BALIUAG UNIVERSITY

CPA REVIEW

FINANCIAL ACCOUNTING PROBLEMS FAR-2017-32

DISCONTINUED OPERATION AND NONCURRENT ASSET HELD FOR SALE

1. K COMPANY is a diversified entity with nationwide interest in commercial real estate

development, banking, mining and food distribution. The food distribution division was
deemed to be inconsistent with the long-term direction of the entity. On October 1,
2017, the board of directors voted to approve the disposal of this division. The sale is
expected to occur in August 2018. The food distribution had the following revenue and
expenses in 2017: January 1 to September 30, revenue of P35,000,000 and expenses
of P25,000,000; October 1 to December 31, revenue of P10,000,000 and expenses of
P12,000,000. The carrying amount of the division’s asset on December 31, 2017 was
P50,000,000 and the recoverable amount was estimated to be P55,000,000. The sale
contract required the entity to terminate certain employees incurring an expected
termination cost of P1,000,000 to be paid by December 15, 2018. The income tax rate
is 30%. What amount should be reported as income from discontinued operations for
2017?

a. 5,600,000
b. 9,100,000
c. 4,900,000
d. 8,400,000

2. On July 1, 2017, L COMPANY committed to a plan to dispose of a major subsidiary.

The disposal met the requirements for classification as discontinued operation. The
carrying amount of the subsidiary was P8,000,000 and management estimated the fair
value less cost of disposal at P6,500,000. The subsidiary had an operating loss of
P2,000,000 for the entire year. What amount should be presented as pretax loss from
discontinued operation for the current year?

a. 3,500,000
b. 1,500,000
c. 2,000,000
d. 0

3. M COMPANY accounted for noncurrent assets using the cost model. On July 1, 2017,
the entity classified an equipment as held for sale. At that date, carrying amount was
P5,000,000, the fair value was estimated at P3,500,000 and the cost of disposal at
P100,000. On December 31, 2017, the equipment was sold for net proceeds of
P2,500,000. What amount should be included as an impairment loss for 2017?

a. 1,600,000
b. 2,500,000
c. 1,500,000
d. 900,000

4. N COMPANY accounted for noncurrent assets using the revaluation model. On October
1, 2017, the entity classified a land as held for sale. At that date, the carrying amount
of the land was P5,000,000 and the balance in the revaluation surplus was
P1,500,000. At same date, the fair value of the land was estimated at P5,500,000 and
the cost of disposal at P100,000. On December 31, 2017, the fair value less cost of
disposal of the land did not change. The land was sold on January 31, 2018 for
P6,000,000. What amount should be reported as gain on disposal of land in 2018?

a. 1,000,000
b. 2,600,000
c. 500,000
d. 600,000

1
 BALIUAG UNIVERSITY
CPA REVIEW

FINANCIAL ACCOUNTING PROBLEMS FAR-2017-32

5. O COMPANY purchased an equipment for P5,000,000 on January 1, 2016. The

equipment had a useful life of 5 years with no residual value. On December 31, 2016,
the entity classified the asset as held for sale. On such date, the fair value less cost of
disposal of the equipment was P3,500,000.

On December 31, 2017, the entity believed that the criteria for classification as held
for sale can no longer be met. Accordingly, the entity decided not to sell the asset but
to continue to use it. On December 31, 2017, the fair value less cost of disposal of the
equipment was P2,700,000.

1. What amount of impairment loss should be recognized in 2016?

a. 1,500,000
b. 1,000,000
c. 500,000
d. 0

2. What amount should be included in profit or loss in 2017 as a result of the

reclassification of the equipment to property, plant and equipment?

a. 800,000 gain
b. 800,000 loss
c. 300,000 gain
d. 300,000 loss

3. What is the depreciation for 2018?

a. 1,000,000
b. 875,000
c. 900,000
d. 675,000

2
NAME: Date:
Professor: Section: Score:

INTERMEDIATE ACCOUNTING 3
FIRST GRADING EXAMINATION

1. According to PAS 1, an asset shall be classified as current when it satisfies any of the following
criteria, except
a. it is expected to be realized in, or is intended for sale or consumption in, the entity’s normal
operating cycle
b. it is held primarily for the purpose of being traded
c. it is expected to be realized within twelve months after the balance sheet date
d. it is cash or a cash equivalent that is restricted

2. A liability shall be classified as current when it satisfies any of the following criteria, except
a. it is expected to be settled in the entity’s normal operating cycle
b. it is held primarily for the purpose of being traded
c. it is due to be settled within twelve months after the balance sheet date
d. the entity has an unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date.

3. If an entity expects, and has the discretion, to refinance or roll over an obligation for at least
twelve months after the balance sheet date under an existing loan facility, it classifies the
obligation as non-current,
a. even if it would otherwise be due within a shorter period.
b. even if the original term was for a period longer than twelve months
c. even if an agreement to refinance, or to reschedule payments, on a long-term basis is
completed after the reporting period and before the financial statements are authorized for
issue
d. choices b and c

4. When an entity breaches an undertaking under a long-term loan agreement on or before the end
of the reporting period with the effect that the liability becomes payable on demand, (choose the
incorrect statement)
a. The liability is classified as current, even if the lender has agreed, after the balance sheet date
and before the authorization of the financial statements for issue, not to demand payment as
a consequence of the breach.
b. The liability is classified as current because, at the balance sheet date, the entity does not
have an unconditional right to defer its settlement for at least twelve months after that date.
c. The liability is classified as non-current, even if the lender has agreed, after the balance sheet
date and before the authorization of the financial statements for issue, not to demand
payment as a consequence of the breach.
d. The liability is normally classified as current; however, the liability is classified as non-
current if the lender agreed by the balance sheet date to provide a period of grace ending at
 least twelve months after the balance sheet date, within which the entity can rectify the
breach and during that period the lender cannot demand immediate repayment.

5. Material Omissions or misstatements of items are material if they could, individually or

collectively; influence the economic decisions of users taken on the basis of the financial
statements. Materiality depends on
a. the peso amount and degree of financial consequence of the omission or misstatement
judged in the surrounding circumstances
b. the size and peso amount of the omission or misstatement judged in the surrounding
circumstances
c. the peso amount and nature of the omission but not the misstatement judged in the
surrounding circumstances
d. the size and nature of the omission or misstatement judged in the surrounding
circumstances

6. Identify the incorrect statement.

a. When an entity has departed from a requirement of a Standard or an Interpretation in a prior
period, and that departure affects the amounts recognized in the financial statements for the
current period, it shall disclose the (a) title of the Standard or Interpretation from which the
entity has departed and the (b) impact of such departure.
b. In the extremely rare circumstances in which management concludes that compliance with a
requirement in a Standard or an Interpretation would be so misleading that it would conflict
with the objective of financial statements set out in the Framework, but the relevant regulatory
framework prohibits departure from the requirement, the entity shall, to the maximum extent
possible, reduce the perceived misleading aspects of compliance by disclosing:(a) the title of
the Standard or Interpretation in question and (b) for each period presented, the adjustments
to each item in the financial statements that management has concluded would be necessary
to achieve a fair presentation.
c. Financial statements shall be prepared on a going concern basis unless management either
intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.
d. PAS 1 requires an entity preparing financial statements, to make an assessment of the
entity’s ability to continue as a going concern. In assessing whether the going concern
assumption is appropriate, management takes into account all available information about
the future, which is at least, but is not limited to, five years from the balance sheet date.

7. Identify the incorrect statement.

a. The final stage in the process of aggregation and classification is the presentation of
condensed and classified data, which form line items on the face of the financial statements.
b. PAS 1 sometimes uses the term ‘disclosure’ in a broad sense, encompassing items presented
on the face of the balance sheet, statement of profit or loss and other comprehensive income,
statement of changes in equity and cash flow statement, as well as in the notes.
c. Applying the concept of materiality means that a specific disclosure requirement in a
Standard or an Interpretation need not be satisfied if the information is not material.
d. An entity shall prepare its financial statements, including cash flow information, using the
accrual basis of accounting.
e. PAS 1 requires an entity presenting its current year financial statements to also present its
financial statements for the previous year.
8. The ledger of SCHOLIAST COMMENTATOR Co. as of December 31, 20x1 includes the
following:
Assets
Cash 10,000
Trade accounts receivable (net of ₱10,000 credit balance in accounts) 40,000
Held for trading securities 80,000
Financial assets designated at FVPL 30,000
Investment in equity securities at FVOCI 70,000
Investment in bonds measured at amortized cost (due in 3 years) 60,000
Prepaid assets 10,000
Deferred tax asset (expected to reverse in 20x2) 12,000
Investment in Associate 36,000
Investment property 46,000
Sinking fund 38,000
Property, plant, and equipment 100,000
Goodwill 28,000
Totals 560,000

How much is the total current assets?

a. 220,000
b. 180,000
c. 340,000
d. 164,000

Solution:
Current assets
Cash 10,000
Trade accounts receivable (40,000 + 10,000) 50,000
Held for trading securities 80,000
Financial assets designated at FVPL 30,000
Prepaid assets 10,000
Total current assets 180,000

9. The ledger of PERNICIOUS DEADLY Co. as of December 31, 20x1 includes the following:
Liabilities
Bank overdraft 10,000
Trade accounts payable (net of ₱10,000 debit balance in accounts) 40,000
Notes payable (due in 20 semi-annual payments of ₱4,000) 80,000
Interest payable 30,000
Bonds payable (due on March 31, 20x2) 70,000
Discount on bonds payable (30,000)
Dividends payable 10,000
Share dividends payable 12,000
Deferred tax liability (expected to reverse in 20x2) 36,000
Income tax payable 44,000
Contingent liability 100,000
Reserve for contingencies 28,000
Totals 430,000

How much is the total current liabilities?

a. 192,000
b. 186,000
c. 212,000
d. 178,000

Solution:
Current liabilities
Bank overdraft 10,000
Trade accounts payable (P20,000 + P5,000) 50,000
Notes payable (P2,000 semi-annual instalment x 2) 8,000
Interest payable 30,000
Bonds payable (due on March 31, 20x2) 70,000
Discount on bonds payable (30,000)
Dividends payable 10,000
Income tax payable 44,000
Total current liabilities 192,000

10. The ledger of CALLOW IMMATURE Co. in 20x1 includes the following:
Share capital 200,000
Share premium 40,000
Retained earnings, appropriated 36,000
Retained earnings, unappropriated 84,000
Revaluation surplus 60,000
Remeasurements of the net defined benefit liability (asset) - gain 30,000
Cumulative net unrealized gain on fair value changes of investment
in FVOCI 46,000
Effective portion of losses on hedging instruments in a cash
flow hedge 20,000
Cumulative translation loss on foreign operation 10,000
Treasury shares, at cost 26,000

How much is the total shareholders’ equity?

a. 460,000
b. 440,000
c. 420,000
d. 390,000

Solution:
Share capital 200,000
Share premium 40,000
Retained earnings, appropriated 36,000
Retained earnings, unappropriated 84,000
Revaluation surplus 60,000
Remeasurements of the net defined benefit liability (asset)
- gain 30,000
Cumulative net unrealized gain on fair value
changes of investment in FVOCI 46,000
Effective portion of losses on hedging instruments in a
cash flow hedge (20,000)
Cumulative translation loss on foreign operation (10,000)
Treasury shares, at cost (26,000)
Total shareholders' equity 440,000

Use the following information for the next two questions:

11. GUILE DECEITFULNESS Co. was incorporated on January 1, 20x1. The following were the
transactions during the year:
- Total consideration from share issuances amounted to ₱2,000,000.
- A land and building were acquired through a lump sum payment of ₱400,000. A mortgage
amounting to ₱100,000 was assumed on the land and building.
- Total payments of ₱80,000 were made during the year on the mortgage assumed on the land and
building, The payments are inclusive of interest amounting to ₱10,000.
- Additional capital of ₱200,000 was obtained through bank loans. None of the bank loans were
paid during the year. Half of the bank loans required a secondary mortgage on the land and
building.
- There is no accrued interest as of year-end.
- Dividends declared during the year but remained unpaid amounted to ₱60,000.
- No other transactions during the year affected liabilities.
- Retained earnings as of December 31, 20x1 is ₱120,000.

12. How much is the profit for the year?

a. 120,000
b. 160,000
c. 180,000
d. 220,000

Retained earnings
- Jan. 1, 20x1
Dividends 60,000 180,000 Profit for the year (squeeze)
Dec. 31, 20x1 120,000

13. How much is the total assets as of December 31, 20x1?

a. 2,410,000
b. 2,520,000
c. 2,380,000
d. 2,420,000

Asset = Liabilities + Equity

Mortgage assumed on land and building 100,000

Principal payment on the mortgage (80K – 10K interest) ( 70,000)
Bank loans 200,000
Dividends payable 60,000
Liabilities, Dec. 31, 20x1 290,000

Share issuances 2,000,000

Retained earnings – Dec. 31, 20x1 120,000
Equity, Dec. 31, 20x1 2,120,000
Total assets, Dec. 31, 20x1 (liabilities + equity) 2,410,000

14. The ledger of DEROGATORY DEGRADING Co. in 20x1 includes the following:
Cash 200,000
Accounts receivable 400,000
Inventory 1,000,000
Accounts payable 300,000
Note payable 100,000

During the audit of DEROGATORY’s 20x1 financial statements, the following were noted by the
auditor:
- Cash sales in 20x2 amounting to ₱20,000 were inadvertently included as sales in 20x1.
DEROGATORY recognized gross profit of ₱6,000 on the sales.
- A collection of a ₱40,000 accounts receivable in 20x2 was recorded as collection in 20x1. A cash
discount of ₱2,000 was given to the customer.
- During January 20x2, a short-term bank loan of ₱50,000 obtained in 20x1 was paid together with
₱5,000 interest accruing in January 20x2. The payment transaction in 20x2 was inadvertently
included as 20x1 transaction.

How much is the adjusted working capital as of December 31, 20x1?

a. 1,651,000
b. 1,014,000
c. 1,450,000
d. 1,201,000

Solution:
The adjusted balance of cash is computed as follows:
Cash (unadjusted) 200,000
Cash sales in 20x2 recorded as 20x1 sale (20,000)
Collection of account in 20x2 recorded as 20x1 collection
(40,000 account less 2,000 cash discount) (38,000)
Loan payment in 20x2 recorded as 20x1 transaction 50,000
Interest payment in 20x2 recorded as 20x1 transaction 5,000
Adjusted cash balance, Dec. 31, 20x1 197,000

The adjusted balance of accounts receivable is computed as follows:

Accounts receivable (unadjusted) 400,000
Collection of account in 20x2 recorded as 20x1 collection 40,000
Adjusted accounts receivable balance, Dec. 31, 20x1 440,000

The adjusted balance of inventory is computed as follows:

Inventory (unadjusted) 1,000,000
Cost of cash sale in 20x2 recorded as 20x1 sale
 (20,000 sale - 6,000 gross profit) 14,000
Adjusted inventory balance, Dec. 31, 20x1 1,014,000

Adjusted current assets, Dec. 31, 20x1: (197K + 440K + 1,014K) = 1,651,000

The adjusted current liabilities are computed as follows:

Accounts payable 300,000
Note payable 100,000
Loan payable 50,000
Adjusted current liabilities, Dec. 31, 20x1 450,000

Working capital, Dec. 31, 20x1 = Current assets – Current liabilities

Working capital, Dec. 31, 20x1 = (1,651,000 – 450,000) = 1,201,000

15. Entity A has the following information:

Inventory, beg. 80,000

Inventory, end. 128,000
Purchases 320,000
Freight-in 16,000
Purchase returns 8,000
Purchase discounts 11,200

How much is Entity A’s cost of sales?

a. 286,800
b. 292,800
c. 288,600
d. 268,800

Inventory, beg. 80,000

Net purchases:
Purchases 320,000
Freight-in 16,000
Purchase returns (8,000)
Purchase discounts (11,200) 316,800
Total goods available for sale 396,800
Less: Inventory, end. (128,000)
Cost of goods sold 268,800

16. In a two-statement presentation, information on profit or loss and other comprehensive income
is shown
a. in two separate statements, a statement of profit or loss and a statement showing other
comprehensive income.
b. in two separate statements, a statement of profit or loss and an income statement.
c. in two separate statements, a single-step statement and a multi-step statement.
 d. in a single statement called ‚statement of comprehensive income.‛

17. Under this presentation method, expenses are presented in the statement of comprehensive
income without distinctions as to their functions within the entity.
a. nature of expense method
b. function of expense method
c. single-statement presentation
d. two-statement presentation

18. Under this presentation, expenses are classified as either operating or non-operating item. At a
minimum, cost of sales is presented separately.
a. nature of expense method
b. function of expense method
c. single-statement presentation
d. two-statement presentation

Use the following information for the next five questions:

The nominal accounts of Rommel SP Corp. on December 31, 20x1 have the following balances:

Accounts Dr. Cr.

Sales ₱739,000
Interest income 45,000
Gains 15,000
Inventory, beg. ₱ 65,000
Purchases 180,000
Freight-in 10,000
Purchase returns 5,000
Purchase discounts 9,000
Freight-out 30,000
Sales commission 45,000
Advertising expense 25,000
Salaries expense 240,000
Rent expense 30,000
Depreciation expense 50,000
Utilities expense 25,000
Supplies expense 15,000
Transportation and travel expense 15,000
Insurance expense 10,000
Taxes and licenses 60,000
Interest expense 5,000
Miscellaneous expense 3,000
Loss on the sale of equipment 5,000

Additional information:
a. Ending inventory is ₱ 90,000.
b. One-fourth of the salaries, rent, and depreciation expenses pertain to the non-sales department.
The sales department does not share in the other expenses.
19. How much is the net purchases?
a. ₱185,000 c. ₱194,000
b. ₱176,000 d. ₱192,000

Purchases 180,000
Freight-in 10,000
Purchase returns (5,000)
Purchase discounts (9,000)
Net purchases 176,000

20. How much is the ‚change in inventory‛ in 20x1?

a. ₱90,000 increase c. ₱25,000 decrease
b. ₱65,000 decrease d. ₱25,000 increase

Inventory, beg. 65,000

Inventory, end. 90,000
Change in inventory – increase (25,000)

21. How much is the cost of goods sold?

a. ₱151,000 c. ₱169,000
b. ₱95,000 d. ₱127,000

Net purchases 176,000

Less: Net increase in inventory (25,000)
Cost of sales 151,000

22. How much is the total selling expense?

a. ₱420,000 c. ₱180,000
b. ₱260,000 d. ₱340,000

Freight-out 30,000
Sales commission 45,000
Advertising expense 25,000
Salaries expense (240K x 3/4) 180,000
Rent expense (30K x 3/4) 22,500
Depreciation expense (50K x 3/4) 37,500
Selling expenses/Distribution costs 340,000

23. How much is the total general and administrative expense?

a. 280,000 c. 330,000
b. 320,000 d. 208,000

Salaries expense (240K x 1/4) 60,000

 Rent expense (30,000 x 1/4) 7,500
Depreciation expense (50K x 1/4) 12,500
Utilities expense 25,000
Supplies expense 15,000
Transportation and travel expense 15,000
Insurance expense 10,000
Taxes and licenses 60,000
Miscellaneous expense 3,000
Administrative expenses 208,000

Use the following information for the next two questions:

DECORTICATE PEEL, Inc. is committed to a plan to sell a manufacturing facility and has initiated
actions to locate a buyer. As of this date, the building has a carrying amount of ₱6,000,000, a fair
value of ₱5,000,000 and estimated costs to sell of ₱200,000. At the plan commitment date, there is a
backlog of uncompleted customer orders.

24. DECORTICATE, Inc. intends to sell the manufacturing facility with its operations. Any
uncompleted customer orders at the sale date will be transferred to the buyer. The transfer of
uncompleted customer orders at the sale date will not affect the timing of the transfer of the
facility. How should DECORTICATE Co. classify the manufacturing facility?
a. Included under property, plant and equipment at ₱6,000,000.
b. Included under property, plant and equipment at ₱4,800,000.
c. Classified as held for sale at ₱6,000,000
d. Classified as held for sale at ₱4,800,000

D (5,000,000 fair value – 200,000 costs to sell) = 4,800,000

25. DECORTICATE, Inc. intends to sell the manufacturing facility, but without its operations. The
entity does not intend to transfer the facility to a buyer until after it ceases all operations of the
facility and eliminates the backlog of uncompleted customer orders. How should
DECORTICATE Co. classify the manufacturing facility?
a. Included under property, plant and equipment at ₱6,000,000.
b. Included under property, plant and equipment at ₱4,800,000.
c. Classified as held for sale at ₱6,000,000
d. Classified as held for sale at ₱4,800,000

B – not available for immediate sale in its present condition; PPE at 4.8M (5M – 200K) because the
manufacturing facility is impaired.

26. An entity in the power generating industry is committed to a plan to sell a disposal group that
represents a significant portion of its regulated operations. The sale requires regulatory
 approval, which could extend the period required to complete the sale beyond one year. Actions
necessary to obtain that approval cannot be initiated until after a buyer is known and a firm
purchase commitment is obtained. However, a firm purchase commitment is highly probable
within one year. The disposal group has a carrying amount of ₱10,000,000 and fair value less
costs to sell of ₱10,600,000. How should the entity classify the disposal group?
a. Held for sale, ₱10.6M c. Under previous classifications, ₱10M
b. Held for sale, ₱10M d. Under previous classifications, ₱10.6M

B – The exceptions to the “1-yr. requirement” are met.

Use the following information for the next two questions:

In 20x1, FORGETIVE CREATIVE Co. classified a property as held for sale. The carrying amount
prior to classification is ₱400,000 while fair value less cost to sell is ₱360,000. The property is being
sold at ₱360,000.

During 20x1, the market conditions that existed at the date the asset was classified initially as held
for sale deteriorate and, as a result, the asset is not sold by the end of that period. During that
period, FORGETIVE actively solicited but did not receive any reasonable offers to purchase the asset
and, in response, FORGETIVE reduced the price from ₱360,000 to ₱320,000. The fair value less costs
to sell on December 31, 20x1 is ₱340,000.

27. How should FORGETIVE Co. classify the property in its 20x1 annual financial statements?
a. Held for sale, ₱320,000 c. PPE, ₱340,000
b. Held for sale, ₱340,000 d. PPE, ₱400,000

B 340,000, the fair value less costs to sell, which is lower than the carrying amount of P360,000.

28. During 20x2, the market conditions deteriorate further, and the asset is not sold by December 31,
20x2. FORGETIVE Co. believes that the market conditions will improve and has not further
reduced the price of the asset. The fair value less costs to sell on December 31, 20x2 is ₱300,000. If
the property was not classified as held for sale in 20x1, its carrying amount by this time would
have been ₱350,000.
a. Held for sale, ₱300,000 c. PPE, ₱300,000
b. Held for sale, ₱320,000 d. PPE, ₱350,000

C – The asset is reclassified back to PPE at the lower of recoverable amount (i.e., 300,000) and the
carrying amount adjusted for depreciation not recognized during the asset was classified as held for sale
(i.e., 350,000).

29. WAYFARER TRAVELER Co. is preparing its December 31, 20x1, current year financial
statements. A land included in WAYFARER’s property, plant and equipment that did not
qualify as held for sale as of December 31, 20x1 was actually sold on January 5, 20x2. The
financial statements were authorized for issue on March 1, 20x2. On December 31, 20x1,
WAYFARER has total current assets of ₱9,000,000. Not included in this amount is the fair value
less costs to sell of the land amounting to ₱1,000,000. How much is the total current assets
current in WAYFARER’s December 31, 20x1 financial statements?
a. ₱8,000,000 c. ₱10,000,000
 b. ₱9,000,000 d. ₱11,000,000

B – The event is disclosed only as a non-adjusting event after the reporting period.

30. On December 31, 20x1, STRIDENT HARSH-SOUNDING Co. classified its building with a
historical cost of ₱4,000,000 and accumulated depreciation of ₱2,400,000 as held for sale. All of
the criteria under PFRS 5 are complied with. On that date, the land has a fair value of ₱1,400,000
and cost to sell of ₱80,000. The entry on December 31, 20x1 includes
a. a debit to building for ₱1,320,000
b. a credit to accumulated depreciation for ₱2,400,000
c. a debit to impairment loss for ₱280,000
d. No reclassification entry will be made on December 31, 20x1

C
Jan. 1, Held for sale asset (1.4M – 80K) 1,320,000
20x1
Accumulated depreciation 2,400,000
Impairment loss 280,000
Building 4,000,000

31. On December 31, 20x1, OBSTINACY STUBBORNESS Co. classified its building with a carrying
amount of ₱1,600,000 and fair value less cost to sell of ₱1,320,000 as held for sale.

The building was not sold in 20x2. However, the exception to the one-year requirement was met. On
December 31, 20x2, the fair value less cost to sell of building is ₱1,240,000.

The building was not sold in 20x3. However, the exception to the one-year requirement was still
met. On December 31, 20x3, the fair value less cost to sell of building increased to ₱1,680,000. How
much is the gain on reversal of impairment to be recognized on December 31, 20x3?
a. 440,000
b. 360,000
c. 280,000
d. 0

B 360,000, limited to the total impairment losses recognized in previous years (1,240,000 - 1,600,000
original carrying amount)

Use the following information for the next four questions:

On December 31, 20x1, INSOUCIANT CAREFREE Co. plans to dispose of a group of its assets.
Information on these assets is shown below:
Carrying amount on Dec. Carrying amount as
31, 20x1 before remeasured immediately
classification as held for before classification as
sale held for sale
Inventory 9,600,000 8,800,000
Investment in FVOCI 7,200,000 6,000,000
Investment property (at cost model) 22,800,000 22,800,000
PPE (at cost model) 18,400,000 16,000,000
Goodwill 6,000,000 6,000,000
Total 64,000,000 59,600,000

INSOUCIANT Co. entity estimates that the fair value less costs to sell of the disposal group amounts
to ₱52,000,000.

32. How would the reduction in the value of the assets on classification as held for sale be treated in
the financial statements?
a. The entity recognizes a loss of ₱4.4M immediately before classification as held for sale and
then recognizes an impairment loss of ₱7.6M.
b. The entity recognizes an impairment loss of ₱12 million.
c. The entity recognizes an impairment loss of ₱7.6M.
d. The entity recognizes a loss of ₱12M immediately before classifying the disposal group as
held for sale.

A Step #1: 59.6M – 64M = 4.4M Impairment loss;

Step #2: 52M – 59.6M = 7.6 Additional impairment loss

33. How much is the carrying amount of the inventory after classification of the disposal group as
held for sale?
a. 8,800,000
b. 7,950,576
c. 7,899,324
d. 7,765,391

A 8,800,000 - Carrying amount as remeasured immediately before classification as held for sale. (See also
solutions below)

34. How much is the carrying amount of the Investment property (at cost model) after classification
of the disposal group as held for sale?
a. 22,800,000
b. 21,859,794
c. 21,786,665
d. 20,766,298

B (Refer to solutions below)

35. How much is the carrying amount of the PPE (at cost model) after classification of the disposal
group as held for sale?
a. 16,000,000
b. 15,780,740
c. 15,340,206
d. 15,211,612
C

Fair value less costs to sell 52,000,000

Carrying amount as remeasured immediately before
classification as held for sale 59,600,000
Additional impairment loss on initial classification under PFRS 5 (7,600,000)
Allocation to goodwill 6,000,000
Impairment loss to be allocated to the other assets 1,600,000

The excess is allocated to the other assets pro rata based on their carrying amounts as follows:
Allocation of
Assets Carrying amt. Fraction Impairment Loss
Inventory N/A N/A N/A
Investment in FVOCI N/A N/A N/A
IP – cost 22,800,000 22.8/38.8 (940,206)
PPE – cost model 16,000,000 16/38.8 (659,794)
38,800,000 (1,600,000)

The carrying amount after allocation of impairment loss is:

Inventory 8,800,000
Investment in FVOCI 6,000,000
Investment property (at cost model) (22.8M – 940,206) 21,859,794
PPE (at cost model) (16M – 659,794) 15,340,206
Goodwill -
Total 52,000,000

36. On December 31, 20x1, INGENIOUS NATURAL Co. classified its building with a carrying
amount of ₱1,600,000 and fair value less costs to sell of ₱1,320,000 as held for sale. Impairment
loss of ₱280,000 was recognized on that date. The building has a remaining useful life of 4 years
and it was depreciated using the straight-line method.

As of December 31, 20x2, the building was not yet sold and management decided not to sell the
building anymore. The fair value less cost to sell of the building on December 31, 20x2 is ₱1,240,000
while the value in use is ₱1,220,000.

How much is the carrying amount of the building upon reclassification back to property, plant and
equipment?
a. 1,220,000
b. 1,320,000
c. 1,240,000
d. 1,200,000

D
a. Carrying amount adjusted for depreciation not recognized (1.6M x ¾) = 1.2M;
b. Recoverable amount = 1.240M the higher of FVLCS and VIN
 Measurement = 1.2M - the lower of a and b above

37. On December 31, 20x1, INIMICAL UNFRIENDLY Co. entered into an agreement to sell a
component. On that date, INIMICAL estimated the gain from the disposal to be made in 20x2 at
₱2,000,000 and the operating losses prior to the date of sale to be ₱1,200,000. As a result of the
 sale, the component’s operations and cash flows will be eliminated from the entity’s operations
and the entity will not have any significant continuing post-sale involvement in the component’s
operations. Accordingly, the component was classified as held for sale and discontinued
operations.

The component’s actual operating losses in 20x1 and 20x2 were ₱2,800,000 and ₱2,600,000,
respectively, and the actual gain on disposal of the component in 20x2 was ₱1,600,000. INIMICAL’s
income tax rate is 30%. Any income tax benefit is expected to be realizable. There were no other
temporary differences during the year.

What single, post-tax amounts should be reported for discontinued operations in INIMICAL’s
comparative 20x2 and 20x1 income statements, respectively?
a. (1,960,000), (700,000)
b. (560,000), (1,960,000)
c. (650,000), (1,950,000)
d. (700,000), (1,960,000)

D 20x2: (1,600,000 – 2,600,000) x 70% = (700,000)

20x1: (-2,800,000 x 70%) = (1,960,000)

38. On April 30, 20x1, ABROGATE ABOLISH Co. approved a plan to dispose of a component of its
operations. The disposal meets the requirements for classification as discontinued operations.

From January 1 to April 30, 20x1, the component earned operating profit of ₱400,000 and from May 1
to December 31, 20x1, the segment suffered operating losses of ₱200,000.

The net assets of the component has a carrying amount of ₱32,000,000 as of April 30, 20x1. The fair
value less costs to sell of the component is ₱26,000,000. Additional estimated disposal loss includes
severance pay of ₱220,000 and employee relocation costs of ₱100,000, both of which are directly
associated with the decision to dispose of the segment. ABROGATE’s income tax rate is 30%. Any
income tax benefit is expected to be realizable. There were no other temporary differences during
the year.

How much is the profit (loss) from discontinued operations to be reported in ABROGATE's
statement of profit or loss and other comprehensive income for the year ended December 31, 20x1?
a. 4,564,000
b. 4,060,000
c. 4,340,000
d. 4,284,000

D
Solution:
Operating profit – January 1 to April 30, 20x1 400,000
Operating loss – May 1 to December 31, 20x1 (200,000)
Impairment loss (32M – 26M) (6,000,000)
Severance pay (220,000)
Employee relocation costs (100,000)
Total (6,120,000)
Multiply by: 1 minus Tax rate 70%
Loss for the period from discontinued operations (4,284,000)

39. You are a CPA. Your client asked you for an advice regarding the items that are presented as
other comprehensive income. You will tell your client to refer to which of the following
standards?
a. PAS 1
b. PFRS 1
c. PFRS 15
d. PAS 8

40. Non-current assets held for sale and discontinued operations are accounted for under
a. PFRS 4.
b. PAS 41.
c. PFRS 5.
d. PFRS 8.

41. Non-current assets are presented as current items in the statement of financial position
a. only when they are expected to be sold within 12 months from the end of reporting period.
b. only if they are actually sold after the reporting period but before the date of authorization of
the financial statements for issue.
c. only when they qualify as held for sale assets under PFRS 5.
d. never presented as current items.

42. A noncurrent asset classified as held for sale in accordance with PFRS 5 has not been sold after a
year. The asset shall continue to be presented as held for sale under PFRS 5 if
a. the delay is due to events beyond the entity’s control
b. the entity remains committed to its plan to sell the asset
c. the noncurrent asset is actually sold after the reporting period but before the financial
statements were authorized for issue.
d. a and b

43. Which of the following statements is true regarding the accounting treatment of costs to sell
under PFRS 5?
a. Costs to sell are added to the fair value when determining the measurement basis for an
asset held for sale
b. Costs to sell are never discounted because held for sale assets should be sold within one year
c. Costs to sell are discounted if it is expected that the sale will be made beyond one year.
d. a and c

44. According to PFRS 5, gains and losses on remeasurement of assets held for sale are
a. recognized in profit or loss
b. recognized in other comprehensive income
c. recognized only for impairment losses
d. not recognized

45. Which of the following is included in profit from continuing operations?

a. extraordinary items c. other comprehensive income
 b. discontinued operations d. income tax expense

Use the following information for the next two questions:

VISAGE APPEARANCE Co. is committed to a plan to sell its headquarters building and has
initiated actions to locate a buyer. As of this date, the building has a carrying amount of ₱5,000,000, a
fair value of ₱6,000,000 and estimated costs to sell of ₱200,000.

46. VISAGE Co. has an intention to transfer ownership of a building to a buyer after it vacates the
building. How should VISAGE Co. classify the headquarters building?
a. Included under property, plant and equipment at ₱5,000,000.
b. Included under property, plant and equipment at ₱5,800,000.
c. Classified as held for sale at ₱5,000,000
d. Classified as held for sale at ₱5,800,000

C 5,000,000 lower of carrying amount and fair value less costs sell

47. VISAGE Co. will continue to use the building until the construction of a new headquarters is
completed. How should VISAGE Co. classify the headquarters building?
a. Included under property, plant and equipment at ₱5,000,000.
b. Included under property, plant and equipment at ₱5,800,000.
c. Classified as held for sale at ₱5,000,000
d. Classified as held for sale at ₱5,800,000

A – not available for immediate sale in its present condition

48. PERAMBULATE STROLL Co. is a commercial leasing and finance company. As of year-end,
PERAMBULATE holds equipment that is available either for sale or lease. PERAMBULATE is
not yet decided whether to sell or to lease the equipment. The equipment has a carrying amount
of ₱1,000,000, fair value of ₱1,200,000 and costs to sell of ₱50,000. How should PERAMBULATE
Co. classify the equipment?
a. Inventory, ₱1,000,000 c. Held for sale, ₱1,150,000
b. Investment property, ₱1,250,000 d. Held for sale, ₱1,000,000

A – Sale is not highly probable

49. In Baer Food Co.’s 20x3 single-step income statement, the section titled ‚Revenues‛ consisted of
the following:

Net sales revenue 187,000

Results from discontinued operations:
Loss from discontinued component Z including loss on disposal of ₱1,200 16,400
Less: Tax benefit 4,000 (12,400)
Interest revenue 10,200
Gain on sale of equipment 4,700
Cumulative change in 20x1 and 20x2 income due to change in depreciation
method (net of ₱750 tax effect) 1,500
Total revenues 191,000
In the revenues section of the 20x3 income statement, Baer Food should have reported total revenues
of
a. 197,200 b. 215,400 c. 203,700 d. 201,900

A
Solution:
Net sales revenue 187,000
Interest revenue 10,200
Adjusted total revenues 197,200

50. During 20x4, Lopez Corporation disposed of Pine Division, a major component of its business.
Lopez realized a gain of ₱500,000, net of taxes, on the sale of Pine's assets. Pine's operating
losses, net of taxes, were ₱600,000 in 2004. How should these facts be reported in Lopez's
income statement for 2004?
Total Amount to be Included in
Income from Results of
Continuing Operations Discontinued Operations
a. 600,000 loss 500,000 gain
b. 100,000 loss 0
c. 0 100,000 loss
d. 500,000 gain 600,000 loss

C (600,000 loss – 500,000 gain) = 100,000 loss

“A fool shows his annoyance at once, but a prudent man overlooks an insult.” (Proverbs 12:16)
- END

PROBLEM-SOLVING

1. The movements in the cash account of NONCHALANT COOL Co. during 20x2 are shown
below.
Cash
beg. 200
Sales 6,000 3,800 Purchases
Interest income 20 1,200 Operating expenses
Rent income 270 30 Interest expense
Dividend income 40 70 Income taxes
Held for trading securities 800 100 Investment in FVOCI
Sale of old building 520 1,100 Purchase of equipment
Collection of non-trade note 60 130 Loan granted to employee
Proceeds from loan with a bank 1,600 240 Payment of loan borrowed
Issuance of shares 970 200 Reacquisition of shares
90 Dividends
3,520 end.
Requirement: Prepare the statement of cash flows of NONCHALANT COOL Co. for the year ended
December 31, 20x2. (Use Option 1 in classifying cash flows from operating activities.)
1. Solution:
NONCHALANT COOL Company
Statement of cash flows
For the year ended December 31, 20x2

Cash flows from operating activities

Cash receipts from customers 6,000
Cash receipts for interest income 20
Cash receipts for rent income 270
Cash receipts for dividend income 40
Cash paid to suppliers (3,800)
Cash paid for operating expenses (1,200)
Cash generated from operations 1,330
Interest paid (30)
Income taxes paid (70)
Cash receipt from sale of held for trading securities 800
Net cash from operating activities 2,030

Cash flows from investing activities

Cash payment for acquisition of investment in FVOCI (100)
Cash receipt from sale of old building 520
Cash payment for acquisition of equipment (1,100)
Cash receipt from collection of loan granted 60
Cash payment for loan granted (130)
Net cash used in investing activities (750)

Cash flows from financing activities

Cash proceeds from loan borrowed 1,600
Cash payment for loan borrowed (240)
Cash proceeds from issuance of share capital 970
Cash payment for acquisition of treasury shares (200)
Cash payment for dividends (90)
Net cash from financing activities 2,040

Net increase in cash and cash equivalents 3,320

Cash and cash equivalents, beginning 200
Cash and cash equivalents, end 3,520

“give thanks in all circumstances; for this is God’s will for you in Christ Jesus.” - (1
Thessalonians 5:18)

- END -
NAME: Date:
Professor: Section: Score:

INTERMEDIATE ACCOUNTING 3
FIRST GRADING EXAMINATION

1. According to PAS 1, an asset shall be classified as current when it satisfies any of the following
criteria, except
a. it is expected to be realized in, or is intended for sale or consumption in, the entity’s normal
operating cycle
b. it is held primarily for the purpose of being traded
c. it is expected to be realized within twelve months after the balance sheet date
d. it is cash or a cash equivalent that is restricted

2. A liability shall be classified as current when it satisfies any of the following criteria, except
a. it is expected to be settled in the entity’s normal operating cycle
b. it is held primarily for the purpose of being traded
c. it is due to be settled within twelve months after the balance sheet date
d. the entity has an unconditional right to defer settlement of the liability for at least twelve
months after the balance sheet date.

3. If an entity expects, and has the discretion, to refinance or roll over an obligation for at least
twelve months after the balance sheet date under an existing loan facility, it classifies the
obligation as non-current,
a. even if it would otherwise be due within a shorter period.
b. even if the original term was for a period longer than twelve months
c. even if an agreement to refinance, or to reschedule payments, on a long-term basis is
completed after the reporting period and before the financial statements are authorized for
issue
d. choices b and c

4. When an entity breaches an undertaking under a long-term loan agreement on or before the end
of the reporting period with the effect that the liability becomes payable on demand, (choose the
incorrect statement)
a. The liability is classified as current, even if the lender has agreed, after the balance sheet date
and before the authorization of the financial statements for issue, not to demand payment as
a consequence of the breach.
b. The liability is classified as current because, at the balance sheet date, the entity does not
have an unconditional right to defer its settlement for at least twelve months after that date.
c. The liability is classified as non-current, even if the lender has agreed, after the balance sheet
date and before the authorization of the financial statements for issue, not to demand
payment as a consequence of the breach.
d. The liability is normally classified as current; however, the liability is classified as non-
current if the lender agreed by the balance sheet date to provide a period of grace ending at
 least twelve months after the balance sheet date, within which the entity can rectify the
breach and during that period the lender cannot demand immediate repayment.

5. Material Omissions or misstatements of items are material if they could, individually or

collectively; influence the economic decisions of users taken on the basis of the financial
statements. Materiality depends on
a. the peso amount and degree of financial consequence of the omission or misstatement
judged in the surrounding circumstances
b. the size and peso amount of the omission or misstatement judged in the surrounding
circumstances
c. the peso amount and nature of the omission but not the misstatement judged in the
surrounding circumstances
d. the size and nature of the omission or misstatement judged in the surrounding
circumstances

6. Identify the incorrect statement.

a. When an entity has departed from a requirement of a Standard or an Interpretation in a prior
period, and that departure affects the amounts recognized in the financial statements for the
current period, it shall disclose the (a) title of the Standard or Interpretation from which the
entity has departed and the (b) impact of such departure.
b. In the extremely rare circumstances in which management concludes that compliance with a
requirement in a Standard or an Interpretation would be so misleading that it would conflict
with the objective of financial statements set out in the Framework, but the relevant regulatory
framework prohibits departure from the requirement, the entity shall, to the maximum extent
possible, reduce the perceived misleading aspects of compliance by disclosing:(a) the title of
the Standard or Interpretation in question and (b) for each period presented, the adjustments
to each item in the financial statements that management has concluded would be necessary
to achieve a fair presentation.
c. Financial statements shall be prepared on a going concern basis unless management either
intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so.
d. PAS 1 requires an entity preparing financial statements, to make an assessment of the
entity’s ability to continue as a going concern. In assessing whether the going concern
assumption is appropriate, management takes into account all available information about
the future, which is at least, but is not limited to, five years from the balance sheet date.

7. Identify the incorrect statement.

a. The final stage in the process of aggregation and classification is the presentation of
condensed and classified data, which form line items on the face of the financial statements.
b. PAS 1 sometimes uses the term ‘disclosure’ in a broad sense, encompassing items presented
on the face of the balance sheet, statement of profit or loss and other comprehensive income,
statement of changes in equity and cash flow statement, as well as in the notes.
c. Applying the concept of materiality means that a specific disclosure requirement in a
Standard or an Interpretation need not be satisfied if the information is not material.
d. An entity shall prepare its financial statements, including cash flow information, using the
accrual basis of accounting.
e. PAS 1 requires an entity presenting its current year financial statements to also present its
financial statements for the previous year.
8. The ledger of SCHOLIAST COMMENTATOR Co. as of December 31, 20x1 includes the
following:
Assets
Cash 10,000
Trade accounts receivable (net of ₱10,000 credit balance in accounts) 40,000
Held for trading securities 80,000
Financial assets designated at FVPL 30,000
Investment in equity securities at FVOCI 70,000
Investment in bonds measured at amortized cost (due in 3 years) 60,000
Prepaid assets 10,000
Deferred tax asset (expected to reverse in 20x2) 12,000
Investment in Associate 36,000
Investment property 46,000
Sinking fund 38,000
Property, plant, and equipment 100,000
Goodwill 28,000
Totals 560,000

How much is the total current assets?

a. 220,000
b. 180,000
c. 340,000
d. 164,000

Solution:
Current assets
Cash 10,000
Trade accounts receivable (40,000 + 10,000) 50,000
Held for trading securities 80,000
Financial assets designated at FVPL 30,000
Prepaid assets 10,000
Total current assets 180,000

9. The ledger of PERNICIOUS DEADLY Co. as of December 31, 20x1 includes the following:
Liabilities
Bank overdraft 10,000
Trade accounts payable (net of ₱10,000 debit balance in accounts) 40,000
Notes payable (due in 20 semi-annual payments of ₱4,000) 80,000
Interest payable 30,000
Bonds payable (due on March 31, 20x2) 70,000
Discount on bonds payable (30,000)
Dividends payable 10,000
Share dividends payable 12,000
Deferred tax liability (expected to reverse in 20x2) 36,000
Income tax payable 44,000
Contingent liability 100,000
Reserve for contingencies 28,000
Totals 430,000

How much is the total current liabilities?

a. 192,000
b. 186,000
c. 212,000
d. 178,000

Solution:
Current liabilities
Bank overdraft 10,000
Trade accounts payable (P20,000 + P5,000) 50,000
Notes payable (P2,000 semi-annual instalment x 2) 8,000
Interest payable 30,000
Bonds payable (due on March 31, 20x2) 70,000
Discount on bonds payable (30,000)
Dividends payable 10,000
Income tax payable 44,000
Total current liabilities 192,000

10. The ledger of CALLOW IMMATURE Co. in 20x1 includes the following:
Share capital 200,000
Share premium 40,000
Retained earnings, appropriated 36,000
Retained earnings, unappropriated 84,000
Revaluation surplus 60,000
Remeasurements of the net defined benefit liability (asset) - gain 30,000
Cumulative net unrealized gain on fair value changes of investment
in FVOCI 46,000
Effective portion of losses on hedging instruments in a cash
flow hedge 20,000
Cumulative translation loss on foreign operation 10,000
Treasury shares, at cost 26,000

How much is the total shareholders’ equity?

a. 460,000
b. 440,000
c. 420,000
d. 390,000

Solution:
Share capital 200,000
Share premium 40,000
Retained earnings, appropriated 36,000
Retained earnings, unappropriated 84,000
Revaluation surplus 60,000
Remeasurements of the net defined benefit liability (asset)
- gain 30,000
Cumulative net unrealized gain on fair value
changes of investment in FVOCI 46,000
Effective portion of losses on hedging instruments in a
cash flow hedge (20,000)
Cumulative translation loss on foreign operation (10,000)
Treasury shares, at cost (26,000)
Total shareholders' equity 440,000

Use the following information for the next two questions:

11. GUILE DECEITFULNESS Co. was incorporated on January 1, 20x1. The following were the
transactions during the year:
- Total consideration from share issuances amounted to ₱2,000,000.
- A land and building were acquired through a lump sum payment of ₱400,000. A mortgage
amounting to ₱100,000 was assumed on the land and building.
- Total payments of ₱80,000 were made during the year on the mortgage assumed on the land and
building, The payments are inclusive of interest amounting to ₱10,000.
- Additional capital of ₱200,000 was obtained through bank loans. None of the bank loans were
paid during the year. Half of the bank loans required a secondary mortgage on the land and
building.
- There is no accrued interest as of year-end.
- Dividends declared during the year but remained unpaid amounted to ₱60,000.
- No other transactions during the year affected liabilities.
- Retained earnings as of December 31, 20x1 is ₱120,000.

12. How much is the profit for the year?

a. 120,000
b. 160,000
c. 180,000
d. 220,000

Retained earnings
- Jan. 1, 20x1
Dividends 60,000 180,000 Profit for the year (squeeze)
Dec. 31, 20x1 120,000

13. How much is the total assets as of December 31, 20x1?

a. 2,410,000
b. 2,520,000
c. 2,380,000
d. 2,420,000

Asset = Liabilities + Equity

Mortgage assumed on land and building 100,000

Principal payment on the mortgage (80K – 10K interest) ( 70,000)
Bank loans 200,000
Dividends payable 60,000
Liabilities, Dec. 31, 20x1 290,000

Share issuances 2,000,000

Retained earnings – Dec. 31, 20x1 120,000
Equity, Dec. 31, 20x1 2,120,000
Total assets, Dec. 31, 20x1 (liabilities + equity) 2,410,000

14. The ledger of DEROGATORY DEGRADING Co. in 20x1 includes the following:
Cash 200,000
Accounts receivable 400,000
Inventory 1,000,000
Accounts payable 300,000
Note payable 100,000

During the audit of DEROGATORY’s 20x1 financial statements, the following were noted by the
auditor:
- Cash sales in 20x2 amounting to ₱20,000 were inadvertently included as sales in 20x1.
DEROGATORY recognized gross profit of ₱6,000 on the sales.
- A collection of a ₱40,000 accounts receivable in 20x2 was recorded as collection in 20x1. A cash
discount of ₱2,000 was given to the customer.
- During January 20x2, a short-term bank loan of ₱50,000 obtained in 20x1 was paid together with
₱5,000 interest accruing in January 20x2. The payment transaction in 20x2 was inadvertently
included as 20x1 transaction.

How much is the adjusted working capital as of December 31, 20x1?

a. 1,651,000
b. 1,014,000
c. 1,450,000
d. 1,201,000

Solution:
The adjusted balance of cash is computed as follows:
Cash (unadjusted) 200,000
Cash sales in 20x2 recorded as 20x1 sale (20,000)
Collection of account in 20x2 recorded as 20x1 collection
(40,000 account less 2,000 cash discount) (38,000)
Loan payment in 20x2 recorded as 20x1 transaction 50,000
Interest payment in 20x2 recorded as 20x1 transaction 5,000
Adjusted cash balance, Dec. 31, 20x1 197,000

The adjusted balance of accounts receivable is computed as follows:

Accounts receivable (unadjusted) 400,000
Collection of account in 20x2 recorded as 20x1 collection 40,000
Adjusted accounts receivable balance, Dec. 31, 20x1 440,000

The adjusted balance of inventory is computed as follows:

Inventory (unadjusted) 1,000,000
Cost of cash sale in 20x2 recorded as 20x1 sale
 (20,000 sale - 6,000 gross profit) 14,000
Adjusted inventory balance, Dec. 31, 20x1 1,014,000

Adjusted current assets, Dec. 31, 20x1: (197K + 440K + 1,014K) = 1,651,000

The adjusted current liabilities are computed as follows:

Accounts payable 300,000
Note payable 100,000
Loan payable 50,000
Adjusted current liabilities, Dec. 31, 20x1 450,000

Working capital, Dec. 31, 20x1 = Current assets – Current liabilities

Working capital, Dec. 31, 20x1 = (1,651,000 – 450,000) = 1,201,000

15. Entity A has the following information:

Inventory, beg. 80,000

Inventory, end. 128,000
Purchases 320,000
Freight-in 16,000
Purchase returns 8,000
Purchase discounts 11,200

How much is Entity A’s cost of sales?

a. 286,800
b. 292,800
c. 288,600
d. 268,800

Inventory, beg. 80,000

Net purchases:
Purchases 320,000
Freight-in 16,000
Purchase returns (8,000)
Purchase discounts (11,200) 316,800
Total goods available for sale 396,800
Less: Inventory, end. (128,000)
Cost of goods sold 268,800

16. In a two-statement presentation, information on profit or loss and other comprehensive income
is shown
a. in two separate statements, a statement of profit or loss and a statement showing other
comprehensive income.
b. in two separate statements, a statement of profit or loss and an income statement.
c. in two separate statements, a single-step statement and a multi-step statement.
 d. in a single statement called ‚statement of comprehensive income.‛

17. Under this presentation method, expenses are presented in the statement of comprehensive
income without distinctions as to their functions within the entity.
a. nature of expense method
b. function of expense method
c. single-statement presentation
d. two-statement presentation

18. Under this presentation, expenses are classified as either operating or non-operating item. At a
minimum, cost of sales is presented separately.
a. nature of expense method
b. function of expense method
c. single-statement presentation
d. two-statement presentation

Use the following information for the next five questions:

The nominal accounts of Rommel SP Corp. on December 31, 20x1 have the following balances:

Accounts Dr. Cr.

Sales ₱739,000
Interest income 45,000
Gains 15,000
Inventory, beg. ₱ 65,000
Purchases 180,000
Freight-in 10,000
Purchase returns 5,000
Purchase discounts 9,000
Freight-out 30,000
Sales commission 45,000
Advertising expense 25,000
Salaries expense 240,000
Rent expense 30,000
Depreciation expense 50,000
Utilities expense 25,000
Supplies expense 15,000
Transportation and travel expense 15,000
Insurance expense 10,000
Taxes and licenses 60,000
Interest expense 5,000
Miscellaneous expense 3,000
Loss on the sale of equipment 5,000

Additional information:
a. Ending inventory is ₱ 90,000.
b. One-fourth of the salaries, rent, and depreciation expenses pertain to the non-sales department.
The sales department does not share in the other expenses.
19. How much is the net purchases?
a. ₱185,000 c. ₱194,000
b. ₱176,000 d. ₱192,000

Purchases 180,000
Freight-in 10,000
Purchase returns (5,000)
Purchase discounts (9,000)
Net purchases 176,000

20. How much is the ‚change in inventory‛ in 20x1?

a. ₱90,000 increase c. ₱25,000 decrease
b. ₱65,000 decrease d. ₱25,000 increase

Inventory, beg. 65,000

Inventory, end. 90,000
Change in inventory – increase (25,000)

21. How much is the cost of goods sold?

a. ₱151,000 c. ₱169,000
b. ₱95,000 d. ₱127,000

Net purchases 176,000

Less: Net increase in inventory (25,000)
Cost of sales 151,000

22. How much is the total selling expense?

a. ₱420,000 c. ₱180,000
b. ₱260,000 d. ₱340,000

Freight-out 30,000
Sales commission 45,000
Advertising expense 25,000
Salaries expense (240K x 3/4) 180,000
Rent expense (30K x 3/4) 22,500
Depreciation expense (50K x 3/4) 37,500
Selling expenses/Distribution costs 340,000

23. How much is the total general and administrative expense?

a. 280,000 c. 330,000
b. 320,000 d. 208,000

Salaries expense (240K x 1/4) 60,000

 Rent expense (30,000 x 1/4) 7,500
Depreciation expense (50K x 1/4) 12,500
Utilities expense 25,000
Supplies expense 15,000
Transportation and travel expense 15,000
Insurance expense 10,000
Taxes and licenses 60,000
Miscellaneous expense 3,000
Administrative expenses 208,000

Use the following information for the next two questions:

DECORTICATE PEEL, Inc. is committed to a plan to sell a manufacturing facility and has initiated
actions to locate a buyer. As of this date, the building has a carrying amount of ₱6,000,000, a fair
value of ₱5,000,000 and estimated costs to sell of ₱200,000. At the plan commitment date, there is a
backlog of uncompleted customer orders.

24. DECORTICATE, Inc. intends to sell the manufacturing facility with its operations. Any
uncompleted customer orders at the sale date will be transferred to the buyer. The transfer of
uncompleted customer orders at the sale date will not affect the timing of the transfer of the
facility. How should DECORTICATE Co. classify the manufacturing facility?
a. Included under property, plant and equipment at ₱6,000,000.
b. Included under property, plant and equipment at ₱4,800,000.
c. Classified as held for sale at ₱6,000,000
d. Classified as held for sale at ₱4,800,000

D (5,000,000 fair value – 200,000 costs to sell) = 4,800,000

25. DECORTICATE, Inc. intends to sell the manufacturing facility, but without its operations. The
entity does not intend to transfer the facility to a buyer until after it ceases all operations of the
facility and eliminates the backlog of uncompleted customer orders. How should
DECORTICATE Co. classify the manufacturing facility?
a. Included under property, plant and equipment at ₱6,000,000.
b. Included under property, plant and equipment at ₱4,800,000.
c. Classified as held for sale at ₱6,000,000
d. Classified as held for sale at ₱4,800,000

B – not available for immediate sale in its present condition; PPE at 4.8M (5M – 200K) because the
manufacturing facility is impaired.

26. An entity in the power generating industry is committed to a plan to sell a disposal group that
represents a significant portion of its regulated operations. The sale requires regulatory
 approval, which could extend the period required to complete the sale beyond one year. Actions
necessary to obtain that approval cannot be initiated until after a buyer is known and a firm
purchase commitment is obtained. However, a firm purchase commitment is highly probable
within one year. The disposal group has a carrying amount of ₱10,000,000 and fair value less
costs to sell of ₱10,600,000. How should the entity classify the disposal group?
a. Held for sale, ₱10.6M c. Under previous classifications, ₱10M
b. Held for sale, ₱10M d. Under previous classifications, ₱10.6M

B – The exceptions to the “1-yr. requirement” are met.

Use the following information for the next two questions:

In 20x1, FORGETIVE CREATIVE Co. classified a property as held for sale. The carrying amount
prior to classification is ₱400,000 while fair value less cost to sell is ₱360,000. The property is being
sold at ₱360,000.

During 20x1, the market conditions that existed at the date the asset was classified initially as held
for sale deteriorate and, as a result, the asset is not sold by the end of that period. During that
period, FORGETIVE actively solicited but did not receive any reasonable offers to purchase the asset
and, in response, FORGETIVE reduced the price from ₱360,000 to ₱320,000. The fair value less costs
to sell on December 31, 20x1 is ₱340,000.

27. How should FORGETIVE Co. classify the property in its 20x1 annual financial statements?
a. Held for sale, ₱320,000 c. PPE, ₱340,000
b. Held for sale, ₱340,000 d. PPE, ₱400,000

B 340,000, the fair value less costs to sell, which is lower than the carrying amount of P360,000.

28. During 20x2, the market conditions deteriorate further, and the asset is not sold by December 31,
20x2. FORGETIVE Co. believes that the market conditions will improve and has not further
reduced the price of the asset. The fair value less costs to sell on December 31, 20x2 is ₱300,000. If
the property was not classified as held for sale in 20x1, its carrying amount by this time would
have been ₱350,000.
a. Held for sale, ₱300,000 c. PPE, ₱300,000
b. Held for sale, ₱320,000 d. PPE, ₱350,000

C – The asset is reclassified back to PPE at the lower of recoverable amount (i.e., 300,000) and the
carrying amount adjusted for depreciation not recognized during the asset was classified as held for sale
(i.e., 350,000).

29. WAYFARER TRAVELER Co. is preparing its December 31, 20x1, current year financial
statements. A land included in WAYFARER’s property, plant and equipment that did not
qualify as held for sale as of December 31, 20x1 was actually sold on January 5, 20x2. The
financial statements were authorized for issue on March 1, 20x2. On December 31, 20x1,
WAYFARER has total current assets of ₱9,000,000. Not included in this amount is the fair value
less costs to sell of the land amounting to ₱1,000,000. How much is the total current assets
current in WAYFARER’s December 31, 20x1 financial statements?
a. ₱8,000,000 c. ₱10,000,000
 b. ₱9,000,000 d. ₱11,000,000

B – The event is disclosed only as a non-adjusting event after the reporting period.

30. On December 31, 20x1, STRIDENT HARSH-SOUNDING Co. classified its building with a
historical cost of ₱4,000,000 and accumulated depreciation of ₱2,400,000 as held for sale. All of
the criteria under PFRS 5 are complied with. On that date, the land has a fair value of ₱1,400,000
and cost to sell of ₱80,000. The entry on December 31, 20x1 includes
a. a debit to building for ₱1,320,000
b. a credit to accumulated depreciation for ₱2,400,000
c. a debit to impairment loss for ₱280,000
d. No reclassification entry will be made on December 31, 20x1

C
Jan. 1, Held for sale asset (1.4M – 80K) 1,320,000
20x1
Accumulated depreciation 2,400,000
Impairment loss 280,000
Building 4,000,000

31. On December 31, 20x1, OBSTINACY STUBBORNESS Co. classified its building with a carrying
amount of ₱1,600,000 and fair value less cost to sell of ₱1,320,000 as held for sale.

The building was not sold in 20x2. However, the exception to the one-year requirement was met. On
December 31, 20x2, the fair value less cost to sell of building is ₱1,240,000.

The building was not sold in 20x3. However, the exception to the one-year requirement was still
met. On December 31, 20x3, the fair value less cost to sell of building increased to ₱1,680,000. How
much is the gain on reversal of impairment to be recognized on December 31, 20x3?
a. 440,000
b. 360,000
c. 280,000
d. 0

B 360,000, limited to the total impairment losses recognized in previous years (1,240,000 - 1,600,000
original carrying amount)

Use the following information for the next four questions:

On December 31, 20x1, INSOUCIANT CAREFREE Co. plans to dispose of a group of its assets.
Information on these assets is shown below:
Carrying amount on Dec. Carrying amount as
31, 20x1 before remeasured immediately
classification as held for before classification as
sale held for sale
Inventory 9,600,000 8,800,000
Investment in FVOCI 7,200,000 6,000,000
Investment property (at cost model) 22,800,000 22,800,000
PPE (at cost model) 18,400,000 16,000,000
Goodwill 6,000,000 6,000,000
Total 64,000,000 59,600,000

INSOUCIANT Co. entity estimates that the fair value less costs to sell of the disposal group amounts
to ₱52,000,000.

32. How would the reduction in the value of the assets on classification as held for sale be treated in
the financial statements?
a. The entity recognizes a loss of ₱4.4M immediately before classification as held for sale and
then recognizes an impairment loss of ₱7.6M.
b. The entity recognizes an impairment loss of ₱12 million.
c. The entity recognizes an impairment loss of ₱7.6M.
d. The entity recognizes a loss of ₱12M immediately before classifying the disposal group as
held for sale.

A Step #1: 59.6M – 64M = 4.4M Impairment loss;

Step #2: 52M – 59.6M = 7.6 Additional impairment loss

33. How much is the carrying amount of the inventory after classification of the disposal group as
held for sale?
a. 8,800,000
b. 7,950,576
c. 7,899,324
d. 7,765,391

A 8,800,000 - Carrying amount as remeasured immediately before classification as held for sale. (See also
solutions below)

34. How much is the carrying amount of the Investment property (at cost model) after classification
of the disposal group as held for sale?
a. 22,800,000
b. 21,859,794
c. 21,786,665
d. 20,766,298

B (Refer to solutions below)

35. How much is the carrying amount of the PPE (at cost model) after classification of the disposal
group as held for sale?
a. 16,000,000
b. 15,780,740
c. 15,340,206
d. 15,211,612
C

Fair value less costs to sell 52,000,000

Carrying amount as remeasured immediately before
classification as held for sale 59,600,000
Additional impairment loss on initial classification under PFRS 5 (7,600,000)
Allocation to goodwill 6,000,000
Impairment loss to be allocated to the other assets 1,600,000

The excess is allocated to the other assets pro rata based on their carrying amounts as follows:
Allocation of
Assets Carrying amt. Fraction Impairment Loss
Inventory N/A N/A N/A
Investment in FVOCI N/A N/A N/A
IP – cost 22,800,000 22.8/38.8 (940,206)
PPE – cost model 16,000,000 16/38.8 (659,794)
38,800,000 (1,600,000)

The carrying amount after allocation of impairment loss is:

Inventory 8,800,000
Investment in FVOCI 6,000,000
Investment property (at cost model) (22.8M – 940,206) 21,859,794
PPE (at cost model) (16M – 659,794) 15,340,206
Goodwill -
Total 52,000,000

36. On December 31, 20x1, INGENIOUS NATURAL Co. classified its building with a carrying
amount of ₱1,600,000 and fair value less costs to sell of ₱1,320,000 as held for sale. Impairment
loss of ₱280,000 was recognized on that date. The building has a remaining useful life of 4 years
and it was depreciated using the straight-line method.

As of December 31, 20x2, the building was not yet sold and management decided not to sell the
building anymore. The fair value less cost to sell of the building on December 31, 20x2 is ₱1,240,000
while the value in use is ₱1,220,000.

How much is the carrying amount of the building upon reclassification back to property, plant and
equipment?
a. 1,220,000
b. 1,320,000
c. 1,240,000
d. 1,200,000

D
a. Carrying amount adjusted for depreciation not recognized (1.6M x ¾) = 1.2M;
b. Recoverable amount = 1.240M the higher of FVLCS and VIN
 Measurement = 1.2M - the lower of a and b above

37. On December 31, 20x1, INIMICAL UNFRIENDLY Co. entered into an agreement to sell a
component. On that date, INIMICAL estimated the gain from the disposal to be made in 20x2 at
₱2,000,000 and the operating losses prior to the date of sale to be ₱1,200,000. As a result of the
 sale, the component’s operations and cash flows will be eliminated from the entity’s operations
and the entity will not have any significant continuing post-sale involvement in the component’s
operations. Accordingly, the component was classified as held for sale and discontinued
operations.

The component’s actual operating losses in 20x1 and 20x2 were ₱2,800,000 and ₱2,600,000,
respectively, and the actual gain on disposal of the component in 20x2 was ₱1,600,000. INIMICAL’s
income tax rate is 30%. Any income tax benefit is expected to be realizable. There were no other
temporary differences during the year.

What single, post-tax amounts should be reported for discontinued operations in INIMICAL’s
comparative 20x2 and 20x1 income statements, respectively?
a. (1,960,000), (700,000)
b. (560,000), (1,960,000)
c. (650,000), (1,950,000)
d. (700,000), (1,960,000)

D 20x2: (1,600,000 – 2,600,000) x 70% = (700,000)

20x1: (-2,800,000 x 70%) = (1,960,000)

38. On April 30, 20x1, ABROGATE ABOLISH Co. approved a plan to dispose of a component of its
operations. The disposal meets the requirements for classification as discontinued operations.

From January 1 to April 30, 20x1, the component earned operating profit of ₱400,000 and from May 1
to December 31, 20x1, the segment suffered operating losses of ₱200,000.

The net assets of the component has a carrying amount of ₱32,000,000 as of April 30, 20x1. The fair
value less costs to sell of the component is ₱26,000,000. Additional estimated disposal loss includes
severance pay of ₱220,000 and employee relocation costs of ₱100,000, both of which are directly
associated with the decision to dispose of the segment. ABROGATE’s income tax rate is 30%. Any
income tax benefit is expected to be realizable. There were no other temporary differences during
the year.

How much is the profit (loss) from discontinued operations to be reported in ABROGATE's
statement of profit or loss and other comprehensive income for the year ended December 31, 20x1?
a. 4,564,000
b. 4,060,000
c. 4,340,000
d. 4,284,000

D
Solution:
Operating profit – January 1 to April 30, 20x1 400,000
Operating loss – May 1 to December 31, 20x1 (200,000)
Impairment loss (32M – 26M) (6,000,000)
Severance pay (220,000)
Employee relocation costs (100,000)
Total (6,120,000)
Multiply by: 1 minus Tax rate 70%
Loss for the period from discontinued operations (4,284,000)

39. You are a CPA. Your client asked you for an advice regarding the items that are presented as
other comprehensive income. You will tell your client to refer to which of the following
standards?
a. PAS 1
b. PFRS 1
c. PFRS 15
d. PAS 8

40. Non-current assets held for sale and discontinued operations are accounted for under
a. PFRS 4.
b. PAS 41.
c. PFRS 5.
d. PFRS 8.

41. Non-current assets are presented as current items in the statement of financial position
a. only when they are expected to be sold within 12 months from the end of reporting period.
b. only if they are actually sold after the reporting period but before the date of authorization of
the financial statements for issue.
c. only when they qualify as held for sale assets under PFRS 5.
d. never presented as current items.

42. A noncurrent asset classified as held for sale in accordance with PFRS 5 has not been sold after a
year. The asset shall continue to be presented as held for sale under PFRS 5 if
a. the delay is due to events beyond the entity’s control
b. the entity remains committed to its plan to sell the asset
c. the noncurrent asset is actually sold after the reporting period but before the financial
statements were authorized for issue.
d. a and b

43. Which of the following statements is true regarding the accounting treatment of costs to sell
under PFRS 5?
a. Costs to sell are added to the fair value when determining the measurement basis for an
asset held for sale
b. Costs to sell are never discounted because held for sale assets should be sold within one year
c. Costs to sell are discounted if it is expected that the sale will be made beyond one year.
d. a and c

44. According to PFRS 5, gains and losses on remeasurement of assets held for sale are
a. recognized in profit or loss
b. recognized in other comprehensive income
c. recognized only for impairment losses
d. not recognized

45. Which of the following is included in profit from continuing operations?

a. extraordinary items c. other comprehensive income
 b. discontinued operations d. income tax expense

Use the following information for the next two questions:

VISAGE APPEARANCE Co. is committed to a plan to sell its headquarters building and has
initiated actions to locate a buyer. As of this date, the building has a carrying amount of ₱5,000,000, a
fair value of ₱6,000,000 and estimated costs to sell of ₱200,000.

46. VISAGE Co. has an intention to transfer ownership of a building to a buyer after it vacates the
building. How should VISAGE Co. classify the headquarters building?
a. Included under property, plant and equipment at ₱5,000,000.
b. Included under property, plant and equipment at ₱5,800,000.
c. Classified as held for sale at ₱5,000,000
d. Classified as held for sale at ₱5,800,000

C 5,000,000 lower of carrying amount and fair value less costs sell

47. VISAGE Co. will continue to use the building until the construction of a new headquarters is
completed. How should VISAGE Co. classify the headquarters building?
a. Included under property, plant and equipment at ₱5,000,000.
b. Included under property, plant and equipment at ₱5,800,000.
c. Classified as held for sale at ₱5,000,000
d. Classified as held for sale at ₱5,800,000

A – not available for immediate sale in its present condition

48. PERAMBULATE STROLL Co. is a commercial leasing and finance company. As of year-end,
PERAMBULATE holds equipment that is available either for sale or lease. PERAMBULATE is
not yet decided whether to sell or to lease the equipment. The equipment has a carrying amount
of ₱1,000,000, fair value of ₱1,200,000 and costs to sell of ₱50,000. How should PERAMBULATE
Co. classify the equipment?
a. Inventory, ₱1,000,000 c. Held for sale, ₱1,150,000
b. Investment property, ₱1,250,000 d. Held for sale, ₱1,000,000

A – Sale is not highly probable

49. In Baer Food Co.’s 20x3 single-step income statement, the section titled ‚Revenues‛ consisted of
the following:

Net sales revenue 187,000

Results from discontinued operations:
Loss from discontinued component Z including loss on disposal of ₱1,200 16,400
Less: Tax benefit 4,000 (12,400)
Interest revenue 10,200
Gain on sale of equipment 4,700
Cumulative change in 20x1 and 20x2 income due to change in depreciation
method (net of ₱750 tax effect) 1,500
Total revenues 191,000
In the revenues section of the 20x3 income statement, Baer Food should have reported total revenues
of
a. 197,200 b. 215,400 c. 203,700 d. 201,900

A
Solution:
Net sales revenue 187,000
Interest revenue 10,200
Adjusted total revenues 197,200

50. During 20x4, Lopez Corporation disposed of Pine Division, a major component of its business.
Lopez realized a gain of ₱500,000, net of taxes, on the sale of Pine's assets. Pine's operating
losses, net of taxes, were ₱600,000 in 2004. How should these facts be reported in Lopez's
income statement for 2004?
Total Amount to be Included in
Income from Results of
Continuing Operations Discontinued Operations
a. 600,000 loss 500,000 gain
b. 100,000 loss 0
c. 0 100,000 loss
d. 500,000 gain 600,000 loss

C (600,000 loss – 500,000 gain) = 100,000 loss

“A fool shows his annoyance at once, but a prudent man overlooks an insult.” (Proverbs 12:16)
- END

PROBLEM-SOLVING

1. The movements in the cash account of NONCHALANT COOL Co. during 20x2 are shown
below.
Cash
beg. 200
Sales 6,000 3,800 Purchases
Interest income 20 1,200 Operating expenses
Rent income 270 30 Interest expense
Dividend income 40 70 Income taxes
Held for trading securities 800 100 Investment in FVOCI
Sale of old building 520 1,100 Purchase of equipment
Collection of non-trade note 60 130 Loan granted to employee
Proceeds from loan with a bank 1,600 240 Payment of loan borrowed
Issuance of shares 970 200 Reacquisition of shares
90 Dividends
3,520 end.
Requirement: Prepare the statement of cash flows of NONCHALANT COOL Co. for the year ended
December 31, 20x2. (Use Option 1 in classifying cash flows from operating activities.)
1. Solution:
NONCHALANT COOL Company
Statement of cash flows
For the year ended December 31, 20x2

Cash flows from operating activities

Cash receipts from customers 6,000
Cash receipts for interest income 20
Cash receipts for rent income 270
Cash receipts for dividend income 40
Cash paid to suppliers (3,800)
Cash paid for operating expenses (1,200)
Cash generated from operations 1,330
Interest paid (30)
Income taxes paid (70)
Cash receipt from sale of held for trading securities 800
Net cash from operating activities 2,030

Cash flows from investing activities

Cash payment for acquisition of investment in FVOCI (100)
Cash receipt from sale of old building 520
Cash payment for acquisition of equipment (1,100)
Cash receipt from collection of loan granted 60
Cash payment for loan granted (130)
Net cash used in investing activities (750)

Cash flows from financing activities

Cash proceeds from loan borrowed 1,600
Cash payment for loan borrowed (240)
Cash proceeds from issuance of share capital 970
Cash payment for acquisition of treasury shares (200)
Cash payment for dividends (90)
Net cash from financing activities 2,040

Net increase in cash and cash equivalents 3,320

Cash and cash equivalents, beginning 200
Cash and cash equivalents, end 3,520

“give thanks in all circumstances; for this is God’s will for you in Christ Jesus.” - (1
Thessalonians 5:18)

- END -
 BALIUAG UNIVERSITY
CPA REVIEW

FINANCIAL ACCOUNTING PROBLEMS FAR-2017-32

DISCONTINUED OPERATION AND NONCURRENT ASSET HELD FOR SALE

1. K COMPANY is a diversified entity with nationwide interest in commercial real estate

development, banking, mining and food distribution. The food distribution division was
deemed to be inconsistent with the long-term direction of the entity. On October 1,
2017, the board of directors voted to approve the disposal of this division. The sale is
expected to occur in August 2018. The food distribution had the following revenue and
expenses in 2017: January 1 to September 30, revenue of P35,000,000 and expenses
of P25,000,000; October 1 to December 31, revenue of P10,000,000 and expenses of
P12,000,000. The carrying amount of the division’s asset on December 31, 2017 was
P50,000,000 and the recoverable amount was estimated to be P55,000,000. The sale
contract required the entity to terminate certain employees incurring an expected
termination cost of P1,000,000 to be paid by December 15, 2018. The income tax rate
is 30%. What amount should be reported as income from discontinued operations for
2017?

a. 5,600,000
b. 9,100,000
c. 4,900,000
d. 8,400,000

2. On July 1, 2017, L COMPANY committed to a plan to dispose of a major subsidiary.

The disposal met the requirements for classification as discontinued operation. The
carrying amount of the subsidiary was P8,000,000 and management estimated the fair
value less cost of disposal at P6,500,000. The subsidiary had an operating loss of
P2,000,000 for the entire year. What amount should be presented as pretax loss from
discontinued operation for the current year?

a. 3,500,000
b. 1,500,000
c. 2,000,000
d. 0

3. M COMPANY accounted for noncurrent assets using the cost model. On July 1, 2017,
the entity classified an equipment as held for sale. At that date, carrying amount was
P5,000,000, the fair value was estimated at P3,500,000 and the cost of disposal at
P100,000. On December 31, 2017, the equipment was sold for net proceeds of
P2,500,000. What amount should be included as an impairment loss for 2017?

a. 1,600,000
b. 2,500,000
c. 1,500,000
d. 900,000

4. N COMPANY accounted for noncurrent assets using the revaluation model. On October
1, 2017, the entity classified a land as held for sale. At that date, the carrying amount
of the land was P5,000,000 and the balance in the revaluation surplus was
P1,500,000. At same date, the fair value of the land was estimated at P5,500,000 and
the cost of disposal at P100,000. On December 31, 2017, the fair value less cost of
disposal of the land did not change. The land was sold on January 31, 2018 for
P6,000,000. What amount should be reported as gain on disposal of land in 2018?

a. 1,000,000
b. 2,600,000
c. 500,000
d. 600,000

1
 BALIUAG UNIVERSITY
CPA REVIEW

FINANCIAL ACCOUNTING PROBLEMS FAR-2017-32

5. O COMPANY purchased an equipment for P5,000,000 on January 1, 2016. The

equipment had a useful life of 5 years with no residual value. On December 31, 2016,
the entity classified the asset as held for sale. On such date, the fair value less cost of
disposal of the equipment was P3,500,000.

On December 31, 2017, the entity believed that the criteria for classification as held
for sale can no longer be met. Accordingly, the entity decided not to sell the asset but
to continue to use it. On December 31, 2017, the fair value less cost of disposal of the
equipment was P2,700,000.

1. What amount of impairment loss should be recognized in 2016?

a. 1,500,000
b. 1,000,000
c. 500,000
d. 0

2. What amount should be included in profit or loss in 2017 as a result of the

reclassification of the equipment to property, plant and equipment?

a. 800,000 gain
b. 800,000 loss
c. 300,000 gain
d. 300,000 loss

3. What is the depreciation for 2018?

a. 1,000,000
b. 875,000
c. 900,000
d. 675,000

2
1.This means applying a new accounting policy to transactions, other events and conditions as
if that policy had always been applied.Single choice.
(1/1 Point)
Retrospective restatement
Retrospective application
Prospective application
Prospective restatement
Correct answers: Retrospective application
2.M5 Company was incorporated on January 1, 2008. In preparing its financial statements for
the year ended December 31, 2010, M5 Company used the following original costs and useful
lives for its property, plant and equipment: Building: Original Cost: P15,150,000 Useful Life: 15
years Machine: Original Cost: P11,550,000 Useful Life: 10 years Vehicle: Original Cost:
P3,850,000 Useful Life: 7 years On January 1, 2011, the entity determined the the remaining
useful life is 10 years for the building, 7 years for the machinery and 5 years for the vehicle.
M5 Company uses the straight line depreciation method with no residual value. What is the
depreciation expense for 2015 in relation to the machine?Single line text.
(1/1 Point)
1155000

3.M5 Company was incorporated on January 1, 2008. In preparing its financial statements for
the year ended December 31, 2010, M5 Company used the following original costs and useful
lives for its property, plant and equipment: Building: Original Cost: P15,150,000 Useful Life: 15
years Machine: Original Cost: P11,550,000 Useful Life: 10 years Vehicle: Original Cost:
P3,850,000 Useful Life: 7 years On January 1, 2011, the entity determined the the remaining
useful life is 10 years for the building, 7 years for the machinery and 5 years for the vehicle.
M5 Company uses the straight line depreciation method with no residual value. What is the
depreciation expense for 2020 in relation to the building?Single line text.
(1/1 Point)
1212000

4.Which of the following criteria does not have to be met in order for an operation to be
classified as discontinued?Single choice.
(1/1 Point)
The operation shall represent a separate major line of business or geographical area.
The operation must be sold within three months of the year-end.
The operation is part of a single plan to dispose of a separate major line of business or geographical area.
The operation is a subsidiary acquired exclusively with a view to resale.
Correct answers: The operation must be sold within three months of the year-end.
5.MG Company purchased an equipment for P5,000,000 on January 1, 2011 with a useful life
of 10 years and no residual value. On January 1, 2013, the entity classified the asset as held for
sale. The fair value of the equipment on January 1, 2013 is P3,300,000 and the cost to sell is
P100,000. On December 31, 2013, the fair value of the equipment is P3,800,000 and the cost
to sell is P400,000. On December 31, 2013, the entity believed that the criteria for classification
as held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but
continue to use it. What is the measurement of the equipment that ceases as held for sale on
December 31, 2013?Single line text.
(1/1 Point)
3400000

6.HSBC Inc. committed to sell a component of its business on September 1, 2011. The carrying
amount of the division was P,4,000,000 and the fair value was P3,500,000. The disposal date is
expected to be June 1, 2012. The division reported an operating loss of P200,000 for the year
ended December 31, 2011. Assuming that the tax rate is 30%, what amount should be
reported as loss from discontinued operation in 2011?Single line text.
(1/1 Point)
490000

7.An entity manufactures and sells household products. The entity experienced losses
associated with the small appliance group. Operations and cash flows for this group can be
clearly distinguished from the rest of the entity's operations. The entity plans to sell the small
appliance group. What is the earliest point at which the entity shall report the small appliance
group as a discontinued operation?Single choice.
(1/1 Point)
When the entity receives an offer for the segment.
When the entity first sells any of the assets of the segment.
When the entity sells the majority of the assets of the segment.
When the entity classified it as held for sale.
Correct answers: When the entity classified it as held for sale.
8.An entity shall classify a noncurrent asset or disposal group as "held for sale" whenSingle
choice.
(1/1 Point)
The carrying amount of the asset or disposal group will be recovered through a sale transaction.
The noncurrent asset or disposal group is idle or retired from active use.
The carrying amount of the asset or disposal group will be recovered through continuing use.
The noncurrent asset or disposal group is to be abandoned.
Correct answers: The carrying amount of the asset or disposal group will be recovered through a sale transaction.
9.Letran Company purchased a machinery on January 1, 2008 for P7,200,000. The machinery
has a useful life of 10 years with no residual value and was depreciated using the straight line
method. In 2011, a decision was made to change the depreciation method from straight line
to sum of years' digits method. The estimates of useful life and residual value remained
unchanged. What is the depreciation for 2012?Single line text.
(1/1 Point)
1080000

10.It comprises operations and cash flows that can be clearly distinguished, operationally and
for financial reporting purposes from the rest of the entity.Single choice.
(1/1 Point)
Component of an entity
Business segment
Corporate assets
Disposal group
Correct answers: Component of an entity
11.If the fair value less cost of disposal is lower than the carrying amount of a noncurrent
asset classified as held for sale, the difference isSingle choice.
(1/1 Point)
Not accounted for.
Debited to retained earnings.
Charged to depreciation.
Accounted for as an impairment loss.
Correct answers: Accounted for as an impairment loss.
12.PFRS requires that a single amount be disclosed within the income statement forSingle
choice.
(1/1 Point)
The pre-tax profit or loss on discontinued operation and the pre-tax gain or loss on the disposal of discontinued
operation assets.
The post-tax profit or loss on discontinued operation and the pre-tax gain or loss on the disposal of
discontinued operation assets.
The post-tax profit or loss on discontinued operation and the post-tax gain or loss on the disposal of
discontinued operation assets.
The pre-tax profit or loss on discontinued operation and the post-tax gain or loss on the disposal of
discontinued operation assets.
Correct answers: The post-tax profit or loss on discontinued operation and the post-tax gain or loss on the disposal
of discontinued operation assets.
13.This means applying a new accounting policy to transactions and events occurring after the
date at which the policy is changed.Single choice.
(1/1 Point)
Retrospective application
Prospective application
Prospective restatement
Retrospective restatement
Correct answers: Prospective application
14.What is the presentation of the results from discontinued operation in the income
statement?Single choice.
(1/1 Point)
The entity shall disclose a single amount on the face of the income statement below the income from
continuing operation.
Discontinued operation shall be shown as a movement on retained earnings.
The amount from discontinued operation shall be broken down over each category of revenue and expense.
Discontinued operation shall be shown as a line item after gross profit with the taxation being shown as part of
income tax expense.
Correct answers: The entity shall disclose a single amount on the face of the income statement below the income
from continuing operation.
15.When it is difficult to distinguish between a change in accounting estimate and a change in
accounting policy, an entity shallSingle choice.
(1/1 Point)
Treat the entire change as a change in accounting policy.
Treat the entire change as a change in accounting estimate with appropriate disclosure.
Apportion on a reasonable basis the relative amounts of change in accounting estimate and the change in
accounting policy and treat each one accordingly.
Ignore it in the year of the change and then wait for the following year to see how the change develops and
then treat it accordingly.
Correct answers: Treat the entire change as a change in accounting estimate with appropriate disclosure.
16.What is the treatment of any gain on a subsequent increase in the fair value less cost of
disposal of a noncurrent asset classified as held for sale?Single choice.
(1/1 Point)
The gain shall be recognized but not in excess of the cumulative impairment loss previously recognized.
The gain shall be recognized but only in retained earnings.
The gain shall be recognized in full.
The gain shall be credited to revaluation surplus.
Correct answers: The gain shall be recognized but not in excess of the cumulative impairment loss previously
recognized.
17.This means correcting the recognition, measurement and disclosure of amounts of
elements of financial statements as if a prior period error had never occurred.Single choice.
(1/1 Point)
Retrospective application
Prospective restatement
Prospective application
Retrospective restatement
Correct answers: Retrospective restatement
18.M5 Company was incorporated on January 1, 2008. In preparing its financial statements for
the year ended December 31, 2010, M5 Company used the following original costs and useful
lives for its property, plant and equipment: Building: Original Cost: P15,150,000 Useful Life: 15
years Machine: Original Cost: P11,550,000 Useful Life: 10 years Vehicle: Original Cost:
P3,850,000 Useful Life: 7 years On January 1, 2011, the entity determined the the remaining
useful life is 10 years for the building, 7 years for the machinery and 5 years for the vehicle.
M5 Company uses the straight line depreciation method with no residual value. What is the
depreciation expense for 2011 in relation to the vehicle?Single line text.
(1/1 Point)
440000

19.The effect of a change in the expected pattern of consumption of economic benefit of a

depreciable asset shall beSingle choice.
(1/1 Point)
Included in the determination of income or loss in the period of change and future periods.
Included in other comprehensive income.
Included in the statement of retained earnings as an adjustment of the beginning balance.
Included in the determination of income or loss in the period of change only.
Correct answers: Included in the determination of income or loss in the period of change and future periods.
20.On January 1, 2010, JJ Company purchased a machine for P2,750,000. The machine was
depreciated using the sum of years' digits method based on a useful life of 10 years with no
residual value. On January 1, 2011, JJ Company changed to straight line method of
depreciation. Kevin Company can justify the change. What is the depreciation of the machine
for 2010?Single line text.
(1/1 Point)
500000

21.M5 Company was incorporated on January 1, 2008. In preparing its financial statements for
the year ended December 31, 2010, M5 Company used the following original costs and useful
lives for its property, plant and equipment: Building: Original Cost: P15,150,000 Useful Life: 15
years Machine: Original Cost: P11,550,000 Useful Life: 10 years Vehicle: Original Cost:
P3,850,000 Useful Life: 7 years On January 1, 2011, the entity determined the the remaining
useful life is 10 years for the building, 7 years for the machinery and 5 years for the vehicle.
M5 Company uses the straight line depreciation method with no residual value. What is the
depreciation expense for 2010 in relation to the building?Single line text.
(1/1 Point)
1010000

22.MG Company purchased an equipment for P5,000,000 on January 1, 2011 with a useful life
of 10 years and no residual value. On January 1, 2013, the entity classified the asset as held for
sale. The fair value of the equipment on January 1, 2013 is P3,300,000 and the cost to sell is
P100,000. On December 31, 2013, the fair value of the equipment is P3,800,000 and the cost
to sell is P400,000. On December 31, 2013, the entity believed that the criteria for classification
as held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but
continue to use it. What amount should be recognized in profit or loss as a result of the
reclassification in 2013?Single line text.
(1/1 Point)
200000

23.MG Company purchased an equipment for P5,000,000 on January 1, 2011 with a useful life
of 10 years and no residual value. On January 1, 2013, the entity classified the asset as held for
sale. The fair value of the equipment on January 1, 2013 is P3,300,000 and the cost to sell is
P100,000. On December 31, 2013, the fair value of the equipment is P3,800,000 and the cost
to sell is P400,000. On December 31, 2013, the entity believed that the criteria for classification
as held for sale can no longer be met. Accordingly, the entity decided not to sell the asset but
continue to use it. What amount should be recognized as depreciation expense for 2014
assuming that on January 1, 2014, MG Company revised the total useful life of the equipment
to 13 years?Single line text.
(1/1 Point)
340000

24.Which of the following statements is incorrect concerning the presentation of the

discontinued operation in the statement of financial position?Single choice.
(1/1 Point)
Depreciable assets of the component held for sale shall no be depreciated.
Assets of the component held for sale are measured at the higher of fair value less to of disposal and carrying
amount.
Liabilities of the component held for sale are presented separately from all other liabilities of the entity.
Assets of the component held for sale are presented separately from all other assets of the entity.
Correct answers: Assets of the component held for sale are measured at the higher of fair value less to of disposal
and carrying amount.
25.Which of the following statements is incorrect concerning presentation of noncurrent asset
or disposal group classified as held for sale?Single choice.

(1/1 Point)
An entity shall depreciate a noncurrent asset classified as held for sale or while it is a part of a disposal group
classified as held for sale.
The assets and liabilities of a disposal group classified as held for sale shall not be offset as a single amount.
The liabilities of the disposal group classified as held for sale shall be presented separately from other liabilities.
An entity shall present a noncurrent asset held for sale and the assets of a disposal group classified as held for
sale separately from other assets.

1.What is the quantitative threshold for the revenue that must be disclosed by reportable
operating segment?Single choice.
(1/1 Point)
The total external revenue of all reportable segments is 75% or more of the entity external and internal revenue.
The total external revenue of all reportable segments is 75% or more of the entity external revenue.
The total internal revenue of all reportable segments is 75% or more of the entity internal revenue.
The total external and internal revenue of all reportable segments is 75% or more of the entity external revenue.
Correct answers: The total external revenue of all reportable segments is 75% or more of the entity external revenue.
2.EA Company is preparing its interim financial statement for the first quarter ended March
31, 2020. Expenses in the first quarter totaled P4,000,000 of which 25% was variable. The fixed
expenses included television advertising expense of P1,500,000 representing air time to be
incurred evenly during 2020, and depreciation expense of P600,000 for 2020 for an equipment
that was available for use on March 1, 2020. What amount should be reported as total
expenses in the first quarter ended March 31, 2020?Single line text.
(1/1 Point)
2335000

3.The "major customer" disclosure includes all of the following except:Single choice.
(1/1 Point)
The total amount of revenue from major customers.
The fact of the entity's reliance on major customers.
The identity of the segment or segments reporting the revenue from major customers.
The identities of the major customers.
Correct answers: The identities of the major customers.
4.An operating segment is a reportable segment ifSingle choice.
(0/1 Point)
None of the foregoing.
The absolute amount of segment operating profit or loss is 10% or more of the combined operating profit or
loss.
The operating loss is 10% or more of the combined operating loss of segments that incurred an operating loss.
The operating profit is 10% or more of the combined operating profit of profitable segments.
Your answer to question 4 is wrong. Correct answers: The absolute amount of segment operating profit or loss is
10% or more of the combined operating profit or loss.
5.Which of the following statements in relation to major customer disclosure is/are true? I. A
major customer is defined as one providing revenue which amounts to 10% or more of the
combined revenue, internal and external, of all operating segments. II. The identities of major
customers need not to be disclosed.Single choice.
(1/1 Point)
II only
Neither I nor II
Both I and II
I only
Correct answers: II only
6.Thompson Company has three lines of business, each of which was determined to be
reportable segment. Thompson's sales aggregated to P7,500,000 in the current year, of which
Segment 1 contributed 40%. Traceable costs were P1,750,000 for Segment 1 out of total of
P5,000,000 for the entity as a whole. For external reporting, Thompson allocates common
costs of P1,500,000 based on the ratio of a segment's income before common costs to the
total income before common costs. In its financial statements for the current year, what
amount should Thompson report as profit for Segment 1?Single line text.
(1/1 Point)
500000

7.An entity is preparing interim financial statements for the six months ended June 30, 2014.
In the interim financial statements for the six months ended June 30, 2014, a statement of
financial position on June 30, 2014 and a statement of comprehensive income for the six
months ended June 30, 2014 shall be presented. In addition, all of the following shall be
presented exceptSingle choice.
(1/1 Point)
Statement of comprehensive income for the half year ended June 30, 2013
Statement of cash flows for the half year ended June 30, 2013
Statement of financial position on June 30, 2013
Statement of financial position on December 31, 2013
Correct answers: Statement of financial position on June 30, 2013
8.Daylight Company prepares quarterly interim financial reports. The entity sells computer
units and normally 5% of customers claim on their warranty. The provision in the first quarter
was calculated at 5% of sales to date which amounted to P10,000,000. However, in the second
quarter, a design fault was found and warranty claims were expected to be 12% for the whole
year. Sales to date as of second quarter amounted to P20,000,000. What amount of provision
should be shown in the interim statement of financial position?Single line text.
(1/1 Point)
2400000

9.Daylight Company prepares quarterly interim financial reports. The entity sells computer
units and normally 5% of customers claim on their warranty. The provision in the first quarter
was calculated at 5% of sales to date which amounted to P10,000,000. However, in the second
quarter, a design fault was found and warranty claims were expected to be 12% for the whole
year. Sales to date as of second quarter amounted to P20,000,000. What amount of provision
should be charged in the second quarter's interim income statement?Single line text.
(1/1 Point)
1900000

10.Revenue of a segment includesSingle choice.

(1/1 Point)
Sales to unaffiliated customers and intersegment sales.
Sales to unaffiliated customers and interest revenue.
Sales to unaffiliated customers and other income.
Only sales to unaffiliated customers.
Correct answers: Sales to unaffiliated customers and intersegment sales.
11.Marvo Company operates in the travel industry and incurs costs unevenly throughout the
financial year. Advertising costs of P2,000,000 were incurred on March 1, 2020, and staff
bonuses are paid at year-end based on sales. Staff bonuses are expected to be around
P20,000,000 for the year. Of that sum, P3,000,000 would relate to the period ending March 31,
2020. What cost in relation to bonus should be included in the entity's quarterly financial
report ending March 31, 2020?Single line text.
(1/1 Point)
3000000

12.BGC Company, a publicly owned entity, is subject to the requirements of PFRS 8. In its
income statement for the year ended December 31, 2020, BGC Company reported revenue of
P60,000,000, including intersegment sales of P10,000,000, expenses of P47,000,000 and net
income of P3,000,000. Expenses include payroll costs of P15,000,000. BGC's combined
identifiable assets of all operating segments on December 31, 2020 totaled P40,000,000. In its
financial statements, BGC Company should disclose major customer data if sales to any single
customer amount to at leastSingle line text.
(1/1 Point)
5000000
13.Interim financial reports shall be publishedSingle choice.
(1/1 Point)
Whenever the entity wishes.
Once a year at any time in that year.
Within a month of the half year ended.
On a quarterly basis.
Correct answers: Whenever the entity wishes.
14.BGC Company, a publicly owned entity, is subject to the requirements of PFRS 8. In its
income statement for the year ended December 31, 2020, BGC Company reported revenue of
P60,000,000, including intersegment sales of P10,000,000, expenses of P47,000,000 and net
income of P3,000,000. Expenses include payroll costs of P15,000,000. BGC's combined
identifiable assets of all operating segments on December 31, 2020 totaled P40,000,000.
External revenue of reportable operating segments must be at leastSingle line text.
(1/1 Point)
37500000

15.BGC Company, a publicly owned entity, is subject to the requirements of PFRS 8. In its
income statement for the year ended December 31, 2020, BGC Company reported revenue of
P60,000,000, including intersegment sales of P10,000,000, expenses of P47,000,000 and net
income of P3,000,000. Expenses include payroll costs of P15,000,000. BGC's combined
identifiable assets of all operating segments on December 31, 2020 totaled P40,000,000.
Based on the given information, for a segment to be reportable, under the asset test, the said
segment must have total assets of at leastSingle line text.
(1/1 Point)
4000000

16.Entities should disclose all of the following in interim reports exceptSingle choice.
(0/1 Point)
Basic and diluted earnings per share
Changes in accounting policy
Seasonal revenue, cost and expenses
Post-statement of financial position events
Your answer to question 16 is wrong. Correct answers: Basic and diluted earnings per share
17.Publicly traded entities are encouraged to provide interim financial reportsSingle choice.
(1/1 Point)
On a quarterly basis.
At least at the end of the half year and within 60 days at the end of the interim period.
Whenever the entity wishes.
Within a month of the half-year end.
Correct answers: At least at the end of the half year and within 60 days at the end of the interim period.
18.Marvo Company operates in the travel industry and incurs costs unevenly throughout the
financial year. Advertising costs of P2,000,000 were incurred on March 1, 2020, and staff
bonuses are paid at year-end based on sales. Staff bonuses are expected to be around
P20,000,000 for the year. Of that sum, P3,000,000 would relate to the period ending March 31,
2020. What cost in relation to advertising should be included in the entity's quarterly financial
report ending March 31, 2020?Single line text.
(1/1 Point)
2000000

19.BGC Company, a publicly owned entity, is subject to the requirements of PFRS 8. In its
income statement for the year ended December 31, 2020, BGC Company reported revenue of
P60,000,000, including intersegment sales of P10,000,000, expenses of P47,000,000 and net
income of P3,000,000. Expenses include payroll costs of P15,000,000. BGC's combined
identifiable assets of all operating segments on December 31, 2020 totaled P40,000,000.
Based on the given information, for a segment to be reportable, under the revenue test, the
said segment must have a revenue of at leastSingle line text.
(1/1 Point)
6000000

20.For interim financial reporting, the income tax expense for the second quarter should be
computed by using theSingle choice.

(1/1 Point)
Effective tax rate expected to be applicable for the second quarter.
Effective tax rate expected to be applicable for the full year as estimated at the end of the second quarter.
Statutory tax rate for the year.
Effective tax rate expected to be applicable for the full year as estimated at the end of the first quarter.

1.Events after the reporting period are favorable on unfavorable events that occur
betweenSingle choice.
(2/2 Points)
The end of the reporting period and the date of the next interim financial statements.
The end of the reporting period and the date of the next interim or annual financial statements.
The end of the reporting period and the date when the financial statements are authorized for issue.
The end of the reporting period and the date of the next annual financial statements.
Correct answers: The end of the reporting period and the date when the financial statements are authorized for
issue.
2.The income statement of CS Corporation for 2020 included the following: Interest revenue:
P75,500 Insurance expense: P9,600 Salaries expense: P65,000 The following have been
excerpted from CS Corporation's balance sheets: 12/31/2020 12/31/19 P7,500 P9,100 Interest
receivable 4,200 8,900 Salaries payable 1,500 1,100 Prepaid insurance The cash received for
interest during 2020 wasSingle line text.
(2/2 Points)
77100

3.The income statement of CS Corporation for 2020 included the following: Interest revenue:
P75,500 Insurance expense: P9,600 Salaries expense: P65,000 The following have been
excerpted from CS Corporation's balance sheets: 12/31/2020 12/31/19 P7,500 P9,100 Interest
receivable 4,200 8,900 Salaries payable 1,500 1,100 Prepaid insurance The cash paid for
salaries during 2020 wasSingle line text.
(2/2 Points)
69700

4.Elysa Company reported the following unadjusted prepaid expense on December 31, 2020
which comprised the following: 1. An opening balance of P150,000 for an insurance policy.
The entity had paid an annual premium of P300,000 on July 1, 2019. 2. A P320,000 annual
insurance premium payment on July 1, 2020. 3. A P200,000 advance rental payment for a
warehouse leased for one year beginning January 1, 2021. On December 31, 2020, what
amount should be reported as prepaid expenses under accrual basis?Single line text.
(2/2 Points)
360000

5.Inventory, beginning, P4,800,000. Accounts payable, beginning P2,100,000. Payments made

to suppliers for purchases made during the year, P7,500,000. Purchase returns amounted to
P120,000; Freight-in P70,000. Inventory, ending (physical count), P4,200,000. Accounts
payable, ending, P8,400,000. Under accrual basis, the total purchases made during the year
amounts toSingle line text.
(2/2 Points)
13920000

6.HX Company had a provision of P1,350,000 in the draft financial statements for the year
ended December 31, 2020 in relation to an unresolved court case. On January 20, 2021, the
financial statements for the year ended December 31, 2020 had already been authorized for
issue. On January 31, 2021, the case was settled and the court decided the final total damages
to be paid by the entity at P2,700,000. What amount should be adjusted on December 31,
2020 in relation to this event?Single line text.
(2/2 Points)
0
7.The following events after the reporting period would require an adjustment except: a.
Change in the market price of investment b. Loss on inventory resulting from flood loss c. Loss
on a lawsuit the outcome of which was deemed uncertain at year-end d. Loss of plant as a
result of fireSingle choice.
(2/2 Points)
c only
b, c and d
a, b and d
c and d
Correct answers: a, b and d
8.Elysa Company reported the following unadjusted prepaid expense on December 31, 2020
which comprised the following: 1. An opening balance of P150,000 for an insurance policy.
The entity had paid an annual premium of P300,000 on July 1, 2019. 2. A P320,000 annual
insurance premium payment on July 1, 2020. 3. A P200,000 advance rental payment for a
warehouse leased for one year beginning January 1, 2021. What amount should be reported
as expenses under cash basis for 2020?Single line text.
(2/2 Points)
520000

9.HX Company had a provision of P1,350,000 in the draft financial statements for the year
ended December 31, 2020 in relation to an unresolved court case. On January 20, 2021, when
the financial statements for the year ended December 31, 2020 had not yet been authorized
for issue, the case was settled and the court decided the final total damages to be paid by the
entity at P2,700,000. What should be the balance of the provision as of December 31,
2020?Single line text.
(2/2 Points)
2700000

10.JY Company acquired rights to a patent from GQ Company requiring an advance royalty
payment when the agreement was signed. JY Company remits royalties earned and due under
the agreement on October 31 each year. Additionally, on the same date, JY pays in advance
estimated royalties for the next year. JY adjusts prepaid royalties at year end. Information for
the year ended December 31, 2020 is as follows: 01/01/20 Prepaid royalties: P650,000
10/31/20 Royalty payment (charged to royalty expense): P1,100,000 12/31/20 Year end credit
adjustment to royalty expense: P250,000 Under the accrual basis of accounting, JY's royalty
expense for 2020 isSingle line text.
(2/2 Points)
850000
11.HF Company owns an office building and leases the office under a one-year rental
agreement. Not all tenants make timely payments of their rent. HF Company's balance sheet
contained the following data: 2019 2020 P 9,600 P 12,400 Rental receivable 32,000 24,000
Unearned rentals In 2020, HF Company received P80,000 from tenants. Rent revenue for 2020
wasSingle line text.
(2/2 Points)
90800

12.Decrease in accounts receivable, P120,000; Increase in advances from customers, P80,000.

Total sales for the year P1,700,000. Collections from customers for the year isSingle line text.
(2/2 Points)
1900000

13.An entity's financial statements for the year ended April 30 were approved by the finance
director on July 7 and a public announcement of the profit for the year was made on July 10.
The board of directors authorized the financial statements for issue on July 15 and the
financial statements were approved by the shareholders on July 20. After what date should
consideration no longer be given as to whether the financial statements on April 30 need to
reflect adjusting and non-adjusting events?Single choice.
(2/2 Points)
July 7
July 20
July 15
July 10
Correct answers: July 15
14.Elysa Company reported the following unadjusted prepaid expense on December 31, 2020
which comprised the following: 1. An opening balance of P150,000 for an insurance policy.
The entity had paid an annual premium of P300,000 on July 1, 2019. 2. A P320,000 annual
insurance premium payment on July 1, 2020. 3. A P200,000 advance rental payment for a
warehouse leased for one year beginning January 1, 2021. On December 31, 2020, what
amount should be reported as prepaid expenses under cash basis?Single line text.
(2/2 Points)
0

15.JY Company acquired rights to a patent from GQ Company requiring an advance royalty
payment when the agreement was signed. JY Company remits royalties earned and due under
the agreement on October 31 each year. Additionally, on the same date, JY pays in advance
estimated royalties for the next year. JY adjusts prepaid royalties at year end. Information for
the year ended December 31, 2020 is as follows: 01/01/20 Prepaid royalties: P650,000
10/31/20 Royalty payment (charged to royalty expense): P1,100,000 12/31/20 Year end credit
adjustment to royalty expense: P250,000 Under the cash basis of accounting, JY's royalty
expense for 2020 isSingle line text.
(2/2 Points)
1100000
16.Salaries payable, beginning, P450,000; Salaries paid during the year totaled P1,500,000.
Salaries payable, ending, P760,000. Total salaries paid during the year isSingle line text.
(2/2 Points)
1500000

17.Elysa Company reported the following unadjusted prepaid expense on December 31, 2020
which comprised the following: 1. An opening balance of P150,000 for an insurance policy.
The entity had paid an annual premium of P300,000 on July 1, 2019. 2. A P320,000 annual
insurance premium payment on July 1, 2020. 3. A P200,000 advance rental payment for a
warehouse leased for one year beginning January 1, 2021. What amount should be reported
as expenses under accrual basis for 2020?Single line text.
(2/2 Points)
310000

18.The income statement of CS Corporation for 2020 included the following: Interest revenue:
P75,500 Insurance expense: P9,600 Salaries expense: P65,000 The following have been
excerpted from CS Corporation's balance sheets: 12/31/2020 12/31/19 P7,500 P9,100 Interest
receivable 4,200 8,900 Salaries payable 1,500 1,100 Prepaid insurance The cash paid for
insurance premiums during 2020 wasSingle line text.
(2/2 Points)
10000

19.Inventory, beginning, P4,800,000. Accounts payable, beginning P2,100,000. Payments made

to suppliers for purchases made during the year, P7,500,000. Purchase returns amounted to
P120,000; Freight-in P70,000. Inventory, ending (physical count), P4,200,000. Accounts
payable, ending, P8,400,000. Total amount reported as cost of goods sold amounts toSingle
line text.
(2/2 Points)
14470000

20.Increase in prepaid expenses (utilities), P90,000; Increase in accrued expenses (utilities),

P70,000. Utilities expense for the year amounted to P300,000. Payment for utilities during the
year isSingle line text.

(2/2 Points)
320000
An entity shall report separately cash flows arising from investing and financing activities
usingSingle choice.
(0/2 Points)
Indirect method
Neither direct nor indirect method
Either direct or indirect method
Direct method
Your answer to question 1 is wrong. Correct answers: Direct method
22,
Dividend paid should be classified as cash outflow forSingle choice.
(2/2 Points)
Investing activities
Ordinary activities
Financing activities
Operating activities
Correct answers: Financing activities
33,
Interest payments to lenders should be classified as cash outflows forSingle choice.
(2/2 Points)
Borrowing activities
Lending activities
Operating activities
Financing activities
Correct answers: Operating activities
44,
Cash advances and loans made by a financial institution are usually classified asSingle choice.
(2/2 Points)
Investing activities
Component of cash and cash equivalents
Financing activities
Operating activities
Correct answers: Operating activities
55,
Which can qualify as cash equivalents?Single choice.
(2/2 Points)
Preference shares with specified redemption date and acquired three months before redemption date
One-year BSP treasury bill
Six-month money market placement
Equity instruments
Correct answers: Preference shares with specified redemption date and acquired three months before redemption
date
66,
Under IFRS, an entity can report finance costs in the statement of cash flowsSingle choice.
(2/2 Points)
Either in investing activities or financing activities
In financing activities
In operating activities
Either in operating activities or financing activities
Correct answers: Either in operating activities or financing activities
77,
Mayanne Company provided the following data for the current year: Cash sales: P2,500,000
Sales on account: P850,000 Cash purchases: P1,700,000 Credit purchases: P400,000 Expenses
paid: P750,000 Accounts receivable - 1/1: P250,000 Accounts receivable - 12/31: P300,000
Accounts payable - 1/1: P150,000 Accounts payable - 12/31: P200,000 Inventory - 1/1:
P500,000 Inventory - 12/31: P600,000 Accrued expenses - 12/31: P20,000 Prepaid expenses -
12/31: P30,000 Equipment - 12/31: P1,000,000 Interest received: P40,000 Interest receivable -
1/1: P10,000 Interest receivable - 12/31: P20,000 On July 1 of the current year, an equipment
was acquired for P200,000. The terms are P50,000 down and the balance to be paid after one
year. The useful life of equipment is 10 years with no residual value. What is the amount of
sales under cash basis?Single line text.
(2/2 Points)
3300000

88,
Mayanne Company provided the following data for the current year: Cash sales: P2,500,000
Sales on account: P850,000 Cash purchases: P1,700,000 Credit purchases: P400,000 Expenses
paid: P750,000 Accounts receivable - 1/1: P250,000 Accounts receivable - 12/31: P300,000
Accounts payable - 1/1: P150,000 Accounts payable - 12/31: P200,000 Inventory - 1/1:
P500,000 Inventory - 12/31: P600,000 Accrued expenses - 12/31: P20,000 Prepaid expenses -
12/31: P30,000 Equipment - 12/31: P1,000,000 Interest received: P40,000 Interest receivable -
1/1: P10,000 Interest receivable - 12/31: P20,000 On July 1 of the current year, an equipment
was acquired for P200,000. The terms are P50,000 down and the balance to be paid after one
year. The useful life of equipment is 10 years with no residual value. What is the amount of
purchases under cash basis?Single line text.
(2/2 Points)
2050000

99,
Mayanne Company provided the following data for the current year: Cash sales: P2,500,000
Sales on account: P850,000 Cash purchases: P1,700,000 Credit purchases: P400,000 Expenses
paid: P750,000 Accounts receivable - 1/1: P250,000 Accounts receivable - 12/31: P300,000
Accounts payable - 1/1: P150,000 Accounts payable - 12/31: P200,000 Inventory - 1/1:
P500,000 Inventory - 12/31: P600,000 Accrued expenses - 12/31: P20,000 Prepaid expenses -
12/31: P30,000 Equipment - 12/31: P1,000,000 Interest received: P40,000 Interest receivable -
1/1: P10,000 Interest receivable - 12/31: P20,000 On July 1 of the current year, an equipment
was acquired for P200,000. The terms are P50,000 down and the balance to be paid after one
year. The useful life of equipment is 10 years with no residual value. What is the cost of goods
sold under cash basis?Single line text.
(2/2 Points)
1950000

1010,
Mayanne Company provided the following data for the current year: Cash sales: P2,500,000
Sales on account: P850,000 Cash purchases: P1,700,000 Credit purchases: P400,000 Expenses
paid: P750,000 Accounts receivable - 1/1: P250,000 Accounts receivable - 12/31: P300,000
Accounts payable - 1/1: P150,000 Accounts payable - 12/31: P200,000 Inventory - 1/1:
P500,000 Inventory - 12/31: P600,000 Accrued expenses - 12/31: P20,000 Prepaid expenses -
12/31: P30,000 Equipment - 12/31: P1,000,000 Interest received: P40,000 Interest receivable -
1/1: P10,000 Interest receivable - 12/31: P20,000 On July 1 of the current year, an equipment
was acquired for P200,000. The terms are P50,000 down and the balance to be paid after one
year. The useful life of equipment is 10 years with no residual value. What is the net income
under cash basis?Single line text.
(2/2 Points)
550000

1111,
Single line text.
(2/2 Points)
 110000

1212,
Single line text.
(2/2 Points)
 610000

1313,
QuestionSingle line text.
(3/3 Points)
 700000

1414,
QuestionSingle line text.

(3/3 Points)
350000