Updates in Philippine Accounting and Financial Reporting Standards 1

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Updates in Philippine Accounting and Financial Reporting Standards 2

Name: CHIN NIEVE S. FIGURA

Class Schedule: M-W 4:00PM-5:30PM

Assessment

Multiple Choice

Directions: Read and analyze each item. Encircle/Highlight the letter of the correct
answer. Please also provide solution for each item. You may also view this exam on
google class. Submit your work in the pigeon boxes which are provided in your
department/college, or to google class on or before the date as reflected in your study
schedule.

Problem:
Case 1
On January 1,2019, an entity granted 100 share options each to 500 employees,
conditional upon employees’ remaining in the entity’s employ during the vesting period.
The share option vest at the end of three-year period. On grant date, each share option
has a fair value of P30. The par value per share is P100 and the option price is P120.
On December 31, 2020, 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 31,2021, only 20 employees actually left and all of the
share options are exercised on such date.
1. What is the compensation expense for 2019?
a. 500,000
b. 250,000
c. 750,000
d. 450,000
Solution:
Fair value of share options 500 x 100 x 30 = P 1,500,000/3
Compensation expense for 2019 = P500,000

2. What sis the compensation expense for 2020?

a. 880,000
b. 380,000
c. 440,000
d. 500,000
Solution:
Number of employees 500
Employees who left in 2020 (30)
Employees expected to leave (30)
Employees entitled to share options 440

Fair value of share options (440 x 100 x 30 ) 1,320,000

Cumulative compensation for 2019 and 2020 (P1,320,000/3 x 2) P 880,000

Compensation expense recognized in 2019 (500,000)
Compensation expense in 2020 P380,000

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Updates in Philippine Accounting and Financial Reporting Standards 3

3. What is the compensation expense for 2021?

a. 600,000
b. 880,000
c. 380,000
d. 470,000
Solution:
Number of employees 500
Employees who left in 2020 (30)
Employees who left in 2021 (20)
Employees entitled to share options 450

Fair value of share options (450 x 100 x 30 ) 1,350,000

Cumulative compensation for 2019 and 2020 (880,000)
Compensation expense in 2021 P470,000

4. What amount was credited to share premium when the options were exercised on
December 31,2021?
a. 2,250,000
b. 2,350,000
c. 900,000
d. 0
Solution:
Option price (45,000 shares x 120) P5,400,000
Fair value of share options (450 x 100 x 30) 1,350,000
Total consideration P6,750,000
Par value of shares (45,000 x 100) (4.500,000)
Share premium P2,250,000

Case 2
An entity accounted for noncurrent assets using the cost model. On July 1, 2019, the
entity classified an equipment as held for sale. At the date, the carrying amount was
P5,000,000, the fair value was estimated at P3,500,000 and the cost of disposal at
P100,000. On December 31, 2019, the equipment was sold for net proceeds of
P2,500,000.
5. What amount should be reported as an impairment loss for 2019?
a. 1,600,000
b. 2,500,000
c. 1,500,000
d. 900,000
Solution:
Carrying amount P 5,000,000
Fair value less cost to sell (P3.5M-100K) (P 3,400,000)
Impairment loss P 1,600,000

6. What amount should be reported as loss on disposal for 2019?

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

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Updates in Philippine Accounting and Financial Reporting Standards 4

d. 900,000
Solution:
Sales price P 2,500,000
Carrying amount- 12/31/19 P 3,400,000
Loss on disposal P 900,000

Case 3
An entity identified the following segment for the current year:

Segment Revenue Profit Assets

A 10,000,000 1,750,000 20,000,000
B 8,000,000 1,400,000 17,500,000
C 6,000,000 1,200,000 12,500,000
D 3,000,000 550,000 7,500,000
E 4,000,000 575,000 5,500,000
F 2,000,000 525,000 3,000,000

7. What are the reportable segments?

a. SEGMENT A, B and C
b. SEGMENT A, B, C and D
c. SEGMENT A, B, C, D and E
d. SEGMENT A, B, C, D, E and F
Solution:
Segment Revenue Reporting on Profit Reporting Assets Reporting on
the basis of on the basis the basis of
revenue (at of profit (at assets (at least
least 10% of least 10% of 10% of total)
total) total)
A P 10,000,000 30.30% P 1,750,000 29.17% P 20,000,000 30.30%
B 8,000,000 24.24% 1,400,000 23.33% 17,500,000 26.52%
C 6,000,000 18.18% 1,200,000 20.00% 12,500,000 18.94%
D 3,000,000 9.09% 550,000 9.17% 7,500,000 11.36%
E 4,000,000 12.12% 575,000 9.58% 5,500,000 8.33%
F 2,000,000 6.06% 525,000 8.75% 3,000,000 4.55%
Total P33,000,000 100% P6,000,000 100% P 66,000,000 100%
All segments with minimum 10% of revenue, profits and assets can be reported separately.
Therefore, segment A, B, C, D and E are reportable segment.

Case 4
An entity reported the following segment profit or loss for the current year

Segment 1 7,000,000 profit

Segment 2 3,000,000 profit
Segment 3 4,000,000 loss
Segment 4 1,000,000 profit

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Updates in Philippine Accounting and Financial Reporting Standards 5

Segment 5 500,000 loss

8. What are the reportable segments?

a. SEGMENT 1,2,3,4 and 5
b. SEGMENT 1 and 2
c. SEGMENT 1,2 and 3
d. SEGMENT 1,2,3 and 4
Solution:

Segment Profit Loss

1 P 7,000,000
2 3,000,000
3 P 4,000,000
4 1,000,000
5 500,000
Total P11,000,000 P4,500,000
The total profit is the basis for identifying the reportable
segments because it is higher than the total loss. Those
segments with profit or loss at least 10% of P11,000,000 are
reportable. Therefore segment 1,2 and 3 are reportable.

Case 5
An entity reported revenue of P50,000,000, excluding intersegment sales of
P10,000,000, expenses of P47,000,000 and net income of P3,000,000 for the current
year. Expenses included payroll costs of P15,000,000. The combined asset of all
segment totaled P45,000,000
9. What is the minimum amount of sales to a major customer?
a. 5,000,000
b. 4,000,000
c. 4,500,000
d. 6,000,000
Solution:
P 50,000,000 x 10 % = P 5,000,000

10. What is the minimum amount of external revenue to be disclosed by reportable

segments?
a. 30,000,000
b. 45,000,000
c. 33,750,000
d. 37,500,000
Solution:
P 50,000,000 x 75% of the total external revenue of all operating segments
= P 37,500,000

Case 6

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Updates in Philippine Accounting and Financial Reporting Standards 6

An entity and its divisions reported the following for the current year:

Sales to unaffiliated customers 40,000,000

Intersegment sales of product similar to those sold to unaffiliated 12,000,000
customers
Interest earned on loans to other operating segments 1,000,000

The entity and all of its divisions are engaged solely in manufacturing operations.
11. To qualify as reportable segment, the segment revenue should at least be what
amount?
a. 5,300,000
b. 4,100,000
c. 5,200,000
d. 4,000,000
Solution:
Sales to unaffiliated customers P 40,000,000
Intersegment sales of product similar to those sold to unaffiliated customers 12,000,000
Total P
52,000,000
x 10 %
Total segment revenue P 5,200,000

Case 7
During the current year, Puff Company incurred P5,000,000 in exploration cost for each
of 20 oil wells drilled in the current year, in West Mindanao. Of the 20 well drilled, 14
were dry holes. The entity used the successful effort method of accounting. None of the
oil found is depleted in the current year.
12. What oil exploration expense should be reported in the current year?
a. 50,000,000
b. 30,000,000
c. 70,000,000
d. 0
Solution:
Exploration cost P 5,000,000 x 20 = P 100,000,000 x 14/20
Exploration expense = P 70,000,000

Case 8
During the current year, Puppy Company incurred P4,000,000 in exploration cost for
each 15 oil sells drilled in the current year. Of the 15 wells drilled, 10 were dry holes. Th
entity used the successful effort method of accounting. The entity deleted 30% of the oil
discovered in the current year.

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Updates in Philippine Accounting and Financial Reporting Standards 7

13. What amount of exploration cost would be reported in the year- end statement of
financial position?
a. 42,000,000
b. 14,000,000
c. 20,000,000
d. 6,000,000
Solution:
Exploration cost P 4,000,0000
Capitalize the wells that are not dry holes x5
P 20,000,000
Depleted in 2019 x 30 %
P 6,000,000
Exploration cost- Statement of Financial Position P20,000,000– 6,000,000 = P 14,000,000

Case 9
During 2019 Lovely Company purchased trading securities with the following cost and
market value on December 31,2019

Security Cost Market value

A 1,000 shares 200,000 300,000
B 10,000 shares 1,700,000 1,600,000
C 20,000 shares 3,100,000 2,900,000

Total 5,000,000 4,800,000

The entity sold 10,000 shares of security B on January 15,2020 for P150 per share
14. What amount of unrealized gain or loss should be reported in the income statement
for 2019?
a. 200,000 loss
b. 200,000 gain
c. 300,000 loss
d. 300,000 gain
Solution:
Total market value- 12/31/19 P 4,800,000
Total cost- 12/31/19 5,000,000
Unrealized loss in 2019 ( P 200,000)

15. What amount should be reported as loss on sale of trading investment in 2020?
a. 200,000 gain
b. 200,000 loss
c. 100,000 gain
d. 100,000 loss
Solution:
Sale price ( 10,000 x P 150 ) P 1,500,000
Less: Carrying amount of B shares 1,600,000
Loss on sale of trading investment P 100,000

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Updates in Philippine Accounting and Financial Reporting Standards 8

Case10
On January 1,2019, Glen Company leased a building to Mix Company for 10-year term
at an annual rental of P500,000. At inception of the lease, Glen received P2,000,000
covering the first two years rent of P1,000,000 and a security deposit of P1,000,000.
This deposit will not be returned to Mix Company upon expiration of the lease but will be
applied to payment of rent for the last two years of the lease.
16. What portion of the P2,000,000 should be reported as current liability on December
31, 2019?
a. 1,500,000
b. 1,000,000
c. 500,000
d. 0
Explanation:
The portion of the P2,000,000 that should be reported as current liability on December 31, 2019 is
P500,000 which is the second year’s rent and was received in 2019 as unearned rent income and
therefore classified as current liability.

17. What portion of the P2,000,000 should be reported as noncurrent liability on

December 31,2019?
a. 2,000,000
b. 1,000,000
c. 1,500,000
d. 0
Explanation:
The portion of the P2,000,000 that should be reported as noncurrent liability on December
31,2019 is the deposit of P1,000,000 which is an unearned rent deposit classified as noncurrent
liability because it is applied to payment of rent for the last two years of the lease.

Case 11
At the beginning of current year, Panorama Company leased a building form a lessor
with the following pertinent information

Annual rental payable at the end of each year 1,000,000

Initial direct cost paid 400,000
Lease incentive received 100,000
Leasehold improvement 200,000
Purchase option that is reasonably certain to be exercised 500,000
Lease term 5 years
Useful life of building 8 years
Implicit interest rate 10%
PV of an ordinary annuity of 1 for 5 periods at 10% 3.79
Present value of 1 for 5 periods at 10% 0.62

18. What is the cost of the right of use asset?

a. 4,500,000
b. 4,400,000

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Updates in Philippine Accounting and Financial Reporting Standards 9

c. 4,700,000
d. 4,600,000
Solution:
Present value of annual rental (1M x3.79) P 3,790,000
Present value of purchase option (500K x 0.62) 310,000
Initial lease liability P 4,100,000
Initial direct cot 400,000
Lease incentive received (100,000)
Cost of right of use asset P 4,400,000

19. What is the depreciation for current year?

a. 880,000
b. 900,000
c. 550,000
d. 575,000
Solution:
Deprecation (P 4,400,000/ 8 years) P 550,000

20. What is the interest expense for current year?

a. 410,000
b. 379,000
c. 450,000
d. 429,000
Solution:
Interest expense for current year (P 4,100,000 x 10% ) P 410,000

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