Far 1
Far 1
Far 1
An entity reported the checkbook balance on December 31, 2015 at P8,000,000. In addition, the
entity held the following items in the safe on that date:
Check payable to the entity, dated January 2, 2016 in payment of a sale,
not included in December 31 check book balance 1,000,000
Check payable to the entity, deposited December 15 and included in
December 31 checkbook balance, but returned by bank on
December 30 stamped “NSF”. The check was redeposited on
January 2, 2016 and cleared on January 5, 2016 3,000,000
Check drawn on the entity’s account, dated and recorded on
December 31, 2015 but not mailed until January 15, 2016 2,500,000
Coins and currencies on hand 800,000
Three-month money market instruments 1,500,000
What is the correct amount of “cash” on December 31, 2015?
a. 7,500,000
b. 9,300,000
c. 8,300,000
d. 9,800,000
Page 3
An entity reported current receivables on December 31, 2015 which consisted of the following:
Trade accounts receivable 930,000
Allowance for uncollectible accounts 20,000
Claim against shipper for goods lost in transit in November 2015 30,000
Selling price of unsold goods sent by the entity on consignment at 130% of
cost and not included in the ending inventory 260,000
Security deposit on lease of warehouse used for storing inventories 300,000
What is the correct total of current net receivables on December 31, 2015?
a. 1,500,000
b. 1,200,000
c. 1,240,000
d. 940,000
On December 31, 2015, an entity received two P2,000,000 notes receivable from customers. On
both notes, interest is calculated on the outstanding principal balance at the annual rate of 3% and
payable at maturity. The first note, made under customary trade terms, is due in nine months and the
second note is due in five years. The market interest rate for similar notes on December 31, 2015
was 8%. The PV of 1 at 8% due in nine months is .944, and the PV of 1 at 8% due in 5 years is .68.
On December 31, 2015, what total carrying amount should be reported for the two notes receivable?
a. 3,248,000
b. 3,494,400
c. 3,360,000
d. 3,564,000
Page 4
A bank granted a 10-year loan to a borrower in the amount of P1,500,000 with stated interest rate
of 6%. Payments are due monthly and are computed to be P16,650. The bank incurred P40,000 of
direct loan origination cost and f,000 of indirect loan origination cost. In addition, the bank
charged the borrower a 4-point nonrefundable loan origination fee. What is the carrying amount
of the loan receivable to be reported initially by the bank?
a. 1,440,000
b. 1,480,000
c. 1,500,000
d. 1,520,000
An entity reported inventory on December 31, 2015 at P6,000,000 based on a physical count at
cost and before any necessary year-end adjustments relating to the following:
Included in the physical count were goods billed to a customer FOB shipping point on
December 30, 2015. These goods had a cost of P125,000 and were picked up by the carrier on
January 7, 2016.
Goods shipped FOB shipping point on December 28, 2015 from a vendor to the entity were
received on January 4, 2016. The invoice cost was P300,000.
What amount should be reported as inventory on December 31, 2015?
a. 5,875,000
b. 6,000,000
c. 6,175,000
d. 6,300,000
An entity reported accounts payable on December 31, 2015 at P4,500,000 before any necessary
year-end adjustments relating to the following transactions:
On December 27, 2015, the entity wrote and recorded checks to creditors totaling P2,000,000
causing an overdraf of P500,000 in the entity’s bank account on December 31, 2015. The
checks were mailed on January 10, 2016.
On December 28, 2015, the entity purchased and received goods for P750,000, terms 2/10,
n/30. The entity recorded purchases and accounts payable at net amount. The invoice was
recorded and paid January 3, 2016.
Goods shipped FOB destination on December 20, 2015 from a vendor to the entity were
received January 2, 2016, The invoice cost was P325,000.
On December 31, 2015, what amount should be reported as accounts payable?
a. 7,575,000
b. 7,250,000
c. 7,235,000
d. 7,553,500
Page 5
Problem 13 (Retail inventory method)
On December 31, 2015, an entity provided the following information:
Cost Retail
Inventory, January 1 735,000 1,015,000
Purchases 4,165,000 5,775,000
Additional markup 210,000
Sales for the year totaled P5,500,000. Markdown amounted to P100,000. Under the approximate
lower of average cost or NRV retail method, what is the inventory on December 31, 2015?
a. 1,050,000
b. 1,400,000
c. 994,000
d. 980,000
Problem 16 (Machinery)
On September 1, 2015, an entity purchased a new machine on a deferred payment basis. A down
payment of P200,000 was made and 4 annual installments of P600,000 each are to be made beginning
on September 1, 2016. The cash equivalent price of the machine was P2,300,000. Due to an employee
strike, the entity could not install the machine immediately and thus incurred P30,000 of storage cost.
Cost of installation excluding the storage cost amounted to P80,000. What is the total cost of the
machine?
a. 2,300,000
b. 2,380,000
c. 2,410,000
d. 2,600,000
Page 6
During 2015, an entity constructed an asset costing P10,000,000. The weighted average
accumulated expenditures on the asset during the year totaled P6,000,000. To help pay for
construction, P4,400,000 was borrowed at 10% on January 1, 2015, and 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, 2012. What is the amount of
interest that should be capitalized during 2015?
a. 600,000
b. 300,000
c. 494,000
d. 944,000
Problem 18 (Depletion)
In 2015, an entity purchased property with natural resources for P28,000,000. The property had a
residual value of P5,000,000. However, the entity is required to restore the property to the original
condition at a discounted amount of P2,000,000. In 2015, the entity spent P1,000,000 in
development cost and P3,000,000 in building. In 2016, an amount of P4,000,000 was spent for
additional development on the mine. Production began in 2016 and the tons extracted totaled
3,000,000 in 2016 and 2,500,000 in 2017. The remaining tons totaled 7,000,000 and 3,500,000,
respectively on December 31, 2016 and December 31, 2017. What amount of depletion should
recognized in 2017?
a. 10,500,000
b. 12,250,000
c. 9,000,000
d. 8,750,000
Problem 19 (Revaluation)
During the current year, an entity incurred the following costs to develop and produce a routine,
low-risk computer software product:
Completion of detailed program design or working model 1,300,000
Cost incurred for coding and testing to establish technological feasibility 1,000,000
Other coding costs after establishment of technological feasibility 2,400,000
Other testing costs after establishment of technological feasibility 2,000,000
Costs of producing product masters for training materials 1,500,000
Duplication of computer software and training materials from product master 2,500,000
Packaging product 900,000
What amount should be capitalized initially as software cost?
a. 5,400,000
b. 3,700,000
c. 5,900,000
d. 6,900,000
An entity, a major winery, begins construction of a new facility in Mindanao. The following costs
are incurred in conjunction with the start-up activities of the new facility:
Production equipment 8,150,000
Travel costs of salaried employees 400,000
License fees 140,000
Training of local employees for production and maintenance operations 1,200,000
Advertising costs 850,000
What amount of start up costs should be expensed?
a. 9,750,000
b. 1,600,000
c. 1,390,000
d. 0
On January 1, 2013, an entity purchased patent at a cost of P1,920,000 at which date the
remaining legal life was 16 years. On January 1, 2015, the useful life of the patent was determined
to be only 8 years from the date of acquisition. On January 1, 2015, the entity paid P800,000, of
which three-fourths was for a trademark, and one-fourth was for the other entity’s agreement not
to compete for a 5-year period in the line of business covered by the trademark. The entity
considered the life of the trademark indefinite. Moreover, the entity agreed to pay P50,000 to the
other entity as consulting fee each year for 5 years payable every January 1. What is the
amortization of intangible assets for 2015?
a. 320,000
b. 280,000
c. 250,000
d. 370,000
Page 8
Problem 23 (Goodwill)
On December 31, 2015, an entity purchased for P40,000,000 cash all of the outstanding ordinary
shares of another entity when the subsidiary’s statement of financial position showed net assets of
P32,000,000. The subsidiary’s assets and liabilities had fair value different from the carrying
amount as follows:
Carrying amount Fair value
Property, plant and equipment, net 50,000,000 57,500,000
Other assets 5,000,000 0
Long-term debt 30,000,000 28,000,000
What amount should be reported as goodwill in the December 31, 2015 consolidated statement of
financial position of the acquirer and its wholly-owned subsidiary?
a. 3,500,000
b. 2,500,000
c. 7,500,000
d. 8,000,000
On January 1, 2015, an entity purchased nontrading equity securities which are irrevocably
designated at fair value through other comprehensive income:
Purchase price Transaction cost Market – 12/31/2015
Security A 1,000,000 100,000 1,500,000
Security B 2,000,000 200,000 2,400,000
Security C 4,000,000 400,000 4,700,000
On July 1, 2016, the entity sold Security C for P5,200,000. What amount should be credited to
retained earnings as a result of the sale of the investment in 2016?
a. 800,000
b. 500,000
c. 300,000
d. 0
An entity frequently borrowed from the bank in order to maintain sufficient operating cash. The
following loans were at a 12% interest rate with interest payable at maturity. The entity repaid each
loan on scheduled maturity date.
Date of loan Amount Maturity date Term of loan
November 1, 2014 500,000 October 31, 2015 1 year
February 1, 2015 1,500,000 July 31, 2015 6 months
May 1, 2015 800,000 January 31, 2016 9 months
The entity recorded interest expense when the loans are repaid. As a result, interest expense of
P150,000 was recorded in 2015. If no correction is made, by what amount would interest expense
be understated for 2015?
a. 54,000
b. 62,000
c. 64,000
d. 72,000
Page 9
An entity has 35 employees who work 8-hour days and are paid hourly. On January 1, 2013, the
entity began a program of granting the employees 10 days of paid vacation each year. Vacation days
earned in 2013 may first be taken on January 1, 2014.
Hourly Vacation Days Earned Vacation Days Used
Year Wages by Each Employee by Each Employee
2013 25.80 10 0
2014 27.00 10 8
2015 28.50 10 10
The entity has chosen to accrue the liability for compensated absences at the current rate of pay in
effect when the compensated time is earned. What is the accrued liability for compensated absences
on December 31, 2015?
a. 94,920
b. 90,720
c. 79,800
d. 95,760
An entity leased equipment for the entire nine-year useful life, agreeing to pay P1,000,000 at the
start of the lease term on January 1, 2015, and P1,000,000 annually on each January 1 for the next
eight years. The present value on January 1, 2015 of the nine lease payments over the lease term
using the rate implicit in the lease which the lessor knows to be 10% was P6,330,000. The January
1, 2015 present value of the lease payments using the incremental borrowing rate of 12% was
P5,970,000. The entity made a timely second lease payment. What amount should be reported as
finance lease liability on December 31, 2016?
a. 5,330,000
b. 4,863,000
c. 4,970,000
d. 4,467,000
An entity leased equipment to an unrelated party on July 1, 2015 for an eight-year period expiring
June 30, 2023. Equal payments under the lease are P600,000 and are due on July 1 of each year. The
first payment was made on July 1, 2015. The implicit rate of interest contemplated is 10%. The cash
selling price of the equipment is P3,500,000 and the carrying amount is P2,800,000. The lease is
appropriately recorded as a sales type lease. What total amount of income should be recorded for
the year ended December 31, 2015?
a. 700,000
b. 525,000
c. 990,000
d. 845,000
Page 10
On January 1, 2015, an entity sold a machine for P5,000,000. The fair value of the machine was
P6,500,000 on the date of sale. The machine had a carrying amount of P7,000,000 and remaining
life of 15 years. The entity immediately leased back the machine for 5 years at an annual rental that
was determined to be sufficiently lower than the market rent. What total amount of loss should be
recognized immediately in 2015?
a. 400,000
b. 800,000
c. 500,000
d. 0
Page 11
An entity grants all employees two weeks of paid vacation for each full year of employment.
Unused vacation time can be accumulated and carried forward to succeeding years and will be paid
at the salaries in effect when vacations are taken or when employment is terminated. There was no
employee turnover in 2015. Additional information relating to the year ended December 31, 2015 is
as follows:
Liability for accumulated vacations on January 1, 2015 350,000
Pre-2015 accrued vacations taken from January 1, 2015 to September 30, 2015
(the authorized period for vacations) 200,000
Vacations earned for work in 2015 adjusted to current rate 300,000
The entity granted a 10% salary increase to all employees on October 1, 2015, the annual salary
increase date. What amount should be reported as vacation pay expense for 2015?
a. 450,000
b. 335,000
c. 315,000
d. 300,000
An entity is committed to close a factory in 10 months and shall terminate the employment of all the
remaining employees of the factory. Under the termination plan, an employee leaving before
closure of factory shall receive on termination date a cash payment of P20,000. However, an
employee that renders service until closure of the factory shall receive P60,000. There are 120
employees at the factory. The entity expects 20 employees to leave before closure and 100
employees to render service until closure. What amount should be recognized as termination
benefit?
a. 2,400,000
b. 6,400,000
c. 2,000,000
d. 4,000,000
An entity reported P9,000,000 income before provision for income tax. The following data are
provided for the current year:
Rent received in advance 1,600,000
Income from exempt municipal bonds 2,000,000
Depreciation deduction for income tax purposes in excess of depreciation
reported for financial reporting purposes 1,000,000
Tax payment during the current year 500,000
Income tax rate 30%
What amount of current income tax liability should be reported at year-end?
a. 1,780,000
b. 2,280,000
c. 2,580,000
d. 2,880,000
Page 12
An entity has outstanding a 7%, ten-year P100,000 facevalue bond. The bonds was originally sold
to yield 6% annual interest. The entity uses the effective interest method to amortize bond premium
and does not elect the fair value option for reporting financial liabilities. On June 30, 2015, the
carrying amount of the outstanding bond was P105,000. What amount of unamortized premium on
bond should be reported on June 30, 2016?
a. 1,050
b. 3,950
c. 4,300
d. 4,500
On January 1, 2015, an entity granted to employees 10,000 share options. On January 1, 2016, the
entity granted to employees an additional 20,000 share options.
Date Fair value of share
January 1, 2015 20
December 31, 2015 22
January 1, 2016 25
December 31, 2016 30
The shares vest at the end of a four-year period. There are no forfeitures. What amount should be
recorded as compensation expense for 2016?
a. 175,000
b. 205,000
c. 225,000
d. 500,000
An entity provided the following data for the year ended December 31, 2015:
Retained earnings unappropriated, January 1 200,000
Overdepreciation of 2014 due to prior period error 100,000
Net income for 2015 1,300,000
R Retained earnings appropriated for treasury shares (original balance is P500,000
but reduced by P200,000 by reason of reissuance of the treasury shares) 300,000
Retained earnings appropriated for contingencies (beginning balance P700,000.
but increased by current appropriation of P100,000) 800,000
Cash dividends paid to shareholders 500,000
Change in accounting policy from FIFO to average – credit adjustment 150,000
What is the balance of unappropriated retained earnings on December 31, 2015?
a. 1,150,000
b. 1,350,000
c. 1,950,000
d. 1,750,000
Page 13
An entity had the following beginning and ending balances in prepaid expenses and accrued
liabilities for the current year:
Prepaid expenses Accrued liabilities
Beginning balance 5,000 8,000
Ending balance 10,000 20,000
Debits to operating expenses totaled P100,000. What amount was paid for operating expenses
during the current year?
a. 83,000
b. 93,000
c. 107,000
d. 117,000
An entity disclosed supplemental information on the effects of changing prices. The entity
computed the increase in current cost of inventory as follows:
Increase in current cost (nominal peso) 1,500,000
Increase in current cost (constant peso) 1,200,000
What amount should be disclosed as the inflation component of the increase in current cost?
a. 2,700,000
b. 1,500,000
c. 1,200,000
d. 300,000
Page 14
An entity acquired rights to a patent under a licensing agreement that required an advance royalty
payment when the agreement was signed. The entity remitted royalties earned and due under the
agreement on October 31 each year. Additionally, on the same date, the entity paid, in advance,
estimated royalties for the next year. The entity adjusted prepaid royalties at year-end. The entity
provided the following information for the year ended December 31, 2015:
January 1 Prepaid royalties 650,000
October 31 Royalty payment charged to royalty expense 1,100,000
December 31 Year-end credit adjustment to expense 250,000
On December 31, 2015, what amount should be reported as prepaid royalties?
a. 250,000
b. 400,000
c. 850,000
d. 900,000
An entity had a balance of P820,000 in the professional fees expense account on December 31,
2015, before considering year-end adjustments relating to the following:
Consultants were hired for a special project at a total fee not to exceed P650,000. The entity had
recorded P550,000 of this fee based on billings for work performed in 2015.
The attorney’s letter requested by the auditors dated January 31, 2016, indicated that legal fees
of P60,000 were billed on January 15, 2016 for work performed in November 2015, and
unbilled fees for December 2015 were P70,000.
What amount should be reported for professional fees expense for 2015?
a. 1,050,000
b. 950,000
c. 880,000
d. 820,000
Problem 43 (Disclosures)
Page 15
An entity reported net income of P3,000,000 for the current year. Changes occurred in certain
accounts as follows:
Equipment 250,000 increase
Accumulated depreciation 400,000 increase
Note payable 300,000 increase
During the year, the entity sold equipment costing P250,000 with accumulated depreciation of
P150,000 for a gain of P50,000. In December of the current year, the entity purchased equipment
costing P500,000 with P200,000 cash and a 12% note payable of P300,000. What amount should
be reported as net cash provided by operating activities?
a. 3,400,000
b. 3,500,000
c. 3,550,000
d. 3,600,000
An entity reported net income of P5,000,000 for the current year. Depreciation expense was
P1,900,000. The following working capital accounts changed:
Accounts receivable 1,100,000 increase
Nontrading equity investment 1,600,000 increase
Inventory 730,000 increase
Nontrade note payable 1,500,000 increase
Accounts payable 1,220,000 increase
Under the indirect method, what net amount of adjustments is required to reconcile net income to
net cash provided by operating activities?
a. 4,950,000
b. 1,050,000
c. 1,290,000
d. 310,000
Page 16
SOLUTIONS
Problem 1 Answer A
Cash (600,000 -200,000 overdraf) 400,000
Accounts receivable 700,000
Inventory 1,200,000
Prepaid expenses 200,000
Land held for resale 2,000,000
Total current assets 4,500,000
Problem 2 Answer A
Liabilities 1,200,000
Share capital 7,500,000
Retained earnings 150,000
Total liabilities and equity 8,850,000
Revenue from sales and consulting 820,000
Operating costs and expenses ( 640,000)
Net income 180,000
Dividend declared ( 30,000)
Retained earnings 150,000
Problem 3 Answer C
Accounts payable 55,000
Unsecured notes 400,000
Accrued expenses 35,000
Serial bonds 1,000,000
Total current liabilities 1,490,000
The contingent liability is only disclosed.
Under IFRS, the deferred tax liability is noncurrent regardless of the reversal period.
Problem 4 Answer C
Net income per book 7,410,000
Unrealized loss- other comprehensive income erroneously deducted 540,000
Prior period error erroneously deducted 750,000
Gain on credit risk – other comprehensive income erroneously added ( 500,000)
Adjusted net income 8,200,000
The gain on early retirement of bonds payable and the loss from fire are properly included in net
income.
Problem 5 Answer D
Total reported income 1,700,000
Total cash dividends paid ( 800,000)
Total share dividends distributed ( 200,000)
Prior period adjustment – credit 75,000
Retained earnings – December 31, 2015 775,000
The unrealized holding loss on trading investment is ignored because it is already included in the
reported income since incorporation.
Page 17
Problem 6 Answer C
Checkbook balance 8,000,000
NSF check (3,000,000)
Undelivered check drawn 2,500,000
Coins and currencies 800,000
Total cash 8,300,000
The check payable to the entity is properly not included because it is postdated January 2, 2016.
Technically, the three-month money market instruments are cash equivalents but not cash.
Problem 7 Answer A
Customer A 1,000,000
Customer B 700,000
Total other receivables 800,000
Total impairment loss 2,500,000
Customer C 2,000,000
Customer D 2,500,000
Other accounts receivable 3,500,000
Total other receivables for collective assessment of impairment 8,000,000
Under IFRS significant accounts receivable not impaired should be combined with other accounts
receivable not individually significant for collective assessment of impairment.
Problem 8 Answer D
Trade accounts receivable 930,000
Allowance for uncollectible accounts ( 20,000)
Claim against shipper 30,000
Total current net receivables 940,000
The selling price of unsold goods on consignment should be excluded from accounts receivable but
the cost should be included in inventory.
The security deposit is classified as noncurrent.
Problem 9 Answer D
Long-term note receivable – second note 2,000,000
Interest on note (2,000,000 x 3% x 5 years) 300,000
Total maturity 2,300,000
Multiply by PV factor .68
Present value of note receivable 1,564,000
Short-term note receivable – first note 2,000,000
Total carrying amount of notes receivable 3,564,000
The long-term note receivable should be discounted even if is interest-bearing because the interest
rate is unreasonably low compared to the market rate.
The short-term note receivable is reported at face amount because the discount is usually not
material.
Page 18
Problem 10 Answer B
Face amount 1,500,000
Direct origination cost 40,000
Origination fee charged against borrower (4% x 1,500,000) ( 60,000)
Initial carrying amount 1,480,000
The direct origination cost is a deferred charge and the origination fee received from the borrower
is unearned income and the two should be included in the measurement of loan receivable.
The indirect origination cost is an outright expense.
Problem 11 Answer D
Physical count 6,000,000
Good in transit purchased FOB shipping point 300,000
Total inventory 6,300,000
The goods billed to a customer are properly included in inventory because the term is FOB shipping
point and the goods are delivered January 7, 2016.
Problem 12 Answer C
Accounts payable per book 4,500,000
Reversal of undelivered checks 2,000,000
Goods purchased, received and recognized at net amount (750,000 x 98%) 735,000
Accounts payable to be reported 7,235,000
The undelivered checks should be restored to the cash balance and accounts payable.
The goods purchased and received on January 2, 2016 should be excluded from accounts payable
because the term is FOB destination.
Problem 13 Answer D
Cost Retail
Inventory – January 1 735,000 1,015,000
Purchases 4,165,000 5,775,000
Additional markup ________ 210,000
Goods available for sale 4,900,000 7,000,000
Conservative cost ratio (4,900,000 / 7,000,000) 70%
Sales (5,500,000)
Markdown ( 100,000)
Ending inventory at retail 1,400,000
At cost (70% x 1,400,000) 980,000
The lower of average cost or NRV retail method is the same as the conservative or conventional
method. Thus, the markdown is ignored in computing the cost ratio.
Page 19
Problem 14 Answer D
Cost of goods sold:
June (1,980,000 / 120%) 1,650,000
July (2, 040,000 / 120%) 1,700,000
August (2,160,000 / 120%) 1,800,000
Inventory – July 1 (30% x 1,700,000) 510,000
Purchases (SQUEEZE) 1,730,000
Goods available for sale 2,240,000
Inventory – July 31 (30% x 1,800,000) ( 540,000)
Cost of goods sold - July 1,700,000
The amount of purchases for July is computed by working back from the cost of goods sold.
Problem 15 Answer A
Freestanding trees 5,000,000
The land under trees and roads in forest should be included in property, plant and equipment.
Under IFRS, animals related to recreational activities as in game parks, and bearer plants, such as
rubber trees and grape vines should be accounted for as property, plant and equipment.
Problem 16 Answer B
Cash equivalent price 2,300,000
Installation cost 80,000
Total cost of machine 2,380,000
The storage cost is an outright expense.
Problem 17 Answer C
Average expenditures 6,000,000
Specific borrowing (4,400,000)
General borrowing 1,600,000
Page 20
Problem 18 Answer D
Purchase price 28,000,000
Development cost – 2015 1,000,000
Development cost – 2016 4,000,000
Estimated restoration cost 2,000,000
Total cost 35,000,000
Residual value ( 5,000,000)
Depletable amount 30,000,000
Problem 19 Answer C
Accumulated depreciation – 6/30/2015 10,500,000
Depreciation from July 1 to December 31, 2015 (30,000,000 / 10 x 6/12) 1,500,000
Accumulated depreciation – 12/31/2015 12,000,000
Cost 30,000,000
Accumulated depreciation ( 12,000,000)
Carrying amount 18,000,000
Fair value 27,000,000
Revaluation surplus 9,000,000
Deferred tax liability (30% x 9,000,000) ( 2,700,000)
Net revaluation surplus 6,300,000
Problem 20 Answer C
Other coding cost afer establishment of technological feasibility 2,400,000
Other testing costs afer establishment of technological feasibility 2,000,000
Costs of producing product masters 1,500,000
Total capitalized cost of computer sofware 5,900,000
The completion of detailed program design and the cost incurred to establish technological
feasibility should be expensed immediately.
The duplication of computer sofware and packaging product should be charged to inventory.
Page 21
Problem 21 Answer B
Travel costs of employees 400,000
Training of local employees 1,200,000
Total start up costs to be expensed 1,600,000
The production equipment should be capitalized.
The license fees and advertising costs should be expensed but not within the purview of start up
costs.
Problem 22 Answer A
Patent - January 1, 2013 1,920,000
Amortization for 2013 and 2014 (1,920,000 / 16 x 2) ( 240,000)
Carrying amount – January 1, 2015 1,680,000
Purchase price 800,000
Trademark (3/4 x 800,000) ( 600,000)
Noncompetition agreement 200,000
Patent (1,680,000 / 6 years remaining) 280,000
Noncompetition agreement (200,000 / 5 years) 40,000
Total amortization for 2015 320,000
The patent has a remaining life of 6 years because the revised life is 8 years from the date of
acquisition and two years already expired.
The trademark is not amortized because the life is indefinite.
The annual consulting fee is an outright expense.
Problem 23 Answer A
Net assets per book 32,000,000
Fair value of property, plant and equipment greater 7,500,000
Fair value of other assets zero ( 5,000,000)
Fair value of long-term debt lower 2,000,000
Net assets at fair value 36,500,000
Acquisition cost 40,000,000
Goodwill 3,500,000
The net assets should be recognized at fair value in a business combination.
Problem 24 Answer A
Purchase price of security C 4,000,000
Transaction cost 400,000
Total cost 4,400,000
If the equity investment is measured at fair value through other comprehensive income (FVOCI),
the transaction cost is capitalized
Market value of security C 12/31/2015 4,700,000
Historical cost 4,400,000
Unrealized gain – OCI 12/31/20015 300,000
Under the final version of IFRS 9, any change in fair value of an equity investment measured at
FVOCI is permanently excluded from profit or loss under all circumstances but may transferred to
equity or retained earnings.
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Problem 25 Answer A
Problem 26 Answer A
From 2014 2
From 2015 10
Total unused vacation days - FIFO 12
Problem 27 Answer B
Problem 28 Answer D
Interest income from July 1, 2015 to June 30, 2016 (10% x 2,900,000) 290,000
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Problem 29 Answer B
a. The difference between the sale price and the fair value is a deferred loss to be amortized over
the lease term.
b. If the fair value is below the carrying amount, the carrying amount is written down to fair value
and the writedown is recognized immediately as an impairment loss.
Problem 30 Answer A
Problem 31 Answer B
The actual return or plan assets is “squeezed” by working back from ending plan assets at fair
value.
Problem 32 Answer C
Page 24
Problem 33 Answer A
Problem 34 Answer A
Problem 35 Answer C
Problem 36 Answer A
The share options are measured at fair value on the date of grant and allocated over the vesting
period.
Page 25
Problem 37 Answer B
Problem 38 Answer B
Problem 39 Answer B
Problem 40 Answer D
Problem 41 Answer D
Page 26
Problem 42 Answer B
Professional fees expense per book 820,000
Accrued legal fees – November 60,000
Accrued legal fees – December 70,000
Adjusted professional fees expense 950,000
The entity already recorded P550,000 out of total consultants’ fee of P650,000. The balance of
P100,000 is not recognized because no work has been performed as yet.
Problem 43 Answer A
IFRS requires the following disclosures when preparing the statement of cash flows:
Problem 44 Answer B
Problem 45 Answer C
Depreciation 1,900,000
Increase in accounts receivable (1,100,000)
Increase in inventory ( 730,000)
Increase in accounts payable 1,220,000
Net adjustment to net income as an addition 1,290,000
The increase in nontrading equity investment is an investing activity.
The increase in nontrade note payable is a financing activity.
Page 27
3. What is the amount of cash receipts for book for the month of July?
a. 9,800,000
b. 8,600,000
c. 9,400,000
d. 9,600,000
4. What is the amount of cash disbursements per book for the month of July?
a. 7,300,000
b. 6,700,000
c. 6,850,000
d. 6,550,000
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Question 1 Answer B
Question 2 Answer A
The balance per book on July 31 is “squeezed” by working back from the adjusted balance.
Question 3 Answer C
Question 4 Answer D
From inception of operations, an entity provided for uncollectible accounts expense under the
allowance method and provisions were made monthly at 2% of credit sales. No year-end
adjustments to the allowance account were made. The balance in the allowance for doubtful
accounts was P1,000,000 on January 1, 2015. During 2015, credit sales totaled P20,000,000, interim
provisions for doubtful accounts were made at 2% of credit sales, P200,000 of bad debts were
written off, and recoveries of accounts previously written off amounted to P50,000. An aging of
accounts receivable was made for the first time on December 31, 2015 as follows:
Classification Balance Uncolletible
November – December 6,000,000 10%
July – October 2,000,000 20%
January – June 1,500,000 30%
Prior to January 1, 2015 500,000 50%
Based on the review of collectibility of the account balances in the “prior to January 1 2015” aging
category, additional accounts totaling P100,000 are to be written off on December 31, 2015.
Effective December 31, 2015, the entity adopted the aging method for estimating the allowance for
doubtful accounts.
1. What is the required allowance for doubtful accounts on December 31, 2015?
a. 1,650,000
b. 1,950,000
c. 1,700,000
d. 1,450,000
2. What amount should be reported as doubtful accounts expense in the income statement for
2015?
a. 1,200,000
b. 1,650,000
c. 900,000
d. 950,000
3. What is the year-end adjustment to the allowance for doubtful accounts on December 31,
2015?
a. 900,000 debit
b. 900,000 credit
c. 500,000 debit
d. 500,000 credit
4. What is the net realizable value of accounts receivable on December 31, 2015?
a. 9,900,000
b. 8,250,000
c. 8,350,000
d. 8,200,000
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Question 1 Answer A
Question 2 Answer C
The doubtful accounts expense is squeezed by working back from the ending allowance for
doubtful accounts.
Question 3 Answer D
Question 4 Answer B
On December 31, 2015, a fire damaged the warehouse and factory of an entity completely
destroying the goods in process inventory. There was no damage to the raw materials, finished
goods and factory supplies The physical inventory revealed the following.
January 1 December 31
Raw materials 1,700,000 2,000,000
Goods in process 4,300,000 0
Finished goods 6,000.000 4,500,000
Factory supplies 500,000 400,000
The gross profit margin historically approximated 30% of sales. The sales for the year amounted to
P20,000,000. Raw material purchases totaled P4,000,000. Direct labor costs for the year amounted
to P5,000,000, and manufacturing overhead has been applied at 60% of direct labor.
1. What is the cost of raw materials used?
a. 5,700,000
b. 3,700,000
c. 3,800,000
d. 3,600,000
Question 1 Answer B
Question 2 Answer C
The change in the factory supplies is no longer considered because it is already part of the
manufacturing overhead applied.
Question 3 Answer D
The cost ratio is 70% because the gross profit rate is 30% on sales.
Question 4 Answer A
The cost of ending goods in process is computed by working back from the cost of goods sold.
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On January 1, 2015, an entity acquired a 10% interest in an investee for P3,000,000. The
investment was accounted for under the cost method. During 2015, the investee reported net
income of P4,000,000 and paid dividend of P1,000,000. On January 1, 2016, the entity acquired a
further 15% interest in the investee for P8,500,000. On such date, the carrying amount of the net
assets of the investee was P36,000,000 and the fair value of the 10% existing interest was
P3,500,000. The fair value of the net assets of the investee is equal to carrying amount except for
an equipment whose fair value was P4,000,000 greater than carrying amount. The equipment had
a remaining life of 5 years. The investee reported net income of P8,000,000 for 2016 and paid
dividend of P5,000,000 on December 31, 2016.
4. What is the carrying amount of the investment in associate on December 31, 2015?
a. 12,550,000
b. 12,350,000
c. 11,950,000
d. 12,750,000
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Question 1 Answer B
Under cost method, the investment income is based on dividend declared or paid.
Question 2 Answer B
Question 3 Answer C
If the investment in associate is achieved in stages the old interest is remeasured at fair value
through profit or loss.
Question 4 Answer A
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SITUATION PROBLEM 5 – PROPERTY, PLANT AND EQUIPMENT
Land 4,000,000
Land improvements 1,300,000
Buildings 20,000,000
Machinery and equipment 8,000,000
* A plant facility consisting of land and building was acquired in exchange for 200,000 shares of
the entity. On the acquisition date, each share had a quoted price of P45 on a stock exchange.
The plant facility was carried on the seller’s books at P1,600,000 for land and P5,400,000 for
the building at the exchange date. Current appraised values for the land and the building,
respectively, are P2,000,000 and P8,000,000. The building has an expected life of forty years
with a P200,000 residual value.
* Items of machinery and equipment were purchased at a total cost of P4,000,000. Additional
costs incurred were freight and unloading P100,000 and installation P300,000. The equipment
has a useful life of ten years with no residual value.
* Expenditures totaling P1,200,000 were made for new parking lot, street and sidewalks at the
entity’s various plant locations. These expenditures had an estimated useful life of fifteen years.
* A machine costing P200,000 on January 1, 2008 was scrapped on June 30, 2015. Straight line
depreciation had been recorded on the basis of a 10-year life with no residual value. A machine
was sold for P500,000 on July 1, 2015. Original cost of the machine sold was P700,000 on
January 1, 2012, and it was depreciated on the straight line basis over an estimated useful life of
eight years and a residual value of P50,000.
Page 36
Question 1 Answer A
Quoted price of shares issued for land and building (200,000 x P45) 9,000,000
The total cost of the land and building is equal to the quoted price of the shares which is allocated
prorata to the land and building based on the current appraised value.
Question 2 Answer D
Question 3 Answer C
Question 4 Answer B
END