Martin Corp. values its inventory by using the retail method (FIFO basis, lower of cost or NRV).

The
following information is available for the year just ended:

At what amount would Martin report its ending inventory?

A. P117,600
B. P113,400
C. P119,000
D. P112,000

On January 1, 2016, Mogul Company acquired equipment to be used in the manufacturing operations.
The equipment had an estimated useful life of 10 years and an estimated residual value of P50,000. The
depreciation applicable to this equipment was P240,000 for 2018 computed under the sum of years’
digits method. What was the acquisition cost of the equipment?
A. 1,650,000
B. 2,450,000
C. 2,400,000
D. 1,700,000

Which of the following items should be included in a company's inventory at the statement of financial
position date?
A. Goods received from another company for sale on consignment
B. Goods in transit which were purchased f.o.b. destination
C. None of these
D. Goods sold to a customer which are being held for the customer to call for at his or her convenience

Towsey Manufacturing acquired a new milling machine on April 1, 2012. The machine has a special
component that requires replacement before the end of the useful life. The asset was originally
recorded in two accounts, one representing the main unit and the other for the special component.
Depreciation is recorded by the straight-line method to the nearest month, residual values being
disregarded. On April 1, 2018, the special component is scrapped and is replaced with a similar
component. This component is expected to have a residual value of approximately 25% of cost at the
end of the useful life of the main unit, and because of its materiality, the residual value will be
considered in calculating depreciation. Specific asset information is as follows
What is the depreciation charge to be recognized for the year 2018?
A. P8,800
B. P5,930
C. P6,775
D. P9,100

The following are costs excluded from the cost of inventories, except
A. Import duties
B. Storage costs, unless those costs are necessary in the production process before a further production
stage
C. Abnormal amounts of wasted materials, labor or other production costs
D. Administrative overheads that do not contribute to bringing inventories to their present location and
condition

An entity imported machinery to install in its new factory before year-end. However, due to
circumstances beyond its control, the machinery was delayed by a few months but reached the factory
premises before year-end. While this was happening, the entity learned from the bank that it was being
charged interest on the loan it had taken to fund the cost of the plant. What is the proper treatment of
freight and interest expense under PAS 16?
A. Interest may be capitalized but freight should be expressed
B. Both expenses should be capitalized
C. Both expenses should be expensed
D. Freight charges should be capitalized but interest cannot be capitalized under these circumstances

This organization is dedicated to ensuring that the global markets can operate in an efficient and
effective basis
A. International Financial Reporting Standards Foundation
B. International Organization of Securities Commissions
C. International Accounting Standards Board
D. Financial Accounting Standards Board

On January 1, 2013, Farm Company planted trees on its land. The entity purchased the land two years
ago at a cost of P1,000,000.
The trees were considered bearer plants and had accumulated cost of P500,000 on December 31,2017.
By January 1, 2018, the trees had matured and were expected to bear produce for a period of 5 years.
On December 31 ,2018 the trees produced fruit and the fair value less cost of disposal on such date was
P50,000. There was no harvest during 2018.
On December 31, 2019, the fruits were harvested and the fair value less cost of disposal on such date
was P75,000.
What is the carrying amount of the biological asset on December 31, 2018?
A. II, III and IV only
B. I and II only
C. I, II, III and IV
D. II and IV only

Which of the following are bearer plants?

A. Plants cultivated to be harvested as agricultural produce.
B. None of the choices
C. Annual crops
D. Plants cultivated to produce agricultural produce when there is more than a remote likelihood that
the entity will also harvest and sell the plant as agricultural produce, other than as incidental scrap sales

Which of the following is (are) true about biological assets?

A. Biological assets must be valued at cost
B. Biological assets do not generally have future economic benefits
C. All of the choices
D. Biological assets are living animals or plants and must be disclosed as a separate item on the balance
sheet

Computer software for a computer-controlled machine tool that cannot operate without that specific
software is treated a
A. Property, plant and equipment
B. Investment property
C. Other non-current asset
D. Intangible asset

A newly set up dot-com entity has engaged you as its financial advisor. The entity has recently
completed one of its highly publicized research and development projects and seeks your advice on the
accuracy of the following statements made by one of its stakeholders. Which one is true?
A. Costs incurred during the “research phase” can be capitalized
B. Costs incurred during the “development phase” can be capitalized if criteria such as technical
feasibility of the project being established are met
C. Training costs of technicians used in research can be capitalized
D. Designing of jigs and tools qualify as research activities

Campbell Corp. exchanged delivery trucks with Highway, Inc. Campbell’s truck originally cost
P2,300,000, its accumulated depreciation was P2,000,000, and its fair value was P500,000. Highway’s
truck originally cost P2,350,000, its accumulated depreciation was P1,990,000, and its fair value was
P570,000. Campbell also paid Highway P70,000 in cash as part of the transaction. The transaction lacks
commercial substance. What amount is the new book value for the truck Campbell received?
A. P370,000
B. P500,000
C. P300,000
D. P570,000

Minty Corporation’s investment properties included the following items:

· Land held as potential plant site, P5,000,000.
· A vacant building to be leased out under an operating lease, P20,000,000.
· Property held for sale in the ordinary course of its business, P30,000,000.
· Property held for administrative purposes, P10,000,000.
· A hotel owned and managed, P50,000,000.
· A building being leased out to a subsidiary, P8,000,000.
· A building, which cannot be sold or leased out separately, used in the production of goods and
around 2% of the area being leased out to canteen operators, P2,000,000.
How much will be reported as investment properties in Minty Corporation’s separate financial
statements?
A. P25,000,000
B. P33,000,000
C. P20,000,000
D. P28,000,000

In relation to the amortization of intangible assets, the general rule in PAS 38 Intangibles, is that unless
demonstrated otherwise:
A. The residual value is presumed to be zero
B. The residual need not be reviewed at the end of each annual reporting period
C. All intangible assets have a residual value at least equal to the amount of maintenance costs incurred
D. The residual value does not enter into the determination of the amortization charge

Which statement is incorrect?

A. The chairman of the FRSC should have been or presently a senior practitioner in public accountancy
B. The Bureau of Internal Revenue is represented in the FRSC
C. The Insurance Commission is represented in the Philippine Interpretations Committee
D. Bicol is not a PICPA Geographical Area

The net realizable value of the quantity of inventory held to satisfy firm sales or service contracts is
based on the

A. General selling prices

B. Quoted prices in an active market for identical assets
C. Contract price.
D. Quoted prices in an active market for similar assets

Gatas Dairy produces milk to sell to local and national ice cream producers. Gatas Dairy began operations
on January 1, 2018 by purchasing 840 milk cows for P1,176,000. The company controller had the
following information available at year end relating to the cows:

At December 31, 2018, what is the value of the milking cows on Gatas Dairy’s statement of financial
position?
A. P1,499,000
B. P1,445,000
C. P1,553,000
D. P1,583,000

Which of the following generally provides the best evidence of fair value of an investment property?
A. Recent prices on less active markets with adjustments to reflect the changes in economic conditions
B. Discounted cash flow projections based on reliable estimates of future cash flows
C. Current prices for properties of a different nature or subject to different conditions
D. Current prices in an active market for similar property in the same location and condition

Contract prices are not necessarily relevant in determining fair value, and the fair value of a biological
asset or agricultural produce is not adjusted because of the existence of a contract
External independent valuation is an acceptable fair value measurement for biological assets and
agricultural produce
A. True, False
B. True, True
C. False, False
D. False, True

Which statement is correct?

A. The Insurance Commission is not represented in the FRSC
B. FINEX is the accredited professional organization of CPAs by the PRC.
C. The Bangko Sentral ng Pilipinas is not represented in the AASC
D. The chairman of the FRSC should have been or presently a senior practitioner in public accountancy.

January 1, 2018, Uptown Company disclosed the following balances

During the current year, the following transactions occurred:
·Land was acquired for ₱2,000,000 cash as a building site.
·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 ₱45 on a stock exchange.
Current appraised values for the land and the building, respectively, are ₱2,000,000 and ₱8,000,000. The
building has an expected life of 40 years with a ₱200,000 residual value.
·Items of machinery and equipment were purchased at a total cost of ₱4,000,000. Additional costs
incurred were freight and unloading of ₱100,000 and installation ₱300,000. The equipment has a useful
life of ten years with no residual value.
·Expenditures totaling ₱1,200,000 were made for new parking lot, street and sidewalk at the entity’s
various plant locations. These expenditures had an estimated useful life of fifteen years.
·Research and development costs amounted to ₱1,100,000.
·A machine costing ₱200,000 on January 1, 2011 was scrapped on June 30, 2018. Straight line
depreciation had been recorded on the basis of a 10-year life with no residual value.
·A machine was sold for ₱500,000 on July 1, 2018. Original cost of the machine sold was ₱700,000 on
January 1, 2015, and it was depreciated on the straight line basis over an estimated useful life of eight
years and residual value of ₱50,000.
What is the total cost of land on December 31, 2018?
A. P7,600,000
B. P6,800,000
C. P8,000,000
D. P7,800,000

On January 1, 2013, Farm Company planted trees on its land. The entity purchased the land two years
ago at a cost of P1,000,000.
The trees were considered bearer plants and had accumulated cost of P500,000 on December 31,2017.
By January 1, 2018, the trees had matured and were expected to bear produce for a period of 5 years.
On December 31 ,2018 the trees produced fruit and the fair value less cost of disposal on such date was
P50,000. There was no harvest during 2018.
On December 31, 2019, the fruits were harvested and the fair value less cost of disposal on such date
was P75,000.
What is the carrying amount of the biological asset on December 31, 2018?
A. II, III and IV only
B. II and IV only
C. I and II only
D. I, II, III and IV
The Financial Reporting and Standards Council (FRSC)
A. Has the authority to establish the accounting framework to be used by companies under its
jurisdiction
B. Is the accredited professional organization of CPAs by the PRC.
C. Is composed of a chairman and six (6) members
D. Establishes generally accepted accounting principles in the Philippines

Which statement is incorrect regarding the fair value hierarchy in PFRS 13?
A. To increase consistency and comparability in fair value measurements and related disclosures, PFRS 13
establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques
used to measure fair value.
B. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs
C. Adjustments to arrive at measurements based on fair value, such as costs to sell when measuring fair
value less costs to sell, shall be taken into account when determining the level of the fair value hierarchy
within which a fair value measurement is categorized.
D. The fair value hierarchy prioritizes the inputs to valuation techniques, not the valuation techniques
used to measure fair value

Muscat Company purchased a patent on January 1, 2012, for P3,570,000.The patent was being
amortized over its remaining legal life of 15 years. During 2015 Muscat determined that the economic
benefits of the patent would not last longer than ten years from the date of acquisition. What amount
should be reported in the statement of financial position as patent, net of accumulated amortization, at
December 31, 2015?
A. P2,618,000
B. P2,520,000
C. P2,142,000
D. P2,448,000

Which of the following distinguishes investment property from owner occupied-property?

A. Investment property does not generate cash flows largely independently of the other assets held by
an entity
B. Investment property is normally classified as a noncurrent asset
C. Investment property is held to earn rentals
D. Investment property generates cash flows largely independently of the other assets held by an entity

On January 1, 2015, Sunflower Company purchased for P240,000 a machine with a useful life of ten
years and no salvage value. The machine was depreciated by the double-declining balance method and
the carrying amount of the machine was P153,600 on December 31, 2016. Sunflower changed to the
straight-line method on January 1, 2017. Sunflower can justify the change. What should be the
depreciation expense on this machine for the year ended December 31, 2017?
A. P30,720
B. P15,360
C. P24,000
D. P19,200

As generally used in accounting, what is depreciation?

A. It is a process of asset valuation for balance sheet purposes
B. It applies only to long-lived intangible assets\
C. It is an accounting process which systematically allocates long-lived asset cost to accounting periods
D. It is used to indicate a decline in market value of long-lived asset

Towsey Manufacturing acquired a new milling machine on April 1, 2011. The machine has a special
component that requires replacement before the end of the useful life. The asset was originally recorded
in two accounts, one representing the main unit and the other for the special component. Depreciation
is recorded by the straight-line method to the nearest month, residual values being disregarded. On April
1, 2017, the special component is scrapped and is replaced with a similar component. This component is
expected to have a residual value of approximately 25% of cost at the end of the useful life of the main
unit, and because of its materiality, the residual value will be considered in calculating depreciation.
Specific asset information is as follows:

What is the depreciation charge to be recognized for the year 2017?

A. P5,930
B. P6,775
C. P8,800
D. P9,100

In the 30 June 2017 annual report of Johnston Ltd, the equipment was reported as follows:

The equipment consisted of two machines, machine A and machine B. Machine A had cost P3,000,000
and had a carrying amount of P1,800,000 at 30 June 2017, while machine B had cost P2,000,000 and was
carried at P1,700,000. Both machines are measured using the cost model, and depreciated on a straight-
line basis over a ten-year period.
On 31 December 2017, the directors of Johnston Ltd decided to change the basis of measuring the
equipment from the cost model to the revaluation model. Machine A was revalued to P1,800,000 with
an expected useful life of six years, and machine B was revalued to P1,550,000 with an expected useful
life of five years.
The amount to be recognized in profit or loss as a result of the revaluation of assets on December 31,
2017 is
A. P(50,000)
B. P150,000
C. P100,000
D. P(150,000)

Baritone Company counted and reported the ending inventory on December 31, 2018 at
P2,000,000. None of the following items were included when the total amount of the ending inventory
was computed:

What is the correct amount of inventory on December 31, 2018?

A. 2,350,000

B. 2,750,000

C. 2,500,000

D. 2,900,000

Dairy Company provided the following information for the current year

What is the net income for the current year?

A. 650,000

B. 600,000

C. 185,000

D. 130,000

The following are costs excluded from the cost of inventories, except

A. Import duties

B. Abnormal amounts of wasted materials, labor or other production costs

C. Administrative overheads that do not contribute to bringing inventories to their present location and
condition
D. Storage costs, unless those costs are necessary in the production process before a further production
stage

How should sales staff commission be dealt with when valuing inventories at the lower of cost and net
realizable value (NRV), according to PAS2 Inventories?

A. Deducted in arriving at NRV

B. Added to cost

C. Deducted from cost

D. Ignored

Which of the following is (are) true about biological assets?

A. Biological assets do not generally have future economic benefits

B. Biological assets must be valued at cost

C. All of the choices

D. Biological assets are living animals or plants and must be disclosed as a separate item on the balance
sheet

When allocating costs to inventory produced for the period, fixed overhead should be based upon

A. The actual amounts of goods produced during the period

B. The lowest production level in the last three periods

C. The normal capacity of production facilities

D. The highest production levels in the last three periods

The net realizable value of the quantity of inventory held to satisfy firm sales or service contracts is
based on the

A. Quoted prices in an active market for identical assets

B. General selling prices

C. Contract price.

D. Quoted prices in an active market for similar assets

Jade Company acquired a new milling machine on April 1, 2012. The machine has a special component
that required replacement before the end of the useful life. The asset was originally recorded in two
accounts, one representing the main unit and the other for the special component. Depreciation is
recorded by the straight line method and residual value is disregarded. 

On April 1, 2018, the special component is scrapped and is replaced with a similar component. This new
component is expected to have a residual value of approximately 20% of cost at the end of the useful
life of the main unit, and because of materiality, the residual value will be considered in calculating
depreciation.

What is the total depreciation for 2018?

A. 1,100,000

B. 1,350,000

C. 1,087,500

D. 1,175,000

Bensol Co. and Sable Co. exchanged similar trucks with fair values in excess of carrying amounts. In
addition, Bensol paid Sable to compensate for the difference in truck values. As a consequence of the
exchange, Sable recognizes

A. A gain determined by the proportion of cash received to the total consideration.

B. A loss determined by the proportion of cash received to the total consideration

C. A gain equal to the difference between the fair value and carrying amount of the truck given up

D. Neither a gain nor a loss

January 1, 2018, Uptown Company disclosed the following balances

During the current year, the following transactions occurred:

·         Land was acquired for ₱2,000,000 cash as a building site.

·         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 ₱45 on a stock exchange.
Current appraised values for the land and the building, respectively, are ₱2,000,000 and ₱8,000,000. The
building has an expected life of 40 years with a ₱200,000 residual value.

·         Items of machinery and equipment were purchased at a total cost of ₱4,000,000. Additional costs
incurred were freight and unloading of ₱100,000 and installation ₱300,000. The equipment has a useful
life of ten years with no residual value.

·         Expenditures totaling ₱1,200,000 were made for new parking lot, street and sidewalk at the
entity’s various plant locations. These expenditures had an estimated useful life of fifteen years.

·         Research and development costs amounted to ₱1,100,000.

·         A machine costing ₱200,000 on January 1, 2011 was scrapped on June 30, 2018. Straight line
depreciation had been recorded on the basis of a 10-year life with no residual value.

·         A machine was sold for ₱500,000 on July 1, 2018. Original cost of the machine sold was ₱700,000
on January 1, 2015, and it was depreciated on the straight line basis over an estimated useful life of
eight years and residual value of ₱50,000.

What is the total cost of land on December 31, 2018?

A. P8,000,000

B. P7,600,000

C. P7,800,000

D. P6,800,000

According to PAS 38 Intangible assets, which of the following statements about research and
development expenditure is incorrect?

A. In deciding whether development expenditure qualifies to be recognized as an asset, it is necessary to

consider whether there will be adequate finance available to complete the project

B. Development expenditure recognized as an asset must be amortized over a period not exceeding 5
years

C. Capitalized development expenditure must be disclosed in the statement of financial position under
intangible non-current assets

D. Research expenditure, other than capital expenditure on research facilities, should be recognized as
an expense as incurred

Campbell Corp. exchanged delivery trucks with Highway, Inc. Campbell’s truck originally cost
P2,300,000, its accumulated depreciation was P2,000,000, and its fair value was P500,000.  Highway’s
truck originally cost P2,350,000, its accumulated depreciation was P1,990,000, and its fair value was
P570,000.  Campbell also paid Highway P70,000 in cash as part of the transaction.  The transaction lacks
commercial substance.  What amount is the new book value for the truck Campbell received?

A. P500,000

B. P570,000

C. P300,000

D. P370,000
On June 30, 2017, a flash flood damaged the warehouse and factory of Raptors Corporation, completely
destroying the work in process inventory.  There was no damage to either the raw materials or finished
goods inventories.  A physical inventory taken after the flood revealed the following valuations:

A review of the books and records disclosed that the gross profit margin historically approximated 34%
of sales.  The sales for the first 6 months of 2017 were P428,000.  Raw materials purchases were
P96,000.  Direct labor costs for this period were P130,000, and manufacturing overhead has historically
been applied at 60% of direct labor. 

Compute the value of the work in process inventory lost on June 30, 2017.

A. P271,980

B. P119,020

C. P92,220

D. P135,020

On January 1, 2015, Sunflower Company purchased for P240,000 a machine with a useful life of ten
years and no salvage value.  The machine was depreciated by the double-declining balance method and
the carrying amount of the machine was P153,600 on December 31, 2016.  Sunflower changed to the
straight-line method on January 1, 2017.  Sunflower can justify the change.  What should be the
depreciation expense on this machine for the year ended December 31, 2017?

A. P15,360

B.P24,000

C. P19,200

D. P30,720

An entity controls an asset if

A. The entity has the power to obtain the future economic benefits flowing from the underlying
resource and to restrict the access of others to those benefits

B. The asset is capable of being separated or divided from the entity and sold, transferred, licensed,
rented or exchanged, either individually or together with a related contract, identifiable asset or liability,
regardless of whether the entity intends to do so

C. The asset arises from contractual or other legal rights, regardless of whether those rights are
transferable or separable from the entity or from other rights and obligations

D. The asset will help in generating revenues or reducing future production costs
Bensol Co. and Sable Co. exchanged similar trucks with fair values in excess of carrying amounts.  In
addition, Bensol paid Sable to compensate for the difference in truck values.  As a consequence of the
exchange, Sable recognizes

A. Neither a gain nor a loss

B. A gain equal to the difference between the fair value and carrying amount of the truck given up

C. A loss determined by the proportion of cash received to the total consideration

D. A gain determined by the proportion of cash received to the total consideration

On January 1, 2013, Farm Company planted trees on its land. The entity purchased the land two years
ago at a cost of P1,000,000.
The trees were considered bearer plants and had accumulated cost of P500,000 on December 31,2017. 
By January 1, 2018, the trees had matured and were expected to bear produce for a period of 5 years. 
On December 31 ,2018 the trees produced fruit and the fair value less cost of disposal on such date was
P50,000. There was no harvest during 2018. 
On December 31, 2019, the fruits were harvested and the fair value less cost of disposal on such date
was P75,000. 
What is the carrying amount of the biological asset on December 31, 2018? 
A. 0
B. 450,000
C. 550,000
D. 50,000

On January 1, 2018, Divine Company provided the following information relating to the revaluation of an
equipment:
The equipment was sold on December 31, 2018 for P8,000,000.
What amount of gain on sale of equipment should be recognized on December 31, 2018?
A. P3,000,000
B. P3,230,000
C. P3,030,000
D. P1,050,000

Which of the following is not a bearer plant?

A. Trees in timber plantation
B. Rubber trees
C. Tea bushes
D. Grape vines

When allocating costs to inventory produced for the period, fixed overhead should be based upon
A. The highest production levels in the last three periods
B. The normal capacity of production facilities
C. The actual amounts of goods produced during the period
D. The lowest production level in the last three periods

Which statement is incorrect regarding the fair value hierarchy in PFRS 13?
A. To increase consistency and comparability in fair value measurements and related disclosures, PFRS
13 establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques
used to measure fair value.
B. Adjustments to arrive at measurements based on fair value, such as costs to sell when measuring fair
value less costs to sell, shall be taken into account when determining the level of the fair value hierarchy
within which a fair value measurement is categorized.
C. The fair value hierarchy prioritizes the inputs to valuation techniques, not the valuation techniques
used to measure fair value
D. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs

Jade Company acquired a new milling machine on April 1, 2012. The machine has a special component
that required replacement before the end of the useful life. The asset was originally recorded in two
accounts, one representing the main unit and the other for the special component. Depreciation is
recorded by the straight line method and residual value is disregarded.
On April 1, 2018, the special component is scrapped and is replaced with a similar component. This new
component is expected to have a residual value of approximately 20% of cost at the end of the useful
life of the main unit, and because of materiality, the residual value will be considered in calculating
depreciation.
What is the total depreciation for 2018?
A. 1,175,000

B. 1,350,000

C. 1,087,500

D. 1,100,000

Which of the following generally provides the best evidence of fair value of an investment property?
A. Recent prices on less active markets with adjustments to reflect the changes in economic conditions
B. Current prices in an active market for similar property in the same location and condition
C. Current prices for properties of a different nature or subject to different conditions
D. Discounted cash flow projections based on reliable estimates of future cash flows

How should sales staff commission be dealt with when valuing inventories at the lower of cost and net
realizable value (NRV), according to PAS2 Inventories?
A. Deducted from cost
B. Added to cost
C. Ignored
D. Deducted in arriving at NRV

On January 1, 2015, Sunflower Company purchased for P240,000 a machine with a useful life of ten
years and no salvage value.  The machine was depreciated by the double-declining balance method and
the carrying amount of the machine was P153,600 on December 31, 2016.  Sunflower changed to the
straight-line method on January 1, 2017.  Sunflower can justify the change.  What should be the
depreciation expense on this machine for the year ended December 31, 2017?
A. P30,720
B. P19,200
C. P15,360
D. P24,000

Rubber Soul Co. purchased equipment on 1/1/13 for P500,000, estimating a four-year useful life and no
residual value.  In 2013 and 2014, Rubber Soul depreciated the asset using the sum-of-years'-digits
method.  In 2015, Rubber Soul  changed to straight-line depreciation for this equipment.  What
depreciation would Rubber Soul record for the year 2015 on this equipment?
A. P150,000
B. P125,000
C. P75,000
D. P175,000

Which statement is incorrect regarding measurement of fair value of investment property on the basis
of a valuation by an independent valuer who holds a recognized and relevant professional qualification
and has recent experience in the location and category of the investment property being valued?
A. None of the choices
B. An entity shall disclose the extent to which the fair value of investment property is determined on
that basis
C. An entity need not disclose the fact the fair value of investment property is not determined on that
basis.
D. An entity is encouraged, but not required, to measure the fair value of investment property on that
basis.

If a company constructs a laboratory building to be used as a research and development facility, the cost
of the laboratory building is matched against earnings as
A. Depreciation or immediate write-off depending on company policy
B. Depreciation deducted as part of research and development costs
C. Research and development expense in the period(s) of construction
D. An expense at such time as productive research and development has been obtained from the facility

Under the revaluation model, how often shall revaluations be made?

A. It depends upon the entity’s accounting policy
B. Every three or five years
C. It depends upon the changes in fair values of the items of property, plant and equipment being
revalued
D. Annually

Wan acquired Yang, a small company that specializes in pharmaceutical drug research and development
for P35 million.  The fair value of Yang’s net assets was P15 million (excluding any items referred to
below).

Yang owns a patent for an established successful drug that has a remaining life of 8 years.  A firm of
specialist advisors, Tantsahan, has estimated the current value of this patent to be P10 million; however,
the company is awaiting the outcome of clinical trials where the drug has been tested to treat a
different illness.  If the trials are successful, the value of the drug is then estimated to be P15 million. 
Also included in the company’s balance sheet is P2 million for medical research that has been conducted
on behalf of a client.
Compute the amount of goodwill from this acquisition.
A. P20M
B. P5M
C. P8M
D. P3M

Which of the following generally provides the best evidence of fair value of an investment property?

A.Discounted cash flow projections based on reliable estimates of future cash flows

B.Current prices in an active market for similar property in the same location and condition

C.Current prices for properties of a different nature or subject to different conditions

D.Recent prices on less active markets with adjustments to reflect the changes in economic
conditions

Which of the following should be classified as inventory? 

I. An entity trades in commercial property (ie it buys commercial property with a view to selling it at a
profit in the near term). 

II. An entity acquired a tract of land to divide it into smaller plots to be sold in the ordinary course of
business at an expected forty per cent profit margin. No rentals are expected to be generated from the
land. 
III. An entity trades in transferable taxi licenses. 

IV. A vintner processes grapes harvested from its vineyards into wine in a three-year production cycle. 

V. An entity holds lubricants that are consumed by the entity’s machinery in producing goods.

A.I, II and IV only

B.I, II, III and V only

C.I, II, III, IV and V

D.I, II, III and IV only

Baritone Company counted and reported the ending inventory on December 31, 2018 at
P2,000,000. None of the following items were included when the total amount of the ending inventory
was computed:

What is the correct amount of inventory on December 31, 2018?

A.2,350,000

B.2,900,000

C.2,750,000

D.2,500,000

On January 1, 2013, Farm Company planted trees on its land. The entity purchased the land two years
ago at a cost of P1,000,000.

 The trees were considered bearer plants and had accumulated cost of P500,000 on December 31,2017.

 By January 1, 2018, the trees had matured and were expected to bear produce for a period of 5 years.

 On December 31 ,2018 the trees produced fruit and the fair value less cost of disposal on such date was
P50,000. There was no harvest during 2018.

 On December 31, 2019, the fruits were harvested and the fair value less cost of disposal on such date
was P75,000.

 What is the carrying amount of the biological asset on December 31, 2018?

A.II, III and IV only

B.I, II, III and IV

 C.I and II only

D.II and IV only

Which of the following are bearer plants?

A.Plants cultivated to be harvested as agricultural produce.

B.None of the choices

C.Plants cultivated to produce agricultural produce when there is more than a remote likelihood
that the entity will also harvest and sell the plant as agricultural produce, other than as incidental scrap
sales

D.Annual crops

How should sales staff commission be dealt with when valuing inventories at the lower of cost and net
realizable value (NRV), according to PAS2 Inventories?

A.Deducted in arriving at NRV

B.Deducted from cost

C.Added to cost

D.Ignored

Altis Company reported the following information for the current year:

The accounting policy is to report inventory in the financial statements at the lower of cost and net
realizable value.

Cost is determined under the first in, first out method.

At the year-end, the entity has determined that the replacement cost of inventory was 70 per unit and
the net realize value was 72 per unit. The normal profit margin is 10 per unit.

 What amount should be reported as cost of goods sold for the current year?

A.6,300,000

B.6,500,000

C.6,900,000
 D.6,700,00

This organization is dedicated to ensuring that the global markets can operate in an efficient and
effective basis

A.International Organization of Securities Commissions

B.International Accounting Standards Board

C.International Financial Reporting Standards Foundation

D.Financial Accounting Standards Board

When allocating costs to inventory produced for the period, fixed overhead should be based upon

A.The actual amounts of goods produced during the period

B.The normal capacity of production facilities

C.The highest production levels in the last three periods

D.The lowest production level in the last three periods

Which of the following is not true about accounting for inventory under PAS 2?

A.FIFO is allowed

B.Inventories are always valued at net realizable value

C.The weighted-average method is acceptable

D.Interest cost may be capitalized if there is a lengthy production period to prepare goods for sale

Which statement is incorrect regarding measurement of fair value of investment property on the basis
of a valuation by an independent valuer who holds a recognized and relevant professional qualification
and has recent experience in the location and category of the investment property being valued?

A.An entity need not disclose the fact the fair value of investment property is not determined on
that basis.
B.None of the choices
 C.An entity is encouraged, but not required, to measure the fair value of investment property on
that basis.
D.An entity shall disclose the extent to which the fair value of investment property is determined on
that basis

In the case of property held under an operating lease and classified as investment propert

A.The entity needs only to disclose the fair value and can use the cost model under PAS 16
B.The entity has the choice between the cost model and the fair value model
C.The entity has to use the fair value model only
D.The entity has to account for the investment property under the cost model only

The Shop Company sells TVs.  The perpetual inventory was stated as P305,000 on the books at
December 31, 2017.  At the close of the year, a new approach for compiling inventory was used and
apparently a satisfactory cut-off for preparation of financial statements was not made.  Some events
that occurred are as follows.
a)   TVs shipped to a customer January 2, 2018, costing P50,000 were included in inventory at December
31, 2017.  The sale was recorded in 2018.
b)  TVs costing P100,000 received December 30, 2017, were recorded as received on January 2, 2018.
c)   TVs received during 2017 costing P46,000 were recorded twice in the inventory account.
d)  TVs shipped to a customer December 28, 2017, f.o.b. shipping point, which cost P150,000, were not
received by the customer until January, 2018.  The TVs were included in the ending inventory.
e)  TVs on hand that cost P61,000 were never recorded on the books.
 Compute the correct inventory at December 31, 2017

A.P320,000
B.P259,000
C.P220,000
D.P270,000

An entity controls an asset if

A.The asset arises from contractual or other legal rights, regardless of whether those rights are
transferable or separable from the entity or from other rights and obligations
B.The asset is capable of being separated or divided from the entity and sold, transferred, licensed,
rented or exchanged, either individually or together with a related contract, identifiable asset or liability,
regardless of whether the entity intends to do so
C.The asset will help in generating revenues or reducing future production costs
 D.The entity has the power to obtain the future economic benefits flowing from the underlying
resource and to restrict the access of others to those benefits

Income earned through using a building site as a car park until construction starts is

A.Deducted from the cost of land

B.Deducted from the cost of building
C.Deducted from the cost of land and building pro rata
D.Recognized in profit or loss

Under the revaluation model, how often shall revaluations be made?

A.Annually
B.It depends upon the entity’s accounting policy
C.It depends upon the changes in fair values of the items of property, plant and equipment being
revalued
D.Every three or five years

An entity provided the following information related to the development of a particular software
package in the first year of product life:
What is the total expense related to this software package to be recognized in its first-year?
A. P16,000
B. P7,000
C. P11,500
D. P12,000

Which statement is incorrect regarding the fair value hierarchy in PFRS 13?
A. Adjustments to arrive at measurements based on fair value, such as costs to sell when measuring fair
value less costs to sell, shall be taken into account when determining the level of the fair value hierarchy
within which a fair value measurement is categorized
B. To increase consistency and comparability in fair value measurements and related disclosures, PFRS
13 establishes a fair value hierarchy that categorizes into three levels the inputs to valuation techniques
used to measure fair value
C. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for
identical assets or liabilities and the lowest priority to unobservable inputs
D. The fair value hierarchy prioritizes the inputs to valuation techniques, not the valuation techniques
used to measure fair value
On January 1, year 1, an entity acquires for P100,000 a new piece of machinery with an estimated useful
life of 10 years.  The machinery has a drum that must be replaced every five years and costs P20,000 to
replace.  Continued operation of the machine requires an inspection every four years after purchase; the
inspection cost is P8,000.  The company uses the straight-line method of depreciation.  What is the
depreciation expense for year 1?
A. P13,200
B. P12,000
C. P10,000
D. P10,800

Wan acquired Yang, a small company that specializes in pharmaceutical drug research and development
for P35 million.  The fair value of Yang’s net assets was P15 million (excluding any items referred to
below).
 
Yang owns a patent for an established successful drug that has a remaining life of 8 years.  A firm of
specialist advisors, Tantsahan, has estimated the current value of this patent to be P10 million; however,
the company is awaiting the outcome of clinical trials where the drug has been tested to treat a
different illness.  If the trials are successful, the value of the drug is then estimated to be P15 million. 
Also included in the company’s balance sheet is P2 million for medical research that has been conducted
on behalf of a client.
 Compute the amount of goodwill from this acquisition.
A. P8M
B. P3M
C. P20M
D. P5M

Which one of the following is a criticism of PAS 40 Investment Property?

A. Classifying investment properties separately from property, plant and equipment on the statement of
financial position does not faithfully represent the operations of the business
B. Requiring fair value movements to be recognized in profit or loss results in less reliable information
for users
C. Fair value of investment properties cannot be reliably measured due to their specific nature
D. Since entities can choose between fair value or cost, the comparability between entities is reduced

The following are costs excluded from the cost of inventories, except
A. Storage costs, unless those costs are necessary in the production process before a further production
stage
B. Administrative overheads that do not contribute to bringing inventories to their present location and
condition
C. Import duties
D. Abnormal amounts of wasted materials, labor or other production costs
How should sales staff commission be dealt with when valuing inventories at the lower of cost and net
realizable value (NRV), according to PAS2 Inventories?
A. Deducted from cost
B. Deducted in arriving at NRV
C. Ignored
D. Added to cost

Which statement is incorrect?

A. The Insurance Commission is represented in the Philippine Interpretations Committee
B. Bicol is not a PICPA Geographical Area
C. The Bureau of Internal Revenue is represented in the FRSC
D. The chairman of the FRSC should have been or presently a senior practitioner in public accountancy

On January 1, 2013, Farm Company planted trees on its land. The entity purchased the land two years
ago at a cost of P1,000,000.
The trees were considered bearer plants and had accumulated cost of P500,000 on December 31,2017.
By January 1, 2018, the trees had matured and were expected to bear produce for a period of 5 years.
On December 31 ,2018 the trees produced fruit and the fair value less cost of disposal on such date was
P50,000. There was no harvest during 2018.
On December 31, 2019, the fruits were harvested and the fair value less cost of disposal on such date
was P75,000.
What is the carrying amount of the biological asset on December 31, 2018?
A. 50,000
B. 550,000
C. 450,000
D. 0

Towsey Manufacturing acquired a new milling machine on April 1, 2012. The machine has a special
component that requires replacement before the end of the useful life. The asset was originally
recorded in two accounts, one representing the main unit and the other for the special component.
Depreciation is recorded by the straight-line method to the nearest month, residual values being
disregarded. On April 1, 2018, the special component is scrapped and is replaced with a similar
component. This component is expected to have a residual value of approximately 25% of cost at the
end of the useful life of the main unit, and because of its materiality, the residual value will be
considered in calculating depreciation. Specific asset information is as follows:
What is the depreciation charge to be recognized for the year 2018?
A. P9,100
B. P8,800
C. P6,775
D. P5,930

On January 1, 2013, Farm Company planted trees on its land. The entity purchased the land two years
ago at a cost of P1,000,000.
The trees were considered bearer plants and had accumulated cost of P500,000 on December 31,2017.
By January 1, 2018, the trees had matured and were expected to bear produce for a period of 5 years.
On December 31 ,2018 the trees produced fruit and the fair value less cost of disposal on such date was
P50,000. There was no harvest during 2018.
On December 31, 2019, the fruits were harvested and the fair value less cost of disposal on such date
was P75,000.
What is the carrying amount of the biological asset on December 31, 2018?
Select one:
A. II and IV only
B. II, III and IV only
C. I and II only
D. I, II, III and IV

Jade Company acquired a new milling machine on April 1, 2012. The machine has a special component
that required replacement before the end of the useful life. The asset was originally recorded in two
accounts, one representing the main unit and the other for the special component. Depreciation is
recorded by the straight line method and residual value is disregarded.
On April 1, 2018, the special component is scrapped and is replaced with a similar component. This new
component is expected to have a residual value of approximately 20% of cost at the end of the useful
life of the main unit, and because of materiality, the residual value will be considered in calculating
depreciation.
What is the total depreciation for 2018?
A. 1,350,000
B. 1,087,500
C. 1,100,000
D. 1,175,000

This organization is dedicated to ensuring that the global markets can operate in an efficient and
effective basis
A. Financial Accounting Standards Board
B. International Financial Reporting Standards Foundation
C. International Accounting Standards Board
D. International Organization of Securities Commissions

An entity imported machinery to install in its new factory before year-end. However, due to
circumstances beyond its control, the machinery was delayed by a few months but reached the factory
premises before year-end. While this was happening, the entity learned from the bank that it was being
charged interest on the loan it had taken to fund the cost of the plant. What is the proper treatment of
freight and interest expense under PAS 16?
A. Freight charges should be capitalized but interest cannot be capitalized under these circumstances
B. Both expenses should be expensed
C. Interest may be capitalized but freight should be expressed
D. Both expenses should be capitalized

Which of the following is not an agricultural activity?

A. Rice farming
B. Vegetable planting
C. Ocean fishing
D. Hog raising