900

19. On July 1, 2012, Piscor Corporation purchased factory equipment for P450,000. Residual value was estimated to
be P12,000. The equipment will be depreciated over ten years using the double-declining balance method.
Counting the year of acquisition as one-half year, Piscor should report depreciation expense for 2013 on this
equipment of:
a. P90,000 b. P81,000 c. P78,840 d. P72,000



20. Libras Corporation purchased a machine on July 1, 2009, for P500,000. The machine was estimated to have a
useful life of 10 years with an estimated residual value of P28,000. During 2012, it became apparent that the
machine would become uneconomical after December 31, 2016 and that the machine would have no scrap
value. What should be the charge for depreciation in 2012?
a. P70,800 b. P76,400 c. P82,000 d. P95,500

21. Scorpius Corporation, which has a calendar year accounting period, purchased a new machine for P80,000 on
April 1, 2007. At that time Scorpius expected to use the machine for nine years and then sell it for P8,000. The
machine was sold for P44,000 on September 30, 2012. Assuming straight-line depreciation, no depreciation in
the year of acquisition, and a full year of depreciation in the year of retirement, the gain to be recognized at the
time of sale would be
a. P8,000 b. P6,000 c. P4,000 d. P-0-

22. Aquator Motor Sales exchanged a car from its inventory for a computer to be used as a noncurrent operating
asset. The following information relates to this exchange that took place on July 31, 2012:

Carrying amount of the car P30,000
Listed selling price of the car 45,000
Fair value of the computer 43,000
Cash difference paid by Aquator 5,000

On July 31, 2012, how much profit should Aquator recognize on this exchange?
a. P13,000 b. P10,000 c. P8,000 d. P-0-







23. On July 1, 2011, Taurotron Company purchased a coal mine for P2 million. The estimated capacity of the mine
was 700,000 tons. During 2011, the company mines 10,000 tons of coal per month and sells 9,000 tons per
month. The selling price is P30 per ton and production cost (excluding depletion and depreciation) are P8 per
ton. At the end of the mines life it is expected that it will cost P200,000 to restore the land, after which it can be
sold for P100,000. The company also purchased some temporary housing for the miners at a cost of P150,000.
The housing has an expected life of 10 years but is expected to be sold for P10,000 at the end of the mines life.

In January 2012, a new estimate indicated that the capacity of the mine was only 500,000 tons at that time. The
company mines and sells 10,000 tons per month in 2012.

Assuming the company uses the FIFO cost flow assumption, compute the companys expenses included on the
2012 statement of comprehensive income.
a. P1,451,520 b. P1,446,480 c. P1,397,960 d. P1,344,000

24. On January 2, 2011, Cancix Corporation purchased land with valuable natural ore deposits for P10 million. The
estimated residual value of the land was P2 million. At the time of purchase, a geological survey estimated 2
million tons of removable ore were under the ground. Early in 2011, roads were constructed on the land to aid
in the extraction and transportation of the mined ore at a cost of P750,000. In 2008, 50,000 tons were mined. In
2012, Cancix fired its mining engineer and hired a new expert. A new survey made at the end of 2012 estimated
3 million tons of ore was available for mining. In 2012, 150,000 tons were mined. All the ore mined was sold.

Compute the amount of depletion for 2012.
a. P372,000 b. P433,500 c. P426,000 d. P406,500

25. Sta. LU Company borrowed P400,000 on a 10 % note payable to finance a new building that is to be constructed
for use as an investment property to be accounted under fair value model. The only other debt on Tortas books
is a P600,000, 12 % mortgage payable on an office building. At the end of the current year average accumulated
expenditures in the new warehouse totaled P475,000.

Torta Company should capitalize interest for the current year in the amount of:
a. P15,000 b. P18,000 c. P22,500 d. P-0-

26. The Rachelle Company purchased an investment property on January 1, 2009 for a cost of P220,000. The
property had a useful life of 40 years and at December 31, 2011 had a fair value of P300,000. On January 1, 2012
the property was sold for net proceeds of P290,000. Rachelle uses the fair value model to account for
investment properties.

What is the gain or loss to be recognized in the profit or loss for the year ended December 31, 2012 regarding
the disposal of the property?
a. P86,500 gain b. P81,000 gain c. P10,000 loss d. P92,000 gain

27. An entity acquired a piece of equipment for P7,500,000 on January 1, 2006. The entity depreciated the asset on
a straight-line basis over its useful life of 10 years. On December 31, 2007, the entity identifies an impairment
indicator, and the entity recognizes impairment in accordance with PAS 36 Impairment of Assets of P240,000.
On February 28, 2009, when the carrying amount of the equipment is P4,920,000, the machine meets the
criteria to be classified as held for sale. The entity estimates the recoverable amount of the asset immediately
before the initial classification as held for sale to be P4,600,000. On June 30, 2009, when the asset is still held for
sale, fair value less cost to sell increases to P5,300,000.

How much is the gain on reversal of impairment loss?
a. P700,000 b. P525,000 c. P380,000 d. P -0-

28. Autobots Bottling purchased for P800,000 a trademark for a very successful soft drink it markets under the
name OK!, The trademark was determined to have an indefinite life. A competitor recently introduced a product
that is in direct competition with the OK!, thus suggesting the need for an impairment test. Data gathered by
Autobots suggests that the useful life of trademark is still indefinite, but the cash flows expected to be
generated by the trademark have been reduced either to P30,000 per year (with a probability of 80%) or to
P60,000 per year (with 20% probability). The appropriate risk-free interest rate is 10%. The appropriate risk-
adjusted interest rate is 5%. The loss on impairment of trademark is

a. P440,000 b. P320,000 c. P200,000 d. P80,000


29. Camille Corporation incurred the following costs in 2012:

Acquisition of R&D equipment with a useful life of 4 years in R&D projects P600,000
Start-up costs incurred when opening a new plant 140,000
Advertising expense to introduce a new product 700,000
Engineering costs incurred to advance a product to full production stage 400,000
(economic viability not achieved)

What amount should Camille record as research & development expense in 2012?
a. P550,000 b. P740,000 c. P1,000,000 d. P1,140,000

30. Sam Company sold a tract of land to Witwicky Co. on July 1, 2012 for P8,000,000 under an installment sale
contract. Witwicky Co. signed a 4-year 11% note for P5,600,000 July 1, 2012, in addition to the down payment of
P2,400,000. The equal payments of principal and interest on the note will ben P1,805,000 payable on July 1,
2013, 2014, 2015, and 2016. The land had an established cash price of P8,000,000, and its cost to the company
was P6,000,000. The collection of the installments on this note is reasonably assured. The noncurrent portion of
the installment note receivable on December 31, 2013 is
a. P4,411,000 b. P3,091,210 c. P1,319,790 d. P1,189,000

31. On January 1, 2012, Mikaela Company sold a special machine that had a list price of P39,995. The purchaser paid
P9,995 cash and signed a P30,000 note. The note specified that it would be paid off in three equal annual
payments of P13,798 each (starting on December 31, 2012). The carrying amount of the receivable on
December 31, 2012 is
a. P27,596 b. P26,197 c. P21,602 d. P16,202

32. An entity plans to dispose of a group of its assets (as an asset sale). The assets form a disposal group, and are
measured as follows:
Carrying amount
before reclassification
as held for sale
Carrying amount as re-
measured immediately
before reclassification
as held for sale
Goodwill P 1,500,000 P 1,500,000
PPE (carried at revalued amount) 4,600,000 4,000,000
PPE (carried at cost) 5,700,000 5,700,000
Inventory 2,400,000 2,200,000
Investment in equity securities 1,800,000 1,500,000
Total P16,000,000 P14,900,000
The entity measures the fair value less costs to sell of the disposal group as P13,000,000.

Determine the carrying amount of the PPE (carried at revalued amount) after classifying the group as held for
sale. (Round off amounts in nearest peso)
a. P3,835,052 b. P3,880,597 c. P4,124,138 d. P --0--

33. On July 1, 2008, Botchok Corporation acquired 25% of the shares of Jacq, Inc. for P 1,000,000. At that date, the
equity of Jacq was P 4,000,000, with all the identifiable assets and liabilities being measured at amounts equal
to fair value. The table below shows the profits and losses made by Jacq during 2008 to 2012:
2008 P200,000
2009 (P2,000,000)
2010 (P2,500,000)
2011 P160,000
2012 P300,000
Determine the total income from the investment in Jacq, Inc. as of December 31, 2012?
a. P40,000 b. P15,000 c. P75,000 d. P --0--










Use the following information for the next two questions.

On January 1, 2012, Sisterakas Corporation purchased P4,000,000 10% bonds for P3,711,520. Sisterakas plans to
hold the investment in bonds to maturity. However, if the market interest rates fall sufficiently, Sisterakas will
consider selling the investment in bonds to realize associated gain. The bonds were purchased to yield 12%.
Interest is payable annually every December 31. The bond mature on December 31, 2016. On December 31,
2012 the bonds were selling at 99. On December 31, 2013, Sisterakas sold P2,000,000 face value bonds at 101,
which is the fair value of the bonds on the date, plus accrued interest.

34. Under PAS 39, the unrealized gain to be recognized as component of equity on 12/31/2012 is
a. P203,098 b. P248,480 c. P152,270 d. P -0-

35. Under PAS 39, the gain on sale of the bonds on 12/31/2013 is
a. P217,684 b. P141,549 c. P116,135 d. P14,586

Use the following information for the next two questions.

On March 1, 2012, Ponytail Corporation purchased 8% P30,000,000 bonds of Totoy Company when the market
interest in purchasing this type of bonds was 11% without incurring any cost. The bonds pay interest annually
every December 31 and mature on December 2016. As one of the few entities who early adopted the revised
standard for financial instruments, the company opted not to use the fair value option for debt instruments
under PFRS 9 after meeting the requirements in measuring the financial asset at amortized cost. Transaction
costs incurred by Ponytail Corporation amounted to P1,024,904. The market rate at December 31, 2012 for this
type of instrument was 9%.

36. Determine the amount of amortized of transaction costs recognized in 2012s statement of comprehensive
income.
a. P134,628 b. P161,554 c. P890,276 d. P2,792,204

37. Assuming the fair value option was used at initial recognition of the financial instrument, how much is the net
increase in comprehensive income in 2012?
a. P2,795,346 b. P3,863,646 c. P3,329,496 d. P3,240,471

Use the following information for the next two questions.

On December 31, 2015, Detty Inc. acquired Bernice Corporations P1,000,000 bonds for P927,880. The market
interest rate at that time was 12%. The stated interest rate was 10% payable annually. The bonds mature in five
years and met the requisites of being classified as financial asset measured at amortized cost under PFRS 9.
Unfortunately, because of lower sales, Bernices financial condition worsened. On December 31, 2017 Detty Inc.
determined that it was probable that the issuer would pay back only P600,000 of the principal at maturity.

In 2018, Ms. Bernices officers consulted a feng shui expert to seek pieces of advice of advice to improve the
companys financial condition. Fortunately, the companys sales started to pick up and the credit rating of
Bernice improved. At December 31, 2018, Detty Inc. reassessed the collectability of the bonds and now expects
to collect P1,300,000 from Bernice at maturity.

38. Under PFRS 9, how much should be recognized as impairment loss on 2017?
a. P572,920 b. P524,900 c. P332,740 d. P284,720

39. Under PFRS 9, how much should be recognized as interest income in 2018?
a. P51,250 b. P100,000 c. P114,232 d. P115,940

40. Crazy Company has recognized a provision for lawsuit at P400,000 in its statement of financial position at
December 31, 2011. At December 31, 2012, the risk adjusted present value of the best estimate of the amount
required to settle the lawsuit is P900,000 but portion of the increase during 2012 included a 7% that is
attributable to the unwinding of the discount and the remainder of the increase is attributed to better
information becoming available on which to base the estimates. In the statement of comprehensive income for
the year ended December 31, 2012, what amount of loss from the lawsuit Crazy Company must disclosed?
a. P--0-- b. P28,000 c. P472,000 d. P500,000




41. Happy company has the following information related to its warranty obligation:

In year 2012, goods are sold for P10,000,000. Experience indicates that 90% of the products sold require no
warranty repairs; 6% of products sold require minor repairs costing 30% of the sales price; and 4% of products
sold require major repairs or replacement costing 70% of sales price. The expenditures for warranty repairs and
replacements for products sold in 2010 are expected to be made 60% in 2013, 30% in 2014 and 10% in 2015, in
each case at the end of the period. Because the cash flows already reflect the probabilities of the cash flows,
and assuming there are no other risks or uncertainties that must be reflected, to determine the present values
of those cash flows the entity uses a risk free discount rate based on government bonds with the same term
as expected cash flows (6% for one-year bonds and 7% for two-year and three-year bonds). What amount of
provision on warranty should Happy Company report in its statement of financial position for the year ended
December 31, 2012?
a. P418,457 b. P380,907 c. P260,378 d. P120,529

42. Purity Company owes P1,998,000 to Sanctity, Inc. The debt is a 10-year, 11% note. Because Purity Company is
in financial trouble, Sanctity, Inc. agrees to accept some property and cancel the entire debt. The property has a
book value of P800,000 and fair market value of 1,200,000. What amount of gain or loss on the settlement of
the liability should Purity Company recognize?
a. P--0-- b. P400,000 c. P798,000 d. P1,198,000

43. Wonder Company is experiencing financial difficulty and is negotiating trouble debt restructuring with its
creditors to relieve its financial stress. Wonder has a P3,000,000 note payable to Megabank. The bank is
considering acceptance of an equity interest in Wonder Company in the form of 200,000 ordinary shares with a
fair value of P12 per share. The par value of the ordinary share is P10 per share. Wonder Company incurred
total transaction costs of P80,000 related to the issue of shares. What is the amount of share premium to be
reported by Wonder in its statement of financial position as a result of the restructuring applying IFRIC 19?
a. P320,000 b. P400,000 c. P920,000 d. P1,000,000

44. Home Company reported the following amounts in the stockholders equity section of its balance sheet dated
December 31, 2011:
Preference share capital (P150 par value, 20,000 shares) 3,000,000
Ordinary share capital (P37.50 par value, 100,000 shares) 3,750,000
Share premium reserve 6,000,000
Accumulated profits 4,500,000
Treasury stock, at cost (5,000 ordinary shares) 250,000
On January 2, 2012, Home sold 20,000 additional shares of ordinary share for P90 per share. Late in 2012, it was
learned that because of mathematical error, an overstatement of depreciation expense by P375,000 had
occurred in 2005. Home reported net income of P825,000 for 2012. Home declared cash dividends of P150,000
on preference share and P450,000 on the ordinary share during 2012. All the treasury shares were re-issued for
P35 per share on December 31, 2012.

What should be the accumulated profits balance on December 31, 2011?
a. P4,500,000 b. P4,905,000 c. P4,875,000 d. P5,025,000

45. Antonia Company grants 150 share options to each of its 500 employees on January 2, 2010, and exercisable
starting December 31, 2012 for a 2-year period. Each grant is conditional upon the employee working for the
entity over the next three years. Antonia estimates that the fair value of each option is P40. On the basis of
weighted average probability, the entity estimates that 20% of the employees will leave during the three-year
period and forfeit their rights to the share options. During the year 2010, 20 employees leave and Antonia
Company still believes that 20% is a fair estimate of employee departures. During 2011 a further 22 employees
leave. Due to the low turn-over as if December 31, 2011, Antonia revises its estimates of employee departures
over the three-year period from 20% to 15%. During 2012, a further 18 employees leave. What is the
compensation expense to be recognized by Antonia Company for the share options in 2012?
a. P800,000 b. P900,000 c. P940,000 d. P1,700,000









46. The Miracle Company leased some plant and machinery for 10 years, its useful life, with effect from January 1,
2012. At that date the fair value of the plant and machinery was P490,000. Annual rentals of P70,000 are
payable in advance on 1 January and the interest rate implicit in the lease is 9%. What is the total lease liability
which Miracle should recognize in its statement of financial position at December 31, 2012, according to PAS 17
Leases?
a. P--0-- b. P70,000 c. P457,800 d. P464,100

47. The JP Inc. operations resulted to regular corporate income tax (RCIT) amounting to P25,000, with the minimum
corporate income tax (MCIT) computed at P100,000. It is the first time that JP will be paying MCIT after
operating for 7 years. The RCIT rate is 30% while MCIT rate is 2%. If JP expects that the company will be liable to
MCIT next year, deferred tax asset to be recognized on the balance sheet for the year will be
a. P75,000 b. P30,000 c. P22,500 d. P--0--

48. The memorandum records of Revised Inc. for its defined benefit plan show the following balances:
Plan asset, January 1, 2014 P5,000,000
Defined benefit obligation, January 1, 2014 5,200,000
2014 information:
Current service cost 750,000
Market yields on government bonds at year - end 10%
Contributions made 1,800,000
Benefits paid 480,000
Past service cost as a result of plan amendment 2,300,000
Plan asset, at fair value, December 31, 2014 8,000,000
Defined benefit obligation, re-measured, December 31, 2014 8,350,000
The fair value of Plan asset at year end includes the unpaid contributions due from the Revised Inc. to the fund,
as well as the non-transferable FVPL issued by the Revised Inc. and held by the fund amounting to P700,000 and
P300,000, respectively. Determine the amount recognized in profit or loss in accordance with revised PAS 19
Employee Benefits.
a. P3,050,000 b. P3,070,000 c. P3,570,000 d. P2,300,000

49. The shareholders equity of Joyful Corporation on December 31, 2012 shows the following account balances:

10% Preference share, 5,000 shares, P100 par P500,000
12% Preference share, 6,000 shares, P100 par 600,000
Ordinary share, 10,000 shares, P40 par 400,000
Share premium 320,000
Accumulated profits 480,000

The 10% preference share is cumulative and fully participating, while the 12% preference share is non-
cumulative and fully participating. The last payment of dividends was on December 31, 2010.

What is the book value per share of ordinary shares?
a. P44.00 b. P59.68 c. P60.27 d. P102.80

50. On December 31, 2011, Raven Company has 200,000 ordinary shares outstanding with a par value of P100 per
share. Information revealed that Raven had an 9% convertible debenture, P1,000,000 face value bonds. The
bond has a carrying value of P1,067,830 as of January 2, 2011 based on a prevailing rate of 7%. Each 1,000 bond
is convertible into 20 ordinary shares. The bonds were dated January 1, 2011. Net income after tax of 32% for
2011 was P418,000.

How much should Raven Company report as earnings per share in its financial statements?
a. P1.90 b. P2.09 c. P2.13 d. P2.89