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NAME: Date:
Professor: Section: Score:

INTERMEDIATE ACCOUNTING 1
FINAL GRADING EXAMINATION

1. What is the net effect of the under mentioned errors on the trial balance of a firm?
I. Total of sales was taken as P58,726 instead of P58,762.
II. A discount of P52 allowed to Mr. X was not posted in the discount account.
III. Sale of old furniture of P130 was credited to Machinery account.
IV. A credit sale of P250 to Mr. Y was posted twice in his account.

a. Credit total of trial balance will be more than that of debit total by P234
b. Debit total of trial balance will be more than that of credit total by P234
c. Credit total of trial balance will be more than that of debit total by P104
d. Debit total of trial balance will be more than that of credit total by P264
e. Debit total of trial balance will be more than that of credit total by P286

2. The credit total of a trial balance exceeds the debit total by P350. In investigating the cause
of the difference, the following errors were determined: a credit to accounts receivable of
P550 was not posted; a P5,000 debit to be made to the Purchases account was debited to
Accounts payable instead; a P3,000 credit to be made to the Sales account was credited to
the Accounts receivable account instead; the Interest payable account balance of P4,500 was
included in the trial balance as P5,400. The correct balance of the trial balance is
a. 7,540 b. 8,550 c. 9,250 d. 7,450

3. These are the means by which the information accumulated and processed in financial
accounting is periodically communicated to the users. They are the end products of the
accounting process.
a. Financial statements
b. Financial Reporting Standards
c. Notes to financial statements
d. All of these

4. It represents the steps or accounting procedures normally used by entities to record transactions
and prepare financial statements. It implements the accounting process.
a. Accounting cycle c. Accounting evolution
b. Accounting process d. Accounting information system

5. Which of the following is a nominal (temporary) account?

a. Unearned Revenue
b. Salary Expense
c. Inventory
d. Retained Earnings
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6. The following were taken from the records of SML Co. as of December 31, 20x1:
Checks drawn but not yet issued to payees ₱120,000
Customers’ checks dated January 15, 20x2 35,000
Customers’ checks dated Dec. 31, 20x1 40,000
SML’s check dated Jan. 15, 20x2 already 16,000
mailed to payee
Cash on hand 130,000
Employees’ checks representing unclaimed 14,000
salaries, held by the treasurer
Petty cash fund (fully replenished) 20,000

How much of the items listed above will be included in SML’s Dec. 31, 20x1 cash?
a. 340,000
b. 260,000
c. 280,000
d. 320,000

7. The accountant for Baccah Inc. established a petty cash fund of ₱1,400. During September, the
fund was depleted by the following disbursements:

Shipping expense ................................... ₱740

Travel expense .......................................... 240
Postage expense ......................................... 230
Miscellaneous 170
supplies ..................................

In addition to receipts for the above items, the petty cash box contained ₱8 in coins and an IOU of ₱8
from the secretary handling the fund. The company uses a cash over and short expense account, as
needed. The company decided to decrease the petty cash fund to ₱1,000.

How much is the cash (shortage) or overage?

a. (4)
b. 4
c. (12)
d. 12

8. Yesterday, you wrote a ₱2M check and gave it to a supplier as payment for the goods you have
purchased. Today, you received your bank statement. You noticed that the ₱2M check is not
reflected in the statement. What should you do?
a. Call your friends and celebrate, telling them that you just saved ₱2M.
b. Call the supplier and demand him or her to go to the bank and present the check for
payment.
c. Post the incident on your Facebook page and wait for likes.
d. Treat the ₱2M check as outstanding check in your bank reconciliation for today.
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9. Entity A is preparing its March 31, 20x1 bank reconciliation. The following information was
determined:
 The cash balance per books is ₱280,000 while the cash balance per bank statement is
₱320,000.
 Credit memo – ₱20,000
 Debit memo – ₱15,000
 Deposits in transit – ₱75,000
 Outstanding checks – ₱25,000
 The disbursements per books are overstated by ₱45,000.
 The bank debits are understated by ₱40,000.

How much is the adjusted balance of cash?

a. 370,000
b. 330,000
c. 285,000
d. 380,000

10. At 30 September 2000, Z Ltd had a provision for doubtful debts of P37,000. During the year
ended 30 September 2001 the company wrote off debts totaling P18,000, and at the end of the
year it is decided that the provision for doubtful debts should be P20,000. What should be
included in the income statement for bad and doubtful debts?
a. P35,000 debit
b. P1,000 debit
c. P38,000 debit
d. P1,000 credit

11. Light Co.’s accounts receivable balances at the beginning and end of the period were ₱80,000
and ₱100,000, respectively. Write-offs and recoveries during the period amounted to ₱10,000 and
₱8,000, respectively. Collections of sales on account during the period totaled ₱120,000,
excluding the recoveries.

How much is the total credit sales during the period?

a. 130,000
b. 150,000
c. 170,000
d. 210,000

12. On January 1, 20x1, ABC Co. received a 3-year, noninterest bearing note of ₱133,100 in exchange
for land with carrying amount of ₱100,000. The note is due on December 31, 20x3. The effective
interest rate is 10%. How much is the carrying amount of the note on December 31, 20x2?
a. 133,100
b. 121,000
c. 110,000
d. 100,000

13. Nicole Company transferred loan assets with carrying amount and fair value of P100,000 to
Tristan Co. for cash amounting to P100,000. The terms of the transfer include a provision that
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any individual loan could be called back but the aggregate amount of loans that could be
repurchased could not exceed P10,000. How much asset would be derecognized in the following
transaction?
a. 100,000
b. 90,000
c. 110,000
d. 10,000

14. On June 30, 2002, Simon Company discounted a customer's ₱180,000, 6 month, 10 percent note
receivable dated April 30, 2002. A discount rate of 12 percent was charged by the bank. Simon's
proceeds from this discounted note would be
a. ₱169,200.
b. ₱172,800.
c. ₱181,440.
d. ₱185,220.

15. The use of a Purchase Discounts account implies that the recorded cost of a purchased inventory
item is its
a. invoice price.
b. invoice price plus any purchase discount lost.
c. invoice price less the purchase discount taken.
d. invoice price less the purchase discount allowable whether taken or not.

Use the following information for the next two questions:

During 2004, which was the first year of operations, Luther Company had merchandise purchases of
₱985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of
the items purchased were paid for within 10 days of purchase. All of the goods available had been
sold at year end.

16. Which of the following recording procedures would result in the highest cost of goods sold for
2004?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken shown
under "other expenses" in the income statement
a. 1
b. 2
c. Either 1 or 2 will result in the same cost of goods sold.
d. Cannot be determined from the information provided.

17. Which of the following recording procedures would result in the highest net income for 2004?
1. Recording purchases at gross amounts
2. Recording purchases at net amounts, with the amount of discounts not taken shown
under "other expenses" in the income statement
a. 1
b. 2
c. Either 1 or 2 will result in the same net income.
d. Cannot be determined from the information provided.
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18. Which of the following is correct?

a. Selling costs are product costs.
b. Manufacturing overhead costs are product costs.
c. Interest costs for routine inventories are product costs.
d. All of these.

19. Entity A acquires inventories and incurs the following costs:

Purchase price, gross of trade discount 100,000
Trade discount 20,000
Non-refundable purchase tax, not included in the purchase price
above 5,000
Freight-in (Transportation costs) 15,000
Commission to broker 2,000
Advertisement costs 10,000

How much is the cost of the inventories purchased?

a. 102,000
b. 122,000
c. 97,000
d. 100,000

20. On October 1, 20x1, the warehouse of ABC Co. and all inventories contained therein were
damaged by flood. Off-site back up of data base shows the following information:

Inventory, Jan. 1 14,500

Accounts payable, Jan. 1 6,000
Accounts payable, Sept. 30 3,000
Payments to suppliers 50,000
Freight-in 5,000
Purchase returns and discounts 2,500
Sales from Jan. to Sept. 75,000
Sales returns 5,000
Sales discounts 2,000
Gross profit rate based on sales 20%

Additional information:
Goods in transit as of October 1, 20x1 amounted to ₱2,000, cost of goods out on consignment is
₱1,200, and materials damaged by flood can be sold at a salvage value of ₱500.

How much is the inventory loss due to the flood?

a. 6,800
b. 7,200
c. 7,800
d. 8,200
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21. It is the amount at which the financial asset is measured at initial recognition minus principal
repayments, plus or minus the cumulative amortization using the effective interest method of
any difference between that initial amount and the maturity amount, and minus any reduction
(directly or through the use of an allowance account) for impairment or uncollectability.
a. fair value c. amortized cost
b. discounted cost d. liquidation value

Use the following information for the next two questions:

Karen Co. purchased the following equity securities on January 1, 20x1 for a total amount of
P360,000.
Cost
Alaska Co. preference shares P200,000
Valdez Co. ordinary shares 160,000
Totals P360,000

The shares did not qualify for recognition as held for trading, thus they were classified as investment
in equity securities measured at fair value through other comprehensive income.

On December 31, 20x1, the portfolio of Karen Co. comprised the following.
Fair value – 12/31/x1
Alaska Co. preference shares P240,000
Valdez Co. ordinary shares 60,000
Total P300,000

On December 31, 20x2, the portfolio of Karen Co. comprised the following:
Fair value – 12/31/x2
Alaska Co. preference shares P220,000
Valdez Co. ordinary shares 180,000
Total P400,000

On February 2, 20x3, all of the Alaska Co. preference shares were sold for P160,000 net of transaction
costs.

22. How much is the unrealized gain (loss) recognized in other comprehensive income on December
31, 20x1?
a. 60,000
b. (60,000)
c. 100,000
d. 0

23. How much is the unrealized gain (loss) accumulated in equity as of December 31, 20x2?
a. 40,000
b. (40,000)
c. 100,000
d. 0
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24. On January 1, 20x1, Mitch Co. acquired 12%, P4,000,000 bonds at 98. Commission paid to
brokers amounted to P204,000. Principal is due on December 31, 20x4 but interest payments are
made annually starting December 31, 20x1.

The adjusted effective interest rate on the investment is closest to

a. 12% b. 11% c. 10.2650% d. indeterminable

Use the following information for the next three questions:

On January 1, 20x1, ABC Co. acquired 10%, ₱1,000,000 bonds for ₱827,135. The bonds mature on
December 31, 20x3 and pay annual interest every December 31. ABC Co. incurred transaction costs
₱80,000 on the acquisition. The effective interest rate adjusted for the effect of the transaction costs is
14%.

The bonds are to be held under a “hold to collect and sell” business model. Information on fair
values is as follows:
December 31, 20x1…………………………….98
December 31, 20x2……………………………102
December 31, 20x3……………………………100

25. How much is the carrying amount of the investment on December 31, 20x1?
a. 935,134 b. 1,002,000 c. 980,000 d. 965,443

26. How much is the unrealized gain (loss) recognized in other comprehensive income on December
31, 20x1?
a. 45,866 b. (45,866) c. (37,899) d. 0

27. How much is the interest income recognized in 20x2?

a. 126,999 c. 135,088
b. 130,779 d. 144,388

28. On January 1, 20x1, ABC Co. insures the life of its president for ₱1,000,000. ABC Co. is the
beneficiary. Annual insurance premium of ₱20,000 is payable at the beginning of each year.
Information on the cash surrender value from the insurance policy is shown below:

Policy year Cash surrender value

Dec. 31, 20x1 -
Dec. 31, 20x2 -
Dec. 31, 20x3 21,000
Dec. 31, 20x4 28,000
Dec. 31, 20x5 40,000

How much is the insurance expense for the year 20x3?

a. 1,000
b. 7,000
c. 13,000
d. 0
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Use the following information for the next three questions:

On March 1, 20x1, ABC Co. sold inventory to a foreign company for FC 1,000,000 (FC means foreign
currency) when the spot exchange rate is FC 40: ₱1. The payment is due on April 1, 20x1.

ABC Co. is concerned about the possible fluctuation in exchange rates, so on this date, ABC Co.
entered into a forward contract to sell FC 1,000,000 for ₱25,000 to a broker. According to the terms of
the forward contract, if FC 1,000,000 is worth less than ₱25,000 on April 1, 20x1, ABC Co. shall
receive from the broker the difference; if it is worth more than ₱25,000, ABC Co. shall pay the broker
the difference.

29. If the exchange rate on April 1, 20x1 is FC35: ₱1, how much is the net cash settlement?
a. 3,571 receipt
b. 3,571 payment
c. 4,231 receipt
d. 4,231 payment

30. If the exchange rate on April 1, 20x1 is FC50: ₱1, how much is the net cash settlement?
a. 5,000 payment
b. 5,000 receipt
c. 6,223 payment
d. 6,223 receipt

31. If the exchange rate on March 31, 20x1 is FC45: ₱1, how much is the fair value of the interest rate
swap?
a. 3,000 asset
b. 3,000 liability
c. 2,778 asset
d. 2,778 liability

32. ABC Co. does printing jobs for various customers. On January 1, 20x1, ABC Co. forecasted the
purchase of 1,000 reams of paper in the next quarter. The expected purchase date is on April 15,
20x1.

ABC Co. expects that the price of paper will fluctuate because of the upcoming elections. Thus, on
January 1, 20x1, ABC Co. enters into a forward contract to purchase 1,000 reams of paper at a
forward rate of ₱600 per ream. If the market price on April 15, 20x1 is more than ₱600, ABC Co. shall
receive the difference from the broker. On the other hand, if the market price is less than ₱600, ABC
Co. shall pay the difference to the broker. The forward contract will be settled net on April 15, 20x1.
The discount rate is 10%.

If the price of paper is ₱700 per ream on March 31, 20x1, how much is the derivative asset (liability)
to be recognized in ABC Co.’s first quarter financial statements?
a. 100,000 asset
b. 100,000 liability
c. 98,772 asset
d. 98,772 liability
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33. On January 1, 20x1, Entity A acquires 25% interest in Entity B for ₱800,000. Entity B reports
profit of ₱1,000,000 and declares dividends of ₱100,000 in 20x1. How much is the carrying
amount of the investment in associate on December 31, 20x1?
a. 800,000
b. 1,250,000
c. 1,000,000
d. 1,025,000

34. Which of the following is outside the scope of PAS 41?

a. dairy cattle used in the production of milk
b. chickens used in the production of meat
c. rice plants and other crops that produce agricultural products only once
d. mango trees and other plants that produce agricultural products repeatedly over a long
period of time

35. Which of the following is considered a biological asset?

a. Carcass c. Pig
b. Ham d. Piggy bank

36. Which of the following is considered an agricultural produce?

a. fruit cocktail c. picked or harvested fruit
b. fruit tree d. dried fruit

37. According to PAS 41, biological assets are measured as follows:

Initial measurement Subsequent measurement
a. fair value less costs to sell fair value less costs to sell
b. cost cost less accumulated depreciation
c. cost cost less accumulated depreciation and
impairment losses
d. fair value less costs to sell cost

38. When a company purchases land with a building on it and immediately tears down the building
so that the land can be used for the construction of a plant, the costs incurred to tear down the
building should be
a. amortized over the estimated time period between the tearing down of the building and the
completion of the plant.
b. expensed as incurred.
c. added to the cost of the plant.
d. added to the cost of the land.

39. Lakepoint Company recently accepted a donation of land with a fair value of ₱200,000 from an
unrelated party. The entry that Lakepoint should use to record this land is:
a. Plant.............................. 200,000
  Gain from Receipt of Donated Plant 200,000
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b. Land.............................. 200,000
  Gain from Receipt of Donated Land 200,000

c. Land.............................. 200,000
  Unrealized Gain from Receipt of
Donated Land.................. 200,000

d. Land.............................. 200,000
  Retained Earnings................ 200,000

40. Small tools and containers used repeatedly for more than a year are classified on the balance
sheet as
a. current assets.
b. fixed assets (PPE).
c. deferred charges.
d. investments.

41. Which of the following is a capital expenditure?

a. Payment of an account payable
b. Retirement of bonds payable
c. Payment of income taxes
d. None of these

42. You are a business manager. During the period, you have authorized the acquisition of a
machine that will be used in your company’s manufacturing activities in the next 5 years. In
your selection of an appropriate accounting policy for the recognition and measurement of the
machine, which of the following reporting standards is most relevant?
a. PAS 1
b. PAS 2
c. PAS 16
d. PAS 32

43. You are the sole proprietor of Entity A. As a requisite to your business loan application, you
were required by the bank to submit audited financial statements. During the audit of your
financial statements, the auditor questioned the carrying amount of your land. The auditor
believes that the carrying amount is overstated and needs to be written down to its recoverable
amount. In your discussions with your auditor, the auditor would most likely refer to this
standard in her report?
a. PAS 36
b. PFRS 1
c. PAS 26
d. PAS 12

44. Entity A acquires equipment on January 1, 20x1. Information on costs is as follows:

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Purchase price, gross of ₱10,000 trade discount 800,000

Non-refundable purchase taxes 20,000
Delivery and handling costs 40,000
Installation costs 30,000
Present value of decommissioning and restoration
costs 10,000

How much is the initial cost of the equipment?

a. 900,000 c. 870,000
b. 820,000 d. 890,000

45. (Use the information in the immediately preceding problem.) Assume the equipment has a useful life
of 10 years and a residual value of ₱90,000. Entity A uses the straight line method of
depreciation. How much are the depreciation expense in 20x1 and the carrying amount of the
equipment on December 31, 20x2, respectively?
Depreciation expense Carrying amount – 12/31/x2
a. 80,000 810,000
b. 80,000 730,000
c. 80,000 640,000
d. 80,000 580,000

46. (Use the information in the immediately preceding two problems.) Assume the equipment has a useful
life of 10 years and a residual value of ₱90,000. Entity A uses the straight line method of
depreciation. On December 31, 20x2, Entity A revalues the equipment at a fair value of ₱820,000.
There is no change in the residual value and the remaining useful life of the asset. How much
are the revaluation surplus on December 31, 20x2 and revised depreciation expense in 20x3 and
in subsequent periods, respectively?
Revaluation surplus Revised annual depreciation
a. 83,000 90,250
b. 89,000 91,050
c. 90,000 91,250
d. 92,000 92,150

47. Entity A sells a machine that is classified as PPE for ₱1,700,000. Entity A pays the broker a 10%
commission. Information on the machine is as follows:
Carrying amount ₱1,900,000
Revaluation surplus 400,000

How much is the gain (loss) from the sale?

a. (200,000) c. (30,000)
b. (370,000) d. 30,000

48. According to PFRS 6, expenditures on exploration for and evaluation of mineral resources are
recognized as
a. assets.
b. expenses.
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c. a or b depending on the entity’s accounting policy.

d. not accounted for

49. In 20x1, ABC Mining Corp. acquired the right to use 1,000 acres of land to mine for gold. The
lease cost is ₱50,000,000, and the related exploration costs on the property amounted to
₱10,000,000. It is the policy of ABC Mining Corp. to capitalize all costs of exploration and
evaluation of mineral resources. Intangible development costs for drilling, tunnels, shafts, and
wells incurred before opening the mine amounted to ₱85,000,000. At the end of the mine’s
economic useful life, ABC Mining Corp. is required by legislation to restore the site. Estimated
restoration costs have a fair value of ₱5,000,000. ABC Mining Corp. estimates that the mine will
provide approximately 100,000,000 ounces of gold. ABC extracted 300,000 ounces of gold in
20x2. How much is the depletion charge in 20x2?
a. 450,000
b. 480,000
c. 360,000
d. 460,000

50. On January 1, 20x1, Entity A receives a financial aid from the government amounting to ₱1M as
compensation for losses it has incurred on a recent calamity. How much income from
government grant will Entity A recognize in 20x1?
a. 1,000,000 c. 53,334
b. 100,000 d. 0

51. Entity A receives land from the government conditioned that the land will only be used in Entity
A’s primary business activities and should never be sold. If in case, Entity A decides not to use
the land in its primary business activities, it shall return the land to the government. Which of
the following standards is least likely to be relevant in accounting for the land?
a. PAS 2
b. PAS 16
c. PAS 20
d. All of these are relevant

52. Which of the following is a qualifying asset?

a. Biological asset measured at fair value less costs to sell
b. A multi-million dollar executive jet plane that is ready for its intended use upon purchase
c. A second-hand heavy machinery that takes 2 years to refurbish and customize for its
intended use
d. A long-term note receivable (financial asset)

53. On January 1, 20x1, Entity A obtained a 12%, ₱6,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned
interest income of ₱180,000. The construction was completed on December 31, 20x1. How much
borrowing costs are capitalized to the cost of the constructed building?
a. 540,000 c. 720,000
b. 480,000 d. 0
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54. Clay Company started construction of a new office building on January 1, 20x3, and moved into
the finished building on July 1, 20x4. Of the building’s ₱2,500,000 total cost, ₱2,000,000 was
incurred in 20x3 evenly throughout the year. Clay’s incremental borrowing rate was 12%
throughout 20x3, and the total amount of interest incurred by Clay during 20x3 was ₱102,000.
What amount should Clay report as capitalized interest at December 31, 20x3?
a. 102,000 b. 120,000 c. 150,000 d. 240,000

55. According to PAS 23, borrowing costs that do not directly relate to the acquisition, construction
or production of a qualifying asset are
a. capitalized as cost of the qualifying asset.
b. expensed.
c. expensed, except when the borrowing costs relate to other assets.
d. any of these as a matter of accounting policy choice

56. On January 1, 20x1, Entity A started the construction of a qualifying asset. The qualifying asset is
financed through general borrowings. The average expenditures during the year amounted to
₱9,500,000. The capitalization rate is 11%. The actual borrowing costs incurred during the period
were ₱1,990,000. How much are the borrowing costs eligible for capitalization?
a. 1,990,000
b. 1,045,000
c. 1,090,000
d. 990,000

57. On January 1, 20x1, Entity A obtained a 12%, ₱6,000,000 loan, specifically to finance the
construction of a building. The proceeds of the loan were temporarily invested and earned
interest income of ₱180,000. The construction was completed on December 31, 20x1. How much
borrowing costs are capitalized to the cost of the constructed building?
a. 540,000 c. 720,000
b. 480,000 d. 0

Use the following information for the next two questions:

On January 1, 20x1, Entity A had the following general borrowings. A part of the proceeds was used
to finance the construction of a qualifying asset:
Principal
12% bank loan (1.5 years) ₱ 1,000,000
10% bank loan (3-year) 8,000,000

Expenditures made on the qualifying asset were as follows:

Jan. 1 ₱ 5,000,000
March 1 4,000,000
August 31 3,000,000
December 1 2,000,000

Construction was completed on December 31, 20x1.

58. How much borrowing costs are capitalized to the cost of the constructed qualifying asset?
a. 1,045,000 c. 1,026,667
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b. 971,111 d. 920,000

59. How much is the cost of the qualifying asset on initial recognition?
a. 13,010,000 c. 14,920,000
b. 15,045,000 d. 14,971,111

60. Counting Crow’s investment property has a carrying amount of ₱3,600,000 under the fair value
model, before adjustment. If the fair value at year-end is ₱3,000,000, how much should be the
gain or loss on transfer if Counting Crow would shift to cost model?
a. gain of ₱600,000 reported as other comprehensive income
b. loss of ₱600,000 reported as other loss in the income statement
c. loss of ₱600,000 reported in equity as decrease in revaluation surplus
d. zero

61. Which of the following is an investment property?

a. Properties currently developed for use as future investment property
b. Investment properties that are currently developed for use as future owner-occupied
property
c. Property that is leased out to another entity under a finance lease
d. Building rented out in an operating lease where the owner provides minimal services

62. Entity A acquires a building for ₱1,000,000. The building is to be leased out under various
operating leases. The building has an estimated useful life of 10 years and zero residual value.
Entity A uses the cost model for its property, plant and equipment and the fair value model for
its investment property. At the end of Year 1, the building is assessed to have a fair value of
₱1,080,000. How much should Entity A recognize in profit or loss in relation to the building?
a. 80,000 gain on change in fair value
b. 100,000 depreciation
c. 180,000 gain on change in fair value
d. b and c

63. You are a member of the board of directors of ABC Co. Your company acquired a building to be
held solely for rentals. You are tasked in selecting an appropriate accounting policy for the
building. In this regard, you will most likely refer to which of the following standards?
a. PAS 17
b. PAS 39
c. PAS 40
d. PAS 41

64. Which of the following statements is incorrect?

a. An intangible asset acquired through the issuance of the entity’s own equity instrument
is generally valued at the fair value of the intangible asset.
b. The amortization of intangible assets involves an adjusting entry that should not be
reversed in the next accounting period.
c. An identifiable asset developed internally is never recognized in the accounts as an
asset.
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d. All annual payments made by a franchisee to the franchiser for assistance should be
capitalized as part of the cost of the franchise.

65. The amortization of intangible assets results primarily from the application of the
a. full-disclosure principle
b. revenue principle
c. cost principle
d. systematic and rational allocation concept

66. In compliance with the disclosure requirements of PAS 38, the amortization of an intangible
asset is recorded as a:
a. debit to retained earnings and a credit to a contra account.
b. debit to retained earnings and a credit to the intangible asset account.
c. debit to amortization expense and a credit to the intangible asset account
d. debit to amortization expense and a credit to an intangible asset contra account.

67. Which of the following confers exclusive right to conduct business in a particular territory
a. Franchise
b. Trademark
c. Patent
d. Copyright

68. The research and development expense of Soundgarden Co. includes which of the following
items:
1) Costs of advertising a newly invented product.
2) Billings received by Soundgarden from Black Hole Sun Co. for research activities
performed by Black Hole Sun Co. for Soundgarden.
3) The depreciation on a building used in various R&D projects
4) Billings sent by Soundgarden to Ugly Kid Joe Co. for research activities performed by
Soundgarden for Ugly Kid Joe Co.
5) Costs of materials, labor and overhead incurred in generating a patent. The patent was
granted to Soundgarden during the period.
6) Overhead costs properly allocated to the research and development activities performed
by Soundgarden during the period.
7) Training costs of Soundgarden’s employees who are directly involved in R&D projects.
8) The amortization of patents used in Soundgarden’s research activities.

a. 2, 3 & 6
b. 2, 3 & 8
c. 2, 3, 6 & 8
d. 2, 3, 5, 6 & 8

69. Which of the following should be expensed as incurred by the franchisee for a franchise
with an estimated useful life of ten years?
a. Legal fees paid to the franchisee's lawyers to obtain the franchise
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b. Periodic payments to the franchisor based on the franchisee's revenues

c. Amount paid to the franchisor for the franchise
d. Periodic payments to a company, other than the franchisor, for the company's franchise

70. Should the following fees associated with the registration of an internally developed patent
be capitalized?
Legal fees Registration fees
a. No No
b. No Yes
c. Yes No
d. Yes Yes

71. Which of the following assets typically are amortized?

Patents Trademarks
a. No No
b. Yes Yes
c. No Yes
d. Yes No

72. What is proper time or time period over which to match the cost of an intangible asset with
revenues if it is likely that the benefit of the asset will last for an indefinite period?
a. Forty years
b. Fifty years
c. Immediately
d. At such time as reduction in value can be quantitatively determined.

73. Which of the following statements concerning patents is correct?

a. Legal costs incurred to successfully defend an internally developed patent should be
capitalized and amortized over the patent’s remaining economic life.
b. Legal fees and other direct costs incurred in registering a patent should be capitalized
and amortized on a straight-line basis over a five-year period.
c. Research and development contract services purchased from others and used to develop
a patented manufacturing process should be capitalized and amortized over the patent’s
economic life.
d. Research and development costs incurred to develop a patented item should be
capitalized and amortized on a straight-line basis over seventeen years.
e. None of these

74. Intangible assets, other than goodwill, are accounted for under
a. PAS 38
b. PFRS 8
c. PAS 26
d. PAS 20

75. ABC Co. made expenditures for the following:

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 Cost in activities aimed at obtaining new knowledge ₱10,000

 Marketing research to study consumer tastes 5,000
 Cost of developing and producing a prototype model 3,000
 Cost of testing the prototype model for safety and environmental friendliness 40,000
 Cost revising designs for flaws in the prototype model 15,000
 Salaries of employees, consultants, and technicians involved in R&D 20,000
 Cost of conference for the introduction of the newly developed product including fee of
a model hired as endorser 100,000
 Advertising to establish recognition of the newly developed product 30,000

How much is recognized as research and development expense?

a. 68,000
b. 72,000
c. 88,000
d. 94,000

76. ABC Co. made expenditures for the following:

 Cost incurred on search for alternatives for materials, devices, products,
processes, systems or services ₱10,000
 Cost of final selection of possible alternatives for a new process 8,000
 Trouble-shooting during commercial production 5,000
 Periodic or routine design changes to existing products 3,000
 Modification of design for a specific customer 40,000
 Payments made to XYZ, Inc. for R&D performed by XYZ for ABC 15,000
 Cost of R&D performed by ABC for Alpha Corp. 20,000

How much is recognized as research and development expense?

a. 33,000
b. 42,000
c. 52,000
d. 53,000

77. During the audit of Entity A, a construction aggregates mining company, the auditor pointed
out that the valuation of Entity A’s plant asset may be overstated. The auditor called the board
of directors’ attention to the fact that the plant asset has operated only 55% of its normal
operating hours during the year. The reason for this is that there have been frequent breakdowns
in the plant during the period. When presenting his/her audit findings to the management, the
auditor will most likely refer to this Standard.
a. PAS 2
b. PFRS 6
c. PAS 36
d. PAS 40

78. Which of the following analysis on asset impairment is most likely to have been made by a CPA?
(where: RA = recoverable amount; FVLCD = fair value less costs of disposal; VIU = value in use;
CA = carrying amount; IL = impairment loss; > = greater than; < = less than)
a. if “FVLCD > CA,” then, “IL = 0”
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b. if “FVLCD < VIU,” then, IL = > 0”

c. if “FVLCD > VIU,” then, “RA = FVLCD,” now, if “CA > RA,” then “IL = RA – CA”
d. if “FVLCD > VIU,” then, “RA = VIU,” now, if “CA < RA,” then “IL = RA – CA”

Use the following information for the next two questions:

On December 31, 20x1, Entity A determines that its building is impaired. Entity A gathers the
following information:

Building 2,000,000
Accumulated depreciation 600,000
Fair value less costs of disposal
(FVLCD) 900,000
Value in use (VIU) 1,080,000

79. After the impairment, the building is assessed to have a remaining useful life of six years and no
residual value. How much is the impairment loss?
a. 320,000 c. 500,000
b. 180,000 d. 270,000

80. On December 31, 20x2, Entity A determines an indication that the impairment loss recognized in
the prior period may no longer exist. The revised recoverable amount of the building on
December 31, 20x2 is ₱1,280,000. If no impairment loss had been recognized in the prior period,
the carrying amount of the building on December 31, 20x2 would have been ₱1,200,000. How
much is the gain on reversal of impairment on December 31, 20x2?
a. 314,351 c. 303,315
b. 312,156 d. 300,000

81. Who invented the calculator?

a. Jose Rizal
b. Rodrigo Duterte
c. Taylor Swift
d. Blaise Pascal

“Do not be deceived: God cannot be mocked. A man reaps what he sows.” - Galatians 6:7
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