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EASY ROUND
1. What is the purpose of reporting comprehensive income?

A. To report changes in equity due to transactions with owners.
B. To report a measure of overall entity performance.
C. To replace net income with a better measure.
D. To combine income from continuing operations with income from discontinued
operations.
Answer: B.
2. Q’s trial balance failed to agree and a suspense account was opened for the difference. Q
does not keep receivables and payables control accounts. The following errors were found in
Q’s accounting records:
I. In recording an issue of shares at par, cash received of P333,000 was credited to the
ordinary share capital account as P330,000.
II. Cash of P2,800 paid for plant repairs was correctly accounted for in the cash book but
was credited to the plant asset account.
III. The petty cash book balance of P500 had been omitted from the trial balance.
IV. A check for P78,400 paid for the purchase of a motor car was debited to the motor
vehicles account as P87,400.
Which of the errors will require an entry to the suspense account to correct them?
A. I, II and IV only
B. I, II, III, and IV
C. 1 and IV only
D. II and III only
Answer: B.
3. A firm estimates that it will sell 100,000 units of its sole product in the coming period. It
projects the sales price at P40 per unit, the CM ratio at 60 percent, and profit at P500,000.
What is the firm’s budget for fixed costs in the coming period?
Answer:
Profit + Fixed Cost = (100,000 units × P60/unit CM)
Fixed Cost = (100,000 units * P24/unit CM) - Profit
= P2,400,000 - P500,000
= P1,900,000
4. Brayden Corporation issues bonds On May 1, 20X1. The bonds are issued at 102 plus accrued
interest, 100 of its 6%, P1,000 bonds. The bonds are dated January 1, 20X1. The bonds mature
on January 1, 20X5. Interest is payable semiannually on January 1 and July 1. Brayden paid
the investment bank P7,000 for the bond issue costs. Based on the information above,
Brayden would realize net cash receipts from the bond issuance of?
ANS.: P97,000.00
Cash received from the issuance of bonds (P100,000 × 102%)

P102,000
Accrued interest (P100,000 × 6% × 4/12) P2,000
Less: Bond issue cost (P7,000)
Net cash receipt P97,000
5. Tristan, Inc. operates a business manufacturing bamboo cell phone cases. He purchased a
wood engraving machine in January 1, 20X1 for P30,000 and the estimated useful life was 10
years. The engraving machine was being depreciated using the straight-line method and has
no salvage value. In 20X5, Tristan, impressed with the machine, decides to extend the useful
life to 12 years. What amount of depreciation expense should Tristan report in its financial
statements for the year ending December 31, 20X5?
ANS.: P2,250
Cost, Jan. 1, 20X1 P30,000
Less: Accumulated depreciation, Dec. 31, 20X5 (P30,000 ×4/10) (12,000)
Carrying amount – Jan. 1, 20X5 18,000
Depreciation, Dec. 31, 20X5 (18,000 ÷ 8yrs.) P2,250
AVERAGE ROUND
1. The purchase of an office building by issuing long-term notes payable should be reported as a
A. cash outflow in the financing section of the statement of cash flows.
B. cash outflow in the investing section of the statement of cash flows.
C. cash outflow in the operating section of the statement of cash flows.
D. noncash investing and financing activity.
Answer – D
2. Net present value is negative when

A. the present value of cash inflows is greater than the present value of cash outflows.
B. the present value of cash outflows is greater than the present value of cash inflows.
C. the future value of cash inflows is greater than the present value of cash outflows.
D. the present value of cash outflows is greater than the future value of cash outflows.
Answer – B
3. As of December 31, year 1, Hunter Company had 100,000 shares of common stock issued and
outstanding. In year 2, Hunter issued a 10% stock dividend on July 1. At the end of year 2 there
were 30,000 unexercised stock options to purchase shares of common stock at $20 per share.
During year 2, the average market price of Hunter’s common stock was $36 per share. Year 2 net
income was $860,000. For year 2, what are the diluted earnings per common share?
ANS.: P6.97
Common shares outstanding at the beginning of the year were 100,000. 10,000 shares were
issued as a stock dividend. The treasury stock method is used to determine the number of
incremental shares in computing diluted earnings per share.
Proceeds from exercise (30,000 shares × 20) P600,000

Shares issued upon exercise 30,000
Less: Treasury shares purchasable (600,000/36) 16,667
Incremental shares 13,333
The incremental shares of 13,333 are added to the 110,000 shares.

Diluted Earnings Per Share = P860,000/123,333 shares = P6.97
3. An entity provided the following pension plan information:
Projected benefit obligation – January 1, 2016 3,500,000

Fair value of plan assets – January 1, 2016 2,800,000
Pension benefits paid during the year 250,000
Current service cost for 2016 1,750,000
Past service cost for 2016 (vesting period 5 years) 425,000
Actual return on plan assets 180,000
Contribution to the plan 1,500,000
Actuarial loss due to change in assumptions on projected benefit 200,000
obligation
Discount or settlement rate 10%
What is the employee benefit expense for the current year?
Answer: P2,245,000
Current service cost 1,750,000

Past service cost 425,000
Interest expense (10% x 3,500,000) 350,000
Interest income (10% x 2,800,000) ( 280,000)
Employee benefit expense 2,245,000
4. The Whitianga Company commenced the construction of a new packaging plant on 1

February 20X7. The cost of PHP1,800,000 was funded from existing borrowings. The
construction was completed on 30 September 20X7. Whitianga's borrowings during 20X7
comprised:
Loan from Largo Bank: PHP800,000 at 6% per annum;
Loan from Andante Bank: PHP1 million at 6.6% per annum; and
Loan from Allegro Bank: PHP3 million at 7% per annum.
In accordance with PAS23 Borrowing costs, the amount of borrowing costs to be capitalized
in relation to the packaging plant is
Answer: PHP81,000.
The weighted average is calculated as follows, per IAS23 para 12.
(800,000 x 0.06) + (1,000,000 x 0.066) + (3,000,000 x 0.07) = 6.75%
(800,000 + 1,000,000 + 3,000,000)
Borrowing costs to be capitalized:
Cost of asset 1,800,000 x 6.75% x 8/12 = PHP81,000
5. The Rattigan Company purchases PHP20,000 of bonds. The asset has been designated as one
at fair value through profit and loss. One year later, 10% of the bonds are sold for PHP4,000.
Total cumulative gains previously recognized in Rattigan's financial statements in respect of
the asset are PHP1,000. In accordance with PAS39 Financial instruments: recognition and
measurement, what is the amount of the gain on disposal to be recognized in profit or loss?
Answer: P1,900
PHP1,900 (PHP4,000 – (10% × (PHP20,000 + PHP1,000))) is the correct answer.
PAS39 para 27 states that on derecognition of part of a financial instrument:
(a) there shall be an allocation of the carrying amount between the part derecognized and
the part retained
(b) the difference between the consideration received and the carrying amount allocated to
the part derecognized shall be recognized in profit or loss. The previous gains had already
been recognized in profit or loss and so are not included in the calculation.
See PAS39 para 46 and AG67.
DIFFICULT
1. In determining diluted earnings per share, dividends on nonconvertible cumulative

preference shares should be
a. Disregarded
b. Added back to net income whether declared or not.
c. Deducted from net income only if declared.
d. Deducted from net income whether declared or not.
Answer: D.
2. In determining earnings per share, interest expense, net of income tax, on convertible
debt that is dilutive should be
A. Added back to weighted-average shares outstanding for diluted earnings per share.
B. Added back to net income for diluted earnings per share.
C. Deducted from net income for diluted earnings per share.
D. Deducted from weighted-average shares outstanding for diluted earnings per share.
Answer: D.
3. A company operates a standard absorption costing system. The budgeted fixed production
overheads for the company for the latest year were P330,000 and budgeted output was
220,000 units. At the end of the company's financial year the total of the fixed production
overheads debited to the Fixed Production Overhead Control Account was P260,000 and the
actual output achieved was 200,000 units. The under/over absorption of overheads was
Answer: 40,000 over absorbed

OAR= 3,30,000/2,20,000 = 1.50 per units
Overhead absorbed(200000 units × 1.50)= 3,00,000
Actual Overhead= 2,60,000.
Over absorbed = 40,000
4. The Minor Company leased a freehold building for 20 years, the useful life of the building,
with effect from 1 January, 20X7. At that date the fair value of the leasehold interest was
PHP7.5 million of which PHP6.0 million was attributable to the building. Annual rentals of
PHP800,000 are payable in advance on 1 January. How much should Minor recognized
as an operating lease expense in the year ended 31 December 20X7, according to PAS17
Leases?
Answer: P160,000
A land and buildings lease should be separated into its two components: the land
component which will usually be classified as an operating lease; and the buildings
component which in this case extends to the end of the building's estimated useful life
and should be classified as a finance lease. The annual rental is split between the two
leases in proportion to the relative fair values of the two leasehold interests. 20% ((PHP7.5
million – PHP6.0 million) as a % of PHP7.5 million) of the rental is attributable to the land,
so PHP160,000.
5. Flor Company consumed P450,000 worth of direct materials during May, 2018. At the end of
the month, the direct materials inventory of Flor was P25,000 lower than the May 1 inventory
level. How much was the direct materials procured during May 2018?
Answer: P425,000
Direct materials used P450,000
Less: Decrease in inventory 25,000
Direct materials purchased P425,000

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What are the 4 types of errors that will require an entry to the suspense account to correct?

EASY ROUND

1. What is the purpose of reporting comprehensive income?

Cash received from the issuance of bonds (P100,000 × 102%)

Depreciation, Dec. 31, 20X5 (18,000 ÷ 8yrs.) P2,250

2. Net present value is negative when

Proceeds from exercise (30,000 shares × 20) P600,000

The incremental shares of 13,333 are added to the 110,000 shares.

3. An entity provided the following pension plan information:

Projected benefit obligation – January 1, 2016 3,500,000

Current service cost 1,750,000

4. The Whitianga Company commenced the construction of a new packaging plant on 1

1. In determining diluted earnings per share, dividends on nonconvertible cumulative

Answer: 40,000 over absorbed

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