Special Topics

Bautista Company is constructing a building.
Construction began on January 1 and was

completed on December 31. Expenditures were 2,400,000 on March 1, 1,980,000 on
June 1, and 3,000,000 on December 31. Bautista Company borrowed 1,200,000 on
January 1 on a 5-year, 12% note to help finance construction of the building. In addition,
the company had outstanding all year a 10%, 3-year, 2,400,000 note payable and an 11%,
4-year, 4,500,000 note payable.
What are the weighted-average accumulated expenditures?
4,380,000
3,155,000
7,380,000
3,690,000
Ans
3,155,000
Which of the following may not be considered a “qualifying asset” under PAS 23?
A toll bridge that usually takes more than a year to build

A ship that normally takes one to two years to complete
A power generation plant that normally takes two years to construct
An expensive private jet that can be purchased from a local vendor
Ans
An expensive private jet that can be purchased from a local vendor
Bautista Company is constructing a building. Construction began on January 1 and was

completed on December 31. Expenditures were 2,400,000 on March 1, 1,980,000 on
June 1, and 3,000,000 on December 31. Bautista Company borrowed 1,200,000 on
January 1 on a 5-year, 12% note to help finance construction of the building. In addition,
the company had outstanding all year a 10%, 3-year, 2,400,000 note payable and an 11%,
4-year, 4,500,000 note payable.
What is the weighted-average interest rate used for interest capitalization purposes?
11%
10.85%
10.5%
10.65%
Ans.
10.65%
PAS 23 defines qualifying assets as assets that necessarily takes a substantial period
of time to get it ready for its intended use or sale. Which of the following is not a
qualifying asset?
Building that will take three years to construct

Inventories such as wine and cigars
Machinery that is purchased under a three-year installment period
Manufacturing plant and power generation facilities
Ans.
Machinery that is purchased under a three-year installment period
PAS 23 defines qualifying assets as assets that necessarily take a substantial period of time to get
it ready for its intended use or sale. Which of the following is not a qualifying asset?
Building that will take three years to construct

Manufacturing plant and power generation facilities
Machinery that is purchased under a four-year instalment period
Inventories such as wine and cigars
Ans.
Machinery that is purchased under a four-year instalment period
Wall Company leased office premises to Fox Company for a five-year term beginning January 1,
2009. Under the terms of the operating lease, rent for the first year is P800,000 and rent for years
2 through 5 is PI,250,000 per annum. However, as an inducement to enter the lease, Wall granted
Fox the first six months of the lease rent-free. In its 2009 income statement, what amount should
Wall report as rental income?
1,200,000
1,160,000
1,080,000
800,000
Ans.
1,080,000
On December 25, 2012, FWE Company entered into an 8 –year, non-cancelable lease
arrangement with PBR Company to start on January 1, 2013. PBR Company agrees to
pay FWE Company’s relocation costs as an incentive to FWE Company for entering
into the new lease. The relocation cost amounted to P90,000. The rent would be
P340,000 annually for the first three years, P375,000 for the next three years and
finally at P410,000 for the remainder of the contract. PBR Company waived 30% of
the initial year’s rent. Upon execution of the lease, FWE Company paid its agent
P40,000. The lease also includes a provision for additional rent of 6% of annual
company sales in excess of P4,500,000. FWE Company’s sales in 2013 and 2014 were
P5,800,00 and P6,900,000 respectively.
Rent expense to be reported in 2014 by FEW Company is
382,000
490,625
495,625
506,875
Ans.
495,625
Tim Company leased office premises to Mac Inc. for a 5-year term beginning January 2,
20CY. Under the terms of the operating lease, rent for the first year is P150,000 and rent
for years 2 through 5 is P187,500 per annum. However, as an inducement to enter the
lease, Tim granted Mac the first 6 months of the lease rent-free and provided an
allowance of P8,000 as an additional incentive. In its December 31, 20CY profit or loss,
what amount should Tim report as rental income?
Select one:
P166,600
P165,000
P150,000
P163,400
Ans.
P163,400
AD Company lease office premises to JL Company for a 5-year term starting January 2,
20CY. Under the terms of the operating leases, rent for the first year is P200, 000 and
rent for years 2 through 5 is P300,000 per annum. In addition, as an inducement to enter
the lease. AD Company granted JL Company the first six months of the lease rent-free, a
contingent rent equal to 2% of sales in excess of P12, 000, 000 will be paid by JL
Company. In 20CY JL Company reported sales of P14, 500, 000.
Rent revenue to be reported by AD Company for 20CY is

Select one:
100, 000
280, 000
310, 000
260, 000
Ans
310, 000
Mindoro Company purchased a new machine on January 1, 20Y1 at a cost of P2,000,000 for the
purpose of leasing it. The machine is estimated to have a useful life of ten years with a residual
value of P200,000. Depreciation is computed by Mindoro on a straight line basis. On January 2,
20Y1, Mindoro entered into a lease contract with Oriental Company for a term of up to four
years until December 31, 20Y4. The lease fee is P1,000,000 per year and was paid in advance by
Oriental. Mindoro paid P120,000 commissions associated with negotiating the lease and receive
an additional P400,000 as lease bonus. Mindoro Company should report net rental income for
20Y1 at
P820,000
P908,000
P890,000
P800,000
Ans
P890,000
Amanda Company leased office premises to Julius Company for a 5-year term starting
January 2, 2012. Under the terms of the operating lease, rent for the first year is
P200,000 and rent for years 2 through 5 is P300,000 per annum. In addition, as an
inducement to enter the lease, Amanda granted Julius Company the first six months of
the lease rent-free. Julius Company likewise paid a P70,000 security deposit of which
80% is refundable at the end of the lease term. However, a contingent rent equal to
2% of sales in excess of P12,000,000 will be paid by Julius Company. Amanda
Company paid its agent P40,000 while Julius Company paid its agent P30,000 for
services rendered in relation to the lease. In 2008, Julius Company reported sales of
P14,500,000. Amanda Company incurred repairs and maintenance costs of P35,000.
Gross rental income to be reported by Amanda Company for 2012 is
262,800
304,800
312,800
319,000
Ans
312,800
On November 20, 2012 Sunshine Company received an inquiry from Moonlight

Company asking if it was interested to lease its construction equipment. The carrying
amount of the construction equipment was P12,400,000 which approximates its fair
value at this time. Because of the offer Sunshine Company is contemplating on
leasing the equipment for 6 years the equipment’s useful life and would like to have a
9% return rate over the term of the lease. Initial direct costs for this contract was
computed at P80,000. At the end of the lease term, Sunshine Company estimates the
residual value of the equipment to be P200,000.
On November 26, 2012 Moonlight Company sent a proposal in which it agrees with
the conditions initially conveyed by Sunshine Company. Moonlight Company
suggested that the commencement date be on January 1, 2013 and that the annual
rentals be scheduled every December 31, starting on December 31, 2013. Furthermore
Moonlight Company communicated that it will only guarantee 70% of the residual
value computed by Sunshine Company.
On December 8, 2012, the lease agreement between Sunshine Company and

Moonlight Company was signed.
PVF of P1 @ 9% for 6 periods 0.596

PVF of OA @ 9% for 6 periods 4.486
PVF of an AD @ 9% for 6 4.890
periods
The lease liability reported by Moonlight Company December 31, 2014 is
9,605,292
9,026,181
8,926,902
6,889,090
Ans.
9,026,181
On December 1,2009, Tell Company leased office space for five years at a monthly rental
of P600,000. On the same date, Tell paid the lessor the following amounts:
Bonus to obtain lease 300,000
First month's rent 600,000
Last month's rent 600,000
Security deposit (refundable at lease 800,000
expiration)
Installation of new walls and offices 3,600,000
Tell's 2009 expense relating to utilization of the office space should be
1,400,000
1,200,000
665,000
600,000
Ans.
665,000



periods
Depreciation expense for 2013 is
2,040,704
2,050,707
2,060,124
2,074,037
Ans.
2,050,707
On July 1, 2009, Kemp Company leased office space for five years at P150,000 a month.
On that date, Kemp paid the lessor the following amounts:
Rent security deposit 350,000
First month's rent 150,000
Last month's rent 150,000
Nonrefundable reimbursement to
lessor for modification to the leased 900,000
premises
1,550,000
Kemp made timely rental payments from August 1 through December 1, 2009. What
portion of payments to the lessor should Kemp have recognized as deferred to years
beyond 2009?
1,400,000
1,310,000
1,250,000
500,000
Ans.
1,310,000



periods
Interest expense in 2013 to be reported by Moonlight Company is
1,112,467
1,116,000
1,119,982
1,123,200
Ans.
1,119,982



periods
Interest income in 2014 to be recognized by Sunshine Company is
976,300
977,188
975,583
996,130
Ans.
976,300



periods
The annual rentals to be received by Sunshine Company is
2,535,083
2,745,555
2,755,417
2,763,388
Ans.
2,755,417
Burgess Limited accepts a lease incentive to enter into a 3-year operating lease for a
building. The incentive is a cash amount of P5,000 received on signing of the lease
agreement. The lessee initially records this transaction as follows:DR Lease
expense P5,000
CR Cash P5,000
DR Incentive from lessor P5,000

CR Cash P5,000
DR Incentive to lessee P5,000
CR Rent income P5,000
DR Cash P5,000
CR Lease incentive from lessor P5,000
Ans.
DR Cash P5,000
CR Lease incentive from lessor P5,000
The excess of the fair value of leased property at the inception of the lease over its
cost or carrying amount should be classified by the lessor as
Unearned income from a sales-type lease.

Unearned income from a direct-financing lease.
Manufacturer’s or dealer’s profit from a sales-type lease.
Manufacturer’s or dealer’s profit from a direct-financing lease.
Ans.
Bailey Co. leased equipment to Greco, Inc. on January 1, 20Y2. The lease is for an 8-year period
expiring December 31, 20Y9. The first eight equal annual payments of P600,000 was made on
January 1, 20Y2. Bailey had purchased the equipment on December 29, 20Y1 for P3,200,000.
The lease is appropriately accounted for as a sales-type lease by Bailey. Assume that the present
value at January 1, 20Y2 of all rent payments over the lease term discounted at a 10% interest
rate was P3,520,000. What amount of interest income should Bailey record in 20Y3 as a result
of the lease?
P261,200
P292,000
P320,000
P327,200
Ans.
P261,200
Tommy Co. leased equipment from Maricar Corp. on July 1, 20Y1 for an eight-
year period expiring June 30, 20Y9. Equal payments under the lease are P600,000
and are due on July 1 of each year. The first payment was made on July 1, 20Y1.
The rate of interest contemplated by Tommy and Maricar is 10%. The cash selling
price of the equipment is P3,520,000, and the cost of the equipment on Maricar’s
accounting records is P2,800,000. The lease is appropriately recorded as a sales-
type lease. What is the amount of profit on the sale and interest revenue that
Maricar should record for the year ended December 31, 20Y1?
1) Profit on sale
2) Interest revenue
1) P45,000 2) P176,000
1) P720,000 2) P146,000
1) P720,000 2) P176,000
1) P 45,000 2) P146,000
Ans.
1) P720,000 2) P146,000
On January 1, 2011, Captain America Company leased a photocopier from Hawk Eye
Company, a company that manufacturers, retails and leases copiers. The photocopier
had cost Hawk Eye Company P50,000 to make but had a fair value on January 1,
2011 of P65,650. The lease agreement contained the following provisions:
Lease term 5 years
Annual payment, payable in advance on January 1, P 17,500
2011 each year
Economic life of the copier 6 years
Estimated residual value (end of the lease term) P 5,000
Residual value guaranteed by Captain America Company P 3,000
Interest rate implicit in the lease 10%
The lease is cancelable, provided another lease is immediately entered into.
The annual payment included an amount of P2,500 per annum to reimburse
Hawk Eye Company for the cost of paper and toner supplied to Captain America
Company.
Interest expense for 2011 is
4,941
5,065
5,734
5,886
Ans.
4,941
Good Company, a dealer in machinery and equipment, leased equipment to Luck, Inc., on
July 1, 2Y01. The lease is appropriately accounted for as a sale by Good and as a
purchase by Luck. The lease is for a 10-year period (the useful life of the asset) expiring
June 30, 2Y11. The first of 10 equal annual payments of P828,000 was made on July 1,
2Y01. Good had purchased the equipment for P5,200,000 on January 1, 2Y01, and
established a list selling price of P7,200,000 on the equipment. Assume that the present
value at July 1, 2Y01, of the rent payments over the lease term discounted at 8% (the
appropriate interest rate) was P6,000,000.
What is the amount of profit on the sale and the amount of interest income that Good
should record for the year ended December 31, 2Y01?
P 0 and P206,880.
P 800,000 and P206,880
P 800,000 and P240,000.
P1,200,000 and P480,000.
Ans.
P 800,000 and P206,880
Human Torch Company prepares the following lease payment schedule for the lease
of a machine from Silver Surfer Company. The machine has an economic life of 6
years. The lease agreement requires four annual payments of P33,000 and the
machine will be returned to Silver Surfer Company at the end of the lease term.
Minimum lease Interest Liability Liability
payment expense reduction balance
July 1, 2011 98,512
July 1, 2012 30,000 9,851 20,149 78,363
July 1, 2013 30,000 7,836 22,164 56,199
July 1, 2014 30,000 5,620 24,380 31,819
July 1, 2015 35,000 3,181 31,819 -
The annual depreciation expense in relation to the leased asset is
15,585
16,417
23,378
24,628
Ans.
23,378
The Caspian Company leased a warehouse with adjoining land for a period of 15 years.
The fair values of the leasehold interests in the land and of the warehouse are CU502,000
and CU251,000 respectively. The land has an indefinite economic life whereas the
warehouse has a useful life of 15 years. Title to the land is not expected to pass at the end
of the lease.
What amount should the asset(s) in relation to finance leases be recognised in the
financial statements of Caspian?
Nil
CU753,000
CU502,000
CU251,000
Ans.
CU251,000
Tommy Co. leased equipment from Maricar Corp. on July 1, 20Y1 for an eight-year
period expiring June 30, 20Y9. Equal payments under the lease are P600,000 and are due
on July 1 of each year. The first payment was made on July 1, 20Y1. The rate of interest
contemplated by Tommy and Maricar is 10%. The cash selling price of the equipment is
P3,520,000, and the cost of the equipment on Maricar’s accounting records is P2,800,000.
The lease is appropriately recorded as a sales-type lease. What is the amount of profit on
the sale and interest revenue that Maricar should record for the year ended December 31,
20Y1?
Select one
Profit on sale; Interest revenue
P 45,000 P176,000
P720,000 P146,000
P720,000 P176,000
P 45,000 P146,000
Ans.
P720,000 P146,000
On January 1, 2Y01, Belkor entered into a 10-year finance lease for equipment. On December
31, 2Y04, Belkor terminates the finance lease and incurs a P200,000 loss. How should Belkor
recognize the lease termination on its financial statements?
Recognize a P200,000 loss in 2Y04 as discontinued operations.

Recognize a P200,000 loss in 2Y04 as an extraordinary item.
Recognize a P200,000 loss from continuing operations in 2Y04.
Defer recognition of the loss and recognize pro rata over the life of the lease term.
Ans.
Recognize a P200,000 loss from continuing operations in 2Y04.
On January 1, 20Y1, Belkor entered into a 10-year finance lease for equipment. On December
31, 20Y4, Belkor terminates the finance lease and incurs a P200,000 loss. How should Belkor
recognize the lease termination on its financial statements?
Recognize a P200,000 loss in 20Y4 as discontinued operations

Recognize a P200,000 loss in 20Y4 as an extraordinary item.
Recognize a P200,000 loss from continuing operations in 20Y4
Ans.
Recognize a P200,000 loss from continuing operations in 20Y4
Occidental Company leased an equipment from Mindoro Company on January 1, 2Y01 for a 10
year period, which will expire on January 1, 2Y11. Equal payments under the lease are
P2,000,000 and are due on January 1 of each year beginning January 1, 2Y01. The rate of
interest contemplated is 10%. The present value of the minimum lease payments discounted at
10% is P13,518,000. The cost of the equipment on Mindoro’s accounting records is
P12,000,000. The equipment will revert to Mindoro at the end of the lease term and its
unguaranteed residual value is P1,000,000 with a present value of P386,000. Mindoro incurred
direct costs of P250,000 in negotiating the lease. The finance lease is appropriately recorded as a
sales type lease. What is the total finance income to be earned by Mindoro Company during the
lease term?
P8,364,000
P6,482,000
P7,096,000
P6,096,000
Ans.
P7,096,000
On December 27, 2011, Gambit Company leases its airplane to Jubilee Company.
The airplane which was constructed for P7,500,000 has a fair value of P9,800,000
and an expected useful life of 12 years. Under the 8-year lease agreement, Jubilee
Company will pay an annual rent in advance starting on January 1, 2012 at an
implicit rate of 12%. At the end of the lease, Jubilee Company is given an option to
purchase the airplane at P100,000; which is substantially low compared to the
airplane’s expected resale value of P650,000. Jubilee Company has indicated that it
will make use of the purchase option. Gambit Company incurred cost of P125,000 to
have the contract completed.
The net effect of the lease transaction included in Gambit Company’s 2012 income
statement is
2,175,000
3,140,503
3,204,000
3,351,000
Ans.
3,140,503
The Maconie Company is a car dealer. On 1 January 20CY it entered into a finance lease
with a customer under which the customer would pay CU20,000 on 1 January each year
for 5 years, commencing in 20CY. The car cost Maconie CU60,000 and its normal cash
selling price was CU75,000. Maconie paid legal fees of CU2,000 to a law firm in
connection with the arrangement of the lease.
Ignoring finance income, what net amount should Maconie recognise in profit or loss in
the year ended 31 December 2013, according to IAS17 Leases?
Net income of CU15,000

Nil
Net expense of CU2,000
Ans.
On December 31, 2008, Sawyer Co. leased a machine from Bass, Inc. for its entire economic life
of five years. Equal annual payments under the lease are P525,000 (including P25,000 annual
executory costs) and are due on December 31 of each year. The first payment was made on
December 31, 2008, and the second payment was made on December 31, 2009. The interest rate
implicit in the lease is 10%. Sawyer learned that a third party guaranteed to pay Bass, Inc. a
residual value of P200,000 at the end of the lease term. In its December 31, 2009 balance sheet,
Sawyer should report a lease liability of
P 1,380,043
P 1,243,445
P1,584,940
P1,393,692
Ans.
P 1,243,445
Baxter Company leased equipment to Fritz Inc. on January 1, 20Y2. The lease is for an eight-
year period expiring December 31, 20Y9. The first of eight equal annual payments of P900,000
was made on January 1, 20Y2. Baxter had purchased the equipment on December 29, 20Y1, for
P4,800,000. The lease is appropriately accounted for as a sales-type lease by Baxter. Assume
that the present value at January 1, 20Y2, of all rent payments over the lease term discounted at a
10 percent interest rate was P5,280,000. What amount of interest income should Baxter record in
20Y3 as a result of the lease?
P490,000
P480,000
P438,000
P391,800
Ans.
P391,800
The excess of the fair value of leased property at the inception of the lease over its
cost or carrying amount should be classified by the lessor as
Unearned income from a sales-type lease.

Unearned income from a direct-financing lease.
Manufacturer’s or dealer’s profit from a direct-financing lease.
Ans.
On November 20, 2011 Rogue Company received an inquiry from Psylocke Company
asking if it is interested to lease its construction equipment. The carrying amount of the
construction equipment was P8,400,000 which approximates its fair value at this time.
Rogue Company is contemplating on leasing the equipment for 6 years the equipment’s
useful life and would like to have a 9% return rate over the term of the lease. At the end
of the lease term, Rogue Company estimates the residual value of the equipment to be
P200,000. Initial direct cost was estimated at P80,000.
On November 26, 2011 Psylocke Company sent a proposal in which it agrees with the
conditions initially conveyed by Rogue Company adding further that the commencement
date be on January 1, 2012; that the annual rentals be scheduled at the end of the year;
and that it will only guarantee 70% of the residual value provided by Rogue Company.
Psylocke Company incurred costs totaling P120,000
On December 8, 2011, the lease agreement between Rogue Company and Psylocke
Company was signed wherein the commencement date was set on January 1, 2012.

PVF of an ordinary annuity of P1 @ 9% for 6 periods 4.486
PVF of an annuity in advance of P1 @ 9% for 6 periods 4.890
Interest income in 2013 to be recognized by Rogue Company is
763,200
664,150
759,982
660,642
Ans.
664,150
On January 1, 2Y01, Quezon Company entered into a lease agreement with Batangas Company
for a machine which was carried on its accounting records at P3,000,000. Total payments under
the lease which expires on December 31, 2Y10 aggregate P5,000,000 of which P3,380,000
represents the fair value and cost of the machine to Batangas. Payments of P500,000 are due on
January 1 each year starting January 1, 2Y01. The interest rate of 10% which was stipulated in
the lease is considered fair and adequate compensation to Quezon for the use of its funds.
Batangas expects the machine to have a 10-year life, no residual value and be depreciated on a
straight line basis. The lease is appropriately classified as a sales type lease by Quezon. What
should be the total income before tax that is derived by Quezon from this lease for the year ended
December 31, 2Y01?
P668,000
P288,000
P338,000
P718,000
Ans.
P668,000
Good Company, a dealer in machinery and equipment, leased equipment to Luck, Inc., on
July 1, 2Y01. The lease is appropriately accounted for as a sale by Good and as a
purchase by Luck. The lease is for a 10-year period (the useful life of the asset) expiring
June 30, 2Y11. The first of 10 equal annual payments of P828,000 was made on July 1,
2Y01. Good had purchased the equipment for P5,200,000 on January 1, 2Y01, and
established a list selling price of P7,200,000 on the equipment. Assume that the present
value at July 1, 2Y01, of the rent payments over the lease term discounted at 8% (the
appropriate interest rate) was P6,000,000.
Assuming that Luck, Inc. uses straight-line depreciation, what is the amount of
depreciation and interest expense that Luck should record for the year ended December
31, 2Y01?
P300,000 and P206,880.

P300,000 and P240,000.
P360,000 and P206,880.
P360,000 and P240,000.
Ans.
P300,000 and P206,880.
On 1 January 20CY The Hammond Company leased a van with a fair value of CU37,000 under a
finance lease. The lease term is 6 years, and the present value of the minimum lease payments is
CU35,520. The useful life of the van to the business was estimated at 7 years with no final
residual value. The company operates a policy of straight line depreciation. Under PFRS 16
Leases, what is the depreciation charge on the van in 20CY?
CU5,074
CU5,286
CU5,920
CU6,167
Ans.
CU5,920
On 1 July 2009, Jenny Ltd leases a machine with a fair value of P109,445 to Rose Ltd
for five years at an annual rental (in advance) of P25,000, and Rose Ltd guarantees in
full the estimated residual value of P15,000 on return of the asset. What would be the
interest rate implicit in the lease?
14%
12%
10%
9%
Ans.
12%
Camarines Company is a dealer in machinery. On January 1, 2009, a machine was leased

to another enterprise with the following provisions:
Annual rental payable at the end of each year

P2,000,000
Lease term and useful life of machinery 5 years
Cost of machinery P5,000,000
Residual value-unguaranteed P1,000,000
Implicit interest rate 10%
PV of an ordinary annuity of 1 for 5 periods at 10%
3.79
PV of 1 for 5 periods at 10% 0.62
At the end of the lease term on December 31, 2013, the machinery will revert to
Camarines. The perpetual inventory system is used. Camarines incurred initial direct
costs of P200,000 in finalizing the lease agreement.
Camarines Company will recognize profit on the sale at
P3,000,000
P3,200,000
P5,800,000
P6,000,000
Ans.
P3,000,000

The lease liability initially recorded by Psylocke Company at commencement date
8,480,000
8,444,240
7,789,251
8,360,800
Ans.
8,444,240
Kay Company, a lessor of office machines, purchased a new machine for P600,000 on
January 1, 20Y1, which was leased the same day to Lee. The machine will be depreciated
P55,000 per year. The lease is for a four-year period expiring January 1, 20Y5, and
provides for annual rental payments of P100,000 beginning January 1, 20Y1.
Additionally, Lee paid P64,000 to Kay as a lease bonus. In its 20Y1 income statement,
what amount of revenue and expense should Kay report on this leased asset?
Revenue Expense
P100,000 P0
P116,000 P0
P116,000 P55,000
P164,000 P55,000
Ans.
P116,000 P55,000
Adam Limited and Davies Limited enter into a finance lease agreement with the
following terms:
 lease term is 3 years
 estimated economic life of the leased asset is 6 years
 3 x annual rental payments of P23,000; each payment is one year in arrears
 residual value at the end of the lease term is not guaranteed by the lessee
 interest rate implicit in the lease is 7%
On inception date, the present value of the fixed payments is:
P69,000
P64,584
P64,170
P60,359
Ans.
P60,359
Camarines Company is a dealer in machinery. On January 1, 2009, a machine was leased

to another enterprise with the following provisions:
Annual rental payable at the end of each year

P2,000,000
Lease term and useful life of machinery 5 years
Cost of machinery P5,000,000
Residual value-unguaranteed P1,000,000
Implicit interest rate 10%
PV of an ordinary annuity of 1 for 5 periods at 10%
3.79
PV of 1 for 5 periods at 10% 0.62
At the end of the lease term on December 31, 2013, the machinery will revert to
Camarines. The perpetual inventory system is used. Camarines incurred initial direct
costs of P200,000 in finalizing the lease agreement.
How much is the total financeincome from the lease to be recognized by Camarines
over the lease term?
P2,800,000
P1,800,000
P2,420,000
P2,600,000
Ans.
P2,800,000

Depreciation expense for 2013 is
1,404,040
1,407,373
1,413,467
1,427,373
Ans.
1,404,040
On December 31, 20CY, Svetlana Corp. sold Kenyatta Co. two airplanes and
simultaneously leased them back. Additional information pertaining to the sale-
leasebacks follows:
Plane #1 Plane #2
Sales price P600,000 P1,000,000
Carrying amount,
12/31/CY P100,000 P550,000
Remaining useful
life, 12/31/CY 10 years 35 years
Lease term 8 years 3 years
Annual lease
payments P100,000 P200,000
Interest rate 10%
In its December 31, 20CY balance sheet, what amount should Svetlana report as gain on sale on
these transactions?
P950,000
P500,000
P450,000
P281,587
Ans.
P281,587
Bailey Co. leased equipment to Greco, Inc. on January 1, 20Y2. The lease is for an 8-year period
expiring December 31, 20Y9. The first eight equal annual payments of P600,000 was made on
January 1, 20Y2. Bailey had purchased the equipment on December 29, 20Y1 for P3,200,000.
The lease is appropriately accounted for as a sales-type lease by Bailey. Assume that the present
value at January 1, 20Y2 of all rent payments over the lease term discounted at a 10% interest
rate was P3,520,000. What amount of interest income should Bailey record in 20Y3 as a result
of the lease?
P261,200
P292,000
P320,000
P327,200
Ans.
P261,200
Thunder Bay Ltd sells land that originally cost P150,000 to Victoria Ltd for P230,000, and then
enters into a cancellable lease agreement to use the land for two years at an annual rental of
P20,000, for 30 years at a discount rate of 10%. In the current year, how much profit would
Thunder Bay Ltd record on the sale of the land?
P15,000
P65,000
P80,000
P14,421
Ans.
P14,421
Baxter Company leased equipment to Fritz Inc. on January 1, 20Y2. The lease is for an eight-
year period expiring December 31, 20Y9. The first of eight equal annual payments of P900,000
was made on January 1, 20Y2. Baxter had purchased the equipment on December 29, 20Y1, for
P4,800,000. The lease is appropriately accounted for as a sales-type lease by Baxter. Assume
that the present value at January 1, 20Y2, of all rent payments over the lease term discounted at a
10 percent interest rate was P5,280,000. What amount of interest income should Baxter record in
20Y3 as a result of the lease?
P490,000
P480,000
P438,000
P391,800
Ans.
P391,800
Kay Company, a lessor of office machines, purchased a new machine for P600,000 on
January 1, 20Y1, which was leased the same day to Lee. The machine will be
depreciated P55,000 per year. The lease is for a four-year period expiring January 1,
20Y5, and provides for annual rental payments of P100,000 beginning January 1,
20Y1. Additionally, Lee paid P64,000 to Kay as a lease bonus. In its 20Y1 income
statement, what amount of revenue and expense should Kay report on this leased
asset?
Revenue Expense
P100,000 P0
P116,000 P0
P116,000 P55,000
P164,000 P55,000
Ans.
P116,000 P55,000
On December 31, 2015, Ivan Company sold equipment to Kristine and simultaneously
leased it back for 12 years. Pertinent information on this date is as follows:
Sales price - 480,000

Carrying amount - 360,000
Estimated remaining economic life - 15 years
At December 31, 2015 how much should Ivan report as deferred revenue from the sale of
the equipment?
120,000
112,000
110,000
0
Ans.
120,000
On January 1, 2015 Jerome Company Company sold John Company an equipment with a
remaining useful life of 10 years. At the same time, Jerome Company leased back the
equipment for 4 years. The leaseback is an operating lease data. Data related to the sale
and leaseback are:
Sales price - 1,200,000

Fair value of equipment on the date of sale - 1,000,000
Carrying amount of equipment - 700,000
In Jerome Company's income statement, how much gain from the sale and leaseback
should be reported?
500,000
350,000
300,000
200,000
Ans.
300,000
Thunder Bay Ltd sells land that originally cost P150,000 to Victoria Ltd for P230,000, and then
enters into a cancellable lease agreement to use the land for two years at an annual rental of
P20,000, for 30 years at a discount rate of 10%. In the current year, how much profit would
Thunder Bay Ltd record on the sale of the land?
P15,000
P65,000
P80,000
P14,421
Ans.
P14,421
Globe, Inc. made an accounting profit before tax of P40,000 for the year ended
June 30, 20CY. Included in the accounting profit were the following items of
revenue and expense.
Donations to political parties (non-

5,000
deductible)
Depreciation- machinery (20%) 15,000
Annual leave expense 5,600
Rent revenue 12,000
For tax purposes the following applied:

Depreciation rate for machinery 25%
Annual leave paid 6,500
Rent received 10,000
Income tax rate 30%
How much should be reported as current tax expense?
13,755
13,245
12,705
11,505
Ans.
11,505
The Giggs Company has interest receivable which has a carrying amount of CU55,000 in
its statement of financial position at 31 December 20Y1. The related interest revenue will
be taxed on a cash basis in 20Y2. Giggs has trade receivables that have a carrying amount
of CU100,000 in its statement of financial position at 31 December 20Y1. The related
revenue
has been recognised in profit or loss for the year to 31 December 20Y1. According to
IAS12 Income taxes, what is the total tax base of interest receivable and trade receivables
for Giggs at 31 December 20Y1?
Nil
CU155,000
CU100,000
CU55,000
Ans.
Nil
Salisbury Ltd made an accounting profit before tax of P40,000 for the year ended 30
June 20CY. Included in the accounting profit were the following items of revenue and
expense.
Donations to political parties

(non-deductible) P 5,000
Depreciation - machinery (20%) 15,000
Rent revenue 12,000
Annual leave paid P 6,500

Income tax rate 35%
Calculate the current tax liability for the year ended 30 June 20CY.
P13,423
P14,000
P15,750
P15,050
Ans.
P13,423
In 2015, The Worf Company, reported pretax financial income of 500,000. Included in that pretax
financial income was 90,000 of nontaxable life insurance proceeds received as a result of the
death of an officer; 120,000 of warranty expenses accrued but unpaid as of December 31, 2015;
and 20,000 of life insurance premiums for a policy for an officer. Assuming that no income taxes
were previously paid during the year and assuming an income tax rate of 40 percent, the amount
of income taxes payable on December 31, 2015, would be
180,000
200,000
212,000
220,000
Ans.
220,000
In arriving at its profit before tax for the year ended 31 December 20CY The Ryan Company has
accrued royalties receivable of CU200,000 and interest payable of CU250,000. Both royalties
and interest are dealt with on a cash basis in tax computations. What are Ryan's net temporary
differences at 31 December 20CY, according to IAS12 Income taxes?
Taxable temporary differences of CU50,000

Deductible temporary differences of CU450,000
Taxable temporary differences of CU450,000
Ans.
The current liabilities of an entity include fines and penalties for environmental damage. The
fines and penalties are stated at P10 million. The fines and penalties are not deductible for tax
purposes. What is the tax base of the fines and penalties?
P10 million
P 3 million
P13 million
P 0
Ans.
P 0
The following information was provided by Pete Company for 20Y2

December. December. 31,
31,20Y2 20Y1
Deferred tax asset 45, 000 30, 000
Income taxes payable 375, 000 310, 000
Deferred tax liability 60, 000 40, 000
Total income taxes paid by Pete Company for P200, 000 Current and future tax rate 30%.
The Total income tax expense in Pete Company’s 20Y2 income statement is
260, 000
130, 000
270, 000
265, 000
Ans.
270, 000
Dunn Co.’s year 1 income statement reported 90,000 income before provision for
income taxes. To compute the provision for federal income taxes, the following year 1
data are provided:Rent received in advance 16,000 Income from exempt municipal
bonds 20,000 Depreciation deducted for income tax purposes in excess of depreciation
reported for financial statements purposes 10,000 Enacted corporate income tax rate
30% If the alternative minimum tax provisions are ignored, what amount of current
federal income tax liability should be reported in Dunn’s December 31, year 1 balance
sheet?
18,000
22,800
25,800
28,800
Ans.
22,800
Globe, Inc. made an accounting profit before tax of P40,000 for the year ended June 30,
20CY. Included in the accounting profit were the following items of revenue and
expense.
Donations to political parties (non-
5,000
deductible)
Depreciation- machinery (20%) 15,000
Rent revenue 12,000

Annual leave paid 6,500
Income tax rate 30%
How much should be reported as current tax expense?

Select one:
13,755
13,245
12,705
11,505
Ans.
11,505
D’Silva Limited has a product warranty liability amounting to P10,000. The product warranty
costs are not tax deductible until paid out to customers. The company tax rate is 30%. The
company has:
a deductible temporary difference of P10,000;

an assessable temporary difference of P10,000;
a tax base of P10,000;
a future deductible amount of P0.
Ans.
a deductible temporary difference of P10,000;
An entity has spent P600,000 in developing a new product. These costs meet the definition of an
intangible asset under PAS 38 and have been recognized in the balance sheet. These costs have
been recognized as an expense for tax purposes. At the year-end the intangible asset is deemed
to be impaired by P50,000. The tax base of the intangible asset at year-end is
P600,000
P550,000
P50,000
P0
Ans.
P0
In Year 2, Ajax, Inc. reported taxable income of 400,000 and pretax financial statement income
of 300,000. The difference resulted from 60,000 of nondeductible premiums on Ajax's officers'
life insurance and 40,000 of rental income received in advance. Rental income is taxable when
received. Ajax's effective tax rate is 30%. In its Year 2 income statement, what amount should
Ajax report as income tax expense-current portion?
90,000
102,000
108,000
120,000
Ans.
120,000
Are the following statements regarding the classification of items under IAS12 Income
taxes true or false?
(1) Interest expense accrued but included in taxable profit on a cash basis should be
classified under deductible temporary differences.
(2) Where accumulated depreciation on an asset is greater than accumulated tax

depreciation, the amount should be classified under deductible temporary differences.
Statement (1) Statement (2)
False False
False True
True False
True True
Ans.
True True
Farrugia Limited has an asset which cost P300,000 and against which depreciation of P100,000
has accumulated. The accumulated depreciation for tax purposes is P180,000 and the company
tax rate is 30%. The tax base of this asset is:
P120,000
P220,000
P80,000
P20,000
Ans.
P120,000
he accounting profit before tax for the year ended December 31, 20Y2 for Regiel Ltd
amounted to P18,500 and included:
Depreciation - motor vehicle (25%) P 4,500

Depreciation - equipment (20%) 20,000
Rent revenue 16,000
Royalty revenue (exempt from tax) 5,000
Doubtful debts expense 2,300
Entertainment expense (non-deductible) 1,500
Proceeds on sale of equipment 19,000
Carrying amount of equipment sold 18,000
The draft balance sheet at December 31, 2008 contained the following assets and
liabilities:
20Y2 20Y1
Assets
Cash P 11,500 P 9,500
Receivables 12,000 14,000
Allowance for doubtful debts (3,000) (2,500)
Inventory 19,000 21,500
Rent receivable 2,800 2,400
Motor vehicle 18,000 18,000
Accumulated depreciation - motor vehicle (15,750) (11,250)
Equipment 100,000 130,000
Accumulated depreciation - equipment (60,000) (52,000)
Deferred tax asset ? 5,550
P135,200
Liabilities
Accounts payable 15,655 21,500
Provision for annual leave 4,500 6,000
Current tax liability ? 7,600
Deferred tax liability ? 2,745
37,845
Additional information
· The company can claim a deduction of P15,000 (15%) for depreciation on
equipment, but the motor vehicle is fully depreciated for tax purposes.
· The equipment sold during the year had been purchased for P30,000 two
years before the date of sale.
· The company tax rate is 30%.
The current tax expense for 20Y2 is
P6,030
P6,930
P7,500
P8,040
Ans.
P6,030
The Winston Company has a policy of using non-current assets until they can no longer
be operated and are worthless. On 1 January 20CY it acquired an items of plant and
machinery for P1, 000, 000. It is being depreciated over 10 year on a straight-line basis.
For tax purposes there is an allowance of 20% per annum on a reducing balance basis.
There are two rates of tax: 15% on trading profit and 25% on gains on disposals. What
deferred tax balance should Winston recognize at 31 December 20CY, according to IAS
12 income taxes?
Select one:
Deferred tax asset of P15, 000

Deferred tax liability of P15, 000
Ans..
Palawan Corporation which is subject to a 35% tax rate reported current tax expense of
P4,000,000 for the year ended December 31, 20Y1, its first year in operations. The following
items were also recognized in the balance sheet during the year. Deferred tax asset in the amount
of P560,000 arising from an installment sale expected to be collected equally in 20Y2 and 20Y3.
And a deferred tax liability of P1,440,000, caused by accelerated depreciated methods used in
tax reporting. P440,000 of the deferred tax liability is expected to reverse with in 20Y2 while
the balance in later years. The 20Y1 total income tax expense is
P4,000,000
P4,720,000
P3,120,000
P4,880,000
Ans.
P4,880,000
The Winston Company has a policy of using non-current assets until they can no
longer be operated and are worthless. On 1 January 20CY it acquired an items of
plant and machinery for P1, 000, 000. It is being depreciated over 10 year on a
straight-line basis. For tax purposes there is an allowance of 20% per annum on a
reducing balance basis. There are two rates of tax: 15% on trading profit and 25%
on gains on disposals. What deferred tax balance should Winston recognize at 31
December 20CY, according to IAS 12 income taxes?

Ans.
Schaeffer Products, Inc., reported an excess of warranty expense over warranty

deductions of 72,000 for the year ended December 31, 2015. This temporary
difference will reverse in equal amounts over the years 2016 to 2018. The enacted tax
rates are as follows:
2015 40%
2016 35%
2017 30%
2018 25%
The reporting for this temporary difference at December 31, 2015, would be
a deferred tax liability of 28,800.

a deferred tax asset of 28,800.
a noncurrent deferred tax liability of 21,600.
a noncurrent deferred tax asset of 21,600.
Ans.
a noncurrent deferred tax asset of 21,600.
Jam Company prepared the following reconciliation of income per books with income
per tax return for its first year of operations the year ended December 31, 2012
Book income before income P 50,000

taxes
Add: Future deductible
amounts
____________________ ______
_
____________________ ______ ( 1 )
_
Less: Future taxable amounts

______
_____________________
____________________ ______ ( 2 )
_
Taxable income _____
· Jam Company acquired an equipment at a cost of P500,000 on January 1,

2012. Depreciation was recorded using the straight-line method with no expected
residual value for an estimated useful life of 5 years. For tax purposes, the
double-declining balance method was used.
· Sales, cost of sales, operating expenses are recognized under the accrual
method for both financial and tax reporting purposes, except for the following
items:
· Rent income is recognized for financial reporting is recognized under

accrual, for tax purposes rent is recognized when collected. In 2012, Jam
Company reported rent income of P140,000, while rent collected totaled to
P90,000
· Warranty costs are recognized for financial reporting purposes under the
accrual method and provide an expense equal to 5% of selling price. For tax
purposes, warranty costs are recognized when actual payment is made. Total
warranty expenditures for 2012 was P320,000. At year end, Jam Company
reported an estimated warranty obligation of P40,000.
· Bad debts expense reported during the year for financial reporting was
P65,000. For tax purposes, bad debts are recognized as deductions only upon
write-off which amounted to P30,000 during the year.
· Jam Company is under a tax jurisdiction that allows operating losses to be

carried over in the future. The current and future tax rate is at 30%
The deferred tax liability reported in the December 31, 2012 statement of financial
position is
15,000
22,500
30,000
45,000
Ans.
45,000
Which TWO of the following are examples of deferred tax assets? Deferred tax assets are the
amount of income taxes recoverable in future periods in respect of
1 and 2
3 and 3
1 and 3
2 and 4
Ans.
1 and 3
Jostine company lease office premises to Fox Inc. for a 4-year term beginning January 2,
2015.Under the terms of the operating lease, rent for the first year is P216,000 and rent
for years 2 through 4 is P337,500 per annum. However, as an inducement to enter the
lease, Fox was allowed to use the lease asset rent-free for the first three months. Tax rate
is 32%.In its December 31, 2015 balance sheet of Jostine company, what amount should
be reported as deferred tax asset?In its December 31, 2015 balance sheet of Jostine
company, what amount should be reported as deferred tax asset?
0
42,120
51, 840
93,969
Ans.
42,120
The accounting profit before tax for the year ended December 31, 20Y2 for Regiel Ltd
amounted to P18,500 and included:
Depreciation - motor vehicle (25%) P 4,500

Depreciation - equipment (20%) 20,000
Rent revenue 16,000
Royalty revenue (exempt from tax) 5,000
Doubtful debts expense 2,300
Entertainment expense (non-deductible) 1,500
Proceeds on sale of equipment 19,000
Carrying amount of equipment sold 18,000
The draft balance sheet at December 31, 20Y2 contained the following assets and
liabilities:
20Y2 20Y1
Assets
Cash P 11,500 P 9,500
Receivables 12,000 14,000
Allowance for doubtful debts (3,000) (2,500)
Inventory 19,000 21,500
Rent receivable 2,800 2,400
Motor vehicle 18,000 18,000
Accumulated depreciation - motor vehicle (15,750) (11,250)
Equipment 100,000 130,000
20Y2 20Y1
Accumulated depreciation - equipment (60,000) (52,000)
Deferred tax asset ? 5,550
P135,200
Liabilities
Accounts payable 15,655 21,500
Provision for annual leave 4,500 6,000
Current tax liability ? 7,600
Deferred tax liability ? 2,745
37,845
Additional information
 The company can claim a deduction of P15,000 (15%) for depreciation on
equipment, but the motor vehicle is fully depreciated for tax purposes.
 The equipment sold during the year had been purchased for P30,000 two years
before the date of sale.
 The company tax rate is 30%.
The deferred tax expense (benefit) for 20Y2 is
P6,570
(P3,270)
(P2,430)
(P1,080)
Ans.
(P2,430)
According to IAS12 Income taxes, are the following statements in relation to deferred tax
liabilities true or false?
(1) Deferred tax liabilities are the amounts of income taxes payable in future periods in
respect of taxable temporary differences.
(2) Deferred tax assets are the amounts of income taxes recoverable in future periods in
respect of deductible temporary differences.
False False
False True
True False
True True
Ans.
True True
Jam Company prepared the following reconciliation of income per books with income
per tax return for its first year of operations the year ended December 31, 2012
Book income before income P 50,000

taxes
Add: Future deductible
amounts
____________________ ______
_
____________________ ______ ( 1 )
_
Less: Future taxable amounts

____________________ ______
_
____________________ ______ ( 2 )
_
Taxable income _____
· Jam Company acquired an equipment at a cost of P500,000 on January 1,

2012. Depreciation was recorded using the straight-line method with no expected
residual value for an estimated useful life of 5 years. For tax purposes, the
double-declining balance method was used.
· Sales, cost of sales, operating expenses are recognized under the accrual
method for both financial and tax reporting purposes, except for the following
items:
· Rent income is recognized for financial reporting is recognized under

accrual, for tax purposes rent is recognized when collected. In 2012, Jam
Company reported rent income of P140,000, while rent collected totaled to
P90,000
· Warranty costs are recognized for financial reporting purposes under the
accrual method and provide an expense equal to 5% of selling price. For tax
purposes, warranty costs are recognized when actual payment is made. Total
warranty expenditures for 2012 was P320,000. At year end, Jam Company
reported an estimated warranty obligation of P40,000.
· Bad debts expense reported during the year for financial reporting was
P65,000. For tax purposes, bad debts are recognized as deductions only upon
write-off which amounted to P30,000 during the year.
· Jam Company is under a tax jurisdiction that allows operating losses to be

carried over in the future. The current and future tax rate is at 30%
The deferred tax asset reported in the December 31, 2012 statement of financial
position is
15,000
22,500
30,000
45,000
Ans.
22,500
Entity Y Company started to manufacture in 20Y1 copy machines that are sold on the
installment basis. Entity Y recognizes revenue when equipment is sold for financial
reporting purposes, and when installment payments are received for tax purposes. In
20Y1, Entity Y recognized gross profit of P6,000,000 for financial reporting purposes,
and P1,500,000 for tax purposes. The amounts of gross profit expected to be recognized
for tax purposes in 20Y2 and 20Y3 are P2,500,000 and P2,000,000, respectively. Entity
Y guarantees the copy machines for two years. Warranty costs are recognized on the
accrual basis for financial accounting purposes and when paid for tax purposes. Warranty
expense accrued in 20Y1 is P2,500,000, but only P500,000 of warranty cost is paid in
20Y1. It is expected that in 20Y2 and 20Y3, P1,000,000 and P1,000,000, respectively, of
warranty costs will be paid. In addition during 20Y1, P500,000 interest, net of 20% final
income tax, was received and earned, and P200,000 insurance premium on life insurance
policies that covered the life of Entity Y’s president was paid. Entity Y is the beneficiary
for this policy. The tax rate is 35%. Pretax accounting income in 20Y1 was P2,000,000.
Assuming any 20Y1 net loss will be carried to 20Y2, how much is the deferred tax asset
to be recognized as of December 31, 20Y1?
P700,000
P980,000
P1,575,000
P 770,000
Ans.
P980,000
The following information was provided to you by Willow Company
Book Tax base

value
Receivable 150,000 200,000
Building – net 300,000 100,000
Machinery and equipment 500,000 550,000
- net
Unearned revenue 100,000 -

Estimated warranty 80,000 -
obligation
Current and future tax rate 30%. Taxable income for the year P300,000.
Deferred tax liability
60,000
84,000
30,000
90,000
Ans.
60,000
D Company had the following deferred tax balances at reporting date - Deferred tax assets,
P1,200,000; Deferred tax liabilities, P3,000,000. Effective from the first day of the next
financial period, the company rate of income tax was reduced from 40% to 30%. The adjustment
to income tax expense to recognize the impact of the tax rate change is:
DR P600,000
CR P600,000
DR P450,000
CR P450,000
Ans.
CR P450,000
Are the following statements in relation to deferred tax true or false? (1) Deferred tax
liabilities are the amounts of income taxes payable in future periods in respect of taxable
temporary differences.
(2) Deferred tax assets are the amounts of income taxes recoverable in future periods in
respect of deductible permanent differences.
False False
False True
True False
True True
Ans.
True False
An entity has the following assets and liabilities in its balance sheet at December 31,
20Y1:
Property P10,000,000
Plant and equipment 5,000,000
Inventory 4,000,000
Trade receivables 3,000,000
Trade payables 6,000,000
Cash 2,000,000
The value for tax purposes of property and for plant and equipment are P7 million and P4
million respectively. The entity has made a provision for inventory obsolescence of P2
million, which is not allowable for tax purposes until the inventory is sold. Further, an
impairment charge against trade receivables of P1 million has been made. This charge
does not relate to any specific trade receivable but to the entity’s collective assessment of
the overall collectibility of the amount. This charge will not be allowed in the current
year for tax purposes but will be allowed in the future. Income tax paid is at 35%.
he deferred tax provision at December 31, 20Y1 is
P1,400,000
P1,050,000
P2,100,000
P 350,000
Ans.
P 350,000
The Huang Company has a non-current asset which had a carrying amount in the financial
statements of CU18,000 at 31 December 20CY. Its tax written down value (the tax base)
at that date was CU9,000. The tax rate is 30%. In accordance with IAS12 Income taxes,
what is the
deferred tax balance in respect of this asset at 31 December 20CY?
CU9,000 asset
CU2,700 liability
CU2,700 asset
CU9,000 liability
Ans.
CU2,700 liability
Shear, Inc. began operations in year 1. Included in Shear’s year 1 financial statements were bad
debt expenses of 1,400 and profit from an installment sale of 2,600. For tax purposes, the bad
debts will be deducted and the profit from the installment sale will be recognized in year 2. The
enacted tax rates are 30% in year 1 and 25% in year 2. In its year 1 income statement, what
amount should Shear report as deferred income tax expense?
300
360
650
780
Ans.
650
Cowboy Corporation reported depreciation of 450,000 on its 2015 tax return.

However, in its 2015 income statement, Cowboy reported depreciation of 300,000--as
well as 30,000 interest revenue on tax-free bonds. The difference in depreciation is
only a temporary difference, and it will reverse equally over the next three years.
Cowboy's enacted income tax rates are as follows:
2015 35%
2016 30%
2017 25%
2018 20%
What amount should be included in the deferred income tax liability in Cowboy's
December 31, 2015, balance sheet?
30,000
37,500
45,000
52,500
Ans.
37,500
On 1 April 20Y2, the company rate of income tax was changed from 35% to 30%. At the
previous reporting date (30 June 20Y1) Montgomery Limited had the following tax
balances:
· Deferred tax assets P26,250

· Deferred tax liabilities P21,000
What is the impact of the tax rate change on income tax expense?
increase P750
decrease P750
increase P875
decrease P875
Ans.
increase P750
The following facts relate to Whammy Corporation for the year 20CY:
 Deferred tax liability, January 1, P48,000.
 Deferred tax asset, January 1, P16,000.
 Taxable income for the year, P430,000.
 Cumulative temporary difference at December 31, giving rise to future taxable
amounts, P230,000.
 Cumulative temporary difference at December 31, giving rise to the future
deductible amounts, P95,000.
 Tax rate for all years, 35%.
No permanent differences exist. The company is expected to operate profitably in the

future. What is the total tax expense?
P150,500
P103,250
P165,750
P135,250
Ans.
P165,750
The following information was provided to you by Willow Company
Book Tax base

value
Receivable 150,000 200,000
Building – net 300,000 100,000
Machinery and equipment 500,000 550,000
- net
Unearned revenue 100,000 -

Estimated warranty 80,000 -
obligation
Current and future tax rate 30%. Taxable income for the year P300,000.
Deferred tax asset
60,000
84,000
30,000
90,000
Ans.
84,000
Jenkins Limited acquired an item of Property at a cost of P50,000. At reporting date
accumulated depreciation amounted to P15,000. The asset was revalued on reporting date to
P45,000. If the company rate of tax is 30%, the deferred tax item that must be recognized at
reporting date is:
deferred tax asset P3,000;

deferred tax liability P3,000;
deferred tax asset P7,000.
Ans.
The Kolpa Company purchased a building in January 20Y1 for CU150,000. The
accounting depreciation charge is 5% straight-line. For tax purposes, depreciation of 2%
straight-line is deducted annually. The remaining cost will be deducted in future periods,
either as depreciation or through a deduction on disposal.
The tax rate is 25%.
According to IAS12 Income taxes, what should be the deferred tax balance at 31
December 20Y4?
CU4,500 deferred tax liability

CU4,500 deferred tax asset
CU3,375 deferred tax liability
Ans.
The Waloneke Company has a policy of using non-current assets until they can no longer
be operated and are worthless. On 1 January 20CY it acquired an item of plant and
machinery for CU100,000. It is being depreciated over 10 years on a straight-line basis.
For tax purposes there is an allowance of 20% per annum on a reducing balance basis.
There are two rates of tax: 15% on trading profits and 25% on gains on disposals.
What deferred tax balance should Waloneke recognise at 31 December 20CY, according
to IAS12 Income taxes?
Deferred tax asset of CU2,500

Deferred tax liability of CU2,500
Deferred tax asset of CU1,500
Ans.
If the payment of employees’ compensation for future absences is probable, the amount can be
reasonably estimated, and the obligation relates to rights that accumulate, the compensation
should be
Accrued if attributable to employees’ services not already rendered.

Accrued if attributable to employees’ services already rendered.
Accrued if attributable to employees’ services whether already rendered or not.
Recognized when paid.
Ans.
Accrued if attributable to employees’ services already rendered.
JR Company employs 5 people. Each employee is entitled to 2 weeks paid vacation

every year the employee works for the company. The conditions of the paid vacation
are (a) for each full year of work, an employee will receive two weeks of paid
vacation (no vacation accrues for a portion of a year), (b) each employee will receive
the same pay for vacation time as the regular pay-in the year taken, and (c) unused
vacation pay can be carried forward.
Cumulative Vacation Taken As of

Starting Date 12/31/20Y8 Weekly
Employee Salary
A 12/1/20Y1 10 weeks P5,000
B 3/1/20Y6 2 weeks 4,000
C 8/1/20Y7 None 3,500
D 12/1/20Y6 3 weeks 3,000
E 3/31/20Y8 None 2,500
JR Company should report liability for vacation pay on December 31, 20Y8 at
P38,000
P40,500
P45,000
P53,500
Ans.
P38,000
The Wheat Company has a 12-month accounting period ending 31 December. On 1 April
20Y1 it introduced a new contractual bonus scheme covering the year to 31 March each
year. It is reasonably anticipated that the bonuses for the year to 31 March 20Y2 will
amount to CU9,000.
According to IAS19 Employee benefits, what liability for bonuses should be recorded at
31 December 20Y1?
CU2,250
Nil
CU6,750
CU9,000
Ans.
CU6,750
Team K Company employs 5 people. Each employee is entitled to 2 weeks paid

vacation every year the employee works for the company. The conditions of the paid
vacation are (a) for each full year of work, an employee will receive two weeks of
paid vacation (no vacation accrues for a portion of a year), (b) each employee will
receive the same pay for vacation time as the regular pay-in the year taken, and (c)
unused vacation pay can be carried forward.
Employee Starting Date Cumulative Vacation Taken As of Weekly

12/31/2013 Salary
A 12/1/2007 10 weeks P5,000
B 3/1/2012 2 weeks 4,000
C 8/1/2013 None 3,500
D 12/1/2012 3 weeks 3,000
E 3/31/2014 None 2,500
Team K Company should report liability for vacation pay on December 31, 2014 at
P38,000
P45,000
P40,500
P53,500
Ans.
P38,000
Should the following items be included in plan assets, according to IAS19 Employee
benefits?
1) Assets held by a long-term employee benefit fund.
(2) Qualifying insurance policies.
Item (1) Item (2)
No No
No Yes
Yes No
Yes Yes
Ans.
Yes Yes
Short-term employee benefits as defined in PAS 19R are:

are employee benefits (other than termination benefits) that are expected to be settled wholly
before twelve months after the end of the annual reporting period in which the employees render
the related service.
are employee benefits (other than termination benefits and short-term employee benefits) that are
payable after the completion of employment.
are all employee benefits other than short-term employee benefits, post-employment benefits and
termination benefits.
are employee benefits provided in exchange for the termination of an employee’s employment as
a result of either (a) an entity’s decision to terminate an employee’s employment before the
normal retirement date; or (b) an employee’s decision to accept an offer of benefits in exchange
for the termination of employment.
Ans.
are employee benefits (other than termination benefits) that are expected to be settled wholly
before twelve months after the end of the annual reporting period in which the employees render
the related service.
Venus Corp., a company whose stock is publicly traded, provides a noncontributory

defined benefit pension plan for its employees. The company's actuary has provided
the following information for the year ended December 31, 20CY:
Projected benefit obligation P1,200,000

Accumulated benefit 1,050,000
obligation
Fair value of plan assets 1,650,000
Service cost 480,000
Interest on projected benefit
obligation 48,000
Prior service cost 120,000
Expected and actual return on
plan assets 165,000
The market-related asset value equals the fair value of plan assets. Prior contributions
to the defined benefit pension plan equaled the amount of net periodic pension cost
accrued for the previous year end. No contributions have been made for 20CY
pension cost. In its December 31, 20CY balance sheet, Venus should report an
accrued pension cost of
P813,000
P450,000
P648,000
P435,000
Ans.
P450,000
The Umingan Company has a defined benefit pension plan for its employees. The
following information pertains to the pension plan:
Projected benefit obligation, December 31,

P1, 680, 000
20Y2
Fair value of plant assets, December 31, 20Y2 1, 739, 000
Accrued/prepaid pension cost (asset), Dec. 31,
51, 300
20Y1
The December 31, 20Y2 adjusting journal entries include a

Select one:
Credit to Accrued/Prepaid Pension cost for P110, 300

Debit to accrued/prepaid pension cost for P7, 700
Credit to Other Comprehensive Income for P110, 300
Debit to another Comprehensive Income for P7, 700
Ans.
Debit to accrued/prepaid pension cost for P7, 700
Bulls Corporation amends its pension plan on 1/1/CY. The following information is
available:
1/1/CY 1/1/CY after

before amendment
amendment
Accumulated
benefit P 950,000 P1,425,000
obligation
Projected benefit
obligation 1,300,000 1,900,000
The total amount of unrecognized prior service cost to be recognized as a result of this
amendment is
P950,000
P600,000
P475,000
P125,000
Ans.
P600,000
Ultimate Company provided the following information for 2016:
January 1 December
31
Fair value of plan assets 2,600,000 3,000,000
Projected benefit obligation 2,000,000 2,100,000
Prepaid/accrued benefit cost- 600,000 900,000
surplus
Asset ceiling 200,000 300,000
Effect of asset ceiling 400,000 600,000
Current service cost 100,000
Contribution to the plan 350,000
Benefits paid 150,000
Discount rate
10%
What is the actual gain due to decrease in PBO?
50,000
40,000
30,000
0
Ans.
50,000
Under which category should the following items be accounted for according to
IAS19R Employee benefits?
(1) Lump sum benefit of 1% of the final salary for each year of service.
(2) Actuarial gains.
Lump sum benefit should be accounted for under defined benefit plans; Actuarial gains
should be accounted for under defined benefit plans
Lump sum benefit should be accounted for under short term employee benefits; Actuarial
gains should be accounted for under defined benefit plans
Lump sum benefit should be accounted for under defined benefit plans; Actuarial gains
should be accounted for under defined contribution plans
Lump sum benefit should be accounted for under short term employee benefits; Actuarial
gains should be accounted for under defined contribution plans
Ans.
Lump sum benefit should be accounted for under defined benefit plans; Actuarial gains should be
accounted for under defined benefit plans
The Makarangu Company operates a defined benefit post-employment plan. At 31 December
20CY the present value of the defined benefit obligation was CU40 million, the fair value of the
plan assets was CU10 million, the unrecognised actuarial gains were CU8 million and the past
service cost not recognised was CU6 million. What is the defined benefit liability to be
recognised by Makarangu at 31 December 20CY, according to IAS19R Employee benefits?
CU16 million
CU28 million
CU44 million
CU30 million
Ans.
CU30 million
On January 1, 2012 Rose Company instituted a lump-sum benefit payable to its new hedge
fund manager upon termination of service in December 31, 2021.
The benefit (annual service cost) shall be equal to 10% of the final salary for each year of
service compounded at the expected settlement rate of 8%. The salary for 2012 is P600,000
with a 5% annual increase based on what was provided by Rose Company’s remuneration
policy
Rose Company plans to fund the pension obligation by transferring to the pension fund an
amount equal to 45% of the annual service costs during the first three years; 60% of the
annual service costs for years four to six; 75% of annual service costs for years seven to
ten. Funding shall be made at the end of each year. The expected return rate of the plan asset
portfolio is 10%
There were no actuarial gains or loss for the years 2012 and 2013.
At December 31, 2014, it was determined that the fair value of the pension obligation and
plan assets were P171,145 and P140,165
8 9 10
periods periods periods
Future value of P1 @ 5% 1.477 1.551 1.629
Present value of P1 @ 8% 0.54 0.50 0.46
Current service for 2012 is
46,530
48,688
50,288
52,776
Ans.
46,530
The following information relates to the defined benefit pension plan for the Baguio
Company for the year ending December 31, 20CY:
PV of benefit obligation, January 1 P6, 700, 000

PV of benefit obligation, December
31 7, 200, 000
Fair value of plan assets, January 1 6, 500, 000
Fair value of plant assets, December
31 6, 900, 000
Actuarial loss on benefit obligation 150, 000
Employer contribution 300, 000
Benefits paid to retirees 600, 000
Discount rate 10%
How much would be the current service cost for the year?
Select one:
P141, 000
P280, 000
P580, 000
P88, 500
Ans.
P280, 000
An entity has these balances relating to its defined benefit plan:
Present value of the obligation P33,000,000

Fair value of plan assets 37,000,000
Present value of available
future refunds and reduction
in future contributions 1,000,000
The amount to be recognized in the balance sheet is
P4,000,000
P5,000,000
P3,000,000
P9,000,000
Ans.
P3,000,000

January 1 December
31
surplus
Discount rate
10%
What is the employee benefit expense for 2016?
200,000
100,000
80,000
40,000
Ans.
80,000
policy
portfolio is 10%
8 9 10
Future value of P1 @ 5% 1.477 1.551 1.629
Net actuarial loss at the end of 2014

9,852
8,000
6,748
1,552
Ans.
6,748
A director of an entity receives a retirement benefit of 10% of his final salary per annum for his
contractual period of three years. The director does not contribute to the scheme. His
anticipated salary over the three years is Year 1 P100,000, Year 2 P120,000, and Year 3
P144,000. Assume a discount rate of 5%. The pension liability at the end of the second year is
P29,520
P22,500
P27,439
P26,775
Ans.
P27,439
The White Company set up a defined benefit post-employment plan with effect from 1 January
20CY. In the first year the expected return on plan assets was CU5,000, the actual return on plan
assets was CU4,000, the current service cost was CU12,000 and White's contributions paid into
the plan were CU7,500. What is the net expense to be recognised in profit or loss for the year
ended 31 December 20CY, according to IAS19R Employee benefits?
CU8,000
CU3,500
CU7,000
CU2,500
Ans.
CU7,000
On January 2, 20CY, Arjam Co. established a noncontributory defined benefit plan covering all
employees and contributed P450,000 to the plan. At December 31, 20CY, Arjam determined that
the 20CY service and interest costs on the plan were P620,000. The expected and the actual rate
of return on plan assets for 20CY was 10%. There are no other components of Arjam's pension
expense. What amount should Arjam report in its December 31, 20CY balance sheet as accrued
pension expense?
P575,000
P170,000
P125,000
P 80,000
Ans.
P125,000
The following information pertains to Maricar Co.’s pension plan:
Actuarial estimate of projected benefit obligation at P72,000

1/1/CY
Assumed discount rate 10%
Fair value of plan assets at 1/1/CY P70,000
Current service costs for 20CY P18,000
Past service cost (amendments in 20CY) 5,000
12/31/CY
Pension benefits paid during 20CY 15,000
Contribution to the plan during 20CY 25,000
How much should Maricar Co. reports in its other comprehensive income for the
year ended December 31, 20CY?
P3,000 unrealized loss

P8,000 unrealized gain
P3,000 unrealized gain
Ans.

January 1 December
31
surplus
Discount rate
10%
What is the net remeasurement loss in 2016?

110,000
220,000
270,000
170,000
Ans.
170,000
The following information relates to the defined benefit pension plan of the Lupet
Projected benefit obligation, January P9,200,000

1
Projected benefit obligation, 9,458,000
December 31
Fair value of plan assets, January 1 9,000,000
Expected return on plan assets 900,000
Actual return on plan assets 990,000
Employer contributions 850,000
Benefits paid to retirees 780,000
Settlement rate 10%
The amount to be recognized in the balance sheet as of December 31, 20CY is
P10,000
P75,000
P602,000
P997,000
Ans.
P602,000
On January 1, 20CY the memorandum records of Anne Company’s defined benefit

plan showed the following:
Fair value of plan assets P7,500,000

Projected benefit obligation (8,500,000)
Prepaid/accrued benefit (P1.000,000)
cost-credit
During 20CY, the enterprise determined that its current service cost was P1,000,000
and the interest cost is 10%. The expected return on plan assets was 12% but the
actual return during the year was 10%. Other related information is as follows:
Contribution to the plan P1,200,000

Benefits paid to retirees during 1,500,000
20CY
Decrease in accrued benefit
obligation due to changes in
actuarial assumptions 200,000
Anne Company should report 20CY benefit expense at
P 900,000
P1,015,000
P1,100,000
P 950,000
Ans.
P1,100,000
The following information relates to the defined benefit pension plan for the
McDonald Company for the year ending December 31, 20CY.
Projected benefit obligation, January 1 P4,600,000

Projected benefit obligation, December 4,729,000
31
Fair value of plan assets, December 31 5,565,000
Settlement rate 10%
Service cost for the year would be
P59,000
P94,000
P129,000
P390,000
Ans.
P59,000
The following information relates to the defined benefit pension plan of the REVIEW
Projected benefit obligation, January 1 P11,000,000
Projected benefit obligation, Dec. 31 11,600,000
Past service cost 80,000
Actuarial gain 50,000
Employer contributions 1,000,000
Expected rate of return on plan assets 8%
Settlement rate 10%
The amount to be recognized in the company’s 20CY income statement related to the
pension plan is
P646,000
P746,000
P346,000
P470,000
Ans.
P470,000
The following information pertains to Maricar Co.’s pension plan:

1/1/CY
Assumed discount rate 10%
Current service costs for 20CY P18,000
Past service cost (amendments in 20CY) 5,000
12/31/CY
Pension benefits paid during 20CY 15,000
Contribution to the plan during 20CY 25,000
How much should Maricar Co. reports as employee benefits expense in its income
statement for the year ended December 31, 20CY?
P18,200
P 8,200
P23,200
P30,200
Ans.
P23,200
Flu Company provided you with the following information in relation to its post-
retirement benefit plan; current service cost P100,000; expected return on plan assets
P40,000; actual return on plan assets P45,000.
Pension expense for the period
0
100,000
55,000
60,000
Ans.
60,000
Flu Company provided you with the following information in relation to its post-
retirement benefit plan; current service cost P100,000; expected return on plan assets
P40,000; actual return on plan assets P45,000.
Pension expense for the period assuming further that Flu Company was classified as
an SME
0
100,000
55,000
60,000
Ans.
55,000
At its year end, The Parlour Company has the following balances in relation to a defined
benefit post-employment plan:
Plan assets CU115,000
Plan liability CU190,000
Unrecognised actuarial loss CU20,000
Under IAS19R Employee benefits, what figure should be shown on Parlour's statement of
financial position for the plan deficit?
CU75,000
CU190,000
CU95,000
CU55,000
Ans.
CU75,000
policy
portfolio is 10%
8 9 10
Future value of P1 @ 5% 1.477 1.551 1.629
Pension expense in 2013

51,878
49,787
50,252
58,160
Ans.
49,787

January 1 December
31
surplus
Discount rate
10%
What is the actual return on plan assets for the current year?
200,000
350,000
150,000
260,000
Ans.
200,000
policy
portfolio is 10%
8 9 10
Future value of P1 @ 5% 1.477 1.551 1.629
Accrued pension cost at December 31, 2013
12,563
16,751
8,841
24,232
Ans.
12,563
According to IAS19R Employee benefits, which ONE of the following statements best
describes 'other long-term employee benefits'?
Benefits not falling due wholly within twelve months of the end of the period in which
the service is rendered.
Benefits which fall due within twelve months of the end of the period in which the
service is rendered.
Benefits payable as a result of an entity's decision to end an employee's employment

before the normal retirement date.
Benefits which are payable after completion of employment.
Ans.
Benefits not falling due wholly within twelve months of the end of the period in which the
service is rendered.
January 1, 2012, SBT Company grants to its employees rights to choose either 1,200
phantom shares (cash payment equal to the value of 1,200 shares) or 1,500 shares.
The grant is conditional upon the completion of three years of service. If the
employee chooses the share alternative, the shares must be held for three years after
the vesting date
At grant date, the SBT Company’s share price was P62 per share. At the end of 2012,
2013 and 2014 the share prices were P64, P63 and P66 respectively. After taking into
account the post-vesting transfer restrictions, SBT Company estimates that the fair
value at grant date of the share alternative was P53.
The amount reported as compensation expense in SBT Company’s 2012 income
statement is
27,300
29,200
30,100
33,700
Ans.
27,300
According to IAS19R Employee benefits, which ONE of the following terms best describes
benefits which are payable as a result of an entity's decision to end an employee's employment
before the normal retirement date?
Post-employment benefits
Defined contribution plans
Termination benefits
Defined benefit plans
Ans.
On September 1, 20Y1, D. Lion Corp. offered special termination benefits to

employees who had reached the early retirement age specified in the company’s
pension plan. The termination benefits consisted of lump-sum and periodic future
payments. Additionally, the employees accepting the company offer receive the usual
early retirement pension benefits. The offer expired on November 30, 20Y1. Actual
or reasonably estimated amounts at December 31, 20Y1 relating to the employees
accepting the offer are as follows:
 Lump-sum payments totaling P475,000 were made on January 1, 20Y2.
 Periodic payments of P60,000 annually for 3 years will begin January 1,
20Y3. The present value at December 31, 20Y1 of these payments was P155,000.
 Reduction of accrued pension costs at December 31, 20Y1 for the terminating
employees was P45,000.
At December 31, 20Y1, D. Lion should report a total liability for special termination
benefits of
P475,000
P585,000
P630,000
P655,000
Ans.
P630,000
An entity closes down its subsidiary, and the employees of that subsidiary will earn no further
pension benefits. The entity has a defined benefit obligation with a net present value of
P20,000,000. The plan assets have a fair value of P16,000,000. The entity had adopted PAS 19R
two years previously. The curtailment reduces the net present value of the obligation by
P2,000,000 to P18,000,000. The net liability to be recognized in the balance sheet after the
curtailment is
P4,000,000
P3,800,000
P2,000,000
P 800,000
Ans.
P2,000,000
According to PAS19R Employee benefits , which ONE of the following terms best describes
benefits which are payable as a result of an entity's decision to end an employee's employment
before the normal retirement date?
Post-employment benefits
Defined contribution plans
Defined benefit plans
Ans.
All of the following are included in short-term employee benefits except
Wages, salaries, social security contributions
Non-monetary benefits such as, medical care, housing, cars, subsidized goods for current
employees
Termination benefits and post-employment benefits
Profit sharing and bonuses payable, short-term compensated absences

Ans.
Termination benefits and post-employment benefits
An entity closes down its subsidiary, and the employees of that subsidiary will earn no further
pension benefits. The entity has a defined benefit obligation with a net present value of
P20,000,000. The plan assets have a fair value of P16,000,000. The entity had adopted PAS 19R
two years previously. The curtailment reduces the net present value of the obligation by
P2,000,000 to P18,000,000. The gain on curtailment to be recognized in the current year’s profit
or loss is
P2,000,000
P3,800,000
P0
P5,200,000
Ans
P0
Interim reports shall include interim financial statements (condensed or complete)

for periods as follows (choose the exception):
Statement of cash flows cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately
preceding financial year
Statements of comprehensive income for the current interim period and cumulatively for
the current financial year to date, with comparative statements of comprehensive income
for the comparable interim periods (current and year-to-date) of the immediately
Statement of financial position as of the end of the current interim period and a
comparative statement of financial position as of the end of the immediately preceding
financial year
For an entity whose business is highly seasonal, financial information for the twelve
months up to the end of the interim period and comparative information for the prior
twelve-month period
Ans.
For an entity whose business is highly seasonal, financial information for the twelve months up
to the end of the interim period and comparative information for the prior twelve-month period
If an entity does not prepare interim financial reports, then
The year-end financial statements are deemed not to comply with PFRS
The year-end financial statements’ compliance with PFRS is not affected
The year-end financial statements will not be acceptable under local legislation
Interim financial reports should be included in the year-end financial statements
Ans.
The year-end financial statements’ compliance with PFRS is not affected
Interim reports shall include interim financial statements (condensed or complete) for
periods as follows (choose the exception):
Select one:
Statement of cash flows cumulatively for the current financial year to date, with a
comparative statement for the comparable year-to-date period of the immediately
Statements of comprehensive income for the current interim period and cumulatively for
the current financial year to date, with comparative statements of comprehensive income
for the comparable interim periods (current and year-to-date) of the immediately
Statement of financial position as of the end of the current interim period and a
comparative statement of financial position as of the end of the immediately preceding
financial year
For an entity whose business is highly seasonal, financial information for the twelve
months up to the end of the interim period and comparative information for the prior
twelve-month period
Ans.
For an entity whose business is highly seasonal, financial information for the twelve months up
to the end of the interim period and comparative information for the prior twelve-month period
The IASB encourages publicly traded entities to provide interim financial reports
At least at the end of the half-year and within 60 days of the end of the interim period
Within a month of the half-year-end
On a quarterly basis
Whenever the entity wishes
Ans.
At least at the end of the half-year and within 60 days of the end of the interim period
Interim financial reports should include as a minimum
A complete set of financial statements complying with PAS 1A condensed set of financial
statements and selected notes
A balance sheet and income statement only
A condensed balance sheet, income statement, and cash flow statement only
Ans.
A condensed set of financial statements and selected notes
Under PAS 34, interim financial reports should be published
Within a month of the half-year-end

On a quarterly basis
Once a year at any time in that year
Ans.
Jocelyn Company prepares quarterly interim financial reports. The entity sells electrical goods
and normally 5% of customers claim on their warranty. The provision in the first quarter was
calculated as 5% of sales to date, which was P10 million. However, in the second quarter, a
design fault was found and warranty claims were expected to be 10% for the whole year. Sales in
the second quarter were P15 million. What would be the provision charged in the second
quarter’s interim financial statements?
2,000,000
1,250,000
1,500,000
750,000
Ans.
2,000,000
Amelia Company incurred an inventory loss from market decline of P800,000 on March
31, 2012. The market decline is expected to recover during the year. What amount of
inventory loss should be reported in the quarterly income statement ending March 31,
2012?
800,000
400,000
200,000
0
Ans.
800,000
Head Company prepared quarterly interim financial statements and used the
percentage of credit sales method in computing doubtful accounts. The credit sales
for the first, second, third and fourth quarters totalled P2,000,000, P1,500,000,
P3,500,000 and P4,000,000 respectively. The doubtful accounts percentage for the
first, second, third and fourth quarters effective for the entire year are 2%, 2%, 4%
and 5% respectively. What amount of doubtful accounts expense should be
recognized in the fourth quarter income statements?
270, 000
200, 000
137, 500
550, 000
Ans.
270, 000
Karen Company has historically reported bad debt expense of 10% 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 in consultation with its external auditor determined that
bad debt expense for the entire year should be P900,000. Sales were P2,000,000 for the first
quarter, P1,500,000 for the second quarter, P2,500,000 for the third quarter and P4,000,000 for
the fourth quarter. How much bad debt expense should be recognized for the fourth quarter?
900,000
300,000
400,000
600,000
Ans.
300,000
Catching Fire Company divides its business in 9 operating units for internal reporting
and provided you the following:
Unit 1 2 3 4 5 6 7 8 9 Total
Reven 69,0 37,0 27,50 32,2 35,0 36,5 85,30 57,8 25,00 405,5
ues 00 00 0 00 00 00 0 00 0 00
Profit 21,5 24,5 (8,00 2,30 10,0 7,50 3,500 35,0 (23,25 73,05
(loss) 00 00 0) 0 00 0 00 0) 0
Assets 12,2 77,8 2,300 24,0 40,0 7,73 145,0 55,0 4,300 391,0
50 00 00 00 0 00 00 80
Applying the quantitative thresholds provided under operating segments the reportable
segments are
1,2,5,7,8 and 9
1,2,3,5,7,8 and 9
1,2,3,5,6,7,8 and 9
All segments
Ans.
1,2,5,7,8 and 9
Revolution Company has expanded rapidly and segment reporting is now required.
The entity has no intersegment sales. The following data are for the year ended
December 31, 2013:
Operating segment Segment revenue Operating profit Identifiable assets
(loss)
1 620,000 200,000 400,000
2 100,000 20,000 80,000
3 340,000 70,000 300,000
4 190,000 (30,000) 140,000
5 180,000 (25,000) 180,000
6 70,000 10,000 120,000
7 120,000 (20,000) 140,000
Others 380,000 (25,000) 140,000
· The “others” category includes five operating segments, none of which

has revenue or assets greater than P80,000 and none with an operating profit.
· Operating Segments 1 and 2 produce very similar products and use very
similar production processes, but serve different product distribution system.
These differences are due to the fact that Segment 2 operates in a regulated
environment while Segment 1 does not.
· Operating Segments 6 and 7 have very similar products, production
processes, product distribution systems, but are organized as separate divisions
since they serve substantially different types of customers. NeitherSegments 6
and 7 operate in a regulated environment.
What are the reportable segments for the year ended December 31, 2013?
Segments 1, 3, 4 and 5
Segments 1, 3, 4, 5 and 7
Segments 1, 2, 3, 4 and 5
Segments 1, 3, 4, 5 and Segments 6 and 7 combined as one segment
Ans.
Segments 1, 3, 4, 5 and Segments 6 and 7 combined as one segment
Hunger Games Company provided you the following:

Unit External Internal Total Profit Assets
(Loss)
Luxury 180 20 200 32 194
Mining 110 15 125 (4) 24
Explosives 120 130 250 192 192
Seafood 60 5 65 116 116
Total 470 170 640 336 526
The number of reportable segments
1
2
3
4
Ans.
4
Grum Corp., a publicly owned corporation, is subject to the requirements for segment
reporting. In its income statement for the year ended December 31, 2010, Grum reported
revenues of 50,000,000, operating expenses of 47,000,000, and net income of 3,000,000.
Operating expenses include payroll costs of 15,000,000. Grum’s combined idenfiable
assets of all industry segments at December 31, 2010, were 40,000,000. Reported
revenues include 30,000,000 of sales to external customers.
In its 2010 financial statements, Grum should disclose major customer data if sales to
any single customer amount to at least
300,000
1,500,000
4,000,000
5,000,000
Ans.
5,000,000
Grum Corp., a publicly owned corporation, is subject to the requirements for segment
reporting. In its income statement for the year ended December 31, 2010, Grum reported
revenues of 50,000,000, operating expenses of 47,000,000, and net income of 3,000,000.
Operating expenses include payroll costs of 15,000,000. Grum’s combined idenfiable
assets of all industry segments at December 31, 2010, were 40,000,000. Reported
revenues include 30,000,000 of sales to external customers.
External revenue reported by operating segments must be at least
22,500,000
15,000,000
12,500,000
37,500,000
Ans.
22,500,000
Which of the following entities is required to use full PFRS in its financial statements?
ABC College with total assets of P10M

ABC Trading, a micro-business entity
ABC Rural Bank with total assets of P100M
ABC Company, a close corporation with total liabilities of P50M
Ans.
ABC Rural Bank with total assets of P100M
On January 1, 20Y1 TBB Company started construction of its own warehouse.

TBB Company specifically borrowed P1,000,000 to finance the construction of the
warehouse. Interest incurred during the construction amounted to P120,000 while
the income derived from its temporary investment amounted to P30,000. Total
construction cost was P1,400,000.
The warehouse expected useful life was 10 years with no expected residual value.
TBB Company depreciates similar assets using the straight-line method. On
January 1, 20Y3 TBB Company adopted the revalued model. The sound value of
the warehouse was P1,510,000. The depreciation expense in 20Y1, assuming that
TBB Company for reporting purposes was considered an SME
152,000
149,000
140,000
240,000
Ans.
140,000
Under SEC rules, a company is classified as a “Small & Medium Entity” (SME)
when its total assets are between
P 3 million and P250 million

Ans.
SMEs are entities that (choose the exception)
Have total assets between P3 million and P350 million or total liabilities of between P3 million
and P250 million
Are not a holder of a secondary license issued by a regulatory agency
Do not have public accountability or publish general purpose financial statements for external
users
Are not in the process of filing its financial statements for the purpose of issuing any class of
instruments in a public market
Ans.
Do not have public accountability or publish general purpose financial statements for external
users
Which of the following statements is incorrect?
An entity has public accountability if it files, or it is in the process of filing its financial
statements with a securities commission or other regulatory organization for the purpose of
issuing any class of instruments in a public market (equity or debt instruments).
A public market for trading securities may include domestic or foreign stock exchange, over-the-
counter, local and regional market.
Public accountability involves holding assets in a fiduciary capacity as one of the primary
businesses.
Banks, credit unions, insurance companies, securities brokers/dealers, mutual funds, investment
houses and travel/real estate agents are required to use full PFRS.
Ans..
Banks, credit unions, insurance companies, securities brokers/dealers, mutual funds, investment
houses and travel/real estate agents are required to use full PFRS.
Which of the following entities is required to apply the PFRS for SMEs in
Philippine financial reporting?
Moda Totale with total assets of P 310 M and total liabilities of P 284 M
Caritas Insurance Company with total assets of P 340 M and total liabilities of P 195M
Atimonan Rural Bank, with total assets of P 300 M and total liabilities of P 120 M
Art Enterprises with total assets of P 30 M and total liabilities of P5 M and submits
financial statements to creditors, suppliers, and regulatory bodies.
Ans.
Art Enterprises with total assets of P 30 M and total liabilities of P5 M and submits financial
statements to creditors, suppliers, and regulatory bodies.
On January 1, 20Y1 TBB Company started construction of its own warehouse. TBB
Company specifically borrowed P1,000,000 to finance the construction of the warehouse.
Interest incurred during the construction amounted to P120,000 while the income derived
from its temporary investment amounted to P30,000. Total construction cost was
P1,400,000.
The warehouse expected useful life was 10 years with no expected residual value. TBB
Company depreciates similar assets using the straight-line method. On January 1, 20Y3
TBB Company adopted the revalued model. The sound value of the warehouse was
P1,510,000. The depreciation expense in 20Y1, assuming that TBB Company for
reporting purposes was considered an SME
Select one:
152,000
149,000
140,000
240,000
Ans.
140,000
Per SEC definition, the size criterion to qualify as an SME is
Assets: P 3M – P 250M
Liabilities: P 3M – P 250M
Assets/Liabilities: Below P 3M
Assets: Above P 350M
Ans.
Liabilities: P 3M – P 250M
Which of the following entities is required to apply the PFRS for SMEs in Philippine
financial reporting?
Select one:
Tesla with total assets of P 310 M and total liabilities of P 284 M
Caritas Insurance Company with total assets of P 340 M and total liabilities of P 195 M
Atimonan Rural Bank, with total assets of P 300 M and total liabilities of P 120 M
Garden Enterprises with total assets of P 36 M and total liabilities of P5 M and submits
Ans.
Garden Enterprises with total assets of P 36 M and total liabilities of P5 M and submits
A public utility company should apply. What financial reporting framework?

Select one:
PFRS for SMEs

Another acceptable basis of accounting
Any of the above
Full PFRS
Ans.
Full PFRS
Case 1. A privately-held subsidiary may use PFRS for SMEs in its own financial
statements even if its parent prepares consolidated financial statements using full
PFRS.
Case 2. A privately-held parent entity may use PFRS for SMEs in consolidated
financial statements even if one of its subsidiaries uses full PFRS in its own financial
statements.
Which of the above cases is/are true?
Case 1 only
Case 2 only
Both cases
Neither case
Ans.
Case 1 only
A public utility company should apply. What financial reporting framework?
PFRS for SMEs

Another acceptable basis of accounting
Any of the above
Full PFRS
Ans.
Full PFRS
The PFRS for SMEs contain simplifications to the recognition and measurement
principles in full IFRSs including the following, except:
Select one:
Borrowing costs must be capitalized
Internally generated intangible assets are not capitalized
Research and development costs must be recognized as expenses
Goodwill and other indefinite life intangible assets are always amortized over their
estimated useful lives (ten years if useful life cannot be estimated reliably).
Ans.
Statement 1. If a publicly accountable entity uses PFRS for SMEs, its financial
statements shall not be described as conforming to the PFRS for SMEs
Statement 2. Per SEC Memo, an entity that qualifies as an SME is required to use
PFRS for SMEs.
True True
True False
False False
False True
Ans.
True True
The PFRS for SMEs contain simplifications to the recognition and measurement
principles in full IFRSs including the following, except:
Internally generated intangible assets are not capitalized
Research and development costs must be recognized as expenses
Goodwill and other indefinite life intangible assets are always amortized over their
estimated useful lives (ten years if useful life cannot be estimated reliably).
Ans.
An SME whose accounting period begins on a date other than January 1, 2010, for the purpose of
adopting PFRS for SMEs in its financial statements, shall apply the size criteria using the
entity’s audited financial statements
For the year ended December 31, 2009

For the immediately preceding fiscal year
Either A or B, with appropriate disclosure
None of the above
Ans.
For the immediately preceding fiscal year
All of the following items do not have an equivalent section in PFRS for SMEs. Choose the
exception.
Interim reporting
Prepaid Insurance
Basic and diluted earnings per share
Operating segments
Ans.
Prepaid Insurance
PAS 24 requires disclosure of compensation of key management personnel. Which of the

following would not be considered “compensation” for this purpose?
Short-term benefits
Share-based payments
Reimbursement of out-of-pocket expenses
Ans.
Reimbursement of out-of-pocket expenses
To enable financial statement users to form a view about the effects of the related-party
transactions, PAS 24 requires certain disclosures to be made. Which of the following disclosures
is not a mandated disclosure under PAS 24?
Relationships between parents and subsidiaries irrespective of whether there have been
transactions between those related parties
Names of all the “associates” that an entity has dealt with during the year
Name of the entity’s parent and, if different, the ultimate controlling party
If neither the entity’s parent nor its ultimate controlling entity produces financial statements
available for public use, then the name of the next most senior parent that does so
Ans.
Names of all the “associates” that an entity has dealt with during the year
Ephesians Company is known to accurately disclose related party disclosures in its

financial statements prepared under IFRS. Ephesians Company is seeking your
advice on whether the following transactions need to be reported under IAS 24 and, if
so, to what extent
 Sales made during 2011 to
o Hosea Company, parent company: P30,000,000
o Malachi Company, associate company: P25,000,000
 Trade receivables at December 31, 2011
o Due from Hosea Company: P7,000,000
o Due from Malachi Company: P15,000,000
The total amount included as related party disclosures in Ephesians Company’s December
31, 2011 financial statements is
37,000,000
40,000,000
55,000,000
77,000,000
Ans.
77,000,000
Galatians Company is a major industrial group of companies and was seeking your
advice on whether the following transactions need to reported under IAS 24 and, if
so, to what extent.
 Remuneration and other payments made to Galatians Company’s chief executive
officer during 2011:
o Salary for 2011, P2,000,000
o Share options and other share-based payments, P1,000,000
o Contributions to retirement benefit plan for 2011, P1,500,000
o Reimbursements of travel expenses for business trips, P1,600,000
The total amount included as related party disclosures in Galatians Company’s December
31, 2011 financial statements is
2,500,000
3,500,000
4,500,000
6,100,000
Ans.
4,500,000
Denver Company acquired 100% of Nuggets Company prior to 2013. During 2013,
the individual entities included in their financial statements the following:
Denver Nuggets
Key officers’ salaries 750,000 500,000
Officers’ expenses 200,000 100,000
Loans to officers 1,250,000 500,000
Intercompany sales 1,500,000
What total amount should be reported as related party disclosures in the notes to
Denver Company’s 2013 consolidated financial statements?
1,500,000
1,550,000
1,750,000
3,000,000
Ans.
3,000,000
Which of the following is not a related party as envisaged by PAS 24?
A director of the entity

The parent company of the entity
A shareholder of the entity that holds 1% stake in the entity
The son of the chief executive officer of the entity
Ans.
A shareholder of the entity that holds 1% stake in the entity

The annual rentals to be received by Rogue Company is
1,863,754
1,709,775
1,845,921
1,890,325
Ans.
1,863,754
The following information relates to the defined benefit pension plan of the Lupet
Projected benefit obligation, January P9,200,000
1
Projected benefit obligation, 9,458,000
December 31
Expected return on plan assets 900,000
Settlement rate 10%
The amount to be recognized in 20CY profit or loss is
P138,000
P143,000
P993,000
P735,000
Ans,
P138,000
According to PAS19R Employee benefits , which of the following statements best describes 'other
long-term employee benefits'?
service is rendered
Benefits which fall due within twelve months of the end of the period in which the service is
rendered
Benefits payable as a result of an entity's decision to end an employee's employment before the
normal retirement date
Benefits which are payable after completion of employment

Ans.
service is rendered
IFRIC Interpretations
A. cover newly identified financial reporting issues not specifically addressed

A. cover issues where unsatisfactory or conflicting interpretations have developed.
are considered authoritative and must be followed.
All of these are correct regarding IFRIC Interpretations.

Ans
All of these are correct regarding IFRIC Interpretations.
The IASB employs a "due process" system which
enables interested parties to express their views on issues under

consideration.
requires that all accountants must receive a copy of financial accounting standards
as an efficient system for collecting dues from members.
identifies the accounting issues that are the most important.

Ans.
enables interested parties to express their views on issues under consideration.
All of the following are represented in FRSC, except
Board of Accountancy.
Commission on Audit and Bangko Sentral ng Filipinas.
Securities and Exchange Commission and Bureau of Internal Revenue.
Department of Budget and Management.
Ans.
Department of Budget and Management.
The office supplies account of Sick Company had a balance at the beginning of 2019 of
P80, 000 before the reversing entry. Payments for purchases of office supplies during
2019 amounted to P500, 000 and were recorded as expenses. A physical count at the end
of 2019 revealed office supplies costing P95, 000 were on hand. Reversing entries are
recorded by sick. The required adjusting entry at the end of 2019 will include a debit to
Office supplies Expense P15, 000

Office Supplies P15, 000
Office Supplies Expense P485, 000
Ans
A deferred expense can best be described as an amount
Paid and currently matched with earnings

Paid and not currently matched with earnings
Not paid and currently matched with earnings
Not paid and not currently matched with earnings
Ans.
Paid and not currently matched with earnings
One element of the objective of financial reporting is to provide information
that will attract new investors.

that is useful in assessing cash flows prospects.
about the investors in the entity.
about the liquidation value of the resources held by the entity.
Ans.
that is useful in assessing cash flows prospects.
What is the concept that supports the issuance of interim reports?
Consistency
Relevance
Faithful representation
Materiality
Ans.
Relevance
What is the underlying concept that supports estimating a fixed asset impairment charge?
Consistency
Matching
Substance over form.
Ans.
To achieve faithful representation, the financial statements
Must have predictive and confirmatory value

Must be complete, neutral and reasonably free from error
Are comparable, understandable, verifiable and timely
All of these would achieve faithful representation
Ans
Must be complete, neutral and reasonably free from error
On January 2, 2019, Irene Company, a property developer, purchase a land and building
which the company will redevelop and sell. The cost of buying the land and buildings
was P20,000,000. Additional cost incurred in relation to the acquisition of the assets
totalled P500,000. In the statement of cash flows, how should the acquisition is
disclosed?
As an investing activity outflow of P20,500,000

As an operating activity outflow of P20,500,00
As a financing activity outflow of P20,500,000
As an investing activity outflow of P20,000,000 and operating activity outflow of
P500,000
Ans.
As an operating activity outflow of P20,500,00
On September 30, 2019, when the carrying amount of the net assets of segment C has P
13,000,000, X Company signed a binding contract to sell segment C for P 12,000,000. The sale is
expected to be completed by January 31, 2020. In addition, prior to January 31, 2020, the sale
contract obliges X Company to terminate certain employees of segment C incurring termination
cost of P 2,000,000 to be paid on June 30, 2020. The company continued to operate segment C
throughout 2019. Revenue of segment C throughout 2019 was P 8,000,000, operating cost was P
4,000,000. How much income should be reported as income from ordinary activities of the
discontinued segment for 2019, before tax?
P1,000,000
P2,000,000
P7,000,000
P8,000,000
Ans.
P1,000,000
Adler Company’s trial balance reflected the following accounts balance on December
31, 2019:
Accounts Receivable (net) 2, 400, 000
Financial assets at FVTOCI 600, 000
Accumulated depreciation on equipment and
furniture 1, 500, 000
Cash 1, 100, 000
Inventory 3, 000, 000
Equipment 2, 500, 000
Patent 400, 000
Prepaid Insurance 200, 000
Land held for future business site 1, 800, 000
The inventory included goods held on consignment amounting to P500, 000. The patent
was classified as held for sale on December 31, 2019. What amount of total current assets
should be reported on December 31, 2019?
6, 600, 000
6, 800, 000
7, 200, 000
7, 100, 000
Ans.
6, 600, 000
Step Company reported the following information relating to liabilities on December

31, 2019:
Accounts payable for goods and services purchased on open account amounted to
P600,000 and accrued expenses totaled P500,000 on December 31, 2019.
On July 1, 2019, the entity issued P5,000,000, 8% bonds for P4,400,000 to yield 10%.
The bonds mature on June 30, 2024, and pay interest annually every June 30. On
December 31, 2019, the bond were trading in the open market at 86 to yield 12%. The
effective interest method is used to amortize bond discount.
The pretax financial income for 2019 was P10,500,000 and the taxable income was
P9,000,000. The difference is due to P1,000,000 permanent difference and P500,000
temporary difference which is expected to reverse in 2020. The entity is subject to the
income tax rate of 30% and made estimated income tax payments during the year of
P1,000,000. What amount of current liabilities should be reported on December 31, 2019?
2,800,000
3,000,000
3,150,000
4,000,000
Ans.
3,000,000
Clarkie Company provided the following information for the current year:
Net income 6,000,000
Unrealized loss on FVTOCI investments 500,000
Translation reserve - credit 600,000
Revaluation reserve 2,000,000
Accumulated profits adjustment - debit 100,000
Appropriation reserve 200,000
Gain on sale of treasury shares 150,000
What amount of comprehensive income should be reported for the current year?
6,000,000
8,100,000
8,200,000
8,300,000
Ans.
8,100,000
The following limited information was made available from the cash record of
Blackwood Company and its bank statement for the month of December 31, 2019:
Book receipts, P1,870,000; Bank receipts, P1,830,000; November 30 deposit in transit

(of which P20,000 remained to be outstanding as of December 31, 2019), P260,000;
Erroneous bank credit for December, P10,000; Erroneous bank credit for November,
corrected in December, P20,000; Erroneous bank debit in November, corrected in
December, P5,000; Credi memo for December not yet recorded by Blackwood in
December, P150,000; Customer’s check received and deposited but posted as
disbursement by Blackwood, P60,000; Erroneous book disbursement in November
corrected in December P35,000; Receipt of November recorded by the company in
December, P20,000.
What is the adjusted receipt for the month of December?
P1,825,000
P1,845,000
P1,865,000
P1,875,000
Ans.
P1,845,000
Mary Company reported a total cash and cash equivalent of P6,325,000 on December
31, 2019, which includes the following information:
1. Two certificates of deposits, each totalling P500,000. These certificates of deposit
have a maturity of 60 days.
2. A check that is dated January 12, 2020 in the amount of P125,000.
3. A commercial paper of P2,100,000 which is due in 120 days.
4. Currency and coins on hand amounted to P7,700.
Mary company has agreed to maintain a cash balance of P500,000 in one of its bank at all
times and it is not available for withdrawal and to ensure future credit availability (this
amount was included in the above balance). How much is the correct of cash and cash
equivalent that Mary Company should reports in its December 31, 2019 statement of
financial position?
P2,600,000
P3,600,000P5,200,000P6,200,000 Mary Company reported a total cash and cash
equivalent of P6,325,000 on December 31, 2019, which includes the following
information:
1. Two certificates of deposits, each totalling P500,000. These certificates of deposit
have a maturity of 60 days.
2. A check that is dated January 12, 2020 in the amount of P125,000.
3. A commercial paper of P2,100,000 which is due in 120 days.
4. Currency and coins on hand amounted to P7,700.
Mary company has agreed to maintain a cash balance of P500,000 in one of its bank at all
times and it is not available for withdrawal and to ensure future credit availability (this
amount was included in the above balance). How much is the correct of cash and cash
equivalent that Mary Company should reports in its December 31, 2019 statement of
financial position?
P2,600,000
P3,600,000
P5,200,000
P6,200,000
Ans
P3,600,000
Which of the following events does not necessarily provide objective evidence that
a receivable is impaired?
A downgrade of the debtor’s credit rating

Significant financial difficulty of the debtor
Bankruptcy proceedings undertaken by the debtor
Default or delinquency in interest or principal payment
Ans.
A downgrade of the debtor’s credit rating
The following information pertains to the receivable ledger of Moriarty Company for
the year ended December 31, 2019:
Unassigned Assigned
Jan. 1, 2019 balance 2,000,000 3,000,000
Sales on account 10,000,000
Collection of net sales
discounts 6,000,000 1,750,000
Sales discounts 100,000 50,000
Write-off 50,000 25,000
Sales return 60,000 30,000
Also during the year, Moriarty Company factored some of its unassigned receivables
receiving a net proceeds of P720,000 and recognized in its profit or loss a loss of
P130,000 as a result of the transfer. Also at the close of the business year December 31,
2019 recognized a provision for uncollectible, future returns and discounts on all
outstanding receivables for a total amount of P250,000. What is the amortize cost of the
receivables as of December 31, 2019?
P4,660,000
P5,805,000
P6,055,000
P6,935,000
Ans.
P5,805,000
On July 1, 2017, Baskerville Company purchased an 8%, 4-year, P8,000,000 face

value bonds for P7,492,800. The bonds are dated July 1, 2017 and pays interest every
June 30. Effective rate of the bonds is 10%. The company has a business model of
collecting all contractual cash flows and has no intention of trading and making
profits.
The company did not receive the interest due on June 30, 2018 and it soon became
clear that the issuer was in financial difficulties. On June 30, 2018 the company
reviews the issuer’s financial condition and a prospect for repayment of the loan
determines that the bond is impaired. On the basis of the information available at the
time, the company’s best estimate of future cash flows is a total receipt of P5,000,000
on maturity. The fair value of the estimated cash flows as of June 30, 2018 is
P3,756,600.
On June 30, 2019, on the basis of new information the issuer entity has improved its
credit rating and the basis of the new information, the company’s best estimate of
future cash flow is a total receipt of P7,000,000 on maturity. The fair value of the new
cash flow as of June 30, 2019 is P5,785,100.
What is the amount of impairment reversal should Baskerville Company report in its
profit or loss for the year-ended June 30, 2019?
None
P1,214,900
P1,652,840
P2,028,500
Ans.
P1,652,840
At December 31, 2019, Sherlock Corp. had the following fair value through profit or
loss (FVPL)purchased during 2019, its first year of operation:
Unrealized
Gain
Cost Fair Value (Loss)
Security A P 900, 000 P 600, 000 P(300,
000)
Security B 150, 000 200, 000 50, 000
Totals P 1, 050, P 800, 000 P(250,
000 000)
How will the fair value adjustments for 2019 impact the year’s net income?
An unrealized holding loss will decrease net income by P300, 000.

An unrealized holding gain will increase net income by P50, 000.
Unrealized holding gains and losses on FVPL securities do not impact net income.
Ans.
On January 2, 2018, Scarlet Company invested in a 5-year 8% bond with a face value of
P5,000,000 in which interest is to be paid every December 31. The purchase price is based on the
prevailing market rate for similar type of transaction at the time of acquisition which is at 7%. At
the time of acquisition, Scarlet Company has a business model of collecting all contractual cash
flows including principal and interest for debt securities. On June 1, 2018 sold their other debt
security investment and another sale of debt security investment of another entity was made on
October 1, 2018. As a result of frequent sale of debt instrument the management made an
assessment on their business model and has decided to change to a business model to buying and
selling debt instrument. On January 2, 2019, the company has formally reclassified the debt
security to an investment measured at fair value to profit or loss. At the time of transfer the debt
security is currently selling at the prevailing market rate of 6.5%. On December 31, 2019 the
debt’s fair value is based on the prevailing rate of 6%. What total amount of revenue should
Scarlet Company report in its statement of comprehensive income for the year ended December
31, 2019 related to the debt security?
P336,001
P400,000
P410,366
P497,941
Ans.
P497,941
Holmes Corporation acquired 30% of Watson Company’s 100,000 voting stock on

January 2, 2018 for P3,000,000 when the net assets of Watson Company was
P10,000,000. Watson reported an after tax profit P1,500,000 and P1,800,000 in 2018 and
2019, respectively. Watson company also disclose in its statement of comprehensive
income an after tax unrealized forex gain of P300,000 and P500,000 in 2018 and 2019,
respectively. Watson Company paid dividends of P600,000 in 2018 and P900,000 in
2019. Market value of Watson’s ordinary shares is P125 and P135 per share for
December 2018 and December 2019, respectively.
If the company reclassified the retained investment in associate to an investment at fair
value to other comprehensive income on January 2, 2019, what amount of unrealized gain
or loss should be recognized immediately in the profit or loss?
P156,000
P192,000
P234,000
P288,000
Ans.
P288,000
Holmes Corporation acquired 30% of Watson Company’s 100,000 voting stock on

January 2, 2018 for P3,000,000 when the net assets of Watson Company was
P10,000,000. Watson reported an after tax profit P1,500,000 and P1,800,000 in 2018 and
2019, respectively. Watson company also disclose in its statement of comprehensive
income an after tax unrealized forex gain of P300,000 and P500,000 in 2018 and 2019,
respectively. Watson Company paid dividends of P600,000 in 2018 and P900,000 in
2019. Market value of Watson’s ordinary shares is P125 and P135 per share for
December 2018 and December 2019, respectively.
On January 2, 2019, Watson Company sold 40% of its investment at the prevailing
market price of P125 per share. What is the amount of gain or loss from the sale?
P156,000
P192,000
P234,000
P288,000
Ans.
P192,000
On August 1, 2018, Mycroft Company enters into a contract with John Company that
gives Mycroft Company the right to sell, and John Company the obligation to buy the fair
value of 4,000 shares of Mycroft Company’s own ordinary share outstanding as of
January 31, 2019 at a strike price of P392,000 (P98 per share) on January 31, 2019, if
Mycroft Company exercises the right. The contract will be settled net in shares; however,
if Mycroft Company does exercise the right, no payment will be made.
Below is pertinent relevant information:
Dec. 31, Jan. 31,
Aug. 1, 2018 2018 2019
Market price per
shares P100/share P95/share P95/share
Fair value of options P20,000 P16,000 P12,000
If the option is exercised, shareholders’ equity of Mycroft company is being reduced by
None
P 4,000
P12,000
P16,000
Ans.
P12,000
A retailer importer goods at a cost of P260,000, including P40,000 import duties and P20,000
non-refundable purchase taxes. The risks and rewards of ownership of the imported goods were
transferred to the retailer upon collection of the goods from the harbour warehouse. The retailer
was required to pay for the goods upon collection. The retailer incurred P10,000 to transport the
goods to its retail outlet and a further P4,000 in delivering the goods to its customer. Further
selling costs of P6,000 were incurred in selling the goods. What amount should the inventory be
valued?
P240,000
P250,000
P260,000
P270,000
Ans
P270,000
At December 31, 2019, the following information was available from Empire Co.’s
accounting records:
Cost Retail
Inventory, January 1, 2019 P 220,500 P 304,500
Purchases 1,276,380 1,732,500
Additional markups 63,000
Available for sale P 1,496,880 P2,100,000
Sales for the year totaled P1,659,000. Markdown amounted to P21,000. What is the cost
of Empire’s inventory at December 31, 2019 under the average cost method?
P299,376
P302,400
P420,000
P462,000
Ans.
P302,400
The following information appears in John Company’s records for the year ended
December 31, 2019:
Inventory, January 1, P325,000; Purchases, P1,150,000; purchase returns, P40,000;

Freight in, P30,000; Sales, P1,700,000; Sales discounts, P10,000; Sales returns,
P15,000 of which P5,000 was refunded.
On December 31, the company conducted a physical inventory which revealed that the
ending inventory was only P210,000. John’s gross profit on net sales has remained
constant at 30% in recent years. John suspects that some inventory may have been
pilfered by one of the company’s employees. How much is the estimated cost of missing
inventory on December 31?
P72,000
P75,000
P210,000
P292,000
Ans.
P72,000
X Company secured a term loan of P40M to part-finance the development of

condominium. The loan carried an interest rate of 10% per annum and was fully
drawn down on October 1, 2017. The construction of the condominium commenced on
January 1, 2018 and was completed on June 30, 2019. Costs incurred on the project
(excluding interest) totaled P80M.
Pending their requirement, surplus plus from the loan were invested in money market
instruments and the interest income was as follows:
Period of investment Interest income

October 1, 2017 – December 31,
2017 P 600,000
January 1, 2018 – December 31,
2018 1,200,000
January 1, 2019 – June 30, 2019 60,000
Total interest income P 1,860,00
The associated interest costs on the loan were as follows:

Period Incurred Interest Cost
October 1, 2017 – December 31,
2017 P1,000,000
January 1, 2018 – December 31,
2018 4,000,000
January 1, 2019 – June 30, 2019 4,000,000
(The loan was repaid in one lump-sum on January 1, 2020)
What is the revised carrying amount of the condominium upon completion in June 30,
2019?
P81,940,000
P82,800,000
P84,740,000
P86,000,000
Ans.
P84,740,000
Maxim and Maxwell use identical vehicles for transporting clients which are brought into use on
January 1, 2019. The total original cost of the vehicles for both entities is P5,000,000. Maxim
uses it vehicles until they no longer function properly, assuming appropriate maintenance and
services are performed as required. It has determined that, on average its vehicles needs
replacement every 8 years, based on historical records. The residual value of the vehicle after 8
year is determined to be P500,000 on December 31, 2019. Maxwell has a company policy to
replace its vehicles when the vehicle reaches the age of ten years irrespective of the condition of
the vehicle, while maintaining and servicing the vehicles are replaced after ten years. If both
entities uses the sum of years digit, what is the combined amount of depreciation should be
recognized during 2019 related to the vehicles?
P 730,000
P1,334,000
P1,214,285
P1,730,000
Ans.
P1,730,000
GHJ purchases a land and building at a cost of P10M in January 1, 2015. The land
portion accounts for P2M of the purchase price. The building is depreciated on a
straight-line basis over 50 years, charging a full year’s depreciation in the year of
purchase and none in the year of disposal.
On January 1, 2017, the land and building is revalued upward. An independent

professional valuer places a valuation of P17,920,000 on the existing use basis, of
which P4M is attributable to the land portion. The surplus is incorporated in the
accounts. In 2016, the property is sold for P20M cash.
Ignore deferred tax consideration. How much is the gain or loss arising in disposal of the
property in 2019, assuming the company does not use the piece-meal method of
accounting for surplus?
P2,080,000
P2,660,000
P 6,660,000
P10,320,000
Ans
P2,660,000

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