Long Exam 4 - Intangible Assets, Depletion, Liabilities, Warrants, Provisions

1 Iligan Company incurred the following costs during the current year: 802,500

322,500 + 255,000 + 225,000

• 802,500
• 705,000
• 577,500
• 780,000

2 City Company included one coupon in each package sold. A towel is offered as a 2,200,000
premium to customers
who send in 10 coupons. (5,000 + 50,000) x 40

What amount should be reported as premium expense in 2020?

• 2,400,000
• 2,200,000
• 1,800,000
• 2,000,000

3 Eleysia Company recorded purchases at gross amount but decided to change to 298,000
recording purchases net of purchase discounts. Discounts payable on purchases recorded
from October 1, 2019 to September 30, 2020 totaled P20,000. Of this amount, P2,000 is still 300k - 2k

available in the accounts payable.

The balances in the accounts as of and for the year ended September 30, 2020 before
conversion are: Purchases – P1,000,000; Purchase discounts taken – P8,000; Accounts
Payable – P300,000.

What amount should be reported as accounts payable on September 30, 2020?

• 288,000
• 292,000
• 298,000
• 282,000

4 After three profitable years, Clarisse Company decided to offer a bonus to the branch 300,000
manager of 25% of income over P2,000,000 earned by the branch. The income for the
branch was P3,500,000 before tax and before bonus for the current year. The bonus is B = (1,500,000 - B) x 0.25

computed on income in excess of P2,000,000 after deducting the bonus but before
deducting tax. What is the bonus for the current year?

• 300,000
• 400,000
• 375,000
• 700,000

5 In May 2018, Caso Company filed suit against Wayne seeking P1,900,000 damages for 0
patent infringement. A court verdict in November 2019 awarded Caso P1,500,000 in
damages but Wayne’s appeal is not expected to be decided before 2021. Caso’s counsel
believes it is probable that Caso will be successful against Wayne for an estimated amount
in the range between P800,000 and P1,000,000 with P1,000,000 considered the most likely
 amount. What amount should CASO record as income from the lawsuit in 2019?

•0
• 800,000
• 1,000,000
• 1,500,000

6 Incidental operations in the development of an intangible asset that will result to income C. Immediately
or loss will be: recognize it in profit
or loss
A. Deducted to the carrying amount of the intangible asset if incidental operations will
result to net
income.
B. Added to the carrying amount of the intangible asset if incidental operations will result
to net loss.
C. Immediately recognize it in profit or loss
D. Either A or B

7 Contingent assets are usually recognized when Realized

• Occurrence is probable and the amount can be reliably measured
• The amount can be reliably measured
• Realized
• Occurrence is reasonably possible and the amount can be reliably measured

8 Jasmine Company sells appliance service contracts agreeing to repair appliances for a 630,000
two-year period. The past experience is that, of the total amount spend for repairs on
service contracts, 40% is incurred evenly during the first contract year and 60% evenly (250k x 0.6) + (300k x 0.6) + (300k
x 0.4) + (300k x 0.6)
during the second contract year. Receipts from service contract sales for 2019 and 2020
are P500,000 and P600,000 respectively. Receipts from contracts are credited to unearned
service contract revenue. All sales are made evenly during the year.

What amount should be reported as unearned service contract revenue on December 31,
2020?

• 360,000
• 480,000
• 470,000
• 630,000

9 Which of the following should be capitalized as part of the cost of an intangible asset? Internally developed
• Internally generated mastheads projects under
• Internally generated brands development stage
• Internally developed projects under development stage
• Internally developed projects under research stage

10 Which of the following is not part of an intangible asset? Costs of conducting

• Professional fees arising directly from bringing the asset to its working condition business in a new
• Cost of testing whether the asset is functioning properly location or with a
• Costs of conducting business in a new location or with a new class of customer. new class of
• Cost of employee benefits arising directly from bringing the asset to its working condition customer.

11 During 2014, RINA Company is the defendant in a patent infringement lawsuit. The lawyer 85,386
believes there is a 30% chance that the court will dismiss the case and the entity will incur
no outflow of economic benefits. However, if the court rules in favour of the claimant, the (0.7 x 0.2 x 200k) = 28,000
(0.7 x 0.8 x 100k) = 56,000
lawyer believe that there is a 20% chance that the entity will be required to pay damages
of P200,000 and an 80% chance that the entity will be required to pay damages of (28k + 56k) x 1.07 x 0.95

P100,000. Other outcomes are unlikely. The court is expected to rule in late December
2015. There is no indication that the claimant will settle out of court.

A 7% risk adjustment factor to the probability –weighted expected cash flows is considered
appropriate to reflect the uncertainties in the cash flow estimates. An appropriate
discount rate is 5% per year. The present value of 1 at 5% for one period is 0.95. What is the
measurement of the provision for lawsuit?
 • 36,594
• 89,880
•0
• 85,386

12 GHATOTKACHA Company included one coupon in each box of laundry soap sold. A No correct
towel was offered as a premium to customer who send in 10 coupons and a remittance of statements.
P10. Distribution cost of premium is P5. Experience indicated that only 45% of the coupons
will be redeemed. Premium 12/2020 = 50*75,000-
(600k/10*50) = 750,000

Premium Expense 2020 =

3m/10*.45*45= 6,075,000

Premium Liability 2020 =

6,075,000-2.7m= 3,375,000

—-------------

Premium 12/2021= 750,000+6m-

5,250,000= 1.5m
• The premium expense for 2021 is P6,918,750 Premium Expense 2021 =
• The premium liability for 2021 is P2,868,750 7,593,750
• No correct statements. Premium Liability 2021 =
• Two or more of the above statements are correct 3,375,000+2,868,750= 6,243,750
• The premium for 2021 is P750,000.

13 When the provision involves a large population of items, the estimate of the amount Reflects the
• May be the individual most likely outcome adjusted for the effect of other possible weighting of all
outcomes possible outcomes
• Midpoint of the possible outcomes by the associated
• Reflects the weighting of all possible outcomes by the associated probabilities probabilities
• Is determined as the individual most likely outcome

14 Oak Company offers a three-year warranty on its products. The entity previously estimated 50,000
warranty costs to be 2% of sales. Due to a technological advance in production at the 5M x 0.01
beginning of 2021, the entity now believes 1% of sales to be a better estimate of warranty
costs. Warranty costs of P80,000 and P96,000 were reported in 2019 and 2020, respectively.
Sales for 2021 were P5,000,000. What is the warranty expense for 2021?
• 138,000
• 88,000
• 50,000
• 100,000

15 Calatagan Company provides the following balances at the end of 2015: 32,500,000

15M + 30M - 10M - (50k x 50)

Acc Depletion 30m

Cap Liquidated (10m)
Retained Earn. 15m
Depletion 2.5m

= 32,500,000

Calatagan can declare maximum dividend on December 31, 2015 of

• 32,500,000
• 45,000,000
• 29,000,000
• 15,000,000

16 The owners of Majayjay Company are planning to sell the business to new interests. The 3,750,000 (add back
cumulative net earnings for the past 5 years were P9,000,000 including casualty loss of casualty loss)
P500,000. The current value of net assets of Majayjay Company was P20,000,000. Goodwill
is determined by capitalizing average earnings at 8%. What is the amount of goodwill? 9.5m/5=1.9m
Ave = 1.9m/.08 = 23,750,000

• 1,700,000 Goodwill = 23,750,000-20m =

3,750,000
• 1,900,000
 • 1,250,000
• 3,750,000 (add back casualty loss)

17 A legal obligation is an obligation that is derived from all of the following, except An established
• Other operation of law pattern of past
• Legislation practice
• An established pattern of past practice
• A contract

18 Laguna Company acquired three patents in January 2015. The patents have different lives 1,250,000
as indicated in the following schedule:
Patent A 2m/8
Patent B 3m/5
Patent C 6m/15

=1,250,000

800k litigation is expensed

Patent C is believed to be uniquely useful as long as the company retains the right to use
it. In June 2015, the company successfully defended its right to Patent B. Legal fees of
P800,000 were incurred in this action. The company’s policy is to amortize intangible assets
by the straight-line method to the nearest half year. The company reports on a calendar-
year basis. The amount of amortization that should be recognized for 2015 is
• 1,250,000
• 2,050,000
• 1,330,000
• 950,000

19 To demonstrate how an intangible asset will generate probable future economic benefits, PAS 36* naa sa
an entity assesses the future economic benefits to be received from the asset using the standard
principles discussed in
• PAS 38
• PAS 36* naa sa standard
• CONCEPTUAL FRAMEWORK
• PAS 1

20 On January 1, 2015, Puerto Rico Company purchased land with valuable natural ore 672,000
deposits for P5,000,000. The residual value of the land was P1,000,000. At the time of
purchase, a geological survey estimated a recoverable output of 2,000,000 tons. Early in 2015 Depletion = 600k

2015, roads were constructed on the land to aid in the extraction and transportation of the 2016 Depletable Amt =
minded ore at a cost of P800,000. In 2015, 250,000 tons were minded and tons of ore 4.2m/2.5m = 1.68*400,000

available for mining. In 2016, 400,000 tons were mined and sold. What amount should be 2016 Depletion = 672k
recognized as depletion expense for 2016?
• 600,000
• 960,000
• 672,000
• 800,000

—----------------------

LACKING GIVEN: lol we found it

In 2015, 250,000 tons were

mined and at the end of the
year 2016, 2,100,000 tons of ore
available for mining. In 2016,
400,000 tons were mined and
sold.

21 Holland Company acquired a patent for a drug with a remaining legal and useful life of six 270,000
years on January 1, 2011 for P8,100,000. The entity uses a straight-line amortization. On
January 1, 2013, a new patent is received for a timed-release version of the same drug. 8,100,000/6 = 1,350,000
2011 end = 6,750,000
The new patent has a legal and useful life of twenty years. What is the amortization 2012 end (2013 beg) = 5,400,000
expense for 2013? 5,400,000/20 = 270,000
• 450,000
• 300,000 Alternative solution:
• 1,350,000 (8.1m*4/6)/20=270k
 • 270,000

22 Does PFRS 6 require an entity to recognize exploration and evaluation expenditure of Yes, but only to the
asset? extent required by
• No, such expenditure is always expensed in profit or loss as incurred the entity's
• Yes, but only to the extent required by the entity's accounting policy for recognizing accounting policy for
asset recognizing
• Yes, but only to the extent required by the entity's accounting policy for recognizing exploration and
exploration and evaluation assets evaluation assets
• Yes, but only to the extent that such expenditure is recoverable in future periods

23 Which of the following is not an example of research activities? The design of tools,
• activities aimed at obtaining new knowledge jigs molds and dies
• the search for, evaluation and final selection of, applications for research findings or involving new
other knowledge. technology
• The design of tools, jigs molds and dies involving new technology
• the search for alternatives for materials, devices, products, processes, systems or services

24 ARAGORN Company sells computers with a two-year repair warranty. The sale price for Under Accrual
each set is P15,000. The average repair cost per set is P800. Research has shown that 15% Approach, the Under
of all sets sold are repaired in the first year and 35% in the second year. Accrual Approach,
the estimated
warranty liability on
December 2021 is
P195,000.
• Under Expense Approach, the amount to be debited to Warranty Expense in 2021 is
P300,000. Accrual Method:
WE (2020) = (450 x 800) x 0.5
• Only two statements above are correct = 180,000
• All of the statements above are correct
WL (2020) = 180k - 60k = 120k
• The adjustment for estimated warranty liability on December 2021 is a Debit to Estimated
Warranty Liability of P69,000. —---

• Under Accrual Approach, the estimated warranty liability on December 2021 is P195,000. WE (2021) = (750 x 800) x 0.5
= 300,000

WL (2021) = (300k - 225k) + 120k

=195k

25 A contingent liability is An event which is not

• An event which is not recognized because it is not probable that an outflow will be recognized because
required or the amount cannot be reliably estimated it is not probable that
• A potential large liability an outflow will be
• A potential small liability required or the
• An estimated liability amount cannot be
reliably estimated

26 On July 1, 2015, Romania Company, a calendar year entity purchased the rights to a 375,000 and 600,000
mine. The total purchase price was P7,000,000, of which P1,000,000 was allocable to the
land. Estimated reserves were 750,000 tons. The entity expects to extract and sell 12,500
tons per month. The entity purchased new equipment on July 1, 2015. The equipment was
purchased for P4,000,000 and had a useful life of 8 years. However, after all the resource is
removed, the equipment will be of no use and will be sold for P250,000. What is the
depreciation and depletion expense respectively?
• 468,750 and 1,200,000
• 234,375 and 975,000
• 375,000 and 600,000
• 250,000 and 700,000

27 PFRS 6 applies to expenditures incurred When the legal rights

• when searching for an area that may want detailed exploration, even though the entity to explore a specific
 has not yet obtained the legal rights to explore a specific area area have been
• when the legal rights to explore a specific area have been obtained, but the technical obtained, but the
feasibility and commercial viability of extracting a mineral resource are not yet technical feasibility
demonstrable and commercial
• when a specific area is being developed and preparations for commercial extraction viability of extracting
are being made a mineral resource
• in extracting mineral resources and processing the resource to make it marketable or are not yet
transportable demonstrable

28 Ashwood Company reported accounts payable on December 31,2019 at P900,000 before 975,000
any necessary year end adjustments relating to the following:
• Goods were in transit from a vendor to Ashwood on December 31, 2019. The invoice cost 900k + 50k + 25k

was P50,000 and the goods were shipped FOB shipping point on December 29, 2019. The
goods were received on January 4, 2020.
• Goods shipped FOB shipping point on December 20, 2019 from a vendor to Ashwood
were lost in transit. The invoice cost was P25,000. On January 5, 2020, Ashwood filed a
P25,000 claim against the common carrier.
• Goods shipped FOB destination on December 31, 2019 from a vendor to Ashwood were
received on January 6, 2020. The invoice cost was P15,000.
What amount should be reported as accounts payable on December 31, 2019?
• 925,000
• 950,000
• 940,000
• 975,000

29 During 2019, Mei Company introduced a new line of machines the carry a three-year 630,000
warranty against defects. Based on experience, warranty costs are estimated at 2% of
sales in the year of sale, 4% in the year after sale, and 6% in the 2nd year after sale. Sales WE (2019) = 1.2M x .12 = 144,000
WL (2019) = 144k - 18k = 126,000
were P1,200,000; P3,000,000 and P4,200,000 for 2019, 2020 and 2021 respectively. Actual
Warranty expenses were P18,000; P90,000 and P270,000 for 2019, 2020 and 2021 WE (2020) = 3M x .12 = 360,000
WL (2020) = (360k - 90k) + 126k =
respectively. What amount should be reported as warranty liability on December 31, 2021? 396,000
• 30,000 WE (2021) = 4.2M x .12 = 504,000
• 408,000 WL (2021) = (504k - 270k) + 396k
•0 = 630k

• 630,000

30 Which of the following is not an example of development activities? The formulation,

• The design, construction and testing of a chosen alternative for new or improved design, evaluation
materials, devices, products, processes, systems or services. and final selection of
• The design, construction and operation of a pilot plant that is not of a scale possible alternatives
economically feasible for commercial production. for new or improved
• The design, construction and testing of pre-production or pre-use prototypes and materials, devices,
models. products, processes,
• The formulation, design, evaluation and final selection of possible alternatives for new or systems or services.
improved materials, devices, products, processes, systems or services.

31 Nagcarlan Company purchased a patent on January 1, 2012, for P3,570,000. The patent 2,448,000
was being amortized over its remaining legal life of 15 years expiring on January 1, 2027.
During 2015 Nagcarlan determined that the economic benefits of the patent would not (3,570,000 x 12/15) x 6/7

last longer than ten years from the date of acquisition. What amount should be reported in
the balance sheet as patent, net of accumulated amortization, at December 31, 2015?
• 2,142,000
• 2,448,000
• 2,618,000
• 2,520,000

32 Panay Company is negotiating to acquire Sapian Company. Panay manufactures and 28,000,000
sells wood burning stoves and Sapian Company produces parts that are required to
manufacture stoves. Sapian enjoys an exceptional reputation and Panay management Normal Returns = (25m-5m)*.15
= 3m
believes it can continue Sapian’s level of income and satisfy its own need for parts. Under Ave Earnings = 5m
the contemplated arrangement, Panay will negotiate for the acquisition of the net assets Excess = 2m
 of Sapian Company. The recorded amounts and current values of the assets and liabilities Goodwill = 2m/.25=8m
of Sapian are: Payment= 20m+8m=28m

Sapian’s earnings for the past 5 years averaged P5,000,000. This is believed to be a
reasonable estimate of future income. The level of income normally experienced by
enterprises similar to Sapian is 15%. Panay and Sapian agreed to capitalize average excess
earnings at 25% in estimating the value of goodwill. How much should Panay pay in
acquiring Sapian?
• 20,500,000
• 32,000,000
• 28,000,000
• 20,000,000

33 A provision shall be recognized as liability when All of these are

• An entity has a present obligation as a result of a past event. required for the
• It is probable that an outflow of resources embodying economic benefits will be required recognition of
to settle the obligation. provision as liability.
• All of these are required for the recognition of provision as liability.
• The amount of the obligation can be measured reliably.

34 Which of the following expenditures would never qualify as an exploration and evaluation expenditures related
asset? to the development
• expenditures for activities in relation to evaluating the technical feasibility and of mineral resources
commercial viability of extracting mineral resources
• expenditure for acquisition of rights to explore
• expenditure for exploratory drilling
• expenditures related to the development of mineral resources

35 Which of the following liabilities is a financial liability? obligation to deliver

• deferred revenue own shares worth a
• obligation to deliver own shares worth a fixed amount of cash fixed amount of cash
• warranty obligation
• constructive obligation

36 On January 1, 2015, Mambusao Company bought a trademark from Panitan Company for 5,700,000
P6,000,000. Mambusao retained an independent consultant who estimated the
trademark’s life to be indefinite. Its carrying amount in Panitan’s accounting records was 300k ang
P4,000,000. In Mambusao’s December 31, 2015 balance sheet, what amount should be amortization if 20
reported as trademark? years but like y
• 5,700,000
• 3,600,000 6,000,000
• 3,800,000
• 6,000,000 dba no amortization? Dapat 6m ra?

37 Nasugbu Company incurred the following costs during the current year: 137,000

What is the question

here?

RD = 19k + 68k + 24k + 26k

• 198,000
• 169,000
• 213,000
• 137,000
38 Jelline Company had the following liabilities on December 31, 2019: Accounts Payable – 1,490,000
P55,000; Unsecured notes,8%, due 7/1/2020 – P400,000; Accrued expenses – P35,000; Deferred tax liability is
Contingent liability – P450,000; Deferred tax liability – P25,000; Senior bonds, 7%, due noncurrent <333
3/31/2020 – P1,000,000. The Contingent liability is an accrual for possible loss on a
P1,000,000 lawsuit filed against the entity. The legal counsel expects the suit to be settled in
2020 and has estimated that the entity will be liable for damages in the range of P450,000
to P750,000. The deferred tax liability is not related to an asset for financial reporting and is
expected to reverse in 2021. What amount should be reported on December 31, 2019 for
current liabilities?
• 940,000
• 515,000
• 1,490,000
• 1,515,000

39 Where there is a continuous range of possible outcomes, and each point in that range is MIDPOINT
as likely as any other, the range to be used is the
• MIDPOINT
• MAXIMUM
• SUM OF MINIMUM AND MAXIMUM
• MINIMUM

40 In January 2019, Troy Company purchased a mineral mine for P36,000,000 with removable 4,800,000
ore estimated by geological survey at 2,160,000 tons. The property has an estimated value
of P3,600,000 after the ore has been extracted. The entity incurred P10,800,000 of
development cost preparing the property for the extraction of ore. During the current
year, 270,000 tons were removed and 240,000 tons were sold. What amount of depletion
should be included in cost of goods sold for 2019?
• 5,400,000
• 4,050,000
• 4,800,000
• 3,600,000