Final Reviewer For ACC221

1st Examination
1. A cash settled share-based payment transaction will increase which of the following?
a. The correct answer is: A liability
2. A dividend which is a return to shareholders of a portion of their original investment is

a. The correct answer is: Liquidating dividend
3. A redeemable preference share shall be classified in the statement of financial position as

a. The correct answer is: Either current liability or noncurrent liability depending on
redemption date
4. Contributed capital does not include

a. The correct answer is: Capital accumulated by retention of earnings
5. How should an entity recognize the change in the fair value of the liability in respect of a cash
settled share-based payment transaction?
a. The correct answer is: Should recognize in profit or loss
6. If shares are issued to extinguish a financial liability, what is the initial measurement of the
shares issued?
a. The correct answer is: Fair value of the shares issued
7. If the issuing entity has only one class of share capital, transfer from retained earnings to share
capital equal to the fair value of the shares issued is ordinarily a characteristic of
a. The correct answer is: A share dividend but not a share split
8. In accounting for shareholders equity, the accountant is primarily concerned with which of the
following?
a. The correct answer is: Recording the source of each of the various elements of
shareholders equity
9. In what circumstances is compensation expense immediately recognized under a share option

plan?
a. The correct answer is: In circumstances when the options are granted for prior service
and the options are immediately exercisable
10. The actual total amount of a cash dividend to be paid is determined on the date of
a. The correct answer is: Record
11. The issuer should charge retained earnings for the fair value of shares issued in a
a. The correct answer is: 1 for 8 share dividend
12. When shares with par value are sold, the proceeds shall be credited in the
a. The correct answer is: Share capital account to the extent of the par of the shares issued
with any excess being reflected in share premium
13. Which of the following statements is incorrect concerning retained earnings?

a. A deficit in retained earnings shall be presented as an asset.
14. Which of the following statements is incorrect concerning treasury shares?

a. Treasury shares may be recognized as financial asset
15. Which of the following statements is true concerning share dividends?

I A stock dividend does not give rise to any change in either the entity’s assets or the
shareholders’ proportionate interest therein.
II Share dividends should be recorded on the date declared.

a. Both I and II
16. Adverse financial and operating circumstances warrant that Solid company undergo a quasi-
reorganization on December 31, 2012. The following information may be relevant in accounting
for the quasi-reorganization:
*Inventory with a fair value of P4,000,000 is currently recorded in the accounts at its cost of P5,000,000.
*Plant assets with a fair value of P14,000,000 are currently recorded at P17,000,000, net of accumulated
depreciation.
*Individual shareholders contribute P8,000,000 to create additional capital to facilitate the
reorganization. No new shares are issued.
*The par value of the share is reduced from P25 to P5.
Immediately before these events, the shareholders’ equity appears as follows:
i. Share Capital P5,000,000
ii. Share Premium P3,500,000
iii. Retained Earnings (Deficit) (P6,000,000)
After the quasi-reorganization, what amount should be reported as share premium?
b. The correct answer is: 5,500,000
17. Alena company was organized on January 1, 20A, with authorized capital of 150,000 shares of
P200 par value. During 20A, Alena had the following transactions affecting shareholders’ equity:
January 10 Issued 37,500 shares at P220 per share.
March 25 Issued 1,500 shares for legal services when the fair value was P240 a share.
September 30 Issued 7,500 shares for a tract of land when the fair value was 260 a share.
What amount should Alena report for share premium on December 31, 20A?
a. The correct answer is: 1,260,000
18. During the year, Gliezel company issued 4,000 shares with P100 par value in connection with a
share dividend. The market value per share on the date of declaration was P150. The
shareholders’ equity before issuance of the share dividend was as follows:
Share capital, P100 par, 20,000 shares outstanding 2,000,000
Share premium 3,000,000
Retained earnings 1,500,0009
What is the retained earnings balance immediately after the share dividend?
19. Eliza company, a public limited entity, has granted 200 share appreciation rights to each of its
1,000 employees in January 1, 20A. The management feels that on December 31, 20A 90% of
the awards will vest on December 31, 20C. The fair value of each share appreciation right on
December 31, 20A is P10. What is the fair value of the liability to be reported in the statement
of financial position on December 31, 20A?
a. The correct answer is: 600,000
20. In 20A, Elena company bought 10,000 shares of Oliver company at a cost of P240,000. On
December 1, 20A, Elena company declared a property dividend of the Oliver company shares to
shareholders of record on February 1, 20B, payable on February 15, 20B. The Oliver company
shares had the following market value:
December 1, 20A 300,000
December 31, 20A 312,000
February 15, 20B 288,000
What is the net charge of the property dividend against retained earnings during 20A?
21. In 20A, Rhea company issued 75,000 shares of P10 par value for P100 per share. In 20B, Rhea
acquired 3,000 of its shares at P150 per share and immediately canceled these 3,000 shares. In
connection with the retirement of shares, what amount should be debited to retained earnings?
22. Marla company issued 150,000 ordinary shares. Of these, 7,500 shares were held as treasury at
January 1, 20A. During 20A, transactions were as follows:
May 1 1,500 shares of treasury were sold.
Aug. 1 15,000 unissued shares were sold.
Nov. 15 A 2-for-1 share split took effect.
On December 31, 20A, how many shares outstanding?
23. On January 1, 2017, Gliezel company issued options to key employees to purchase 20,000
ordinary shares of P100 par value at P125 per share. On such date, the market value of ordinary
share is P150 per share. The fair value of each share option is P30. These options are
exercisable starting January 1, 2019 and expire one year after. Options covering 17,500 shares
are exercised on January 15, 2019 and the remaining options expired. How much is
compensation expense for the year 2018?
24. On January 1, 2019, Kyle company established a share appreciation rights plan to key employees
where they are to receive cash at any time during the next four years. The predetermined price
is P80 on 60,000 share appreciation rights (SARs) of which 20,000 SARs were exercised on
December 31, 2021. Market prices on the following dates are as follows: Jan. 1, 2019, P100,
Dec. 31, 2019, P112, Dec. 31, 2020, P140 and P120 on Dec. 31, 2021. Determine the amount of
compensation expense to be recognized for the year 2020.
25. Ryan company declared a 5% share dividend on 100,000 issued and outstanding shares of P20
par value, which had a fair value of P50 per share before the share dividend was declared. This
share dividend was distributed 60 days after the declaration date. What is the increase in
current liabilities as a result of the share dividend declaration?
a. The correct answer is: 0
2nd Examination
1. All of the following are components of other comprehensive income, except

a. Unrealized gain and loss on financial asset held for trading
2. An entity has outstanding ordinary shares and nonparticipating noncumulative preference

shares. The liquidation value of the preference shares is equal to the par value. The book value
per ordinary share is unaffected by
a. The payment of a previously declared cash dividend on the ordinary shares.
3. How should cumulative preference dividends in arrears be reported?

a. Note disclosure
4. Noncumulative preference dividends in arrears

a. Are not paid and not disclosed
5. The summary of accounting policies section of the notes to financial statements shall describe
a. Both the measurement basis and accounting policies followed
6. The summary of significant accounting policies shall disclose
a. The depreciation method used only
7. When an entity issues both consolidated and separate financial statements, the EPS information
is required
a. Only for consolidated financial statements
8. When computing basic earnings per share, the current year dividends not declared on
cumulative preference share shares should be
a. Deducted from earnings for the year
9. Which of the following components of OCI should be reclassified to retained earnings?

a. All of these components of OCI should be reclassified to retained earnings
10. Which of the following statements is incorrect in relation to presentation of earnings per share?
I An entity shall present on the face of the income statement basic and diluted earnings per share
for income from continuing operations.
II An entity that reports a discontinued operation is not required to disclose the basic and diluted
earnings per share for the discontinued operation either on the face of the income statement or in the
notes.
a. II only
11. Which statement is correct concerning compliance with PFRS?

I An entity whose financial statements comply with PFRS shall make an explicit and unreserved
statement of such compliance in the notes.
II An entity shall not describe financial statements as complying with PFRS unless they comply with
all the requirements of each applicable PFRS.
a. Both I and II
12. Blessy company had 10,000 ordinary shares of P500 par value outstanding and 1,000 preference
shares of P1,000 par value outstanding. The current market price of the ordinary share is P1,200
and the total equity amounts to 7,200,000. The preference shareholders have a liquidation
preference of P1,400 per share and no dividends are in arrears. What is the book value per
ordinary share?
a. The correct answer is: 580.00
13. Clarissa company’s accounting records provided the following information:

1/1/20B 12/31/20B
Current assets 180,000 ?
Property, plant and equipment 1,200,000 1,275,000
Current liabilities ? 97,500
Noncurrent liabilities 435,000 ?
All assets and liabilities of the entity are reported in the schedule above. Working capital of P69,000
remained unchanged from 20A to 20B. Net income in 20B was P48,000. No dividends were declared
during 20B and there were no other changes in owners’ equity. What amount should be reported as
noncurrent liabilities on December 31, 20B?
14. Elena company showed cost of goods sold of P1,296,000 in its statement of comprehensive
income after the first year of operations. The total manufacturing cost comprised 50% materials
used, 30% direct labor incurred and 20% manufacturing overhead. Goods in process at year-end
totaled 10% of the total manufacturing cost. Finished goods at year-end amounted to 20% of
the cost of goods manufactured. What is the direct labor cost incurred?
15. Narnia company has an authorized capital of 10,000, 8% cumulative preference shares of P100
par value. Dividends on preference share are in arrears for 20A and 20B. The equity account
balances on December 31, 20B are as follows:
Cumulative preference share capital 500,000
Ordinary share capital 1,100,000
Share premium 200,000
Retained earnings 260,000
Treasury ordinary shares – 1,000 at cost (150,000)
What is the book value of an ordinary share on December 31, 20B?
16. On January 1, 20A, Gilbert company granted its chief executive officer (CEO) 150,000 share
appreciation rights for past services. The rights are exercisable immediately and expire on
December 31, 20B. On exercise, the CEO is entitled to receive cash for the excess of the share
market price on exercise date over the market price on grant date. The CEO did not exercise any
of the rights in 20A. The market price of the share was P100 on January1, 20A and P115 on
December 31, 20A. The CEO exercised the rights on December 31, 20B when the market price
was P110. What amount should be recognized as gain on reversal of share appreciation rights in
20B?
17. On January 1, 20B, Nathalie company had 225,000 ordinary shares outstanding. During the
current year, the following events occurred:
March 1 2-for-1 share split
June 1 issued 67,500 additional shares
September 1 20% share dividend
What is the weighted average number of shares outstanding for the year?
18. Stefan company has granted share options to its employees. The total compensation expense
to the vesting date of December 31, 20D has been calculated at P3,000,000. The entity has
decided to settle the award early on December 31, 20C. The compensation expense charged
since the date of grant on January 1, 20A was P750,000 for 20A and P787,500 for 20B. The
compensation expense that would have been charged in the year 20C was P825,000. What is
the compensation expense for 20C if the share options are not exercised but instead the entity
paid P2,812,500 to the employees?
19. The accounts below appear in the December 31, 20A trial balance of Marimar company:
Authorized share capital 6,000,000
Unissued share capital 2,400,000
Subscribed share capital 1,200,000
Subscriptions receivable 480,000
Retained earnings un appropriated 720,000
Retained earnings appropriated 360,000
Revaluation surplus 240,000
Treasury shares, at cost 120,000
In the December 31, 20A statement of financial position, what should be reported as shareholders’
equity?
20. The adjusted trial balance of Delia company included the following accounts for the current
year:
Sales 11,400,000
Interest revenue 300,000
Gain on sale of equipment 120,000
Revaluation surplus during the year 1,440,000
Share of profit of associate 420,000
Cost of goods sold 7,200,000
Finance cost 180,000
Distribution cost 600,000
Administrative expenses 360,000
Translation loss on foreign operation 240,000
Income tax expense 1,140,000
How much is the comprehensive income for the current year?
21. The shareholders’ equity of Ryan company on December 31, 20A includes the following:
12% preference share capital, 40,000 shares, P100 par value 4,000,000
Ordinary share capital, 100,000 shares, P100 par value 10,000,000
The 12% preference share capital is cumulative and fully participating. The 14% preference share capital
is non cumulative and fully participating. Dividends have not been paid for 3 years. What is the book
value per ordinary share?
22. Vanessa company had 100,000 ordinary shares outstanding on January 1, 20B. In addition on
January 1, 20B, the entity had issued 10,000 convertible cumulative 5% preference shares with
P100 par. These preference shares were converted on September 1, 20B. Each preference
share was converted into 6 ordinary shares. The preference dividends for the entire year were
paid in full before the conversion. The entity has no other potentially dilutive securities. Net
income for 20B was P2,000,000. What is the amount of basic earnings per share?
23. Vivian company had 100,000 ordinary shares outstanding on January 1, 20B. In addition on
paid in full before the conversion. The entity has no other potentially dilutive securities. Net
income for 20B was P2,000,000. What is the amount of diluted earnings per share?
4th examination
1. Ciara received royalty remittance of P2,500,000 for the year 2019. The following data are
available:
a. 2018 2019
Royalties Receivable 750,000 800,000
Unearned royalties 450,000 650,000
What amount should be reported as royalty revenue for 2019?
2. A loss on sale of machinery is presented in a statement of cash flows using the indirect method
as
a. An addition to net income
3. Stone company provided the following information at year-end:
2019 2018
Accounts receivable 620,000 680,000
Inventory 1,960,000 1,840,000
Accounts payable 380,000 520,000
Accrued expenses 500,000 340,000
The income statement for the year ended December 31, 2019 showed the following data:
Net Income 2,120,000
Depreciation 240,000
Amortization of patent 80,000
Gain on sale of land 200,000
Determine the cash flow from operating activities for 2019.
4. The financial statements prepared under GAAP

Are not highly precise because estimate and judgment must be made
The following balances were reported by Edelyn company on December 31, 2019 and 2018.
2019 2018
Accounts Payable 2,800,000 2,000,000
Notes Payable 3,200,000 1,200,000
On July 1, 2019, the entity issued a one-year 12% note for a bank loan of P800,000. Total
payments to suppliers in 2019 amounted to P8,800,000, after purchase discounts of P200,000.
During 2019, the entity returned merchandise costing P400,000. What amount s
5. Elena company showed cost of goods sold of P2,160,000 in its statement of comprehensive
income after the first year of operations. The total manufacturing cost comprised 50% materials
used, 30% direct labor incurred and 20% manufacturing overhead. Goods in process at year-end
totaled 10% of the total manufacturing cost. Finished goods at year-end amounted to 20% of
the cost of goods manufactured. What is the direct labor cost incurred?
6. “Loss” from sale of treasury shares shall be charged to

a. Share premium from treasury shares and then retained earnings
7. Wendelou Company is preparing its financial statements for the year ended June 30, 2019. The
board of directors reviews the final draft financial statements and authorizes them for issue on
August 15, 2019. The earnings figure and key data are issued to the public on September 15,
2019. The financial statements are issued to shareholders on October 15, 2019 and approved by
shareholders on October 31, 2019. The period in respect of which the entity would consider
events after the end of reporting period in accordance with PFRS is from June 30, 2019 to
a. August 15, 2019
8. The following changes in Annette company’s account balances occurred during the current year:
Increase
Assets 8,010,000
Liabilities 2,430,000
Share capital 5,400,000
Except for a P1,170,000 dividend payment and the year’s earnings, there were no changes in
retained earnings for the year. What was the net income for the current year?
9. Marian company had the following activities during the current year.
Collected dividends of P12,000 on share investments
Acquired 2,000 shares in Mabel for P260,000
Acquired a P500,000, 4-year certificate of deposit from a bank. (During the
year, interest of P37,500 was paid to Almira company)
Sold an investment in Rare Motors for P350,000 when the carrying amount
was P330,000
In the statement of cash flows, what is the net cash used in investing activities?
10. Liza Company reported net income for 2018 and 2019 at P275,000 and P350,000 respectively.
The audit disclosed the need for adjustments as follows:
2018 2019
Overstatement of ending inventory 14,500 16,500
Omission of depreciation on newly acquired
Equipment 7,500 7,500
Understatement of Commission Receivable 11,000 9,000
A purchase of merchandise was not recorded
Until the following year, but included in
The year’s inventory 30,000
What is the adjusted net income for 2018?
11. The cash balance of Aurelyn company on January 1, 2019 was P2,000,000. During 2019, the
changes in certain accounts were as follows:
Accounts Receivable 500,000 increase
Inventory 375,000 decrease
Accounts Payable 750,000 decrease
Total sales and cost of goods sold were P7,500,000 and P5,000,000 respectively. All sales and
purchases were made on credit. Various expenses of P1,250,000 were paid in cash. There were
no other pertinent transactions. What is the cash balance on December 31, 2019?
12. An entity has outstanding ordinary shares and nonparticipating noncumulative preference
shares. The liquidation value of the preference shares is equal to the par value. The book value
per ordinary share is unaffected by
a. The payment of a previously declared cash dividend on the ordinary shares.
13. Amortization of premium on bonds payable is subtracted from net income in the reconciliation
of net income to cash flows from operations because
a. Interest expense understates the cash paid for interest by the amount of the premium
amortization
14. The following data were presented for Elena Company on Jan. 1, 2019:
Ordinary share, par value 20, authorized 400,000 shares
Issued and outstanding, 240,000 shares 4,800,000
Accumulated profits and losses 3,080,000
The company uses the cost method of accounting for treasury shares and the following
transactions took place:
a. Answer format: 2,500,000
15. The entity acquired 4,000 shares of its shares for 140,000; sold 2,400 treasury shares at 40 per
share, then retired the remaining treasury shares.
What is the amount of the share premium at the end of the accounting period?
16. Marimar company’s equity at Dec. 31, 2019, consisted of the following:
8% cumulative preference share capital, 50 par, Liquidating value 55 per share,
authorized, Issued and outstanding 20,000 shares 1,000,000
Ordinary share capital, 25 par, 200,000 shares authorized,
100,000 shares issued and outstanding 2,500,000
Dividends on preference share have been paid through 2017 but have not been declared for
2018 and 2019. At Dec. 31, 2019, what is Marimar’s book value per ordinary share?
17. Which of the following statements in relation to treasury shares is true?

a. Treasury shares shall be reported as a deduction, at cost, from the total shareholders’
equity and the restriction on retained earnings occasioned by their acquisition must also
be stated.
18. In preparing a statement of cash flows, which of the following transactions would be considered
an investing activity?
a. Sale of an operating segment
19. Which of the following is a characteristic of a change in accounting estimate?

a. It does not affect the financial statements of prior period
20. In single period statements, which of the following should be reflected as an adjustment of the
opening balance of retained earnings resulting from correction of an error?
a. Effect of a failure to provide for uncollectible accounts in the previous period
21. Bea company had 300,000 ordinary shares outstanding on January 1, 20B. In addition on
January 1, 20B, the entity had issued 6,000 convertible 10% bonds with P1,000 face value. The
entity has no other potentially dilutive securities. The bonds were converted on October 1, 20B
and 40 ordinary shares were issued in exchange for each bond. Accrued interest on the bonds
was recognized and paid on that date. Net income for 20B was P7,500,000. The income tax rate
is 30%. What is the amount of basic earnings per share?
22. Lailani company’s financial statements contained the following errors:

December 31, 2018 inventory overstated 70,000
December 31, 2019 inventory understated 20,000
Depreciation for 2018 overstated 50,000
Depreciation for 2019 understated 16,000
December 31, 2018 prepaid insurance understated 10,000
December 31, 2019 unearned rent overstated 8,000
December 31, 2019 accrued salaries understated 40,000
What is the effect of the errors on retained earnings on December 31, 2019?
23. In what circumstances is compensation expense immediately recognized under a share option
plan?
a. In circumstances when the options are granted for prior service and the options are
immediately exercisable
24. The cumulative feature of preference shares

a. Requires that dividends not paid in any year must be made up in a later year before
dividends are distributed to ordinary shareholders.
25. The December 31, 20B statement of financial position of Jane company showed shareholder’s
equity of P5,000,000. The share capital of P3,000,000 remained unchanged during the year.
Transactions during the year which affected the equity were:
*An adjustment of retained earnings for 20A over depreciation 100,000
*Gain on sale of treasury shares 300,000
*Dividends declared, of which 200,000 was paid 600,000
*net income for 20B 800,000
What was the retained earnings balance on January 1, 20B?
26. Louise company reported revenue of P1,800,000.In its accrual basis income statement for the
year ended December 31, 2019, Additional information was as follows:
Accounts Receivable – January 1 240,000
Uncollectible accounts written off 12,000
Accounts Receivable – December 31 300,000
Under cash basis, how much should be reported as revenue for 2019?
27. Tisha company decided on January 2, 2019, to review its accounting practices. This is due to
changing economic conditions and to make its financial statements more comparable to those
of other companies in its industry. Thus, Tisha decided to change its allowance for bad debts
from 2% to 4% of its outstanding receivables balance. This change will be effective as of January
1, 2019. Tisha’s receivable balance at December 31, 2019 was P828,000. Allowance for bad
debts had a debit balance of 2,400 before adjustment. How much is the current year provision
for bad debts?
28. Incomplete accounting records is a characteristic of

a. Single entry system
29. Technically, offsetting in financial statements is accomplished when

a. Gain or loss from disposal of noncurrent asset is reported by deducting from the
proceeds the carrying amount of the asset and the related disposal cost
30. Lovella company provided the following information for the current year:
Net loss 300,000
Total assets on December 31 9,000,000
Share capital on December 31 3,000,000
Share Premium 1,500,000
Dividends Declared 2,100,000
The debt-to-equity ratio (liabilities divided by equity) is 50% on December 31. What was the
retained earnings balance on January 1?
31. The standard requires disclosure on the face of income statement of

a. Both basic and diluted earnings per share
32. Which of the following errors could result in an overstatement of both current assets and
shareholders’ equity?
a. Holiday pay expense for administrative employee is misclassified as manufacturing
overhead
33. Compared to the accrual basis of accounting, the cash basis understates income by the net
decrease during the accounting period of
a. Accrued expenses but not of accounts receivable
34. Which statement is incorrect concerning a contingent asset?

a. A contingent asset is only disclosed when the occurrence of the future event is possible
or remote.
35. Stefan company has granted 400 share appreciation rights to each of its 500 employees on
January 1, 2015. The rights are due to vest on December 31, 2018 with payment being made on
December 31, 209. Only 80% of the awards vest. Share prices are:
January 1, 2015 (predetermined price) 150
December 31, 2015 180
December 31, 2018 210
December 31, 2019 190
What amount of gain will be recognized upon settlement of the share appreciation rights on
December 31, 2019?
36. Angelica company engaged in the following activities related to its financing operations During
2019,:
Payment for the early retirement of long-term bonds payable
(carrying amount is P1,900,000) 1,850,000
Payment in 2010 of cash dividend declared in
2009 to preference shareholders 150,000
Carrying amount of convertible preference shares
Converted into ordinary shares 300,000
Proceeds from sale of treasury shares
(carrying amount at cost 215,000) 250,000
In the statement of cash flows, what is the net cash used in financing activities?
37. Which of the following statements is incorrect?

a. Single entry accounting is synonymous with cash basis accounting.
38. When shareholders may elect to receive cash in lieu of share dividend, the amount to be
charged to retained earnings is equal to
a. Optional cash dividend
39. Marla company presents the following information for the current year.
Interest paid 600,000
Decrease in prepaid interest 75,000
Increase in accrued interest payable 22,500
What is the interest expense that should be reported for the current year?
40. An entity’s inventory and accounts payable decreases balances increased. Should these
increases be added to or deducted from cash payments to suppliers to arrive at cost of goods
sold for the current year?
Increase in inventory increase in accounts payable
a. The correct answer is: Deducted added
41. An entity wants to convert its financial statements from accrual basis to cash basis. Both
supplies inventory and office salaries payable increased between the beginning and ending
balance. To obtain cash basis net income, how should these increases be added or deducted
from accrual basis net income?
Supplies inventory office salaries payable
a. The correct answer is: Deducted added
5th EXAM
1. A component of an entity is classified as discontinued operation at the date. When the entity
has actually disposed of the operation. II. When the operation meets the criteria to be classified
as “held for sale”.
a. The correct answer is Either I or II
2. On January 1, 2019, Vanessa company classified as held for sale a noncurrent asset with a
carrying amount of 10,000,000. On this date, the asset is expected to be sold for 9,200,000.
Reasonable disposal cost to be incurred on sale is expected at 400,000. By December 31, 2019,
the asset had not been sold and management after considering its options decided to place back
noncurrent asset into operations. On that date, the entity estimated that the noncurrent asset
is expected to be sold at 8,600,000 with disposal cost of 100,000. The carrying amount of the
noncurrent asset is 8,000,000 on December 31, 2019 if the noncurrent asset is not classified as
held for sale. What is the carrying amount of the asset that should be reported in the statement
of financial position on December 31, 2019?
3. Jackie Company’s Accounts receivable beginning and allowance for doubtful accounts, beg. Are
500,000 and 40,000, respectively. During the year, the following events occurred:
Accounts written off 60,000
Cash sales 250,000
Sales on account 1,500,000
Doubtful accounts expense recognized 100,000
At the end of the current year, the entity showed a balance in accounts receivable of 840,000.
Under cash basis, what amount should be reported as sales?
4. On March 15, 2019, Rex Company paid property taxes of P360,000 on the factory building for
calendar year 2019. On April 1, 2019, the entity made P600,000 in unanticipated ordinary
repairs to plant equipment. What total amount of these expenses should be included in the
quarterly income statement ending June 30, 2019?
5. Advertising costs may be accrued or deferred to provide an appropriate expense in each period
for
I. Interim period
II. Year-end reporting
b. The correct answer is: Both I and II
6. For interim financial reporting, an expropriation gain occurring in the second quarter should be
a. The correct answer is Recognized in the second quarter
7. Cash receipts from issuing shares and other equity instruments are
a. Cash inflows from financing activities
8. CHERRY Company’s P1,900,000 net income for the quarter ended September 30, 2019 included
the following after-tax items:
A P1,200,000 gain from expropriation realized on April 30, 2019 was allocated equally to the
second, third and fourth quarters of 2019.
A P300,000 loss resulting from a change in inventory valuation method was recognized on
August 1, 2019.
In addition, the entity paid P960,000 on February 1, 2019 for 2019 calendar-year property taxes.
Of this amount, P240,000 was allocated to the third quarter of 2019.
For the quarter ended September 30, 2019, what amount should be reported as net income?
9. A business segment or geographical segment should be identified as reportable segment if

majority of its revenue is earned from sales to external customers and (choose the incorrect
one)
a. Its revenue from sales to external customers is 10% or more of the total revenue,
external and internal, of all segments.
10. How should the assets and liabilities of a disposal group classified as held for sale be shown in
the statement of financial position?
a. The assets of the disposal group shall be shown separately from other assets and the
liabilities of the disposal group shall be shown separately from other liabilities.
11. What is the presentation of the results from discontinued operation in the income statement?
a. The entity shall disclose a single amount on the face of the income statement below the
income from continuing operation.
12. Cash payments to acquire equity instruments of other entities and interests in joint venture are
a. Cash outflows for investing activities
13. MARILOU Company has historically reported bad debt expense of 5% of sales in each quarter.
For the current year, the entity followed the same procedure in the three quarters of the year.
However, in the fourth quarter, the entity determined that bad debt expense for the entire year
should be P900,000 Sales in each quarter of the year were first quarter P4,000,000 second
quarter P3,000,000, third quarter P5,000,000 and fourth quarter P8, 000,000. What amount
should be recognized as bad debt expense for the fourth quarter?
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 is
b. Accounted for as an impairment loss.
14. Problem 1
Hamilton company received rental in the amount of 461,250 for the current year. Additional
information is as follows:
Unearned rental income, January 1 37,500
Unearned rental income, December 31 56,250
Accrued rental income, January 1 22,500
Accrued rental income, December 31 30,000
How much is the rental revenue to be recognized under accrual basis?
a. 472,500
15. Problem 2
MIRZI company provided the following data for the preparation of the statement of cash flows
for the current year:
Increase in accounts receivable 360,000
Decrease in income tax payable 204,000
Depreciation 1,200,000
Net income 300,000
Gain on sale of equipment 528,000
Loss on sale of building 252,000
Using the indirect method, what amount should be reported as net cash flow from operating
activities?
a. 660,000
16. Problem 3
ZOREN company reported net income of 3,600,000 for the current year. The following changes
occurred in several accounts:
Equipment 300,000 increase
Accumulated depreciation 480,000 increase
Note payable 360,000 increase
During the year, the entity sold equipment costing 300,000, with accumulated depreciation of
144,000 at a gain of 60,000.
In December, the entity purchased equipment costing 600,000 with 240,000 cash and a 12%
note payable of 360,000. What is the net cash provided by operating activities?
a. 4,164,000
17. Problem 4
SISSY company is a diversified entity with nationwide interests in commercial real estate
development, banking, mining and food distribution. On October 1, 2019, the board of directors
voted to approve the disposal of food distribution division. The sale is expected to occur in
August 2020. Th food distribution division had the following revenue and expenses in 2019:
January 1 to September 30, revenue of 42,000,000 and expenses of 32,400,000; October 1 to
December 31, revenue of 18,000,000 and expenses of 12,000,000. The carrying amount of the
division’s assets on December 31, 2019 was 67,200,000 and the fair value less cost of disposal
was estimated at 72,000,000. The sale contract required the entity to terminate certain
employees incurring an expected termination cost of 4,800,000 to be paid by December 15,
2020. The income tax rate is 30%. What amount should be reported as income from
discontinued operation for 2019?
a. 7,560,000
18. Problem 5
CARLA company has three lines of business, each of which was determined to be reportable
segment. Sales aggregated 7,560,000 in the current year, of which segment one contributed
40%. Traceable costs were 1,764,000 for segment one out of total of 5,040,000 for the entity as
a whole. The entity allocates common cost of 1,512,000 based on the ratio of a segment’s
income before common costs to the total income before common costs. What amount should
be reported as operating profit for segment one?
a. 504,000
19. Problem 6
LOURDES company discloses a supplemental operating segment information. The following
information is available for the current year:
Segment Sales Traceable expenses
A 4,500,000 2,700,000
B 3,600,000 2,250,000
C 2,700,000 1,350,000
Additional expenses, not included above are as follows:
Indirect expenses 1,620,000
General corporate expenses 1,080,000
Interest expense 540,000
Income tax expense 360,000
The interest expense and income tax expense are regularly reviewed by the chief operating
decision maker as a measure of profit or loss. Appropriate common expenses are allocated to
segments based on the ratio of segment’s sales to total sales. What was segment C’s profit for
the current year?
a. 720,000
20. An entity acquires a subsidiary exclusively with a view to resale. The subsidiary meets the
criteria to be classified as held for sale. At the end of the reporting period, the subsidiary has not
yet been sold, and six months have passed Since its acquisition. How will the subsidiary be
measured in the statement of financial position at the date of the first financial statements after
acquisition?
a. At the lower of cost and fair value less cost of disposal.
21. Joshua company purchased an equipment for P5,000,000 on January 1, 2018. The equipment
had a useful life of 5 years with no residual value. On December 31, 2018, 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, 2019, 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, 2019, the fair value less cost of disposal of the equipment
was P2,700,000. What is the impairment loss in 2018?
22. It is a business segment or geographical segment for which segment information is required to
be disclosed.
a. Reportable segment
6th exam
1. When an entity discontinues an operation and disposes of the discontinued operation, the
transaction should be included in the income statement as a gain or loss on disposal reported as
a. An amount after continuing operations and before net income
2. Bubbles Company provided the following information with respect to cost of goods sold for
2019:
Historical cost Units
Inventory, Jan. 1 3,816,000 72,000
Purchases during the year 20,088,000 324,000
Inventory, Dec. 31 9,072,000 144,000
The current cost per unit of inventory was P58 on January 1, 2019 and P72 on December 31,
2019.
In the income statement restated to current cost, what is the cost of goods sold for 2019?
a. 16,380,000
3. For purposes of adjusting financial statements for changes in the general price level, monetary
items consist of
a. Assets and liabilities whose amounts are fixed by contract or otherwise in terms of
pesos regardless of price level change
4. Glory company is subject to the requirements of segment reporting. In the income statement
for the current year, the entity reported revenue of 15,000,000 excluding intersegment sales of
3,000,000, expenses of 14,100,000 and net income of 900,000. Expenses included payroll costs
of 4,500,000. The combined total assets of all operating segments at year end amounted to
13,500,000. What is the minimum amount of external revenue to be disclosed by reportable
segments?
a. 11,250,000
5. In a hyperinflationary economy, monetary items

a. Are not restated because they are already expressed in terms of the measuring unit
current at the end of reporting period.
6. At the beginning of current year, Grace company had monetary assets of P12,000,000 and
monetary liabilities of P7,200,000. During the current year, the entity’s monetary inflows and
outflows were relatively constant and equal so that it ended the year with the same net
monetary assets of P4,800,000. The index number on January 1 was 125 and the index number
on December 31 was 280. What is the gain or loss on purchasing power during the current
year?
a. The correct answer is: (5,952,000)
7. Carlo company provided the following data relating to operating segments:

Industry revenue profit total assets
A 12,000,000 2,100,000 24,000,000
B 9,600,000 1,680,000 21,000,000
C 7,200,000 1,440,000 15,000,000
D 3,600,000 660,000 9,000,000
E 5,100,000 810,000 8,400,000
F 1,800,000 270,000 3,600,000
How many reportable segments does Carla have?
8. Gliezel company provided the following information for the current year:
Monetary Assets:
Jan. 1 600,000
Dec. 31 1,680,000
Monetary Liabilities:
Jan. 1 240,000
Dec. 31 720,000
Increase in net monetary items as restated to constant peso 8,400,000
Decrease in net monetary items as restated to constant peso 7,200,000
General price index:
Jan. 1 125
Dec. 31 150
Compute the gain or loss on purchasing power for the current year.
a. The correct answer is: (672,000)
9. Could current cost financial statements report holding gains for goods sold during the period
and holding gains on inventory at the end of the period?I. Goods soldII. Inventory
a. Both I and II
10. An entity prepares financial statements on a current cost basis. How should the entity compute
cost of goods sold on a current cost basis?
a. Number of units sold times average current cost of units during the year
11. The discontinued component’s operating loss of the current period should be included in the
a. The discontinued component’s operating loss of the current period should be included
in the
12. Interim financial reporting should be viewed primarily in which of the following ways?
a. As reporting for an integral part of an annual period.
13. In current cost financial statements

a. Holding gains are recognized
14. In 2018, Irish Company decided to discontinue its Electronics Division. On December 31, 2018,
the division has not been completely sold. However, it is probable that the disposal will be
completed within a year. Analysis of the records for the year disclosed the following information
relative to the Electronics Division:
Operating loss for the year 19,200,000
Loss on disposal of some assets during 2018 1,200,000
Expected operating loss in 2019 preceding final disposal 2,400,000
Expected gain in 2019 on disposal of division 4,800,000
What amount should be reported as pretax loss from discontinued operation in 2018?
15. Shaira Company provided the following “equity” before and after restatement for
hyperinflation:
Before After
Share Capital 3,000,000 5,100,000
Revaluation Surplus 600,000 -
Retained Earnings 900,000 -
What would be the balances of the revaluation surplus and retained earnings, respectively, after
the restatement?
16. Pearl Company acquired an equipment on January 1, 2019 for 9,000,000. Depreciated is
computed using the straight line method. The estimated useful life of the equipment is five
years with no residual value. A specific price index applicable to the equipment was 150 on
January 1, 2019 and 225 on December 31, 2019. What amount of depreciation should be
reported in the current cost income statement for 2019?
17. On April 1, 2018, Brandy Company had a machine with a cost of P1,500,000 and accumulated
depreciation of P1,125,000. On April 1, 2018, the entity classified the machine as “held for sale”
and decided to sell the machine within one year. On April 1, 2018, the machine had an
estimated selling price of P150,000 and a remaining useful life of two years. It is estimated that
the disposal cost of the machine will be P15,000. On December 31, 2018, the estimated selling
price of the machine had increased to P225,000 with estimated disposal cost of P30,000. What
is the impairment loss to be recognized on April 1, 2018?
18. Shaina Company reported the following information in relation to land:

· The entity purchased land on January 1, 2017 for P1,500,000 cash. On
December 31, 2017, the land has a current replacement cost of
P1,800,000.
· On December 31, 2018, the land has a replacement cost of P2,250,000.
· The entity sold the land for P3,000,000 cash on December 31, 2019. On
this date, the current replacement cost of the land is P2,400,000.
What is the realized holding gain to be reported in 2019?
b. The correct answer is: 150,000
19. Sarah Company purchased land for P7,200,000 on December 31, 2018 when the index number
was 120. The land was held until December 31, 2019 when it was sold for P9,600,000. The index
number on December 31, 2019 was 300. In the income statement for 2019 in a
hyperinflationary economy, what amount should be reported as gain or loss on sale of land?
a. The correct answer is: (8,400,000)
20. Hyperinflation is indicated by characteristics of the economic environment of a country which

include all of the following, except
a. The cumulative inflation rate over three years is approaching or exceeds 50%.
21. The financial statements of an entity that reports in the currency of a hyperinflationary economy
shall be stated in terms of
a. Measuring unit current at the end of reporting period
22. Bubbles Company provided the following information with respect to cost of goods sold for
2019:
Historical cost Units
Inventory, Jan. 1 4,770,000 90,000
Purchases during the year 25,110,000 405,000
Inventory, Dec. 31 11,340,000 180,000
The current cost per unit of inventory was P58 on January 1, 2019 and P72 on December 31,
2019. What is the inventory on December 31, 2019 at current cost?
23. Conceptually, interim financial statements can be described as emphasizing

a. Timeliness over reliability
7th exam
During a period of inflation, an account balance remains constant. With respect to this account, a
purchasing power gain will be recognized if the account is a
Monetary liability
An entity that wishes to present information about the effect of changing prices
in a hyperinflationary economy should report this information in
a. The body of the financial statements
b. The notes to financial statements
c. Supplementary information to the financial statements
d. Management report
What is the net current cost of depreciable asset?
a.Current cost less accumulated depreciation based on current cost
b. Average current cost less accumulated depreciation based on average
current cost
c. Historical cost less accumulated depreciation based on historical cost
d. Current cost less accumulated depreciation based on average current
cost
What is the basis of depreciation under current cost accounting?
a. Current cost
b. Average current cost
c. Historical cost
d. Carrying amount
The useful life of the intangible asset of an SME is considered to be
a. Either finite or indefinite

b. Finite
c. Indefinite
d. Ten years
An SME shall measure property, plant and equipment after initial
recognition using
a. Cost model
b. Revaluation model
c. Cost model and fair value model
d. Cost model and revaluation model
An SME shall account for investments in associate after initial recognition
using
a. Cost model
b. Equity model
c. Fair value model
d. Any one of the cost model, equity model and fair value model and
using the same accounting policy for all investments in associates
Under the fair value model, the investment in associate is
subsequently measured at
a. Cost less accumulated impairment loss
b. Equity
c. Fair value less cost of disposal
d. Fair value
Inventories must be measured by an SME at
a. Cost
b. The lower of cost and fair value less cost to complete and
dispose
c. The lower of cost and estimated selling price less cost to
complete and dispose
d. The most recent purchase price
Which of the following is required to be shown as line item for an
SME but not under full IFRS?
a. Inventory
b. Property, plant and equipment
c. Financial asset
d. Investment in Joint Venture
The IASB defines SMEs as entities that
a. Do not have public accountability and do not publish general
purpose financial statements for external users.
b. Have public accountability and publish general purpose financial
statements for external users.
c. Do not have public accountability and publish general purpose
financial statements for external and internal users.
d. Do not have public accountability and publish general purpose
financial statements for external users.
What is a significant change in the size criteria that requires transition to or
from the PFRS for SMEs?
a. 20% or more of the total assets or total liabilities
b. 50% or more of the total assets or total liabilities
c. 10% or more of the total assets or total liabilities
d. No quantitative threshold can be made because this is dependent on
the judgment of the management

An SME acquired a trademark that has a remaining legal life of five years but
is renewable every ten years at little cost. The useful life of the trademark is
a. Five years
b. Based on the best estimate of management but not exceeding 10 years
c. Fifteen years
d. Indefinite
Which statement is true in relation to the initial measurement of investment
in associate?
a. Under the cost model, the investment in associate is initially measured
at the transaction price plus transaction cost.
b. Under the equity method, the investment in associate is initially
measured at the transaction price plus transaction cost.
c. Under the fair value model, the investment in associate is initially
measured at the transaction price excluding transaction cost.
d. All of these statements are true.
An SME whose only changes to its equity in the periods for which financial statements are
presented arise from profit or loss, payment of dividends, corrections of prior period errors and
changes in accounting policy
a. Is required to present a statement of income and retained earnings in place of a
statement of comprehensive income and a statement of changes in equity
b. Is permitted but not required to present a statement of income and retained earnings in
place of a statement of comprehensive income and a statement of changes in equity
c. Must choose to present either a statement of comprehensive income or a statement of
changes in equity
d. That chooses to present a statement of income and retained earnings must also
present a statement of comprehensive income and a statement of changes in equity.

Which of the following entities is “publicly accountable”?
I. An entity whose shares are traded in a public market.
II. An entity whose debt instruments but not its shares are traded in a public market.
III. An entity whose shares and debt instruments are traded in an “over-the-counter market
IV. An entity that is in the process of issuing its shares and debt instruments for trading in a
public market.
a. I and II only
b. I, II and III only
c. I, II and IV only
d. I, II, III and IV
An entity has public accountability if
I. Its debt and equity instruments are traded in a public market or it is in the
process of issuing such instruments for trading in a public market.
II. It holds assets in fiduciary capacity for a board group of outsiders as one of
its primary businesses.
III.It holds assets in fiduciary capacity for a board group of outsiders for reasons
incidental to a primary business.
a.I and II only
b.I and III only
c. II and III only
d. I, II and III
On January 1, 2017, Sunshine company purchased equipment for P6,000,000. The equipment was
depreciated over 10 years using straight line with no residual value. On October 1, 2020, the equipment
was sold for P4,000,000.
The general price index numbers are:
January 1, 2017 100

December 31, 2017 120
October 1, 2020 280
December 31, 2020 300
What is the loss on sale of equipment in a hyperinflationary income statement?
6,500,000
Selling Price 4,000,000
Restated amount 6,000,000 /10 x 3.75 = 2,250,000
6,000,000-2,250,000 = 3,750,000 x 280/100 10,500,000
Loss on sale 6,500,000
Ivana company provided the following information for
2020:
Net monetary assets-January 1 1,760,000
Sales 6,000,000
Purchases 2,400,000
Expenses 1,800,000
Income Tax 1,200,000
Cash dividend paid on Dec. 31 400,000
The sales, purchases, expenses and income tax
accrued evenly during the year. The index numbers
are 110 on January 1 and 140 on December 31. How
much is the gain or loss on purchasing power for
2020? 552,000
Sales 6,720,000
Purchases 2,400,000
Expenses 1,800,000
Income tax 1,200,000
5,400,000
x140/125 6,048,000
Dividend 400,000
Net inc. in monetary asset (restated) 272,000
Net m/a beg, restated 1,760,000
x140/110 2,240,000
Net monetary asset end, restated 2,512,000
Net monetary asset beg, 1,760,000
Net income 600,000
Dividends (400,000)
Net m/a, end (HC) 1,960,000
Purchasing power loss 552,000
Weng company was operating in a
hyperinflationary economy and provided the
following statement of financial position on
December 31, 2020:
Property, plant and equipment 1,800,000
Inventory 5,400,000
Cash 700,000
Share capital issued Dec. 31, 2016 800,000
Noncurrent liabilities 1,000,000
Current liabilities 1,400,000
Retained Earnings 4,700,000
The general price index had moved on December
31 of each year 2016-100; 2017-130; 2018-150;
2019-240 and 2020-300. The property, plant and
equipment were purchased on December 31, 2018.
The noncurrent liabilities were loans raised on
December 31, 2019. How much is the total assets
at restated amount to be presented in the

statement of financial position? 10,300,000
PPE 1,800,000 x 300/150 3,600,000
Inventory 5,400,000 x 300/270 6,000,000
Cash 700,000
10,300,000
Kevin company purchased a machine for 3,450,000 on January 1, 2020, the first day of operation.
At the end of the year, the current cost of the machine was 3,750,000. The machine has no
residual value, has a five year life, and is depreciated by the straight line method. What is the
unrealized holding gain on the equipment for 2020? 240,000
Current cost 3,750,000
Acc. Depreciation @ current cost 3,750,000/5 750,000
Depreciated current cost 3,000,000
Carrying amount 3,450,000 - (3,450,000/5) 2,760,000
Unrealized holding gains 240,000
Edelyn company acquired an equipment on January 1, 2020 for 3,750,000. Depreciation is
computed using the straight line method. The estimated useful life of the equipment is five
years with no residual value. A specific price index applicable to the equipment was 150 on
January 1, 2020 and 225 on December 31, 2020. What is the realized holding gain on the
equipment to be reported in 2020? 187,500
Depreciation-current cost [3,750,000 +(3,750,000x 225/ 150)]/22
4,687,500/5
Depreciation-current cost 937,500
Depreciation-Historical 750,000
Realized holding gain 187,500
At the beginning of current year, Evelyn company purchased 37,500 units at 100 per unit. During the
year, the
entity sold 30,000 units at 180 per unit. The entity paid P525,000 for operating expenses. The current
replacement cost of the inventory at year-end is P150 per unit. What is the net income under current
cost
accounting? 2,250,000
On January 1, 2020, BERT, an SME acquired 25% of the equity of entity C for 4,500,000.
Transaction costs of 1% of the purchase price were incurred by the SME. On December
31, 2020, entity C declared and paid a dividend of 2,400,000. For the year ended
December 31, 2020, entity C recognized profit of 5,400,000. Using appropriate
valuation techniques BERT determined the fair value of the investment C on December
31, 2020 at 8,700,000. Cost of disposal are estimated at 5% of the fair value of the
investments. On December 31, 2020 at what amount will the investment in associate
be presented in the statement of financial position under the fair value model?
8,700,000
On January 1, 2018, BETH, an SME company acquired 25% of the equity of
entity DELTA for 4,200,000. Transaction costs of 1% of the purchase price
were incurred by BETH. For the year ended December 31, 2018, entity
DELTA recognized a loss of 3,000,000. BETH determined the fair value of

the investments in entity DELTA on December 31, 2018 at 2,250,000. Cost
of disposal is estimated at 5% of the fair value of the investments. Under
cost model, at what amount will BETH present the investment in associate
in the statement of financial position?
2,137,500
4200,000+42000-(3000000*.25) = 3,492,000
VS 2250,000-(2250000*.05) = 2,137,500
An SME provided the following data for the current year:
Sales 13,400,000
Royalty revenue 240,000
Dividend received from an associate-cost mode l50,000
Gain on disposal of property 120,000
Distribution expenses 350,000
Administrative expenses (including amortization of goodwill of 4,000) 1,620,000
Research and development cost 140,000
Foreign exchange loss on trade payables 60,000
Interest on bank loan and overdraft 40,000
Interest on finance lease 10,000
Current tax expense 540,000
Deferred tax benefit 20,000
Retained earnings - beg. 4,200,000
Dividends 300,000
What is the net income for the current year? 870,000

Quizzes
Non current asset held for sale and discontinued operation
1. A noncurrent asset that ceases to be classified as held for sale shall be measured at
a. The correct answer is: Lower between the carrying amount before the asset was
classified as held for sale adjusted for depreciation that would have been recognized if
the asset had not been classified as held for sale and the recoverable amount at the
date of the subsequent decision not to sell.
2. An entity has correctly classified its manufacturing operation as a disposal group held for sale
and as discontinued operation during the year ended December 31, 2014. Which Of the
following statements is true? I. The disposal group’s results for the year ended December 31,
2013 shall be re-presented as relating to discontinued operation in the comparative figures for
the 2014 statement of comprehensive income. II. The disposal group’s assets on December 31,
2013 shall be re-presented as held for sale in the comparative figures for the 2014 statement of
financial position.
a. The correct answer is: I only
3. Any gain on the disposal of a business component should be

a. The correct answer is: netted with the loss from operations of the component as a part
of discontinued operations
4. What is the presentation of the results from discontinued operation in the income statement?
a. The correct answer is: The entity shall disclose a single amount on the face of the
income statement below the income from continuing operation.
5. When a component of an entity was discontinued during the current year, the loss on disposal
should
a. The correct answer is: include associated employee termination cost
6. Which of the following criteria does not have to be met in order for an operation to be classified
as discontinued?
a. The correct answer is: The operation must be sold within three months of the year-end.
7. Which of the following should be considered as discontinued operations?

a. The correct answer is: The operations and cash flows of a component have been or will
be eliminated from the ongoing operations of the entity as a result of a disposal
transaction.
8. Apple Company accounts for noncurrent assets using the revaluation model. On June 30, 2018,
the entity classified freehold property as held for sale. At that date, the property’s carrying
amount was P5,800,000 and the balance of the revaluation surplus was P400,000. On June 30,
2018, the property’s fair value was estimated P6,600,000 and the cost of disposal at P400, 000.
On December 31, 2018, the property’s fair value was estimated at P6,500,000 and the cost of
disposal at P500,000. At what amount should the asset be reported in the statement of
financial position on December 31, 2018?
9. Cara Company purchased equipment for P10,000,000 on January 1, 2018 with a useful life of 10
years and no residual value. On December 31, 2018, the entity classified the asset as held for
sale. The fair value of the equipment on December 31, 2018 is P8,400,000 and the cost of
disposal is P100,000. On December 31, 2019 the fair value of the equipment is P7,000,000 and
the cost of disposal is P200,000. On December 31, 2019, 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 What amount should be recognized as gain or loss as a result
of the reclassification in 2019?
a. The correct answer is: 1,500,000 loss
10. Clara Company purchased equipment for P10,000,000 on January 1, 2018 with a useful life of 10
years and no residual value. On December 31, 2018, the entity classified the asset as held for
sale. The fair value of the equipment on December 31, 2018 is P8,400,000 and the cost of
disposal is P100,000. On December 31, 2019 the fair value of the equipment is P7,000,000 and
the cost of disposal is P200,000. On December 31, 2019, 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. What is the measurement of the equipment that ceases to be
held for sale on December 31, 2019?
11. Josh company purchased an equipment for P10,000,000 on January 1, 2018. The equipment
had a useful life of 5 years with no residual value. On December 31, 2018, the entity classified
the asset as held for sale. On such date the fair value less cost of disposal of the equipment was
P7,000,000. On December 31, 2019, 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, 2019, the fair value less cost of disposal of the equipment
was P5,400,000. What is the carrying amount of the equipment on December 31, 2018 before
classification as held for sale?
12. On April 1, 2018 Bryan Company had a machine with a cost of P2,000,000 and accumulated
depreciation of P1,500,000. On April 1, 2018, the entity classified the machine as “held for sale”
and decided to sell the machine within one year. On April 1, 2018, the machine had an
estimated selling price of P200,000 and a remaining useful life of two years. It is estimated that
the disposal cost of the machine will be P20,000. On December 31, 2018, the estimated selling
price of the machine had increased to P300,000 with estimated disposal cost of P40,000. What
is the impairment loss to be recognized on April 1, 2018
13. Vien Company accounts for noncurrent assets using revaluation model. On October 1, 2018, the
entity classified .a freehold property as held for sale. At that date, property’s carrying amount
was P4,400,000 and the balance of revaluation surplus was P2,400,000. At same date, the value
was estimated at P5,800,000 and the cost of disposal P440,000. The property was sold in 2019.
At what amount should the revaluation surplus be reported on December 2018?
14. America Company provided the following data for the current year:
Sales 25,000,000
Interest Revenue 70,000
Selling and administrative expenses 4,700,000
Impairment loss on goodwill 820,000
Income tax for the year 905,000
Gain on the sale of investments 110,000
Loss due to storm surge 390,000
Loss on the disposition of the wholesale division 615,000
Loss on operations of the wholesale division 200,000
Income tax benefit from discontinued wholesale division 285,000
Dividends declared on ordinary shares 250,000
What is the net income for the year?
15. In 2018, Irish Companv decided to discontinue its Electronics Division. On December 31, 2018,
the division has not been completely sold. However, it is probable that the disposal will be
completed within a year. Analysis of the records for the year disclosed the following information
relative to the Electronics Division:
Operating loss for the year 16,000,000
Loss on disposal of some assets during 2018 1,000,000
Expected operating loss in 2019 preceding final disposal 2,000,000
Expected gain in 2019 on disposal of division 4,000,000
What amount should be reported as pretax loss from discontinued operation in 2018?
16. Marian Company, a parent entity, approved on December 1, 2018 a plan to sell its subsidiary.
The s1e is expected to be completed on March 31, 2019. The subsidiary had assets with carrying
amount of P7,500,000 including goodwill of P3,000, 000 on December 31, 2018. The subsidiary
made a loss of P1,500, 000 from January 1 to March 1, 2019 and is expected to make a further
loss of P1,000,000 up to the date of sale. At the date of approval of the financial statements, the
entity was in negotiation for the sale of the subsidiary but no contract had been signed. The
entity expects to sell the subsidiary for P4,500,000 and to incur costs of disposal of P250,000.
The value in use of the subsidiary was estimated to be P 5,000,000. On December 31, 2018,
what is the measurement of the subsidiary which is considered as a “disposal group classified as
held for sale”?
17. On October 1, 2018, Lailani Company approved a formal plan to sell a business segment. The
sale will occur on March 31, 2019. The segment had income of P5,000,000 from January 1 to
September 30 and P1,000,000 for the quarter ended December 31, 2018. On December 31,
2018, the carrying amount of the assets of the segment was P8,000,000 and the fair value less
cost of disposal was P7,000,000. The income tax rate is 30%. What amount should be reported
as income from the discontinued segment for 2018?
18. Pretty Company has correctly classified its packaging operation as a disposal group held for sale
and as discontinued operation. For the year ended December 31, 2018, this disposal group
incurred trading loss after tax of P40,000,000 and the loss on remeasuring it to fair value less
cost of disposal was P30,000,000. What total amount of the disposal group’s losses should be
included in profit or loss for the year ended December 31, 2018?
19. Zeus Company had three segments, A, B and C. Management decided to dispose of Segment C.
On November 15, 2018, the carrying amount of the assets of Segment C was P180,000,000 and
the fair value less cost of disposal was P140,000,000. Segment C’s revenue and expenses for
2018, respectively, were P100,000,000 and P64,000,000, including an interest of P10,000,000
attributable to Segment C. There was no further impairment of assets between November 15
and December 31, 2018. What is the pretax income or loss from the discontinued segment for
2018?
a. The correct answer is: 4,000,000 loss
20. An entity acquires a subsidiary exclusively with a view to resale. The subsidiary meets the
criteria to be classified as held for sale. At the end of the reporting period, the subsidiary has not
yet been sold, and six months have passed Since its acquisition. How will the subsidiary be
measured in the statement of financial position at the date of the first financial statements after
acquisition?
a. The correct answer is: At the lower of cost and fair value less cost of disposal.
21. An entity classified a noncurrent asset accounted for under the cost model as held for sale at the
current year-end. Because no offers were received at an acceptable price, the entity decided at
the end of next year not to sell the asset but to continue to use it. The asset shall be measured
at the end of next year at what amount?
a. The correct answer is: The lower of carrying amount on the basis that the asset had
never been classified as held for sale and recoverable amount
22. An entity shall measure a noncurrent asset or disposal group classified as held for sale at
a. The correct answer is: Lower of carrying amount and fair value less cost of disposal.
23. How should the assets and liabilities of a disposal group classified as held for sale be shown in
the statement of financial position?
a. he correct answer is: The assets of the disposal group shall be shown separately from
other assets and the liabilities of the disposal group shall be shown separately from
other liabilities.
24. 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 is
a. The correct answer is: Accounted for as an impairment loss.
25. It is a group of assets to be disposed of by sale or otherwise, together as a group in a single

transaction, and liabilities directly associated with those assets that will be transferred in the
transaction.
a. The correct answer is: Disposal group
26. Noncurrent asset classified as held for sale shall be presented in the statement of financial
position as
a. The correct answer is: Current asset
27. Noncurrent asset or disposal group is classified as “held for sale” when the asset is available for
immediate sale in its present condition and the sale is highly probable. For the sale to be highly
probable, (choose the incorrect one)
a. The correct answer is: The sale is expected to- qualify for recognition as a completed
sale within two years from the date of classification of the asset as “held for sale”.
28. 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?
a. The correct answer is: The gain shall be recognized but not in excess of the cumulative
impairment loss previously recognized.
29. Which of the following statements about noncurrent asset classified as held for sale is true?I. An
asset that meets the criteria for classification as held for sale after the end of reporting period
but before the authorization of the financial statements shall be measured in the statement of
financial position at the lower of carrying amount and fair value less cost of disposal.II. To be
classified as an asset held for sale, the sale must be expected to be completed within 12 months
from the end of the financial year.
a. The correct answer is: Neither I nor II
30. Which of the following statements is incorrect concerning presentation of noncurrent asset or
disposal group classified as held for sale?
a. The correct answer is: An entity shall depreciate a noncurrent asset classified as held for
sale or while it is part of a disposal group classified as held for sale.
Quiz - Segment and Interim Reporting
1. Ayala company provided the following profit (loss) relating to operating segments:
F 6,800,000
G 2,000,000
H (4,000,000)
I 800,000
J (400,000)
What are the reportable segments based on profit or loss?
a. The correct answer is: F, G and H
2. A business segment or geographical segment should be identified as reportable segment if a
majority of its revenue is earned from external customers and its segment result, whether
income or loss, is
a. The correct answer is: 10% or more of the combined result of all segments in profit
or the combined result of all segments in loss, whichever is greater in absolute amount.
3. A business segment or geographical segment should be identified as reportable segment if

majority of its revenue is earned from sales to external customers and (choose the incorrect
one)
a. The correct answer is: Its revenue from sales to external customers is 10% or more of
the total revenue, external and internal, of all segments.
4. It is a business segment or geographical segment for which segment information is required to

be disclosed.
a. The correct answer is: Reportable segment
5. It is a distinguishable component of an entity that is engaged in providing product or service or

group of products or services, and that is subject to risks and rewards that are different from
those of other segments.
a. The correct answer is: Business segment
6. It is the approach of looking to an entity’s organizational and management structure and its
internal financial reporting system to identify the business and geographical segment for
external reporting purposes.
a. The correct answer is: Management approach
7. Billy company, a calendar year entity, has the following income before income tax and
estimated effective tax rate for the first three quarters of the current year:
1. Income before tax effective tax rate
First quarter 6,000,000 30%
Second quarter 7,000,000 30%
Third quarter 4,000,000 35%
What should be reported as income tax provision in the interim income statement for the third
quarter?
8. Donna company prepares quarterly interim financial reports. The entity sells electrical goods
and normally 5% of customers claims on their warranty. The provision in the first quarter was
calculated at 5% of sales to date which amounted to P2,500,000. However in the second
quarter, a design fault was found and warranty claims were expected to be 10% for the whole
year. Sales for the second quarter amounted to 3,750,000. What would be the provision
charged in the interim income statement for the second quarter?
9. Evelyn company has historically reported bad debt expense of 5% of sales in each quarter. For
the current year, the entity followed the same procedure in the three quarters of the year.
However, in the fourth quarter, the entity determined that bad debt expense for the entire year
should be P112,500. Sales in each quarter of the year were first quarter 500,000, second
quarter, 375,000, third quarter, 625,000 and fourth quarter, 1,000,000. What amount should be
recognized as bad debt expense for the fourth quarter?
10. Fear company had the following transactions during the quarter ended March 31, 2019.
Loss from typhoon 840,000
Payment of fire insurance premium for 2019 120,000
What amount should be included in the income statement for the quarter ended March 31,
2019?
a. The correct answer is: 840,000 30,000
11. Heart company incurred an inventory loss from market decline of 210,000 on June 30, 20B.
What amount of the inventory loss should be recognized in the quarterly income statement for
the three months ended June 30, 20B?
12. Marimar company operates in the travel industry and incurs costs unevenly throughout the
financial year. Advertising costs of 2,400,000 were incurred on March 1, 2019, and staff bonuses
are paid at year end based on sales. Staff bonuses are expected to be around 24,000,000 for the
year. Of that sum, 3,600,000 would relate to the period ending March 31, 2019. What cost
should be included in the entity’s quarterly financial report ending March 31, 2019?
a. The correct answer is: 2,400,000 3,600,000
13. On July 1, 2011 Dianne company incurred a casualty loss of P600,000. The net income for full
year ending December 31, 2011, was expected to be P1,000,000. In the income statement for
the quarter ended September 30, 2011, what amount of casualty loss should be reported
separately?
14. On June 30, 20B, Miles company incurred a P250,000 net loss from disposal of a business
segment. Also, on June 30, 20B, the entity paid P100,000 for property taxes assessed for the
calendar year 20B. What total amount should be included in the determination of the net
income for the six-month period ended June 30, 20B?
15. The terms and conditions of employment with Princess company include entitlement to share in
the staff bonus system, under which 5% of the profit for the year before charging the bonus is
allocated to the bonus pool, provided the annual profit exceeds P60,000,000. The profit before
accrual of any bonus for the first half of 2019 amounts to P48,000,000 and the latest estimate of
the profit before accrual of any bonus for the year as a whole is 72,000,000 How much should
be recognized in profit or loss in respect of the staff bonus for the half year ended June 30,
2019?
16. Venus company has estimated that total depreciation expense for the year ended December 31,
20B will amount to 125,000 and that 20B year end bonuses to employees will total 300,000. In
the interim income statement for the six months ended June 30, 20B, what total amount of
these expenses should be reported?
17. Will company experienced a 600,000 decline in the market value of its inventory at the end of
the first quarter. Will had expected this decline to reverse in the second quarter, and in fact, the
second quarter recovery exceeded the previous decline by 120,000. What amount of gain or
loss should Will report in its interim statements for the first and second quarters?
a. The correct answer is: First quartsecond quarte600,000 loss 600,000 gain
18. An interim financial report shall include, as a minimum, all of the following components, except
a. The correct answer is: Accounting policies and explanatory notes
19. For interim financial reporting, an expropriation gain occurring in the second quarter shall be
a. The correct answer is: Recognized in the second quarter
20. If annual major repairs made in the first quarter and paid for in the second quarter clearly
benefit the entire year, when should the repairs be expenses?
a. The correct answer is: An allocated portion in each quarter of the year
21. Which statement is incorrect concerning interim financial reporting?

a. The correct answer is: Charitable contribution, employee training costs and other costs
that are expected to be incurred irregularly during the financial year shall be accrued as
of the interim reporting date.
22. Carlo company provided the following data relating to operating segments:
Industry revenue profit total assets
A 12,000,000 2,100,000 24,000,000
B 9,600,000 1,680,000 21,000,000
C 7,200,000 1,440,000 15,000,000
D 3,600,000 660,000 9,000,000
E 5,100,000 810,000 8,400,000
F 1,800,000 270,000 3,600,000
How many reportable segments does Carla have?
a. The correct answer is: Five
23. Cherry company has three lines of business, each of which was determined to be reportable
segment. Cherry company sales aggregated 15,000,000 in the current year, of which segment
number 1 contributed 40%. Traceable costs were 3,500,000 for segment number one out of a
total of 10,000,000 for the entity as a whole. For external reporting, Cherry allocates common
costs of 3,000,000 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, how much should
Cherry report as profit for segment number 1?
24. Emily company operates in several different industries. Total sales for the entity totaled
P4,200,000 and total common costs amounted to 1,950,000 for the current year. For internal
reporting purposes, the entity allocates common cost based on the ratio of a segment’s sales
total sales. Additional information regarding the different segments follows:
Segment Contribution to total sales costs specific to the segment
1 25% 330,000
2 12% 300,000
3 31% 390,000
4 23% 264,000
5 9% 120,000
What is the operating profit of segment 1?
25. Geraldine company discloses a supplemental operating segment information. The following

information is available for the current year:
Segment Sales Traceable expenses
A 2,500,000 1,500,000
B 2,000,000 1,250,000
C 1,500,000 750,000
Additional expenses, not included above are as follows:
Indirect expenses 900,000
General corporate expenses 600,000
Income tax expense 200,000
The interest expense and income tax expense are regularly reviewed by the chief
operatingdecision maker as a measure of profit or loss. Appropriate common expenses are
allocated to segments based on the ratio of segment’s sales to total sales. What was segment
C’s profit for the current year?
26. Glory company is subject to the requirements of segment reporting. In the income statement
for the current year, the entity reported revenue of 15,000,000 excluding intersegment sales of
3,000,000, expenses of 14,100,000 and net income of 900,000. Expenses included payroll costs
of 4,500,000. The combined total assets of all operating segments at year end amounted to
13,500,000. What is the minimum amount of sales to a major customer?
27. Mabel company, an entity listed on a recognized stock exchange, reports operating results from
its North American Division to its chief operating decision maker. The segment information for
the current year is as follows:
Revenue 3,675,000
Profit 970,000
Assets 1,700,000
Number of employees 2,500
Mabel’s results for all of its operating segments in total are:

Revenue 39,250,000
Profit 9,600,000
Assets 17,500,000
Number of employees 18,500
Which piece of information determines for Mabel that the North American division is a
reportable operating segment?
a. The correct answer is: Profit
28. The following information pertains to Ariana company and its divisions for the current year:
Sales to unaffiliated customers 20,000,000
Intersegment sales of products similar to those sold to unaffiliated customers 6,000,000
Interest earned on loans to other operating segments 400,000
Ariana and all of its divisions are engaged solely in manufacturing operations. What is the
minimum amount of segment revenue in order that a division can be considered a reportable
segment?
29. The following information pertains to Ariana company and its divisions for the current year:
Sales to unaffiliated customers 20,000,000
Intersegment sales of products similar to those sold to unaffiliated customers 6,000,000
Interest earned on loans to other operating segments 400,000
Ariana and all of its divisions are engaged solely in manufacturing operations. What is the
minimum amount of segment revenue in order that a division can be considered a reportable
segment?
30. Tony company provided the following information in relation to revenue earned by operating
segments for the current year:
Segment Sales to unaffiliated customers Intersegment sales Total revenue
A 6,000 3,600 9,600
B 9,600 4,800 14,400
C 4,800 - 4,800
D 51,600 19,200 70,800
Combined 72,000 27,600 99,600
Elimination - (27,600) (27,600)
Consolidated 72,000 - 72,000
What total revenue should be disclosed by the reportable segments?
PFRS for SME's-Let's Check
1. An SME must recognize a government grant that does not impose specified future performance
conditions on the entity
a. In income when the grant proceeds are receivable
2. An SME that presents its first financial statements that conform with PFRS for SMEs is known as
a. A first-time adopter
3. Under the fair value model, the investment in associate is subsequently measured at
a. Fair value
4. What is a significant change in the size criteria that requires transition to or from the PFRS for
SMEs?
a. 20% or more of the total assets or total liabilitie
5. An entity that meets the definition of an SME shall apply the PFRS for SMEs for annual period
beginning
a. January 1, 2010
6. A complete set of financial statement for SMEs

a. Is similar to that provided for by full PFRS
7. When after the end of reporting period an event occurs that is indicative of conditions that
arose after the end of reporting periodI. The entity shall disclose the nature and effect of the
event in the financial statements.II. The entity shall adjust the related amounts recognized in the
financial statements.
a. I only
8. The statement of financial position at the date of transition to PFRS for SMEs is best described as
a. opening statement of financial position
9. An SME must notI. Recognize revenue from the sale of goods if it retains significant risks and
rewards of ownership of goods sold.II. recognize revenue from the rendering of services using
the percentage of completion method if it cannot estimate the outcome of the transaction
reliably.
a. Both I and II
10. An SME must measure its investment property after initial recognition
a. At fair value, for property whose fair value can be measured reliably without undue cost
or effort on an ongoing basis and the cost-depreciation-impairment model for all other
investment property.
11. The useful life of the intangible asset of an SME is considered to be

a. Finite
12. Which of the following statements is true in relation to the subsequent measurement of basic
financial instruments?I. debt instruments shall be measured at amortized cost using the
effective interest methodII. commitments to receive a loan shall be measured at cost less
impairmentI. Investments in nonconvertible nonputtable preference shares that are
publicly traded shall be measured at fair value through profit or loss.
a. I, II and III
13. Disclosure of information about key sources of estimation uncertainty

a. Is mandatory
14. An SME must recognize all borrowing costs
a. as an expense when incurred
15. An SME must measure its property, plant and equipment after initial recognition at
a. Cost less any accumulated depreciation less any accumulated impairment losses
16. In the opening statement of financial position, the first-time adopter of PFRS for SMEs shall do
all of the following, except
a. Recognize assets and liabilities required by full PFRS but PFRS for SMEs does not require
such recognition.
17. An SME shall account for investments in associate after initial recognition using
a. Any one of the cost model, equity model and fair value model and using the same
accounting policy for all investments in associates.
18. The IASB defines SMEs as entities that

a. Do not have public accountability and publish general purpose financial statements for
external users.
19. Inventories must be measured by an SME at

a. lower of cost and estimated selling price less cost to complete and sell
20. Which of the following statements in relation to prior period error is true?
a. To the extent practicable, an entity must correct a prior period error retrospectively in
the first financial statements authorized for issue after its discovery.
21. A change in the presentation and classification of items in financial statements is

allowedI. When it is required by law.II. When a change in the presentation
and classification will demonstrate a more appropriate presentation and classification.
a. II only
22. An SME shall present an analysis of expenses using a classification based on

a. Either the nature of expenses or the function of expenses whichever provides
information that is reliable and more relevant
23. An SME must measure intangible assets after initial recognition

a. At cost less any accumulated amortization and any accumulated impairment losses
24. In accordance with PFRS for SMEs, in presenting a statement of financial position, an entity
a. Must make the current and noncurrent presentation except when a presentation based
on liquidity provides information that is reliable and more relevant.
25. What is the treatment for research and development costs incurred by an SME?
a. All research and development costs are expensed when incurred
26. items of dissimilar nature or function

a. Must be presented separately in financial statements if those items are material
27. This means “applying a new accounting policy to transactions, other events and conditions as if
that policy had always been applied”.
a. Retrospective application
28. An SME whose only changes to its equity in the periods for which financial statements are
a. Is permitted but not required to present a statement of income and retained earnings in
place of a statement of comprehensive income and a statement of changes in equity
29. The PFRS for SMEs requires disclosure of compensation of key management personnel. Which
of the following would not be considered “compensation” for this purpose?
a. Reimbursement of Out-of-pocket expenses
30. An SME measures a provision at the best estimate of the amount required to settle the
obligation at the reporting date. When the provision involves a large population of items, the
estimate of the amount
a. Reflects the weighting of all possible outcomes by their associated probabilities
31. An entity has public accountability ifI. Its debt and equity instruments are traded in a
public market or it is in the process of issuing such instruments for trading in a public
market.II. It holds assets in fiduciary capacity for a board group of outsiders as one of
its primary businesses.III. It holds assets in fiduciary capacity for a board group of
outsiders for reasons incidental to a primary business.
a. I and II only
32. This is defined as the “first annual financial statements in which an SME adopts Philippine
Financial Reporting Standards for SMEs and makes an explicit and unreserved statement of
compliance with PFRS for SMEs”.
a. First financial statements that conform with PFRS for SMEs
33. Which of the following entities is a going concern?
a. None of the above
34. Which of the following is required to be reported as line item for an SME but not under full
PFRS?
a. Investment in joint venture
35. Fair presentation in accordance with PFRS for SMEs is presumed to result from
a. Compliance with PFRS for SMEs, with additional disclosures where necessary, by an
entity that does not have public accountability
36. Which of the following statements best describes the “date of transition to PFRS for SMEs”?
a. The beginning of the earliest period for which an entity presents full comparative
information under PFRS for SMEs in its first financial statements that conform with PFRS
for SMEs.
37. When an SME changes the end of its reporting period and presents financial statements for a
period longer or shorter than one year, the SME shall discloseI. The period covered
by the financial statements.II. The reason for using a longer or shorter
period.III. The fact that mounts presented in the financial statements are not entirely
comparable.
a. I, II and III
38. In the Philippines, the SEC defines an SME as an entity (choose the incorrect one)
a. That is a public utility
39. An SME shall account for its investment in associate after initial recognition using
a. Any of the cost model, equity model and fair value model and using the same
accounting policy for all investment in associates.
40. An SME shall disclose all of the following in relation to inventories, except
a. The total fair value of inventories pledged as security for liabilities
Quiz-PFRS SME's (Theory)
1. A change in the presentation and classification of items in financial statements is

allowedI. When it is required by law.II. When a change in the presentation
and classification will demonstrate a more appropriate presentation and classification.
a. The correct answer is: II only
2. Inventories must be measured by an SME at
a. The correct answer is: The lower of cost and estimated selling price less cost to
complete and dispose
3. The IASB defines SMEs as entities that

a. The correct answer is: Do not have public accountability and publish general
purpose financial statements for external users.
4. The statement of financial position at the date of transition to PFRS for SMEs is best described as
a. The correct answer is: opening statement of financial position
5. This is defined as the “first annual financial statements in which an SME adopts Philippine
Financial Reporting Standards for SMEs and makes an explicit and unreserved statement of
compliance with PFRS for SMEs”.
a. The correct answer is: First financial statements that conform with PFRS for SMEs
6. What is a significant change in the size criteria that requires transition to or from the PFRS for
SMEs?
a. The correct answer is: 20% or more of the total assets or total liabilities
7. When an SME changes the end of its reporting period and presents financial statements for a
period longer or shorter than one year, the SME shall discloseI. The period covered
by the financial statements.II. The reason for using a longer or shorter
period.III. The fact that mounts presented in the financial statements are not entirely
comparable.
a. The correct answer is: I, II and III
8. Which can qualify as an SME?

a. The correct answer is: None of the above
9. Which of the following entities is “publicly accountable”?I. An entity whose shares

are traded in a public market.II. An entity whose debt instruments but not its shares
are traded in a public market.III. An entity whose shares and debt instruments are
traded in an “over-the-counter market”.IV. An entity that is in the process of issuing its
shares and debt instruments for trading in a public market.
a. The correct answer is: I, II, III and IV
10. Which of the following is required to be shown as line item for an SME but not under full IFRS?
a. The correct answer is: Investment in Joint Venture
11. Which of the following statements best describes the “date of transition to PFRS for SMEs”?
a. The correct answer is: The beginning of the earliest period for which an entity
presents full comparative information under PFRS for SMEs in its first financial
statements that conform with PFRS for SMEs.
12. Which of the following statements is true concerning application of the size criteria for SMEs?
I. The amount of total assets and total liabilities shall be based on the entity’s audited
financial statements on December 31, 2009.II. If an SME is using the fiscal year as its
accounting period, the entity shall apply the size criteria using the audited financial statements
of the immediately preceding fiscal year.
a. The correct answer is: Both I and II
13. Which statement is true in relation to the initial measurement of investment in associate?
a. The correct answer is: All of these statements are true.
14. A complete set of financial statement for SMEs

a. The correct answer is: Is similar to that provided for by full PFRS
15. An SME acquired a trademark that has a remaining legal life of five years but is renewable every
ten years at little cost. The useful life of the trademark is
a. The correct answer is: Based on the best estimate of management but not
exceeding 10 years
16. An SME shall account for investments in associate after initial recognition using
a. The correct answer is: Any one of the cost model, equity model and fair value model
and using the same accounting policy for all investments in associates.
17. An SME that presents its first financial statements that conform with PFRS for SMEs is known as
a. The correct answer is: A first-time adopter
18. Fair presentation in accordance with PFRS for SMEs is presumed to result from
a. The correct answer is: Compliance with PFRS for SMEs, with additional disclosures
where necessary, by an entity that does not have public accountability
19. The PFRS for SMEs requires disclosure of compensation of key management personnel. Which
of the following would not be considered “compensation” for this purpose?
a. The correct answer is: Reimbursement of Out-of-pocket expenses’
20. This means “applying a new accounting policy to transactions, other events and conditions as if
that policy had always been applied”.
a. The correct answer is: Retrospective application
21. Then the classification of items in the financial statements is changed, the entity
a. The correct answer is: Must reclassify the comparative amounts, unless it is
impracticable to do so
22. All of the following cannot be classified as an SME,

a. The correct answer is: Commercial Bank
23. An entity that meets the definition of an SME shall apply the PFRS for SMEs for annual period
beginning
a. The correct answer is: January 1, 2010
24. An SME must measure an investment property after initial recognition

a. The correct answer is: At fair value, for property whose fair value can be measured
reliably without undue cost or effort on an ongoing basis and the cost-depreciation-
impairment model for all other investment property.
25. An SME must recognize all borrowing costs

a. The correct answer is: as an expense when incurred
26. An SME shall disclose comparative information for

a. The correct answer is: The previous comparable period for all amounts reported and
for all narrative and descriptive information when it is relevant to an understanding of
the current period’s financial statement
27. An SME shall present an analysis of expenses using a classification based on

a. The correct answer is: Either the nature of expenses or the function of expenses
whichever provides information that is reliable and more relevant
28. An SME whose only changes to its equity in the periods for which financial statements are
a. he correct answer is: Is permitted but not required to present a statement of income
and retained earnings in place of a statement of comprehensive income and a
statement of changes in equity
29. Entities with total assets or total liabilities below the floor threshold of 3,000,000 are known as
a. The correct answer is: Micro-business entities
30. In accordance with PFRS for SMEs, in presenting a statement of financial position, an entity
a. The correct answer is: Must make the current and noncurrent presentation except
when a presentation based on liquidity provides information that is reliable and more
relevant.
Shareholders Equity
1. The entry to record the receipt of a donated shares from shareholders will include
a. no entry
2. Unexercised warrants that has already expired is credited to

a. Share premium
3. When preference shares are issued with warrants, the total amount received in the issuance
shall be allocated to the
a. preferences shares and the warrants on a pro rata basis based on their fair values
4. When treasury shares are reissued at above the cost of the treasury shares when purchased,
What is the account to be credited for the difference between the reissue price and the cost of
the treasury shares?
a. Share premium – treasury shares
5. “Loss” from sale of treasury shares shall be charged to

a. Share premium from treasury shares and then retained earnings
6. Alena company was organized on January 1, 20A, with authorized capital of 150,000 shares of
P200 par value. During 20A, Alena had the following transactions affecting shareholders’
equity:January 10 Issued 37,500 shares at P220 per share.March 25 Issued
1,500 shares for legal services when the fair value was P240 a share.September 30 Issued
7,500 shares for a tract of land when the fair value was 260 a share.What amount should Alena
report for share premium on December 31, 20A?
a. 1,260,000
7. At the beginning of the current year, Alonzo company declared a 1 for 5 reverse share split,
when the market value of share was P100. Prior to the split, Alonzo had 150,000 shares of P10
par value issued and outstanding shares. After the split, what is the par value of the share?
a. P50
8. Becca company issued 240,000 shares when it began operations in 20A and issued an additional
120,000 shares in 20B. Becca also issued preference shares convertible into 120,000 ordinary
shares. In 20B, Becca purchased 90,000 ordinary shares to be held in treasury. On December
31, 20B, how many ordinary shares were outstanding?
a. 270,000
9. Damon company 120,000 ordinary shares outstanding in January 20A. The entity distributed a
15% share dividend in March and a 10% share dividend in June. After acquiring 15,000 shares of
treasury in July, the entity split its share 4 for 1 in December. How many ordinary shares are
outstanding on December 31, 20A.
a. 547,200
10. Diana company holds 12,000 shares of P10 par value as treasury reacquired in 20A for P144,000.
On December 31, 20B, Diana reissued all 12,000 shares for 228,000. Under the cost method of
accounting for treasury shares, what is credited for the excess of the reissue price over the cost
of treasury shares?
a. Share premium of 84,000
11. Effective December 31, 20A, the shareholders of Dorlito company approved a two-for-one split
of the entity’s share capital, and an increase in authorized shares from 120,000 shares (par value
P20) to 240,000 shares (par value P10). Dorlito’s shareholders’ equity accounts immediately
before issuance of the split shares were as follows: Share capital, par value P20; 120,000 shares
authorized; 60,000 shares outstanding, P1,200,000; share premium, P180,000 and retained
earnings, P1,620,000. What should be the balances in the share premium and retained earnings
immediately after the share split is effected?
a. 180,000 1,620,000
12. In 20A, Rhea company issued 75,000 shares of P10 par value for P100 per share. In 20B, Rhea
acquired 3,000 of its shares at P150 per share and immediately canceled these 3,000 shares. In
connection with the retirement of shares, what amount should be debited to share premium
and retained earnings?
a. 270,000 150,000
13. Marla company issued 150,000 ordinary shares. Of these, 7,500 shares were held as treasury at
January 1, 20A. During 20A, transactions were as follows:May 1 1,500 shares of treasury
were sold.Aug. 1 15,000 unissued shares were sold.Nov. 15 A 2-for-1 share split
took effect.On December 31, 20A, how many shares were issued and outstanding?
a. Issued Outstanding 330,000 318,000
14. On December 1 of the current year, Liezel company received a donation of 2,400 shares with
P50 par value from a shareholder. On that date, the share market value was P350. The shares
were originally issued for P250 per share. What is the decrease in sahreholders’ equity as a
result of the donation?
a. 0
15. On December 31, 20B, Princess company’s board of directors canceled 2,500 shares at P25 par
value held in treasury at an average cost of P130 per share. Before recording the cancelation of
the treasury shares, Princess had the following balances in its shareholders’ equity accounts:
Share capital 312,500 Share premium
375,000 Retained earnings 450,000 Treasury shares, at cost
325,000In the statement of financial position on December 31, 20B, what should be reported as
share capital outstanding?
a. 250,000
16. On March 1 of the current year, Rica company issued 12,000 ordinary shares of P20 par value
and 24,000 convertible preference shares of P20 par value for a total of P960,000. At this date,
the ordinary shares was selling for P36 and the convertible preference share was selling for P27.
What amount of the proceeds should be allocated to the convertible preference shares?
a. 576,000
17. Precious company issued all of its outstanding shares for P390 per share in 20A. On January 1,
20B, Precious acquired 100,000 shares at P360 per share and retired them. The shareholders’
equity accounts at December 31, 20A follow: retained earnings, P37,500,000, share premium,
P81,000,000 and share capital, P300 par value, 900,000 shares issued and outstanding,
P270,000,000. What should be the balance in the share premium account immediately after the
retirement of the shares?
a. 75,000,000
18. Samantha company was incorporated on January 1, 20A. The following information pertains to
Samantha’s share capital transactions:Jan. 2 number of shares authorized
96,000Feb. 1 number of shares issued 72,000July
1 number of shares reacquired but not canceled 6,000Dec. 1
two-for-one share split On December 31, 20A, what is the number of
shares outstanding?
a. 132,000
19. The accounts below appear in the December 31, 20A trial balance of Marimar company:
Authorized share capital 6,000,000 Unissued share
capital 2,400,000 Subscribed share capital
1,200,000 Subscriptions receivable 480,000
Share premium 600,000 Retained earnings
un appropriated 720,000 Retained earnings appropriated
360,000 Revaluation surplus 240,000
Treasury shares, at cost 120,000In the December 31, 20A
statement of financial position, what should be reported as shareholders’ equity?
20. Vivian company was organized on January 1, 20A with 150,000 authorized shares of P100 par
value. On January 5, Vivian issued 112,500 shares at P140 per share and on December 31,
Vivian purchased 7,500 shares at P110 per share. Vivian used the par value method to record
the purchase of the treasury shares. What is the balance of the share premium from treasury
shares on December 31, 20A.
21. When subscribed shares are partially paid, the entry involve is
a. The correct answer is: Recording of collection only
22. Statement I - When the entity issued shares in exchange for a property/asset other than cash
such as land, building and the like, reference shall be made to (1) fair value of the noncash
consideration received, (2) fair value of the shares issued and (3) par value of the shares issued,
in order of priority.
Statement II – Subscribed shares are issued when partial collection has been made and it is
probable that the remaining balance is deemed fully collectible.
a. The correct answer is: Only statement 1 is correct.
23. The legal provisions n PFRS 2 states that the shares issued in payment for services rendered shall
be recorded
a. The correct answer is: fair value of the said services or fair value of the shares whichever
is clearly determinable.
24. Statement I - Redeemable preference is classified as either current or noncurrent liability.

Statement II - Callable preference share can be called in for redemption at the option of the
holder of the shares
Statement III - Upon redemption of redeemable preference shares, a gain/loss on redemption.
a. The correct answer is: Only two statements are correct
25. When the total of the par value of Preference share and the share premium – preference
converted to ordinary shares is lesser than the par value of ordinary shares to be issued as a
result of the conversion, the account to be debited for the difference is
a. The correct answer is: Retained earnings
26. It is the maximum amount of capital fixed in the articles of incorporation to be subscribed and
paid in or secured to be paid in by the shareholders of the corporation.
a. The correct answer is: Authorized share capital
27. This refers to the cumulative balance of periodic earnings, dividend distributions, prior period
errors and other capital adjustments.
a. The correct answer is: Retained earnings
28. Banks, trust companies, insurance companies, public utilities, and building and loan associations
are not permitted to issue no-par value shares. The minimum stated value of a no par value
shares is
a. ‘The correct answer is: 5
29. Legal capital represents the portion of the paid in capital which cannot be returned to the
shareholders during the lifetime of the corporation. This is also the doctrine of _____
a. The correct answer is: Trust fund doctrine
30. Statement 1 – Corporations must declare dividends only up to its retained earnings balance.
Thus, if the entity has a deficit, it is illegal to pay dividends.
Statement 11 – A portion of the legal capital can be distributed to shareholders during the
lifetime of the business.
a. The correct answer is: Only statement one is correct
31. Donated property or noncash assets from non shareholders require an entry to debit the
property equal to:
a. The correct answer is: Fair value of property donated
32. It is accomplished when the old shares will be cancelled and new shares are issued to give effect
to the change in capital structure such as change from par to no-par, change from no-par to par,
reduction of par value, reduction of stated value, split up and split down.
a. The correct answer is: Recapitalization
33. Reduction of par value involves transferring portion of the amount from share capital to
a. The correct answer is: Share premium
34. Subscriptions receivable and other receivables from sale of shares which are not collectible
currently shall be presented as
a. The correct answer is: Deduction from the related subscribed share capital in the
shareholders’ equity section
35. The amount of share premium to be credited when ordinary shares are issued out of exercising
the warrants associated with preference shares issued with warrants will be equal to the
difference between:
a. The correct answer is: sum of specified subscription price and the allocated cost of
warrants exercise over the par value of the ordinary shares
Retained Earnings
1. Adverse financial and operating circumstances warrant that Solid company undergo a quasi-
reorganization on December 31, 2012. The following information may be relevant in accounting
for the quasi-reorganization:*Inventory with a fair value of P4,000,000 is currently recorded in
the accounts at its cost of P5,000,000.*Plant assets with a fair value of P14,000,000 are
currently recorded at P17,000,000, net of accumulated depreciation.*Individual shareholders
contribute P8,000,000 to create additional capital to facilitate the reorganization. No new
shares are issued.*The par value of the share is reduced from P25 to P5. Immediately
before these events, the shareholders’ equity appears as follows: Share Capital
P5,000,000 Share Premium P3,500,000
Retained Earnings (Deficit) (P6,000,000) After the quasi-reorganization,
what amount should be reported as share premium?
a. The correct answer is: P5,500,000
2. An entity declared a dividend, a portion of which was liquidating. How would the declaration
affect contributed capital and retained earnings, respectively?
a. The correct answer is: Decrease and decrease
3. An entity declared and paid a liquidating dividend. This distribution resulted in a decrease in
a. The correct answer is: Paid in capital and no effect on retained earnings
4. An entity shall measure a liability to distribute noncash asset as dividend to its owners at
a. The correct answer is: Fair value of the asset distributed
5. An entity shall measure a noncurrent asset classified as held for distribution to owners at
a. The correct answer is: Lower of carrying amount and fair value less cost to distribute
6. Appropriations of retained earnings, if reflected in separate account, shall be reported as

a. The correct answer is: Component of equity as part of total retained earnings
7. Conditions warranted that an entity should have a quasi-reorganization. Immediately after

reorganization, the retained earnings account
a. The correct answer is: Has a zero balance
8. How would retained earnings be affected by the declaration of share dividend and share split,
respectively?
a. The correct answer is: Decrease and no effect
9. How would the declaration and subsequent issuance of a 10% share dividend affect each of the
following when the fair value of the shares exceeds the par value of the shares?
a. The correct answer is: Increase increase
10. If the share dividend is less than 20%, how much of the retained earnings should be capitalized?
a. The correct answer is: Fair value of the shares on the date of declaration
11. The accounting for a quasi-reorganization usually includes

a. The correct answer is: Write down of assets and elimination of a deficit
12. The peso amount of shareholders’ equity remains the same when there is’
a. The correct answer is: Declaration of share dividend
13. The primary purpose of a quasi-reorganization is to give the entity the opportunity to
a. The correct answer is: Eliminate a deficit in retained earnings
14. Unlike a share split, a share dividend requires a formal journal entry in the accounting records
because
a. The correct answer is: Share dividends represent a transfer from retained earnings to
share capital.
15. When an entity settles the property dividend payable, it shall recognize the difference between
the carrying amount of the asset distributed and the carrying amount of the dividend payable in
a. The correct answer is: Profit or loss
16. Which of the following would not affect retained earnings?

a. The correct answer is: Share splitAn entity declared a cash dividend on its share
capital in December of the current year, payable in January of the next year. Retained
earnings would
17. An entity declared a cash dividend on its share capital in December of the current year, payable
in January of the next year. Retained earnings would
a. The correct answer is: Not be affected on the date of payment
18. An entity issued what is called a “20% stock dividend” on its share capital. At what amount per
share should retained earnings be reduced for this transactions?
a. The correct answer is: Par value
19. At the beginning of current year, Few company was authorized to issue share capital of 120,000
shares with P50 par value. The entity had the following share capital transactions during the
year:Jan 1 Sold 96,000 shares at P60 per shareMay 1 Reacquired 4,000 treasury
shares at P65 per share.July 1 Approved a share split of 5 for 1.Oct. 31 Declared
and issued a 10% share dividend when the market value of a share is P25.Dec. 31 Reissued
all of the treasury shares at P30.Dec. 31 Net income for the year was P3,600,000. What
total amount should be reported as share premium?
20. At the beginning of the current year, Caroline company had 220,000, P5 par value shares
outstanding. On June 1, the entity acquired 20,000 shares to be held in the treasury. On
December 1, when the market price of the share was P20, the entity declared a 10% share
dividend to be issued to shareholders of record on December 15. What was the impact of the
share dividend on retained earnings?
a. The correct answer is: 400,000 decrease
21. At the beginning of the current year, Flor company had retained earnings of P4,800,000. During
the year, the entity reported net income of P2,400,000, sold treasury shares at a “gain” of
P864,000, declared a cash dividend of P1,440,000 and declared and issued a small share
dividend of 72,000 shares with P10 par value when the fair value of the share was P20. What is
the amount of retained earnings available for dividends at the end of the current year?
22. Christelle company has incurred heavy losses since its inception. At the recommendation of the
chief executive officer, the board of directors voted to implement a quasi-reorganization,
subject to approval of shareholders. Immediately prior to the restatement on December 31,
2012, Christelle company’s shareholders’ equity was as follows:Share Capital, P100 par, 250,000
shares P25,000,000Share Premium
2,500,000Retained Earnings (deficit) (P4,000,000)The shareholders
approved the quasi-reorganization to be accomplished by a reduction in inventory of
P1,000,000, a reduction in property, plant and equipment of P2,000,000, write-off of goodwill of
P500,000 and appropriate adjustment to the capital structure against share premium first and
any remaining deficit against the share capital account. To implement the quasi-reorganization,
the share capital account should be reduced by what amount?
23. Damon company had 96,000 ordinary shares outstanding in January of current year. The entity
distributed a 15% share dividend in March and a 10% share dividend in June. After acquiring
12,000 shares of treasury in July, the entity split the share 4 for 1 in December. How many
ordinary shares are outstanding at year end?
24. During the year, Gliezel company issued 4,000 shares with P100 par value in connection with a
share dividend. The market value per share on the date of declaration was P150. The
shareholders’ equity before issuance of the share dividend was as follows: Share capital,
P100 par, 20,000 shares outstanding 2,000,000 Share premium
3,000,000 Retained earnings 1,500,0009What
is the retained earnings balance immediately after the share dividend?
25. Edelyn company had sufficient retained earnings in 20A as a basis for dividends but was
temporarily short of cash. The entity declared a dividend of P120,000 on April 1, 20A and issued
promissory notes to its shareholders in lieu of cash. The notes which were dated April 1, 20A,
had a maturity date of March 31, 20B and a 10% interest rate. How should the scrip dividend
and related interest be accounted for?
a. The correct answer is: Debit retained earnings P120,000 on April 1, 20A and debit
interest expense P9,000 on December 31, 20A.
26. Gaston company, has sustained heavy losses over a period of time and conditions warrant that
Gaston undergo a quasi reorganization on December 31, 2012.*Inventory with cost of
P13,000,000 was recorded on December 31, 2012 at its market value of P12,000,000.*Property,
Plant & Equipment were recorded on December 31, 2012 at P24,000,000, net of accumulated
depreciation. The sound value was P16,000,000.*On December 31, 2012, the share capital is
P14,000,000 consisting of 1,400,000 shares with par value of P10, the share premium is
P3,200,000, and the deficit in retained earnings is P1,800,000.*The par value of the share is to
be reduced from P10 to P5. Immediately after the quasi-reorganization, what is the total
shareholders’ equity?
27. In 20A, Elena company bought 10,000 shares of Oliver company at a cost of P240,000. On
December 1, 20A, Elena company declared a property dividend of the Oliver company shares to
shareholders of record on February 1, 20B, payable on February 15, 20B. The Oliver company
shares had the following market value: December 1, 20A 300,000
December 31, 20A 312,000 February 15, 20B
288,000What is the net charge of the property dividend against retained earnings during 20A?
28. Kiss company reported the following shareholders’ equity at year-end: Share capital, P50
par value 3,600,000 Share premium
720,000 Retained earnings 5,040,000A 15% share
dividend was declared and distributed at year-end when entity’s share was selling at P65. What
amount should be reported as share capital outstanding?
29. Nonstock dividends shall be recognized as liabilities on the

a. The correct answer is: Date of declaration
30. On January 1, 20B, the board of directors of Blessy company declared cash dividend of P960,000
to shareholders’ of record on January 15, 20B, and payable on Feb. 15, 20B. The entity reported
the following data on December 1, 20A: Accumulated depletion
600,000 Share capital 10,800,000 Share premium
360,000 Retained Earnings-December 31, 20A 720,000 Net income
180,000What amount should be reported as liquidating dividend?
31. Razel company had 840,000 ordinary shares authorized and 360,000 shares outstanding at the
beginning of current year. January 31 Declared 10% share dividend June
30 Purchased 120,000 shares August 1 Reissued 60,000 shares
November 30 Declared 2-for-1 share splitHow many ordinary shares are outstanding at
year-end?
32. Sheena company declared and distributed 10% share dividend with fair value of P1,800,000 and
par value of P1,200,000, and 25% share dividend with fair value of P4,800,000 and par value of
P4,200,000. What aggregate amount should be debited to retained earnings for the share
dividends?
33. Shiela company declared a 10% share dividend. The market price of the 30,000 outstanding
shares of P20 par value was P90 per share on declaration date. When the share dividend was
distributed, the share market price was P100. What amount should be credited to share
premium for the share dividend?
34. Treasury shares may be reissued as dividends, in which case what amount should be charged to
retained earnings?
a. The correct answer is: Cost of the treasury shares
35. A dividend which is a return to shareholders of a portion of their original investment is

a. The correct answer is: Liquidating dividend
Share based compensation
1. On January 1 , 2017, Doro company granted an employee an option to purchase 20,000 ordinary
shares with 5 par value at 20 per share. The option became exercisable on December 31, 2018,
after the employee completed two years of service. The fair value of the share option is 15. The
option was exercised on January 10, 2019. The share prices are 30 on January 1, 2017, 50 on
December 31, 2017, and 60 on January 10, 2019. What is the compensation expense for 2017?
2. On January 1 , 2012, Doro company granted an employee an option to purchase 20,000 ordinary
shares with 5 par value at 20 per share. The option became exercisable on December 31, 2013,
after the employee completed two years of service. The fair value of the share option is 15. The
option was exercised on January 10, 2014. The share prices are 30 on January 1, 2012, 50 on
December 31, 2012, and 60 on January 10, 2014. What is the compensation expense for 2012?
By what net amount should shareholder’s equity increase as a result of the grant and exercise of
the options?
3. If the share options do not vest until the employee completes a specified service period, the
compensation is
a. The correct answer is: Recognized as expense over the service or vesting period
4. On January 1, 2017, Kamagong company granted 100 share options each to 500 employees,
conditional upon the employee’s remaining in the entity’s employ during the vesting period.
The share options vest at the end of a three-year period. On grant date, each share option has a
fair value of 30. The par value per share is 100 and the option price is 120. On December 31,
2018, 30 employees have left and it is expected that on the basis of a weighted average
probability, a further 30 employees will leave before the end of the three year period. On
December 31, 2019, only 20 employees actually left and all of the share options are exercised on
such date. What amount of compensation expense should be recognized for 2019?
5. On January 1, 2012, Allera Company granted 60,000 share options to employees. The share
options will vest at the end of three years provided the employees remain in service until then.
The option price is 60 and the par value per share is 50. At the date of grant, the entity
concluded that the fair value of the share options cannot be measured reliably. The share
options have a life of 4 years which means that the share options can be exercised within one
year after vesting.
The share prices are 62 on December 31, 2012, 66 on December 31, 2013, 75 on December 31,
2014 and 85 on December 31, 2015. All share options were exercised on December 31, 2015.
What is the compensation expense for 2015?
6. On January 1, 2012, Alpha Company granted its chief executive officer (CEO) share appreciation
rights for past services. The rights are exercisable immediately and expire on December 31,
2013. On exercise, the CEO is entitled to receive cash for the excess of the share market price
on exercise date over the market price on grant date. The CEO did not exercise any of the rights
in 2012. The market price of the share was 100 on January 1, 2012 and 120 on December 31,
2012. The CEO exercised the rights on December 31, 2013 when the market price was 115.
What amount should be recognized as gain on reversal of share appreciation rights?
7. On January 1, 2012, Morey company granted Dean, its president, 20,000 share appreciation
rights for past services. These rights are exercisable immediately and expire on December 31,
2013. On Exercise, Dean is entitled to receive cash for the excess of the market price on the
exercise date over the market price on the grant date. Dean did not exercise any of the rights
during 2012. The market price of Morey’s share was 30 on Janaury 1, 2012 and 45 on December
31, 2012.
As a result of the share appreciation rights, what amount should be recognized as compensation
expense for 2012?
8. On January 1, 2012, Alpha company offered share appreciation rights with the following terms:
Predetermined price 100 per share
Number of shares 50,000 shares
Service period 3 years
Exercise date January 1, 2015
The share appreciation rights are exercised on January 1, 2015. The quoted prices per share are
100, 124, 151 and 151 on January 1, 2012, December 31, 2012, December 31, 2013 and
December 31, 2014, respectively. What amount should be reported as compensation expense
for 2014 as a result of the share appreciation rights?
9. If the entity has the choice of settlement in a cash and share alternative, the entity shall account
for the instrument initially as
a. The correct answer is: Either equity or liability but not both.
10. On January 1, 2012, Excel Company offered its chief executive officer share appreciation rights
with the following terms:
Predetermined price on January 1, 2012 100 per share
Number of shares 10,000 shares
Service period 3 years
Exercise date December 31, 2014
The share appreciation rights are exercised on December 31, 2014. The quoted price per share
is as follows:
January 1, 2012 100
December 31, 2012 118
December 31, 2013 112
December 31, 2014 124
What amount of compensation expense should be recognized for 2013?
Book value per share
1. Arlyn company’s outstanding share capital on December 31, 20C, consisted of the
following:60,000 shares of 5% cumulative preference share capital, par value P100, fully
participating as to dividends. No dividends were in arrears on December 31, 20B.400,000
ordinary shares, par value P10.On December 31, 20C, Arlyn declared dividend of P2,000,000.
What is the dividend payable to the ordinary shareholders?
2. An entity acquired some of its own ordinary shares at a price greater than both their par value
and original issue price. The entity uses the cost method of accounting for treasury shares.
What is the impact of this acquisition on total shareholders’ equity and book value per ordinary
share, respectively?
a. The correct answer is: Decrease and increase
3. Billy company’s shareholders’ equity on December 31, 20C was as follows:6% noncumulative
preference share capital, P100 par,liquidation value of P105 per share
2,000,000Ordinary share capital, P100 par
6,000,000Retained earnings
1,900,000Preference dividends have been paid up to December 31, 20C. On December 31, 20C,
what is the book value per ordinary share?
4. How should cumulative preference dividends in arrears be reported?

a. The correct answer is: Note disclosure
5. Noncumulative preference dividends in arrears

a. The correct answer is: Are not paid and not disclosed
6. Preference shares usually have two preferences, namely
a. The correct answer is: Assets at liquidation and dividend
7. The equity of Silly company on December 31, 20C consists of the following balances:Preference
share capital, 10% cumulative and nonparticipating, P100 par,40,000 shares
4,000,000Ordinary share capital, P100 par, 80,000 shares
8,000,000Subscribed ordinary share capital, 40,000 shares
4,000,000Subscriptions receivable
1,000,000Share premium
2,000,000Retained earnings
4,800,000Treasury ordinary shares-20,000 at cost
1,600,000The preference dividends are in arrears for 20A, 20B and 20C. What is the book value
per ordinary share on December 31, 20C?
8. Tyler company was organized on January 1, 20A with the following capital structure:10%
cumulative preference share capital, par value P10, liquidation value P12, authorized, issued and
outstanding, 200,000 shares, P2,000,000.Ordinary share capital, par value P100, authorized,
80,000 shares, issued and outstanding 60,000 shares, P6,000,000.The net income for the year
ended December 31, 20A was P12,000,000 and no dividends were declared.What is the
December 31, 20A book value per ordinary share?
9. Which of the following statements is true in relation to “call price” of preference share?I
The call price is the amount paid to preference shareholders upon redemption of preference
share during the lifetime of the entity.II In the absence of liquidation value, the call price is
considered in computing book value per share.
10. Harry company’s December 31, 20A statement of financial position reported the following
shareholders’ equity:5% cumulative preference share capital, par value P100 per share,50,000
shares issued and outstanding 5,000,000Ordinary share capital,
par value P35 per share;200,000 shares issued and outstanding
7,000,000Share premium
2,500,000Retained Earnings
6,000,000Dividends in arrears on the preference share amounted to P500,000. If Harry were to
be liquidated, the preference shareholders will receive par value plus a premium of P1,000,000.
What is the book value per ordinary share?
11. The features most frequently associated with preference shares include all of the following,
except
a. The correct answer is: Callable at the option of the shareholder
12. Which of the following shareholder rights is most commonly enhanced in an issue of preference
shares?
a. The correct answer is: The right to receive full cash dividend before dividends are paid
to other classes of share capital.
13. Which of the following statements is true in relation to “call price” of preference share?I
The call price is the amount paid to preference shareholders upon redemption of preference
share during the lifetime of the entity.II In the absence of liquidation value, the call price is
considered in computing book value per share.
14. Preference as to dividends meansI If dividends are declared, the preference shareholders
have the right to receive dividends first before ordinary shareholders are paid a dividend.II
The preference shareholders have the right to receive an amount equal to par value or
liquidation value of their shareholdings in the event of liquidation in addition to cumulative
dividends in arrears.
15. The effect of recording a 100% stock dividend would be to

a. The correct answer is: Leave working capital unaffected, decrease earnings per share
and decrease book value per share
16. Billy company’s shareholders’ equity on December 31, 20C was as follows:
6% noncumulative preference share capital, P100 par,liquidation value of P105 per share
2,000,000
Ordinary share capital, P100 par 6,000,000
Preference dividends have been paid up to December 31, 20C. On December 31, 20C, what is
the book value per ordinary share?
17. Blessy company had 10,000 ordinary shares of P500 par value outstanding and 1,000 preference
shares of P1,000 par value outstanding. The current market price of the ordinary share is P1,200
and the total equity amounts to 7,200,000. The preference shareholders have a liquidation
preference of P1,400 per share and no dividends are in arrears. What is the book value per
ordinary share?
18. Daisy company’s equity at December 31, 20C consisted of the following:
8% cumulative preference share capital, P50 par, liquidating value, P55 per share; issued and
outstanding 40,000 shares 2,000,000
Ordinary share capital, P25 par, 400,000 shares authorized; 200,000 shares issued And
outstanding 5,000,000
Dividends on preference share have been paid through 20A but not been declared for 20B and
20C.
On December 31, 20C, what is the book value per ordinary share?
19. Harry company’s December 31, 20A statement of financial position reported the following
shareholders’ equity:
5% cumulative preference share capital, par value P100 per share,50,000 shares issued and
outstanding 5,000,000
Ordinary share capital, par value P35 per share;200,000 shares issued and outstanding
7,000,000
Retained Earnings 6,000,000
Dividends in arrears on the preference share amounted to P500,000.
If Harry were to be liquidated, the preference shareholders will receive par value plus a
premium of P1,000,000.
20. Narnia company has an authorized capital of 10,000, 8% cumulative preference shares of P100
par value. Dividends on preference share are in arrears for 20A and 20B. The equity account
balances on December 31, 20B are as follows:
Cumulative preference share capital 500,000
Ordinary share capital 1,100,000
Treasury ordinary shares – 1,000 at cost (150,000)
What is the book value of an ordinary share on December 31, 20B?
21. On December 31, 20A and 20B, Coleen company had outstanding 80,000 shares of P100 par
value 6% cumulative preference share capital and 400,000 ordinary shares of P10 par value. On
December 31, 20A, preference dividends in arrears amounted to 240,000. Cash dividends
declared in 20B totaled P880,000. What is the dividend payable on each class of share capital in
20B?
a. The correct answer is: 720,000 160,000
22. The equity of Silly company on December 31, 20C consists of the following balances:
Preference share capital, 10% cumulative and nonparticipating, P100 par,40,000 shares
4,000,000
Ordinary share capital, P100 par, 80,000 shares 8,000,000
Subscribed ordinary share capital, 40,000 shares 4,000,000
Subscriptions receivable 1,000,000
Treasury ordinary shares-20,000 at cost 1,600,000
The preference dividends are in arrears for 20A, 20B and 20C.
What is the book value per ordinary share on December 31, 20C?
The shareholders’ equity of Ryan company on December 31, 20A includes the following:
Ordinary share capital, 100,000 shares, P100 par value 10,000,000
The 12% preference share capital is cumulative and fully participating. The 14% preference
share capital is non cumulative and fully participating. Dividends have not been paid for 3 years.
b. The correct answer is: 132.00
23. Tyler company was organized on January 1, 20A with the following capital structure:10%
cumulative preference share capital, par value P10, liquidation value P12, authorized, issued and
outstanding, 200,000 shares, P2,000,000.Ordinary share capital, par value P100, authorized,
80,000 shares, issued and outstanding 60,000 shares, P6,000,000.The net income for the year
ended December 31, 20A was P12,000,000 and no dividends were declared.What is the
December 31, 20A book value per ordinary share?
BEPS/DEPS
1. Candice company is an entity listed on a recognized stock exchange. The entity’s financial
statements for the year ended December 31, 20B showed basic earnings per share of P85. On
July 1, 20C, Candice made a 3 for 1 bonus issue. What figure for the 20B earnings per share will
be shown as comparative information in the financial statements for the year ended December
31, 20C?
2. Brianna company has 2,500,000 ordinary shares outstanding on January 1, 20B. An additional
500,000 ordinary shares were issued on April 1, 20B, and 250,000 more on July 1, 20B. On
October 1, 20B, Brianna issued 5,000, P1,000 face value, 7% convertible bonds. Each bond is
convertible into 40 ordinary shares. No bonds were converted into ordinary shares in 20B.
What is the number of shares to be used in computing basic earnings per share?
What is the number of shares to be used in computing diluted earnings per share?
4. Daisy company had 300,000 ordinary shares of P20 par value and 30,000 shares of P100 par, 6%
cumulative, convertible preference share capital outstanding for the entire year ended
December 31, 20B. Each preference share is convertible into 5 ordinary shares. The net income
for 20B was P1,260,000. For the year ended December 31, 20B, what amount should be
reported as diluted earnings per share?
5. Fortune company had 300,000 ordinary shares outstanding on January 1, 20B. In addition on
is 30%.1. What is the amount of basic earnings per share?
is 30%. What is the amount of basic earnings per share?
is 30%. What is the amount of diluted earnings per share?
8. On January 1, 20B, Lovell company had 600,000 ordinary shares outstanding. On April 1, 20B, an
additional 180,000 ordinary shares were issued for cash. Lovell also had P5,000,000 of 8%
convertible bonds outstanding during 20B, which are convertible into 150,000 ordinary shares.
The bonds are dilutive in the 20B earnings per share computation. No bonds were issued or
converted into ordinary shares during 20B. What is the number of shares that should be used in
computing diluted earnings per share?
paid in full before the conversion. The entity has no other potentially dilutive secturities. Net
income for 20B was P2,000,000. What si the amount of basic earnings per share?
paid in full before the conversion. The entity has no other potentially dilutive secturities. Net
income for 20B was P2,000,000. What is the amount of diluted earnings per share?
What is the number of shares to be used in computing diluted earnings per share?
12. During 20B, Glaiza company had the following two classes of share capital issued and
outstanding for the entire year:
Ordinary share capital, 300,000 shares, P10 par 3,000,000
Preference share capital, 3,000 shares, P100 par, 12% convertible into ord. share 300,000
Glaiza’s net income for 20B was P2,700,000, and its income tax rate is 30%. In the computation
of basic earnings per share, what is the amount to be used as earnings?
13. During 20B, Glaiza company had the following two classes of share capital issued and
outstanding for the entire year:Ordinary share capital, 300,000 shares, P10 par
3,000,000Preference share capital, 3,000 shares, P100 par, 12% convertible Share for
share into ordinary share 300,000Glaiza’s net income for 20B was
P2,700,000, and its income tax rate is 30%. In the computation of basic earnings per share, what
is the basic earnings per share?
14. During 20B, Inna company had outstanding 400,000 ordinary shares and 40,000 shares of
cumulative preference share capital with a P10 per share dividends. Each preference share is
convertible into five ordinary shares. Inna had a P6,000,000 net loss for 20B. No dividends were
paid or declared. What si the amount of basic loss per share?
15. Melanie company had 750,000 ordinary shares issued and outstanding at December 31, 20A.
During 20B, no additional ordinary shares were issued. On January 1, 20B, Melanie issued
600,000 noncumulative and nonconvertible preference shares. During 20B, Melanie declared
and paid P300,000 cash dividends on the ordinary share and P165,000 annual dividend on the
preference share. Net income for 20B was P1,125,000. What amount should be reported as
basic earnings per share?
16. Melay company had 150,000 equity shares in issue on January 1, 20B. On July 1, 20B it issued
30,000 new shares by way of a 1 for 5 bonus. On October 1, 20B, the entity issued 42,000 new
shares for cash at full market price. When calculating basic earnings per share, how many
shares should be divided into the profit after tax?
17. On December 31, 20B and 20A, Gayle company had 200,000 ordinary shares and 20,000
cumulative preference shares of 5%, P100 par value. No dividends were declared on either the
preference or ordinary share in 20B and 20A. Net income fro 20B was P1,800,000. What is the
amount of basic earnings per share?
18. On January 1, 20B, Nathalie company had 150,000 ordinary shares outstanding. During the
current year, the following events occurred:March 1 2-for-1 share splitJune
1 issued 45,000 additional sharesSeptember 1 20% share dividendWhat is the
weighted average number of shares outstanding for the year?
19. Real Razel company’s capital structure at January 1, 20A was as follows:
Shares issued and outstanding Ordinary share capital 400,000
Preference share capital 100,000
On October 1, 20A, Real Razel issued a 10% share dividend on its ordinary share, and paid
annual cash dividend of P400,000 on its preference share. The preference share capital is
noncumulative, nonparticipating and nonconvertible. Net income for the year ended December
1, 20A was P3,840,000. What amount should be reported as basic earnings per share?
20. Sheena company is an entity listed on a recognized stock exchange. Below is an extract from its
statement of comprehensive income for the year ended December 31, 20B.
Profit before tax 8,700,000
Income tax expense 2,250,000
Profit after tax 6,450,000
In addition, the entity paid during the year an ordinary dividend of P600,000 and a preference
dividend of P750,000 on its redeemable preference shares. The entity had P1,500,000 of P5 par
value ordinary shares in issue throughout the year and authorized share capital of 750,000
ordinary shares. What amount should be reported as basic earnings per share for the year?
21. Tasha company had the following ordinary shares outstanding during the current year:1/1
ordinary shares outstanding 450,0002/1 issued a 10% share
dividend 45,0003/1 issued ordinary shares in a “purchase”
combination 135,0007/1 issued ordinary shares for cash
120,00012/31 ordinary shares outstanding 750,000What is the
weighted average number of shares outstanding?
22. The following information pertains to Jedryl company’s outstanding share capital for the current
year:ORDINARY SHARE CAPITAL, P5 PAR VALUEJanuary 1 shares outstanding
300,000April 1 2-for-1 share split 300,000July 1
shares issued 150,000PREFERENCE SHARE CAPITAL, P10 PAR VALUE,
5% CUMULATIVEJanuary 1 shares outstanding 60,000What is
the number of shares that should be used in calculating earnings per share?
23. Ultimate company had the following capital structure during 20A and 20B:
Pref. share capital, P10 par value, 4% cumulative, 50,000 shares issued And outstanding
500,000
Ordinary share capital, P5 par, 400,000 shares issued and outstanding
2,000,000
Ultimate reported net income of P1,000,000 for the year ended December 31, 20B. Ultimate
paid no preference dividends during 20A and paid P32,000 preference dividends during 20B. In
its income statement, what amount should Ultimate report as basic earnings per share?
24. Yesha company showed the following information for the year ended December 31, 20B:
Income from continuing operations 5,647,500
Loss from discontinued operations (810,000)
Net income 4,837,500
Retained earnings, Jan. 1 1,500,000
Dividends paid on preference shares (180,000)
Dividends paid on ordinary shares 1,050,000)
Retained earnings, Dec. 31 5,107,500
On December 31, 20B, the entity has outstanding 210,000 ordinary shares and 15,000
preference shares with 12% fixed rate and P100 par value. On April 1, 20B, the entity issued
30,000 ordinary shares. What is the amount of basic earnings per share?
What is the number of shares to be used in computing basic earnings per share?
26. Daisy company had 300,000 ordinary shares of P20 par value and 30,000 shares of P100 par, 6%
cumulative, convertible preference share capital outstanding for the entire year ended
December 31, 20B. Each preference share is convertible into 5 ordinary shares. The net income
for 20B was P1,260,000. For the year ended December 31, 20B, what amount should be
reported as diluted earnings per share?
Financial statements
1. Arnel company provided the following information relating to the current year:Net income
4,200,000Unrealized gain on derivative contract 300,000Foreign currency
translation adjustment-debit 60,000Revaluation surplus
1,200,000How much is the comprehensive income for the current year?
2. An analysis of Breechie company’s liabilities disclosed the following: Accounts payable,
after deducting debit balances in suppliers’ accountsamounting to P120,000
4,800,000 Accrued expenses
1,800,000 Credit balances of customers’ accounts
600,000 Share dividend payable
1,200,000 Claims for increase in wages and allowance by employees of the entity,
Covered in a pending lawsuit 480,000
Estimated expenses in redeeming prize coupons
720,000How much should be presented as total current liabilities?

1/1/20B 12/31/20BCurrent assets 120,000
? Property, plant and equipment 800,000 850,000
Noncurrent liabilities 290,000 ?All assets and liabilities of
the entity are reported in the schedule above. Working capital of P46,000 remained unchanged
from 20A to 20B. Net income in 20B was P32,000. No dividends were declared during 20B and
there were no other changes in owners’ equity. What amount should be reported as
noncurrent liabilities on December 31, 20B?
4. Solid company provided the following information on December 31, 20B: Share
premium 1,200,000 Accounts payable
1,320,000 Preference share capital, at par
2,400,000 Ordinary share capital, at par 3,600,000
Sales 12,000,000 Total
expenses 9,360,000 Treasury shares-
ordinary 600,000 Dividends
840,000 Retained earnings-January 1 1,200,000What is
the total shareholders’ equity that should be reported on December 31, 20B?
5. The following data pertain to Gliezel company on December 31, 20B:Trade accounts payable,
including cost of goods received on consignment of P180,000 1,620,000Accrued taxes payable
150,000Customers’ deposit
120,000Cherry company as guarantor
240,000Bank overdraft
66,000Accrued electric and power bills
72,000Reserve for contingencies
180,000How much should be shown as total current liabilities?
6. Vedah company’s trial balance reflected the following account balances on December 31,
20B:Accounts Receivable
800,000Financial asset at fair value through profit or loss
250,000Financial asset at amortized cost
650,000Cash
550,000Inventory
1,500,000Equipment and furniture
1,250,000Accumulated depreciation
750,000Patent
200,000Prepaid expenses
50,000Land held for future business site
900,000In Vedah’s December 31, 20B statement of financial position, what amount should be
shown as current assets?
7. When preparing a draft of its 20B statement of financial position, Megs company reported net
assets totaling P10,500,000. Included in the assets section were the following:Treasury shares
of Megs company at cost, which approximate market value on December 31 300,000Idle
machinery
120,000Trademark
150,000Allowance for inventory writedown
240,000At what amount should Megs’ net assets be reported in the December 31, 20B
statement of financial position?
8. An analysis of Breechie company’s liabilities disclosed the following:

Accounts payable, after deducting debit balances in suppliers’ accounts
amounting to P120,000 4,800,000
Accrued expenses 1,800,000
Credit balances of customers’ accounts 600,000
Share dividend payable 1,200,000
Claims for increase in wages and allowance by employees of the entity,
i. Covered in a pending lawsuit
480,000
Estimated expenses in redeeming prize coupons 720,000
How much should be presented as total current liabilities?

a. 1/1/20B 12/31/20B
Current assets 120,000 ?
Property, plant and equipment 800,000 850,000
Noncurrent liabilities 290,000 ?
All assets and liabilities of the entity are reported in the schedule above. Working capital of
P46,000 remained unchanged from 20A to 20B. Net income in 20B was P32,000. No dividends
were declared during 20B and there were no other changes in owners’ equity. What amount
should be reported as noncurrent liabilities on December 31, 20B?
b. The correct answer is: 308,000
10. What is the purpose of information presented in notes to the financial statements?
a. The correct answer is: To provide disclosures required by Philippine Financial
Reporting Standards
11. Which of the following information shall be disclosed in the summary of significant accounting
policies?
a. The correct answer is: Criteria for determining which investments are treated as
cash equivalents
12. The summary of significant accounting policies shall disclose

a. The correct answer is: The depreciation method used only
13. An entity is required to disclose nonfinancial information. Which is not embraced in this
disclosure?
a. The correct answer is: Names and addresses of the corporate directors and officers
14. An entity shall disclose in the notesI. The amount of dividends proposed or declared before the
financial statements are authorized for issue but not recognized as distribution during the
period and the related amount per share.II. The amount of any dividends in arrears on non
cumulative preference share
15. The notes to financial statements of an entity shallI. Present information about the basis of
preparation of the financial statements and the specific accounting policies used.II. Disclose
the information required by Philippine Financial Reporting Standards that is not presented
elsewhere in the financial statements.III. Provide additional information which is not presented
on the face of the financial statements but that is necessary for a fair presentation.
a. The correct answer is: I , II and III
16. The summary of accounting policies section of the notes to financial statements shall describe
a. The correct answer is: Both the measurement basis and accounting policies followed
17. Dianne company acquired 100% of Matthew company prior to 20B. During 20B, the individual
entities included in their financial statements the following:
Dianne Matthew Key officers’ salaries 900,000
600,000 Officers’ expenses 240,000 120,000 Loans to
officers 1,500,000 600,000 Intercompany sales
1,800,000What total amount should be reported as related party disclosures in the notes to
Dianne’s 20B consolidated financial statements?
18. During 20B, Janess company engaged in the following transactions: Key management
personnel compensation 2,400,000 Sales to affiliated entities
3,600,000What total amount should be included as related party disclosures in Janess’ financial
statements?
19. Glenda company is part of a major industrial group and is known to accurately disclose related
party transactions in its financial statements. Remuneration and other payments made to the
entity’s chief executive officer during 20B were: Annual salary
2,400,000 Share options and other share based payments 1,200,000
Contributions to retirement benefit plan 600,000 Reimbursement of
travel expenses for business trips 1,440,000What is the total amount that should be
disclosed as “compensation” to key management personnel to conform with the related party
disclosure required by PAS 24?
20. Beshy company reports operating expenses in two categories: distribution and general and
administrative. The adjusted trial balance on December 31, 20B included the following expense
and loss accounts: Accounting and legal fees 1,440,000
Advertising 1,800,000 Freight out
960,000 Interest 840,000 Loss on sale of
long-term investment 360,000 Officers’ salaries
2,700,000 Rent for office space 2,640,000 Sales salaries
and commissions 1,680,000One-half of the rented premises is occupied by the
sales department. What should be reported as total distribution cost?
21. The adjusted trial balance of Delia company included the following accounts for the current
year: Sales 11,400,000 Interest revenue
300,000 Gain on sale of equipment 120,000 Revaluation
surplus during the year 1,440,000 Share of profit of associate
420,000 Cost of goods sold 7,200,000 Finance cost
180,000Distribution cost 600,000 Administrative
expenses 360,000 Translation loss on foreign operation
240,000 Income tax expense 1,140,000How much is the
comprehensive income for the current year?
22. The December 31 balances of selected accounts of Biyang company and pertinent information
are shown below: Inventory, Jan. 1 2,400,000
Purchases 9,000,000 Purchase returns and
allowances 600,000 Sales returns and allowances
900,000 Inventory on December 31 3,360,000 Gross profit
rate on net sales 20%What is the amount of gross sales for the current
year?
23. The following costs were incurred by Ging company during the current year: Accounting
and legal fees 300,000 Freight in
2,100,000 Freight out 1,920,000 Officers’
salaries 1,800,000 Insurance
1,020,000 Sales representative salaries 2,580,000What amount
should be reported as general and administrative expenses?
24. The following information is available for Bert company for the current year:
Disbursements for purchases 6,960,000 Increase in trade accounts
payable 600,000 Decrease in merchandise inventory
240,000What is the cost of goods sold for the current year?
25. The following information is available from Donna company’s accounting records for the current
year: Purchases 6,360,000
Purchase discounts 120,000 Beginning inventory
1,920,000 Ending inventory 2,580,000 Freight out
480,000What is the cost of goods sold for the current year?
26. The following information is available from the records of Honey company for the current year:
Beginning inventory 480,000 Freight in
360,000 Purchase returns 1,080,000 Ending inventory
600,000 Selling expenses 1,500,000 Sales discount
300,000The cost of goods sold I six times the selling expenses. What is the amount of gross
purchases?
27. The following information was taken from Kaye company’s accounting records for the current
year: Increase in raw materials inventory 180,000 Decrease
in finished goods inventory 420,000 Raw materials purchased
5,160,000 Direct labor payroll 2,400,000 Factory
overhead 3,600,000 Freight out
540,000There was no work in process inventory at the beginning or end of the year. What is the
cost of goods sold for the current year?
28. The following items were among those that were reported on Liam company’s income
statement for the year ended December 31, 20B: Legal and audit fees
2,040,000 Rent for office space 2,880,000
Interest on inventory loan 2,520,000 Loss on
abandoned data processing equipment used in operations 350,000The office space is used
equally by Liam’s sales and accounting departments. What total amount should be classified as
general and administrative expenses in the income statement?
29. The operating expenses other than interest expense of Tyler company for the current year
amount to 40% of cost of sales but only 20% of sales. Interest expense is 5% of sales. The
amount of purchases is 120% of cost of sales. Ending inventory is twice as musch as the
beginning inventory. The income after tax of 30% for the current year is P672,000. What is the
amount of sales for the current year?
30. Jackie company reported the following data for the current year:
Retained earnings-January 1 1,800,000
Distribution costs 1,200,000
Net sales 11,400,000
General and administrative expenses 1,440,000
Dividends declared 240,000
Prior period error – credit 120,000
Income tax 960,000
Gain from expropriation 600,000
Unrealized gain on futures contract designated as cash flow hedge 1,560,000
Additional minimum pension liability in excess of unrecognized
past service cost 360,000
Income from discontinued operations 720,000
How much is the comprehensive income for the current year?
31. The following information is available for Bert company for the current year:
Disbursements for purchases 6,960,000
Increase in trade accounts payable 600,000
Decrease in merchandise inventory 240,000
What is the cost of goods sold for the current year?
Accounting Changes and Error Correction
1. Brent company’s beginning inventory on January 1, 2015 was understated by 13,000 and its
ending inventory was overstated by 26,000. What is the effect of the errors on cost of goods
sold for 2015?
a. The correct answer is: 39,000 understated
2. A change from the straight line method of depreciation to an accelerated method is accounted
for as
a. The correct answer is: Change in an accounting estimate
3. A change in measurement basis is

a. The correct answer is: A change in accounting policy
4. A change in reporting entity is actually a change in accounting

a. The correct answer is: Policy
5. An entity changes its accounting policy if

I – It is required to do so by law
II – The change will result in providing reliable and more relevant information.
6. During 2015, Orca Company decided to change from the FIFO method of inventory valuation to
the weighted average method. Inventory balances under each method were as follows:
FIFO WEIGHTED Average
January 1 3,600,000 3,850,000
December 31 3,950,000 4,150,000
Ignoring income tax, in the 2015 statement of changes in equity, what amount should be
reported as the effect of the accounting change?
7. Effective January 1, 2019, King Company adopted the accounting policy of expensing advertising
and promotion costs as they are incurred. Previously, advertising and promotion costs
applicable to future periods were recorded in prepaid expenses. King can justify the change
which was made for both financial statement and income tax reporting purposes. King’s prepaid
advertising and promotion costs totaled 600,000 on December 31, 2018. The income tax rate is
30%.
What is the adjustment for the effect of the change in accounting policy that should result in a
net charge against income for 2019?
a. The correct answer is: zero
8. On January 1, 2016, Roma Company purchased heavy duty equipment for 2,000,000. On the
date of installation, it was estimated that the equipment has a useful of 10 years and a residual
value of 200,000.
On January 1, 2020, the entity decided to review the useful life of the equipment and its residual
value and technical experts were consulted. The experts have determined that the useful life of
the equipment was 12 years from the date of acquisition and its residual value was 230,000.
What is the depreciation of the equipment for 2020?
9. On January 1, 2017, Flair company purchased a machine for 1,320,000 and depreciated it by the
straight line using an estimated life of 8 years with no residual value. On January 1, 2020, Flair
determined that the machine had a useful life of 6 years from the date of acquisition with a
residual value of 120,000.
An accounting change was made in 2020 to reflect the additional information. What is the
accumulated depreciation for the machine on December 31, 2020?
10. On January 1, 2019, Aiko company acquired a machine at a cost of 2,000,000. It was to be
depreciated on the straight line method over a 5-year period with no residual value. Because of
a bookkeeping error, no depreciation was recognized in Aiko’s 2019 financial statements. The
oversight was discovered during the preparation of Aiko’s financial statements for 2020. How
much will be reported in the statement of changes in equity as an adjustment to the opening
balance of retained earnings?
11. On January 1, 2019, Kevin company purchased a machine for 4,125,000. The machine was
depreciated using the sum of year’s digits method based on a useful life of 10 years with no
residual value. On January 1, 20120, Kevin Company changed to the straight line method of
depreciation. Kevin Company can justify the change.
What is the depreciation on the machine for 2020.
12. Prospective recognition of the effect of a change in an accounting estimate means that the
change is applied to transactions from the
a. The correct answer is: Date of the change in accounting estimate
13. The draft financial statements for Savior Company for the year ended December 31, 2015 have
been prepared. A final review of the draft reveals an overvaluation of the closing inventory of
3,000,000 on December 31, 2014. Further investigation shows that there was an overvaluation
on December 31, 2013 of 1,800,000.
What adjustment should be made to the profit for the year ended December 31, 2014
presented as the comparative figure in the 2015 financial statements?
a. The correct answer is: 1,200,000 decrease
14. The effect of a change in accounting estimate shall be recognized currently and prospectively by
including it in profit or loss of
I – The period of change if the change effects that period only.
II – The period of change and future periods if the change affects both.
a. The correct answer is: Both I and II
15. The initial application of a policy to revalue assets is

a. The correct answer is: A change in accounting policy
16. These are the specific principles, bases, conventions, rules and practices applied in preparing
and presenting financial statements.
a. The correct answer is: Accounting policies
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.
a. The correct answer is: Retrospective restatement
18. Barbara, Inc. has been using the accrual basis of accounting. However, an examination of the
records reveals that some expenses and revenues have been handled on a cash basis by the
inexperienced bookkeeper of the company. Income statements prepared by the bookkeeper
reported 145,000 net income for 2017 and 185,000 net income for 2018. Further review of the
records reveals that the following items were handled improperly.1. Rent of 6,500 was
received from a lessee on December 23, 2017. It was recorded as income at that time even
though the rental pertains to 2018.2. Salaries payable on December 31 have been
consistently omitted from the records of that date and have been recorded as expenses when
paid in the following year. The salary accruals recorded in this manner were:
December 31, 2016 5,500
December 31, 2017 7,500
December 31, 2018 4,700
Invoices for office supplies purchased have been charged to expense accounts when received.
Inventories of supplies on hand at the end of each year have been ignored, and no entry has
been made for them.
December 31, 2016 6,500
December 31, 2017 3,700
December 31, 2018 7,100
What is the corrected net income for 2017?
19. Beth company is in the process of adjusting its books at the end of 2019. Beth’s records
revealed the following information:* Beth failed to accrue sales commissions at the end of 2017
and 2018 for 110,000 and 70,000 respectively. In each case, the sales commissions were paid
and expensed in January of the following year.*Errors in ending inventory for the last three
years were discovered to be as follows: 2017 200,000 understated 2018
270,000 overstated 2019 75,000 understatedThe unadjusted retained earnings
balance on January 1, 2019 is P6,300,000 and the unadjusted net income for 2019 was
P1,500,000. Dividends of P875,000 were declared during 2019. What is the adjusted balance of
retained earnings on December 31, 2019?
20. Caroline company reported the following net income:

2018 7,200,000
2019 7,800,000
In the determination of the net income, the following items are ignored:
2018 2019
Prepaid insurance 120,000 180,000
Accrued salaries 60,000 240,000
Unearned rental income 300,000 540,000
Accrued interest receivable 360,000 480,000
What is the corrected net income for 2019?
21. Glaiza company had the following financial statement information:

2019 2018
Revenue 1,350,000 1,000,000
Expenses 980,000 650,000
Net income 370,000 350,000
12/31/2019 12/31/2018
Total assets 1,570,000 1,050,000
Total liabilities 500,000 350,000
Total owner’s equity 1,070,000 700,000
Glaiza failed to record 120,000 of accrued wages at the end of 2018. The wages were recorded
and paid in January 2019. The correct accruals were made on December 31, 2019. What is the
corrected net income for 2019?
22. On December 31, 2019, Arnel company sold merchandise for P900,000 to Eds company. The
terms of the sale were net 30, FOB shipping point. The merchandise was shipped on December
31, 2019, and arrived at Eds on January 5, 2020. Due to a clerical error, the sale was not
recorded until January 2020 and the merchandise sold at a 25% mark up on cost was included in
Arnel’s inventory at December 31, 2019. What was the effect of the errors on the cost of goods
sold for the year ended December 31, 2019?
a. The correct answer is: Understated by 720,000
23. Conway company reported retained earnings of 400,000 on January 1, 2015. In August 2015,
Conway determined that insurance premium of 75,000 for the three year period beginning
January 1, 2014 had been paid and fully expensed in 2014. The income tax rate is 30%.
What amount should be reported as corrected beginning retained earnings in the statement of
retained earnings for 2015?
24. Failure to record the expired amount of prepaid rent expense would not
a. The correct answer is: Understate liabilities
25. For an entity with a periodic inventory system, which of the following would cause income to be
overstated in the period of occurrence?
a. The correct answer is: Understating beginning inventory
26. If an inventory account is overstated at the beginning of the year, the effect will be to
a. The correct answer is: Overstate cost of goods available for sale
27. Which of the following is a counterbalancing error?

a. The correct answer is: Prepaid expense adjusted incorrectly
28. Which of the following is not an example of an accounting error?

a. The correct answer is: Recognition of gain on fully depreciated property
Related Parties and Events after the reporting period

1. During 2018, Melrose company was sued by a competitor for P3,000,000 for infringement of a
patent. Based on the advice of the entity’s legal counsel, Melrose company accrued the sum of
P1,800,000 as a provision in its financial statements for the year ended December 31, 2018.
Subsequently, on March 15, 2019, the supreme court decided in favor of the party alleging
infringement of the patent and ordered the defendant to pay the aggrieved party a sum of
P2,100,000. The financial statements were prepared by the entity’s management on February
15, 2019 and approved by the board of directors on March 31, 2019. How much should be
recognized as accrued liability on December 31, 2018?
2. Elena company’s draft financial statements showed the profit before tax for the year ended
December 31, 2018 at 5,400,000. The board of directors authorized the financial statements
for issue on March 20, 2019. A fire occurred at Elena’s sites on January 15, 2019 with resulting
damage costing P4,200,000, only 2,400,000 of which is covered by insurance. The repairs will
take place and be paid for in April 2019. The 2,400,000 claim from the insurance entity will
however be received on February 14, 2019. What should be Elena’s profit before tax in its
financial statements?
3. The audit of Aimee Company for the year ended December 31, 2018 was completed on March 1,
2019. The financial statements were signed by the managing director on March 15, 2019 and
approved by the shareholders on March 31, 2019. The next events have occurred:On January
15, 2019, a customer owing P1,080,000 to Aimee filed for bankruptcy. The financial statements
include an allowance for doubtful; accounts pertaining to this customer only of P120,000.Aimee
company’s issued share capital comprised 100,000 ordinary shares with P100 par value. The
entity issued additional 25,000 shares on March 1, 2019 at par value.Specialized equipment
costing P630,000 purchased on September 1, 2018 was destroyed by fire on December 15, 2018.
Aimee company has booked a receivable of P480,000 from the insurance entity.After the
insurance entity completed its investigation on February 1, 2019, it was discovered that the fire
took place due to negligence of the machine operator. As a result, the insurer’s liability was
zero on this claim. What should be reported as total amount of “adjusting events” on
December 31, 2018?
4. An entity is preparing its financial statements for the year ended June 30, 2018. The board of
directors reviews the final draft financial statements and authorizes them for issue on August
15, 2018. The earnings figure and key data are issued to the public on September 15, 2018. The
financial statements are issued to shareholders on October 15, 2018 and approved by
shareholders on October 31, 2010. The period in respect of which the entity would consider
events after the end of reporting period in accordance with PAS 10 is from June 30, 2018 to
a. The correct answer is: August 15, 2018
5. Non adjusting events after reporting period that generally result in disclosure include all of the
following, except
a. The correct answer is: Destruction of a major production plant by a fire before the end
of the reporting period
6. 1. Significant influence isI The power to govern the financial and operating policies of an
entity so as to obtain benefits from its activities.II The power to participate in the financial
and operating policy decisions of an entity but not control of those policies.
7. A related party transaction is a transfer of resources or obligations

a. The correct answer is: Between related parties, regardless of whether a price is charged
8. Daisy Company acquired 100% of Macy company prior to 2018. During 2018, the individual
entities included in their financial statements the following:Daisy MacyKey officers’
salaries 1,500,000 1,000,000Officers’ expenses
400,000 200,000Loans to officers 2,500,000
1,000,000Intercompany sales 3,000,000What total amount
should be reported as related party disclosures in the notes to Daisy’s 2018 consolidated
9. During the current year, an entity engaged in the following transactions:Key management
personnel compensation 1,000,000Sales to affiliated entities
1,500,000What total amount should be included as related party transactions in the entity’s
separate financial statements for the current year?
10. During the current year, an entity engaged in the following transactions:Key management
personnel compensation 375,000Sales to affiliated entities
562,500Which of the two transactions would be disclosed as related party transactions in the
entity’s separate financial statements for the current year?
a. The correct answer is: Both transactions
11. Financial statements shall include disclosure of material transactions between related parties
except
a. The correct answer is: Sale of inventory by a subsidiary to its parent
12. ladys company is part of a major industrial group and is known to accurately disclose related
party transactions in its financial statements. Remuneration and other payments made tot eh
entity’s chief executive officer during 2018 were:Annual salary
2,400,000Share options and other share-based payments
1,200,000Contributions to retirement benefit plan
600,000Reimbursement of travel expenses of business trips 1,440,000What
is the total amount that should be disclosed as “compensation” to key management personnel
to conform with related party disclosure required by PAS 24?
13. If there have been transactions between related parties, an entity shall discloseI.
Nature of the relationshipII. Information about the transactionIII. Outstanding
balances
a. The correct answer is: I, II and III
14. Related parties include all of the following, except

a. The correct answer is: Two entities that have a common director Unrelated parties
include all of the following, except
15. Which statement is incorrect concerning disclosure of related party transactions?

a. The correct answer is: Related party relationship where control exists shall not be
disclosed if there are no related party transactions.
16. The elements of related party transactions necessary for an understanding of the financial
statements include all of the following, except
a. The correct answer is: Nature of the relationship
17. Disclosures of related party transactions include all of the following, except
a. The correct answer is: Sales of inventory by a subsidiary to its parent
18. Under PAS, which of the following is not a related party of an entity?
a. The correct answer is: An entity providing banking facilities to the entity
19. Charm company carried a provision of P1,200,000 in its draft financial statements on December
31, 2018 in relation to an unresolved court case. On January 31, 2019, when the financial
statements on December 31, 2018 had not yet been authorized for issue, the case was settled
and the court decided the final total damages payable by Charm to be 1,680,000. What amount
should be adjusted on December 31, 2018 in relation to this event?
20. Elena company’s draft financial statements showed the profit before tax for the year ended
December 31, 2018 at 5,400,000. The board of directors authorized the financial statements
for issue on March 20, 2019. A fire occurred at Elena’s sites on January 15, 2019 with resulting
damage costing P4,200,000, only 2,400,000 of which is covered by insurance. The repairs will
take place and be paid for in April 2019. The 2,400,000 claim from the insurance entity will
however be received on February 14, 2019. What should be Elena’s profit before tax in its
21. Gliezel company is completing the preparation of its draft financial statements for the year
ended December 31, 2018. The financial statements are authorized for issue on March 31,
2019. On March 15, 2019, a dividend of P2,100,000 was declared and a contractual profit share
payment of P420,000 was made, both based on the profit for the year ended December 31,
2018. On February 1, 2019, a customer went into liquidation having owed the entity P408,000
for the past 5 months. No allowance had been made against this debt in the draft financial
statements. On March 20, 2019, a manufacturing plant was destroyed by fire resulting in a
financial loss of P3,120,000. What total amount should be recognized in profit or loss for the
year ended December 31, 2018 to reflect adjusting events after the end of reporting period?
22. The audit of Aimee Company for the year ended December 31, 2018 was completed on March 1,
2019. The financial statements were signed by the managing director on March 15, 2019 and
approved by the shareholders on March 31, 2019. The next events have occurred:On January
15, 2019, a customer owing P1,080,000 to Aimee filed for bankruptcy. The financial statements
include an allowance for doubtful; accounts pertaining to this customer only of P120,000.Aimee
company’s issued share capital comprised 100,000 ordinary shares with P100 par value. The
entity issued additional 25,000 shares on March 1, 2019 at par value.Specialized equipment
costing P630,000 purchased on September 1, 2018 was destroyed by fire on December 15, 2018.
Aimee company has booked a receivable of P480,000 from the insurance entity.After the
insurance entity completed its investigation on February 1, 2019, it was discovered that the fire
took place due to negligence of the machine operator. As a result, the insurer’s liability was
zero on this claim. What should be reported as total amount of “adjusting events” on
December 31, 2018?
23. The following data are provided by Nathalie company. The end of reporting period is December
31, 2018 and the financial statements are authorized for issue on March 15, 2019. On
December 31, 2018, Nathalie company had a receivable of P600,000 from a customer that is due
60 days after the end of reporting period. On January 15, 2019, a receiver was appointed for the
said customer. The receiver informed Nathalie that the 600,000 would be paid in full by June
30, 2019.Nathalie company measures investments in listed shares as held for trading at fair
value through profit or loss. On December 31, 2018, these investments were recorded at the
market value of P7,500,000. During the period up to February 15, 2019, there was a steady
decline in the market value of all the shares in the portfolio, and on February 15, 2019, the
market value had fallen to P3,000,000 Nathalie company had reported a contingent liability on
December 31, 2018 related to a court case in which Nathalie company was the defendant. The
case was not heard until the first week of February 2019. On February 11, 2019, the judge
handed down a decision against Nathalie company. The judge determined that Nathalie
company was liable to pay damages and cost totaling P4,500,000. On December 31, 2018,
Nathalie company had a receivable from a large customer in the amount of P5,250,000. On
January 31, 2019, Nathalie company was advised by the liquidator of the said customer that the
customer was insolvent and would be unable to repay the full amount owed to Nathalie
company. The liquidator advised Nathalie company in writing that only 10% of the receivable
will be paid on April 30, 2019. What should be reported as total amount of “adjusting events” on
December 31, 2018?
24. Chryzza company carried a provision of P4,000,000 in its draft financial statements for the year
ended December 31, 2018 in relation to an unresolved court case. On January 31, 2019, when
the financial statements for the year ended December 31, 2018 had not yet been authorized for
issue, the case was settled and the court decided the final total damages payable by Carlo to be
P6,000,000. What amount should be adjusted on December 31, 2018 in relation to this event?

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1st Examination

2. A dividend which is a return to shareholders of a portion of their original investment is

3. A redeemable preference share shall be classified in the statement of financial position as

4. Contributed capital does not include

9. In what circumstances is compensation expense immediately recognized under a share option

13. Which of the following statements is incorrect concerning retained earnings?

14. Which of the following statements is incorrect concerning treasury shares?

15. Which of the following statements is true concerning share dividends?

II Share dividends should be recorded on the date declared.

1. All of the following are components of other comprehensive income, except

2. An entity has outstanding ordinary shares and nonparticipating noncumulative preference

3. How should cumulative preference dividends in arrears be reported?

4. Noncumulative preference dividends in arrears

9. Which of the following components of OCI should be reclassified to retained earnings?

11. Which statement is correct concerning compliance with PFRS?

13. Clarissa company’s accounting records provided the following information:

4. The financial statements prepared under GAAP

6. “Loss” from sale of treasury shares shall be charged to

17. Which of the following statements in relation to treasury shares is true?

19. Which of the following is a characteristic of a change in accounting estimate?

22. Lailani company’s financial statements contained the following errors:

24. The cumulative feature of preference shares

28. Incomplete accounting records is a characteristic of

29. Technically, offsetting in financial statements is accomplished when

31. The standard requires disclosure on the face of income statement of

34. Which statement is incorrect concerning a contingent asset?

37. Which of the following statements is incorrect?

9. A business segment or geographical segment should be identified as reportable segment if

a. Cash outflows for investing activities

5. In a hyperinflationary economy, monetary items

7. Carlo company provided the following data relating to operating segments:

13. In current cost financial statements

18. Shaina Company reported the following information in relation to land:

20. Hyperinflation is indicated by characteristics of the economic environment of a country which

23. Conceptually, interim financial statements can be described as emphasizing

in a hyperinflationary economy should report this information in

a. The body of the financial statements

b. The notes to financial statements

c. Supplementary information to the financial statements

What is the net current cost of depreciable asset?

a.Current cost less accumulated depreciation based on current cost

b. Average current cost less accumulated depreciation based on average

c. Historical cost less accumulated depreciation based on historical cost

d. Current cost less accumulated depreciation based on average current

What is the basis of depreciation under current cost accounting?

b. Average current cost

The useful life of the intangible asset of an SME is considered to be

a. Either finite or indefinite

An SME shall measure property, plant and equipment after initial

c. Cost model and fair value model

d. Cost model and revaluation model

An SME shall account for investments in associate after initial recognition

c. Fair value model

using the same accounting policy for all investments in associates

Under the fair value model, the investment in associate is

a. Cost less accumulated impairment loss

c. Fair value less cost of disposal

Inventories must be measured by an SME at

c. The lower of cost and estimated selling price less cost to