PROBLEM 1 PROBLEM 2

Shown below is the bank reconciliation for Orchid Company for November 2013: On April 1, 2014, Anabelle Co., purchased land and building for a lump-sum price of P80,000,000. The existing
building (with a remaining useful life of 4 years) was demolished late 2015 to make way for the construction of
Balance per bank, Nov. 30, 2013 P 150,000 a new. The following data were collected concerning the property at the same date:
Add: Deposits in transit 24,000
Total 174,000 Book Value Fair Value
Less: Outstanding checks P 28,000 (Seller’s book)
Bank credit recorded in error 10,000 38,000 Land P 50,000,000 P 96,000,000
Cash balance per books, Nov. 30, 2013 P 136,000 Building 25,000,000 24,000,000

The bank statement for December 2013 contains the following data: 6. Assume that the Anabelle Co., at date of acquisition, has decided to use the property as owner-occupied
Total deposits P 110,000 property under cost model, what is the value of the acquired Old Building at the end of calendar year 2015
Total charges, including NSF check of P 8,000 in accordance with PAS 16 – Property, plant and equipment?
and a service charge of P 400 96,000 a. P 26,666,667 b. P 24,000,000 c. P 16,000,000 d. P -0-

All outstanding checks on November 30, 2013, including the bank credit, were cleared in the bank in December 7. Assuming the fair value of the old building and land on fiscal year ending June 30, 2015 were P13,000,000
2013. and P44,000,000, respectively, how much is the net impact on the comprehensive income of Anabelle Co.
on the said fiscal year under revaluation model?
There were outstanding checks of P 30,000 and deposits in transit of P 38,000 on December 31, 2013. a. P 22,000,000 b. P 23,000,000 c. P 3,000,000 d. P -0-

Based on the above result of your audit, answer the following: 8. Assume Anabelle Co. is a property developer and paid P2,500,000 to demolish the building on the land,
determine the appropriate amount that the Company should debit to PPE if its policy is to consider the
1. How much is the cash balance per bank on December 31, 2013? demolition cost as directly attributable cost in constructing the new asset.
a. P 154,000 b. P 150,000 c. P 164,000 d. P 172,400 a. P 24,000,000 b. P 2,500,000 c. P 17,500,000 d. P -0-
2. How much is the December receipts per books?
a. P 124,000 b. P 96,000 c. P 110,000 d. P 148,000 PROBLEM 3
3. How much is the December disbursements per books? On December 31, 2013, Nicole Co. identified that its building with a carrying amount of P2,400,000 has been
a. P 96,000 b. P 79,600 c. P 89,600 d. P 98,000 impaired. In estimating the recoverable amount, Nicole has determined that the fair value of the asset is
P2,000,000. In estimating the value in use, Nicole determined the following:
4. How much is the cash balance per books on December 31, 2013?s Year Future cash inflows Future cash outflows
a. P 150,000 b. P 170,400 c. P 180,400 d. P 162,000 2014 P 1,200,000 P 400,000
2015 1,120,000 400,000
5. In auditing bank reconciliation, which of the following is/are true? 2016 1,040,000 320,000
I. The auditor obtains copies of the entity’s reconciliation and agrees the bank balance to the bank
confirmation and the book balance to the general ledger. Each year’s estimated future cash flows include P40,000 representing cash outflows from future restructuring
not yet committed and P20,000 representing cash outflows on planned improvement and enhancement. Not
II. The auditor note the date on which outstanding items are shown on subsequent bank statements and obtain included in the estimated future cash flows are costs of day-to-day servicing of the asset amounting to P8,000
explanations for all material items cleared within the reasonable time of the date of receipt of the cash or per year. The discount rate applicable for the computation of the value in use is 10%. (Round-off PV factors
the drawing of the checks in to 6 decimal places and amounts in whole number)
a. I only b. II only c. I and II d. None of the above
9. Assume that the following costs were also estimated for purposes of computing the fair value less cost to
sell: Transaction taxes – P200,000; Legal costs, stamp duty, commissions, and similar fees – P40,000; Cost
of dismantling or removing the asset included in provision for restoration and decommissioning cost –
 P20,000; Termination benefits and costs associated with reducing or reorganizing the business following the
disposal of an asset – P60,000. How much is the fair value less costs to sell? 14. In evaluating control risk and effectiveness for intangible assets, controls should be designed for numerous
a. P 1,680,000 b. P 1,740,000 c. P 1,760,000 d. P 2,000,000 purposes. Which of the following is not a usual control for intangible assets?
a. Ensure decisions are appropriately made as to when to capitalize or expense research and development
10. Based on the previous item and information provided above, how much is the impairment loss? expenditures.
a. P 407,424 b. P 456,773 c. P 365,472 d. P 412,365 b. Develop amortization schedules that reflect the remaining useful life of patents or copyrights associated
with the assets.
PROBLEM 4 c. Identify and account for intangible asset impairment.
You noted the following items relative to the company’s intangible assets in connection with your audit of d. All of the above are usual controls for intangible assets.
Familiar Corporation’s financial statements for the year 2014.
PROBLEM 5
Franchise - On January 1, 2014, Familiar signed an agreement to operate as franchisee of Tricky Copy Service,
Inc. for an initial franchise fee of P680,000. Of this amount, P200,000 was paid when the agreement was signed You have obtained the latest actuarial report prepared for Renzel Corp’s pension plan. Information about the
and the balance was payable in four annual payments of P120,000 each, beginning January 1, 2015. The actuarial reports are presented below: From the December 31, 2015 actuarial report
agreement provides that the down payment is not refundable and no future services are required of the
12/31/2014 12/31/2015
franchisor. The implicit rate for the loan of this type is 14%. The agreement also provides the 5% of the revenue
Present value of defined benefit obligation 3,600,000 3,500,000
from the franchise must be paid to the franchisor. Tricky’s revenue from the franchise for 2014 was P8,000,000.
Tricky estimates the useful life of the franchise to be ten years. Fair value of plan assets at end of year 3,900,000 3,800,000
Current service cost for year 345,000 320,000
Patent - On July 1, 2014, Familiar purchased a patent from the inventor, who asked P1,100,000 for it. Familiar Benefits paid in year 240,000 230,000
paid for the patent as follows: cash, P400,000; issuance of 10,000 shares of its own ordinary shares, par P10 Contributions paid in year 430,000 410,000
(market value, P20 per share); and a note payable due at the end of three years, face amount, P500,000, Discount rate at end of year 4.5% 5.0%
noninterest-bearing. The current interest rate for this type of financing is 12%. The total consideration represents
the fair value of the patent. Familiar estimates the useful life of the patent to be 10 years. Assume contributions and benefit payments occurred evenly throughout the year.
Based on the above information and assumptions determine the following: (Round of any components in the
Trademark - Familiar purchased for P1,200,000 a trademark for a very successful soft drink it markets under computation to the nearest thousands)
the name POWER!. The trademark was determined to have an indefinite life. A competitor recently introduced
a product that is in direct competition with the POWER!, thus suggesting the need for an impairment test. Data 15. Net interest cost (income) for 2015
gathered by Familiar suggests that the useful life of trademark is still indefinite, but the cash flows expected to a. (P 23,000) b. (P 14,000) c. (P 15,000) d. P 162,000
be generated by the trademark have been reduced either to P40,000 per year (with a probability of 70%) or to
P80,000 per year (with 30% probability). The appropriate risk-free interest rate is 5%. The appropriate risk- 16. Net amount recognized in OCI for 2015
adjusted interest rate is 10%. a. P 113,000 b. P 106,000 c. P 105,000 d. P 0

Based on the above and the result of your audit, determine the following: (Round off present value factors to 4 PROBLEM 6
decimal places) 17. Aiza Co. determined that one of its cash-generating units is impaired. Information on the assets of the CGU
is shown below:
11. Total expenses related to franchise in 2014 Assets Carrying Amount
a. P 503,914 b. P 535,200 c. P 448,950 d. P 454,964 Inventory P 800,000
Investment property (at cost model) 1,600,000
12. Carrying amount of the patent as of December 31, 2014 Building 2,400,000
a. P 1,045,000 b. P 955,900 c. P 860,310 d. P 908,105 Goodwill 1,200,000

13. Total expenses related to the above intangible assets in 2014 It was estimated that the value in use of the CGU is P3,600,000 and its fair value less costs to sell is P2,400,000.
a. P 662,759 b. P 711,709 c. P 733,063 d. P 802,212 How much is the carrying amount of the building after the impairment testing?
 a. P 1,680,000 b. P 1,120,000 c. P 1,800,000 d. P 2,040,000
December 31, 2013 January 1, 2013
PROBLEM 7 Accounts receivable P 55,000 P 48,000
A recent fire severely damaged EL COMPANY’s administration building and destroyed many of its financial Inventory 87,000 93,000
records. You have been contracted by Mid-Sea’s management to reconstruct as much financial information as Accounts payable 60,000 58,000
possible for the month of July. You learned that EL makes a physical inventory count at the end of each month
to determine monthly ending inventory values. You also find out that the company applies the average cost
method. All purchases of inventory are on account. Other expenses are paid for in cash.
22. What is the carrying value of the bonds on December 31, 2013
You are able to gather the following information by examining various documents: a. P 100,000 b. P 112,233 c. P 112,661 d. P 113,592
Inventory, July 31 150,000 units
Total cost of goods available for sale in July P 356,400 23. What is the interest expense for 2013
Cost of goods sold during July P 297,000 a. P 4,544 b. P 8,641 c. P 9,069 d. P 10,000
Gross profit on sales for July P 303,000
Cost of inventory, July1 0.35 per unit 24. How much was paid for inventory purchases
The following are EL’s July purchases of merchandise: a. P 172,000 b. P 174,000 c. P 184,000 d. P 186,000
Date Quantity Unit Cost
July 6 180,000 P 0.40 25. What is Zest Airway’s net income for 2013
July 12 150,000 0.41 a. P 13,500 b. P 14,431 c. P 14,859 d. P 23,000
July 16 120,000 0.42
July 17 150,000 0.45 26. How much was received from customers in 2013
EL’s management has asked you to provide the following information: a. P 245,000 b. P 283,000 c. P 293,000 d. P 307,000
18. Number of units on hand, July 1
a. 450,000 b. 848,571 c. 169,714 d. 300,000 PROBLEM 9
27. On January 1, 2014, SEXY Bank extended a P2,000,000, zero-interest loan to one of its directors Ms. Nan-
19. Units sold during July Lu Wang. The loan matures in lump sum on January 1, 2017. The prevailing market interest for this type of
a. 600,000 b. 300,000 c. 750,000 d. 450,000 loan is 10%. The loan proceeds (transaction price) extended to Ms. Nan-Lu Wang is equal to the face amount
of the loan. SEXY Bank’s personnel failed to journalize the entry on January 1, 2014, hence, no interest
20. Unit cost of inventory at July income was recorded for 2014 related to this loan.
a. P 0.35 b. P 0.396 c. P 0.419 d. P 0.279
Because of this error, profit or loss for the year ended December 31, 2014 will be overstated (understated)
21. Value of inventory at July 31 by
a. P 59,400 b. P 52,500 c. P 62,850 d. P 41,850 a. P0 b. (P200,000) c. (P150,263) d. P347,107

PROBLEM 8 PROBLEM 10
On January 1, 2013, Zest Airways, Inc. issued P 100,000, 10% 10 year bonds when the market rate of interest On January 1, 2013, Voice Company acquired 100% of the outstanding shares of Idol Company by issuing
was 8%. Interest is payable on June 30 and December 31. The following financial information is available: 200,000 shares of its P10 par ordinary with market price of P12 per share. The book value of Idol Company’s
Sales P 300,000 net assets was P2,500,000. Voice Company journalized the said acquisition as follows:
Cost of sales 180,000
Gross profit 120,000 Investment in Subsidiary P2,400,000
Interest expense ? Expenses 40,000
Depreciation expense (14,500) Ordinary share capital, P10 par 2,000,000
Other expenses (82,000) Share Premium 400,000
Net income ? Cash 40,000
 PROBLEM 12
Voice Company paid direct acquisition costs and issuance/registration costs of shares of P25,000 and P15,000, Earl Company has the following capital structure at the beginning of 2015:
respectively (refer to the entry above). The book value of Idol Company’s net assets were the same with their 6% Cumulative, fully-participating preferred stock, P50 par value, 50,000 shares P 600,000
fair value except for a liability item which was understated by P3,000. For purposes of preparing the separate authorized, 12,000 shares issued and outstanding
financial statement of Voice Company, the auditor noted the error on the entry above. Common stock, P10 par value, 200,000 authorized; 147,500 issued and outstanding 1,475,000
Additional paid-in capital in excess of par – preferred 180,000
28. The correct journal entry to record the transaction costs in Voice books includes a debit to Additional paid-in capital in excess of par – common 1,180,000
a. Direct acquisition expenses of P40,000 b. Share premium P40,000 Retained earnings (P2,500,000 appropriated for plant expansion) 4,500,000
7,935,000
c. Investment in Subsidiary of P40,000 d. Cash P40,000 During 2015 the following transactions occurred:
29. The correcting entry on the separate books of Voice Company includes a credit to? February 11 Earl Company acquired 6,000 preferred shares at P70 per share and 40,000 common
a. Share premium of P15,000 shares at P22 per share. Earl Company is using the cost-method in recording treasury
b. Expenses P40,000 shares
c. Investment in Subsidiary of P25,000
d. No entry needed March 31 Issued 2,000 preferred treasury shares at P73 per share

30. What is the best basis for the correcting entry related to the error above, if any? April 7 Issued 15,000 common shares at P25 per share
a. IAS 8 b. IAS 27 c. IFRS 3 d. Both b and c
July 1 Issued 1,500 preferred treasury shares at P68 per share & 20,000 common shares at
PROBLEM 11 P19 per share
On January 1, 2013 investor KITAKITS acquired a 30% interest in entity BEH! at a cost of P500,000. Investor
KITAKITS has significant influence over entity BEH! and accounts for its investment in the associate under the August 15 Retired the remaining preferred and common treasury shares
equity method. The associate has net assets of P1,000,000 at the date of acquisition, which have a fair value of
P1,200,000. During the year ended December 31, 2013 entity BEH! recognized a post-tax profit of P200,000, September 1 Plant expansion was completed
and paid a dividend of P18,000. Entity BEH! also recognized foreign exchange losses of P40,000 in OCI.
November 22 Board of directors appropriated P2,000,000 for plant expansion in Mactan, Cebu.
On January 1, 2014, entity BEH! has a rights issue that investor KITAKITS does not participate in. The rights Likewise, the Board issued a 3-year, 10% P1,500,000 face value bonds to partially fund
issue brings in an additional P150,000 in cash, and dilutes investor KITAKITS's interest in entity BEH! to 25%. the construction. A sinking fund was set-up for the extinguishment of the bonds at their
maturity
KITAKITS inquired for the proper accounting treatment of the dilution from his auditor.
December 31 Net income for the period P1,400,000. Total cash dividend declared and paid
31. Determine the net increase (decrease) on comprehensive income of the dilution on January 1, 2014. P500,000. No dividends have been declared in 2014. A property dividend was likewise
a. (P54,933) b. (P52,933) c. (P53,266) d. (P55,266) declared, the distribution of which is on January 6, 2016. The carrying amount of the
property declared as dividend was P800,000; the fair value of which was P1,000,000
32. The entry on January 1, 2014 will increase (decrease) the carrying amount of the investment account by
a. (P90,433) b. (P52,933) c. (P37,500) d. P0 34. Upon the retirement of the preferred shares, retained earnings shall be debited by
a. 0 b. 6,500 c. 9,500 d. 12,500
33. Impairment losses on equity securities classified at amortized cost under PFRS 9 are recognized in
a. profit or loss b. OCI c. Equity d. None 35. Upon the retirement of the common shares, retained earnings shall be debited by
a. 0 b. 14,000 c. 17,000 d. 20,000

36. The amount of cash dividends to be distributed to the common shareholders is

a. 329,800 b. 351,375 c. 355,420 d. 375,000
 PROBLEM 14
37. The retained earnings – appropriated at the end of 2011 is 41. On April 1, 2014, Gerald Company engages in the development of a property, which is expected to take five
a. 1.5M b. 2M c. 3.5M d. 6M years to complete, at a cost of P6M. the statements of financial position at December 31, 2013 and December
31, 2014, prior to capitalization of interest are as follows:
38. The total stockholders’ equity at December 31, 2011 is
a. 7,538,000 b. 7,738,000 c. 7,118,000 d. 8,038,000 12/31/13 12/31/14
Development property P - P1,200,000
PROBLEM 13 Other assets 6,000,000 6,000,000
Two real estate companies, RK Developers and SV Holdings set up a separate vehicle (entity DP) for the P 6,000,000 P7,200,000
purpose of acquiring and operating a shopping center. The contractual agreement between the parties establishes Loans
joint control of the activities that are conducted by entity DP. The main feature of entity DP’s legal form is that 5.5% debenture stock P 2,500,000 P2,500,000
the entity, not the parties, has rights to the assets and obligations for the liabilities relating to the arrangement. Bank loan at 6% per annum - 1,200,000
These activities include the rental of the retail units, managing the car park, maintaining the center and its Bank loan at 7% per annum 1,000,000 1,000,000
equipment, such as lifts and building the reputation and customer base for the center as a whole. P 3,000,000 P4,700,000

The terms of contractual arrangement are such that: Shareholders’ equity 2,500,000 2,500,000
a. Entity DP owns the shopping center. The contractual arrangement does not specify that the parties have
rights to the shopping center The bank loan with effective interest rate at 6% was drawn down to match the development expenditure on
b. The parties are not liable in respect of the liabilities of entity DP. If entity DP is unable to pay any of its April 1, July 1, and October 1 2014. The 5.5% debenture stocks were irredeemable. Expenditure was incurred
liabilities, the liability of each to any third party will be limited to the parties unpaid contribution. on the development as follows: April 1 – P600,000; July 1 – P400,000; October 1 – P200,000. If all the
c. The parties have the right to sell or pledge their interest in entity DP borrowing were general (i.e., the bank loan 6% was not specific to the development) and would have been
d. Each party receives a share of the income from the shopping center (rental income net of operating costs) avoided but for the development, then the amount of interest to be capitalized would be (Round-off to 2
in accordance with its interest in entity DP. decimal % for the general borrowing rate)
A. P42,000 B. P41,580 C. P46,130 D. P0
Transactions of the contractual arrangement for 2013 and 2014 follow:
2013: PROBLEM 15
 RK and SV contributed P60M each for ½ interest in the net assets of entity DP Kheen Company offers a cash rebate of P1 on each P4 package of batteries sold during 2013. Historically, 10%
 Organization expenses incurred amounts to P600,000 of customers mail in the rebate form. During 2013, 6,000,000 packages of batteries are sold, and 210,000 P1
 Entity DP acquired land at a cost of P12M rebates are mailed to customers.
 Constructed building (shopping center) at a cost of P90M
 Operating expenses for the year amounts to P6M 42. What is the rebate expense shown on the 2013 financial statements?
 Rental income collected from tenants, P60M a. P 600,000 b. P 390,000 c. P 201,000 d. P -0-
 Net income or loss is distributed to the venturers in accordance with their interest
2014: 43. What is the rebate liability shown on the 2013 financial statements?
 Operating expenses (including depreciation) incurred for the year, P21M a. P 600,000 b. P 390,000 c. P 201,000 d. P -0-
 Rental income collected for the year, P72M
 Each venture receives a share of the income or loss PROBLEM 16

39. What is the interest of RK Developers in the joint venture as of December 31, 2013? 44. What earnings figure should be used for determining basic EPS?
a. P60M b. P87M c. P113.4 d. P86.7M a. Consolidated net profit after tax attributable to parent
b. Consolidated profit after tax
40. What is the interest of SV Holdings in the joint arrangement as of December 31, 2014? c. A and B
a. P60M b. P164.4M c. P112.2M d. P86.7M d. None of the choices
 45. For the year ended December 31, 2013, the following information relates to AA Ltd.: Use the following information for the next 2 items
- Profit for the year was P900,000
- No preference dividends were declared during the year  IAS 33 requires diluted EPS be calculated where an entity has on issue potential ordinary shares that
- 1,000,000 10% cumulative shares of P1 (classified as equity) were on issue for the entire year are dilutive.

Earnings used to determine Basic EPS will be? In assessing whether potential ordinary shares are dilutive:
a. P900,000 b. P800,000 c. P1,000,000 d. None of the choices
49. What measure of profit do we use?
46. For the year ending December 31, 2014, the following data relates to GG Ltd. a. Total profit/loss
1. At January 1, there were 200,000 ordinary shares on issue b. Profit/loss from continuing operations
2. 100,000 fully paid ordinary shares issued on March 1 c. Profit/loss from discontinuing operations
3. 25,000 ordinary shares repurchased on August 1 d. All of the above
4. 70,000 partly paid ordinary shares issued on October 1, for P2.00 partly paid to P1.30, with right to
participate in dividends in proportion to the amount paid relative to the issue price 50. How are different instruments assessed?
5. 1,000,000 10% cumulative preference shares of P1.00 (classified as equity) were on issue for the entire year a. Assess each independently
b. Depends on accounting policy
Which items above will have an impact on the weighted average number of shares outstanding during the year c. In series from most dilutive to least dilutive
for basic EPS? d. All of the above
a. Items 1 to 2 b. Items 1 to 3 c. Items 1 to 4 d. Items 1 to 5

47. Following the information in item 46:

70,000 partly paid ordinary shares issued on October 1 for P2.00 partly paid to P1.30, with right to participate
in dividends in proportion to the amount paid relative to the issue price.

How are these incorporated into the weighted average ordinary share calculation for basic EPS?

a. Excluded from the calculation as they are not fully paid up

b. Weighted as if they were fully paid up on the date that the first installment was receivable
c. Weighted based on their paid up portion – each partly paid share would represent 0.65 ordinary shares
d. None of the above

48. For the year ending December 31, 2013:

 At January 1 there were 800,000 ordinary shares on issue

 On March 1 200,000 fully paid ordinary shares were issued by way of rights issue, providing one share
for each four shares held in return for payment of P1.50

What information is needed to determine whether the rights issue contains a bonus element?
a. Original issue price
b. Fair value of shares prior to exercise
c. Profit for the year (excluding preference share impact
d. All of the above