CUP 1 – FINANCIAL ACCOUNTING 1 AND 2

EASY

1. On January 1, 2015, Saitama Company purchased a P300,000 machine with a five-year useful life and no
salvage value. The machine was depreciated by an accelerated method for book and tax purposes. The
machine’s carrying amount was P120,000 on December 31, 2016. On January 1, 2017, Saitama changed
to the straight-line method for financial statement purposes. Saitama’s income tax rate is 40%.

Assuming that Saitama can justify the change, in its 2017 statement of retained earnings, what amount
should Saitama report as the cumulative effect of this change?
a. 60,000
b. 24.000
c. 36,000
d. None of the choices

Answer: D
Change in depreciation method is a change in accounting estimate and accounted for prospectively.

2. Ashirogi-sensei had an accounts receivable balance of P150,000 on December 31, 2015 and P175,000 on
December 31, 2016. Ashirogi wrote off P40,000 of accounts receivable during 2016. Sales for 2016
totaled P600,000 and all sales were on account.

The amount collected from customers on accounts receivable during 2016 was:
a. 575,000
b. 531,000
c. 535,000
d. 600,000

Answer: C
Beginning Balance 150,000
Sales 600,000
Write off -40.000
Ending Balance -175,000
Collections 535,000

3. On January 4, 2016, Kiley Co. leased a building to Dodd Corp. for a ten-year term at an annual rental of
$75,000. At inception of the lease, Dodd received $300,000 covering the first two years' rent of $150,000
and a security deposit of $150,000. This deposit will not be returned to Dodd upon expiration of the lease
but will be applied to payment of rent for the last two years of the lease. What portion of the $300,000
should be shown as a current and long-term liability in Kiley's December 31, 2016 balance sheet?

a. Current: 0 Long-term: 300,000

b. Current: 75,000 Long-term: 150,000
c. Current: 150,000 Long-term: 150,000
d. Current: 150,000 Long-term: 75.000
4. Aldub is preparing its bank reconciliation for Account 001 in Eat Bulaga Bank for the month of
December with the following information:

Cash balance of Account 001 per bank statement on Dec. 31 P763,234

Cash receipts entered twice in the books of Aldub 35,236
Interest earned by the company and credited by the Bank on account 001 but 23,623
not yet recorded by Aldub
Deposit in transit on December 31 84,345
NSF check returned by the bank on December 10 but recorded by the 74,345
company on December 25
Checks of Aldub not yet enchased by the payees 29,123

How much is the Unadjusted Book balance of Account 001 on Dec 31?
a. P830,069
b. P803,069
c. P 830,096
d. P 803,906

Answer: A

Cash balance per bank statement P763,234

Deposit in Transit 84,345
Outstanding Checks 29,123
Adjusted Balance of Account 001 818,456
Error (Cash Receipts entered twice.) 35,236
Credit Memo (Interest Earned) (23,623)
Unadjusted Balance per Book 830,069

5. Under IFRS, a contingency is described as

a. An estimated liability.
b. An event which is not recognized because it is not probable that an outflow will be required or the
amount cannot be reasonably estimated (not measurable).
c. The same as it is described by US generally accepted accounting principles.
d. A potentially large liability.

Answer: B
Paragraph 10 of IAS 37 Provisions, Contingent Liabilities and Contingent Assets, Contingency is
described as an event which is not recognized in the financial statements because it is not probable that an
outflow will be required or the amount cannot be reasonably estimated.

6. Yuri Company determined the following values for its inventory as of the end of its fiscal year:
Historical cost P100,000
Current replacement cost 70,000
Net realizable value 90,000
Net realizable value less a normal profit margin 85,000
Fair value 95,000
 Under IFRS, what amount should the company report as inventory on its balance sheet?
a. P70,000
b. P85,000
c. P90,000
d. P95,000

Answer: C
Paragraph 9 of PAS 2, inventory is reported at the lower of cost or net realizable value. Therefore, the
amount is P90,000, which is the lower of P100,000 cost or P90,000 net realizable value.

7. The following stock dividends were declared and distributed by Sophie Company:

% of common stock outstanding at declaration date Fair Value Par Value

10% 1,500,000 1,000,000
20% 4,000,000 3,500.000

What aggregate amount should be debited to retained earnings for these stock dividends?

a. 5,500,000
b. 4,500,000
c. 5,000,000
d. 3,500,000

Answer: C
10% stock dividend at fair value 1,500,000
20% stock dividend at par value 3,500,000
Total amount debited to retained earnings 5,000,000

8. In determining the cost of goods sold:

(a) purchase discounts are deducted from net purchases
(b) freight out is added to net purchases
(c) purchase returns and allowances are deducted from net purchases
(d) freight in is added to net purchases

Purchase discounts, returns and allowances are already part of net purchases.

9. In an audit of Angeline Company on December 31, 2016, the following information is gathered:
Balance per book 6,700,000
Customer’s check 200,000
Depositor’s note charged to account 650,000
Customer’s note collected by bank 120,000
Outstanding checks 800,000
Checkbook printing charge 2,000
Certified checks included in the outstanding checks 100,000
Deposit in transit 1,200,000
Interest earned on deposits net of 20% final tax 32,000
 The adjusted cash in bank of Angeline Company on December 31, 2016 is
a. 6,050,000 b. 6,700,000 c. 6,000,000 d. 5,300,000

6,700 – 200 – 650 + 120 – 2 + 32 = 6,000

10. The basic components of financial statements include (choose the incorrect one):
(a) statement of changes in equity (c) statement of retained earnings
(b) profit (loss) statement (d) statement of cash flow

AVERAGE

1. On December 31, 2015, Largo Company had a P750 000 note payable outstanding, due July 31, 2016.
Largo borrowed the money to refinance construction of a new plant. Largo planned to refinance the note
by issuing long term bonds. Because Largo temporarily had excess cash, it prepaid P250 000 of the note
on January 15, 2016. In February 2016, Largo completed a P1 500 000 bond offering.

Largo will use the bond offering proceeds to repay the note payable at its maturity and to pay construction
cost during 2016. On March 31, 2016, Largo issued its 2015 financial statements.

What amount of the note payable should Largo include in current liabilities on December 31, 2015?
a. 750 000
b. 500 000
c. 250 000
d. 0

Answer: A

The entire amount of 750 000 is shown as current liability because the note payable is due to be settled
within one year regardless of the issuance of bonds payable. The refinancing was done after year-end but
before the issuance of FS, so the note payable remains current.

2. On July 1, 2016 Cody Company obtained a P2 000 000, 180-day bank loan at an annual rate of 12%. The
loan agreement requires Cody to maintain a 400 000 compensating balance in its checking account at the
lending bank. Cody would otherwise maintain a balance of only P200 000 in this account. The checking
account earns interest at an annual rate of 6%.

Based on a 360 day year, what is the effective interest rate on the borrowing?
a. 12%
b. 12.67%
c. 13.33%
d. 13.50%

Answer: B
Interest Expense (2 000 000 x 12% x 180/360) 120,000
Interest Income on Compensating Balance
In excess of the normal checking account balance
(200 000 x 6%x 180/360) (6,000)
 Net Interest Expense P114,000

Loan 2 000 000

Less: Compensating Balance
In excess of the normal checking account balance (200,000)
Net Proceeds P1,800,000
Effective amount (1 800 000 x 180/360) P900,000

EFFECTIVE RATE = Net interest expense / Effective amount

Effective Interest Rate (114 000/ 900 000) 12.67%

3. Henri Company purchased for cash on January 1, 2012, three machines with a total cost of P1,800,000.
Fair values of the machines on January 1, 2012 were as follows:

Machine Fair value

1 P600,000
2 750,000
3 900,000

The machines were assessed to have a useful life of 10 years without residual value. The company
records depreciation on a monthly basis. On January 1, 2015, Machine 1 was sold for P375,000 in cash.
The proceeds were credited to the Machinery account.

On July 1, 2016, Machine 3 was traded in for a new machine (No. 4) which had a cash price of P750,000
and estimated useful life of 10 years without residual value. Henri paid P300,000 for the difference
between the cash price and the trade-in value of the old machine.

How much should be the adjusted balance of the Accumulated depreciation – Machinery as of
December 31, 2016?
a. P805,500
b. P481,500
c. P337,500
d. P387,500

Answer: C

Machine 2:
Cost = 1,800T x 750/2250 = 600T
Accumulated depreciation (600T x 5/10) 300,000
Machine 4 – new:
Cost = 750T cash price
Accumulated depreciation ((750,000/20)x(6/12)) 37,500
Total accumulated depreciation P337,500

4. On January 1, 2016, Everlasting Company purchased serial bonds with a face value of P4,000,000 and a
stated interest rate of 10% to be held to maturity. The stated interest is payable annually on December 31.
 The bonds are acquired to have an effective yield at 12%. The bonds mature at annual installments of
P1,000,000 every January 1, beginning in January 1, 2017 and every January 1 thereafter. What is the
market price of the bond investment on January 1, 2016? (Round off present value factors to 2 decimal
places)
a. 4,000,000 b. 3,776,000 c. 3,842,000 d. 3,876,000

1000T + 400T X 0.8929

1000T + 300T X 0.7972
1000T + 200T X 0.7118
1000T + 100T X 0.6355
PV = 3,839,630

5. During January 2016, Haze Company won a litigation award for P1,500,000 which was tripled to
P4,500,000 to include punitive damages. The defendant, who is financially stable, has appealed only the
P3,000,000 punitive damages. Haze was awarded P5,000,000 in an unrelated suit it filed, which is being
appealed by the defendant. Counsel is unable to estimate the outcome of these appeals.

In its 2016 financial statements, Hazel should report what amount of pre-tax gain?
a. P1,500,000
b. P4,500,000
c. P5,000,000
d. P9,500,000

Answer: A

Haze can report a gain of P1,500,000 in its 2016 income statement because this amount is already settled
on December 31, 2016. However, the remainder of P 3,000,000 is only disclosed because the defendant
has appealed the said amount.

6. A company reports Sales of 300,000, Accounts receivable of 200,000, and an Allowance for Doubtful
Accounts account of 4,000 credit balance (unadjusted) as of the end of the year. Based on experience, the
company estimates that 10% of its accounts receivable will be uncollectible.

How much bad debts expense should the company recognize at the end of the year?
a. 20,000
b. 16,000
c. 24,000
d. 26,000

7. On January 1, 2013, Nobel Corporation acquired machinery at a cost of P800,000. Nobel adopted the
straight-line method of depreciation for this machine and had been recording depreciation over an
estimated life of ten years, with no residual value. At the beginning of 2016, a decision was made to
change to the double-declining balance method of depreciation for this machine. Assuming a 30% tax
rate, the cumulative effect of this accounting change on beginning retained earnings, is:
a. P89,600.
b. Nil
c. P105,280.
 d. P150,400.

ANSWER: B
P0, No cumulative effect; handle prospectively (change in accounting estimate). Past years, as is straight
line. Current and future years, double declining.

8. Unquoted ______ instruments whose ______ value cannot be measured reliably are carried at cost. These
assets ______ subject to impairment review.
a. Debt, fair, are not
b. Debt, fair, are
c. Equity, fair, are not
d. Equity, fair, are

Answer: D
PAS 39.46: “After initial recognition, an entity shall measure financial assets, including derivatives that
are assets, at their fair values, without any deduction for transaction costs it may incur on sale or other
disposal, except for the following financial assets:
(a) loans and receivables as defined in paragraph 9, which shall be measured at amortized cost using
the effective interest method;
(b) held-to-maturity investments as defined in paragraph 9, which shall be measured at amortized cost
using the effective interest method; and
(c) investments in equity instruments that do not have a quoted market price in an active market and
whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by
delivery of such unquoted equity instruments, which shall be measured at cost (see Appendix A
paragraphs AG80 and AG81)…”

PAS 39.58: “An entity shall assess at the end of each reporting period whether there is any objective
evidence that a financial asset or group of financial assets is impaired. If any such evidence exists, the
entity shall apply paragraph 63 (for financial assets carried at amortized cost), paragraph 66 (for financial
assets carried at cost) or paragraph 67 (for available-for-sale financial assets) to determine the amount of
any impairment loss.”

9. ABC Company, a VAT registered company, both purchases and constructs various equipment it uses in
its operations. The following items were recorded in random order during the calendar year 2016 in
relation to the purchase of a certain equipment:

Cash paid for equipment, including VAT of Php24,000 Php224,000

Freight and insurance cost while in transit 4,000
Cost of moving equipment into place at factory 6,200
Wage cost for technicians to test equipment 8,000
Insurance premium paid during 1st year of operation 3,000
Special plumbing fixtures required for new equipment 16,000
Repair cost incurred in 1st year of operation 2,600

What is the total cost of the equipment Unni Company should recognize?
a. Php237,200
b. Php234,200
c. Php218,200
d. Php239,800
Answer: B
Cash paid for equipment, excluding VAT Php200,000
Freight and insurance cost while in transit 4,000
Cost of moving equipment into place at factory 6,200
Wage cost for technicians to test equipment 8,000
Special plumbing fixtures required for new equipment 16,000
Total cost of equipment Php234,200
z
Insurance and repair during 1st year of operations are expensed outright.
10. If David determines that 40% of Florial employees have accumulating annual leave, what must David
determine to account for the unused leave?
a. He must determine if the leave has been taxed as income for the employee.
b. He must list the leave as a cost on the balance sheet
c. He must determine if the leave is vesting or non-vesting
d. He must determine how much of the leave will be used in the current year

Answer: B
Accumulating compensated absences may be vesting or non-vesting. The distinction is whether they lapse
without payment if the employee leaves service before using the entitlement. The Standard requires both
vesting and non-vesting categories to be provided for, but in the case of the non-vesting category the
amount provided may be reduced to reflect the possibility that it will not become payable

DIFFICULT

1. Reload features in share-based payment are accounted for as follows:

a. separately from the initial options granted

b. included in the fair value of the initial options granted at measurement date
c. as a market condition
d. as a modification to the initial terms and conditions of the initial options granted

Answer: A
Paragraph 22 of IFRS 2-Share-based payment, states that for options with a reload feature, the reload
feature shall not be taken into account when estimating the fair value of options granted at the
measurement date. Instead, a reload option shall be accounted for as a new option grant, if and when a
reload option is subsequently granted.

2. In packages of its products, Plaster, INC. includes coupons that may be presented at retail stores to obtain
discounts on other Plaster products. Retailers are reimbursed for the face amount of coupons redeemed
plus 10% of that amount for handling costs. Plaster honors requests for coupon redemption by retailers up
to 3 months after the consumer expiration date. Plaster estimates that 60% of all coupons issued will
ultimately be redeemed. Information relating to coupons issued by Plaster during 2016 is as follows:
 Consumer expiration date Dec 31, 2016
Total payments to retailers as of Dec 31, 2016 P165,000
Liability for unredeemed coupons as of Dec 31, 2016 99,000

What is the total face amount of coupons issued by Plaster, Inc in 2016?
a. P440,000
b. 400,000
c. 600,000
d. 99,000

Answer: B
Liability for unredeemed coupons, Dec 31, 2016 99,000
Add: Total payments to retailers 165,000
Total Cost 264,000
Less: Handling charges [264,000-(264,000/110%)] 24,000
To be redeemed 240,000
Divide by redemption rate ÷ 60%
Total face amount of coupons issued 400,000

3. During its second year of operations, Maine Company found itself in financial difficulties. Maine decided
to use its accounts receivable as a means of obtaining cash to continue operations. On July 1, 2016, Maine
sold P1,500,000 of accounts receivable for cash proceeds of P1,390,000. No bad debt allowance was
associated with these accounts. On December 15, 2016, Maine assigned the remainder of its accounts
receivable, P5,000,000 as of that date, as collateral on a P2,500,000,12% annual interest rate loan from
Finance Company. Maine received P2,500,000 less a 2% finance charge. Additional information is as
follows:

Allowance for bad debts before adjustment 12/31/2016 65,000

Estimated Uncollectible 12/31/2016 3% of Accounts Receivable
Accounts receivable excluding factored and assigned accounts 1,000,000

None of the assigned accounts had been collected by the end of the year. Gina Company shall recognize
bad debt expense for 2016 at
a. 180,000
b. 95,000
c. 115,000
d. 30,000

Answer: C
Accounts Receivable-Unassigned 1,000,000
Accounts Receivable-Assigned 5,000,000
Total Accounts Receivable 6,000,000
Required allowance -12/31/2016
(3% x 6,000,000) 180,000
Allowance for bad debts before adjustment (65,000)
Bad Debts Expense for 2016 115,000
4. A hedge of the exposure to changes in fair value of a recognized asset or liability or an unrecognized firm
commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to
a particular risk and could affect profit or loss.
a. Fair Value hedge
b. Cash Flow Hedge
c. Hedge of a net investment in a foreign operation
d. Hedge of the foreign currency risk of a firm commitment

Answer: A. Fair Value Hedge

Hedging relationships are of three types (PAS 39.86-87)

(a) fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or
an unrecognised firm commitment, or an identified portion of such an asset, liability or firm commitment,
that is attributable to a particular risk and could affect profit or loss.
(b) cash flow hedge: a hedge of the exposure to variability in cash flows that (i) is attributable to a
particular risk associated with a recognised asset or liability (such as all or some future interest payments
on variable rate debt or a highly probable forecast transaction and (ii) could affect profit or loss.
(c) hedge of a net investment in a foreign operation as defined in IAS 21.

A hedge of the foreign currency risk of a firm commitment may be accounted for as a fair value hedge or
as a cash flow hedge.

5. In January 2016, Ysabelle Mining Corporation purchased a mineral mine for P6,300,000 with removable
ore estimated by geological surveys at 2,500,000 tons. The property has an estimated value of P600,000
after the ore has been extracted. Ysabelle incurred P1,725,000 of development costs preparing the
property for the extraction of ore. During 2016, 340,000 tons were removed and 300,000 tons were sold.
For the year ended December 31, 2016, Ysabelle should include what amount of depletion in its cost of
goods sold?
a. P775,200
b. P684,000
c. P891,000
d. P1,009,800

Answer: C
[($6,300,000 – $600,000 + $1,725,000) ÷ 2,500,000] × 300,000 = $891,000.

6. Terry Corporation had 400,000 shares of common stock outstanding at December 31, 2016. In addition, it
had 90,000 stock options outstanding, which had been granted to certain executives, and which gave them
the right to purchase shares of Terry's stock at an option price of P37 per share. The average market price
of Terry's common stock for 2016 was P50. What is the number of shares that should be used in
computing diluted earnings per share for the year ended December 31, 2016?
a. 400,000
b. 431,622
c. 466,600
d. 423,400

Answer: D
 90,000 – (90,000 × P37 ÷ $50) = 23,400
400,000 + 23,400 = 423,400.

7. Which of the following is true for PFRS for SMEs:

a. Under PFRS for SMEs, the use of an accrued benefit valuation method (the projected unit credit
method) for employee benefit obligation is required for calculating defined benefit obligations.
b. Under PFRS for SMEs, Intangible assets, including goodwill are assumed to have finite lives
and are amortized.
c. Under PFRS for SMEs, Research costs and development costs are expenses, however,
development costs are capitalized if certain criteria are met.
d. Under PFRS for SMEs, only equity method is permitted in accounting for investment in
associates.

Answer: B
In PFRS for SMEs, The cost model is the only permitted model. All intangible assets, including
goodwill, are assumed to have finite lives and are amortided.
Answer A, C and D are wrong as they pertain to the measurement in Full PFRS. SMEs are accounted for
as follows:
A. The circumstance-driven approach is applicable, which means that the use of an accrued benefit
valuation method (the projected unit credit method) is required if the information that is needed to make
such a calculation is already available, or if it can be obtained without undue cost or effort. If not,
simplifications are permitted in which future salary progression, future service or possible mortality
during an employee’s period of service are not considered. [IFRS for SMEs 28.18-28.20]

C. All research and development costs are recognised as an expense. [IFRS for SMEs 18.14]
D. An investor may account for its investments using one of the following: The cost model (cost less any
accumulated impairment losses); The equity method, and; The fair value through profit or loss model.
[IFRS for SMEs 14.4]

8. The Tanager Company purchased a boring machine on 1 January 2015 for PHP81,000. The useful life of
the machine is estimated at 3 years with a residual value at the end of this period of PHP6,000. During its
useful life, the expected units of production from the machine are:
2015 12,000 units
2016 7,000 units
2017 5,000 units

What should be the depreciation expense for the year ended 31 December 2016, using the most
appropriate depreciation method permitted by IAS16 Property, plant and equipment?
a. PHP27,000
b. PHP21,875
c. PHP23,625
d. PHP25,000

Answer: B
The correct answer is PHP21,875.
See IAS16 para 56, which indicates that assets are consumed principally through their use. In this
example the answer is calculated as (the original cost less the residual value) divided by total units
 produced in 3 years multiplied by total units produced in 2016. Most appropriate depreciation method =
21,875

9. Under IFRS 9 Financial Instruments, all of the following statements about the business model test are
correct, except: (WHICH IS FALSE)
a. Not an instrument-by-instrument approach
b. Classification to be determined at facility-level
c. It is a matter of fact and not management intent
d. All of the above are correct

Answer: B
(IFRS 9 b4.1.1 – b4.1.2b)

10. On 1 January 2016 The Hamerkop Company borrowed PHP6 million at an annual interest rate of 10% to
finance the costs of building an electricity generating plant. Construction commenced on 1 January 2016
and cost PHP6 million. Not all the cash borrowed was used immediately, so interest income of
PHP80,000 was generated by temporarily investing some of the borrowed funds prior to use. The project
was completed on 30 November 2016. What is the carrying amount of the plant at 30 November 2016?
a. PHP6,000,000
b. PHP6,470,000
c. PHP6,520,000
d. PHP6,550,000

Answer: B
See IAS23 para 12. The asset's carrying amount in this example is the PHP6 million construction cost
plus the interest charged on the loan for the 11 months of construction (PHP6 million x 10% x 11/12 =
PHP550,000, less the PHP80,000 interest earned prior to using the loan to finance construction.

CLINCHER

1. How realized gains and losses for Available-for-sale securities are reported on the income statement?
a. Realized gains and losses not already recognized as unrealized components are recognized.
b. Realized gains and losses are recognized (which include unrealized holding gains and losses
recognized previously as unrealized)
c. Realized gains and losses are recognized in accordance with amortized cost method
d. All of the above

Answer: B

2. Which of the following is/are true about calculating the number of shares for diluted EPS?
a. An entity shall adjust the weighted average number of ordinary shares as calculated for basic EPS
with the weighted number of shares that would be issued on the conversion of all the dilutive potential
ordinary shares into ordinary shares.
b. Dilutive potential ordinary shares shall be deemed to have been converted into ordinary shares at
the end of the period.
c. Potential ordinary shares shall be treated as dilutive when, and only when, their conversion would
decrease EPS or increase loss per share from continuing operations.
 d. A and B only
e. A and C only

Answer: E. A and C only

Dilutive potential ordinary shares shall be deemed to have been converted into ordinary shares at the
beginning of the period or the date of the issue of the potential ordinary shares. (PAS 33.36)

3. During 2015, a textbook written by Finance and Accounting Tutors was sold to Roark Publishing, Inc.,
for royalties of 10% on sales. Royalties are receivable semiannually on March 31, for sales in July
through December of the prior year, and on September 30, for sales in January through June of the same
year.
• Royalty income of $162,000 was accrued at 12/31/15 for the period July-December 2015.
• Royalty income of $180,000 was received on 3/31/16, and $234,000 on 9/30/16.
• Finance and Accounting Tutors learned from Roark that sales subject to royalty were estimated at
$2,430,000 for the last half of 2016.

In its income statement for 2016, Finance and Accounting Tutors should report royalty income at
a. $414,000.
b. $432,000.
c. $477,000.
d. $495,000.

Answer: D
($180,000 – $162,000) + $234,000 + ($2,430,000 × .10) = $495,000.

4. True or False: Under PAS 12, Income Taxes, current tax liabilities (assets) for the current and prior
periods shall be measured at the amount expected to be paid to (recovered from) the taxation authorities,
using the tax rates (and tax laws) that have been enacted or substantively enacted by the time in which
the income was earned.

a. True
b. False

Answer: B
Par. 46 of PAS 12, Income Taxes, provides:
“Current tax liabilities (assets) for the current and prior periods shall be measured at the amount expected
to be paid to (recovered from) the taxation authorities, using the tax rates (and tax laws) that have been
enacted or substantively enacted by the end of the reporting period.”

5. For equity-settled share-based payment transactions, an entity measures the goods or services received:
a. At the fair value of the goods and services received
b. At the fair value of the equity instruments granted
c. At the fair value of the goods or services received, unless that fair value cannot be estimated
reliably

Answer: C
 PFRS 2.10:
“For equity-settled share-based payment transactions, the entity shall measure the goods or services
received, and the corresponding increase in equity, directly, at the fair value of the goods or services
received, unless that fair value cannot be estimated reliably. If the entity cannot estimate reliably the fair
value of the goods or services received, the entity shall measure their value, and the corresponding
increase in equity, indirectly, by reference to the fair value of the equity instruments granted.”

6. Which statement is true if the property is partly an investment and partly owner-occupied?

I. If the investment and owner-occupied portions could be sold or leased out separately, the portions
shall be accounted for separately as investment property and owner-occupied property, respectively.
II. If the investment and owner-occupied portions could not be sold or leased out separately, the
property is classified as an investment property if a significant portion is held for manufacturing or
administrative purposes.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

Answer: A
Par. 10 of PAS 40 provides: “Some properties comprise a portion that is held to earn rentals or for capital
appreciation and another portion that is held for use in the production or supply of goods or services or for
administrative purposes. If these portions could be sold separately (or leased out separately under a
finance lease), an entity accounts for the portions separately. If the portions could not be sold separately,
the property is investment property only if an insignificant portion is held for use in the production or
supply of goods or services or for administrative purposes.”

7. 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%. How much is the net deferred tax assets (liabilities) to
be recognized in the balance sheet?
a. P1,350,000 net deferred tax liabilities
b. P1,350,000 net deferred tax assets
c. P2,250,000 net deferred tax liabilities
d. P900,000 net deferred tax assets
Answer: A

Tax rate DTA DTL Net DTL

40% 1,200,000 3,000,000 (1,800,000)
30% 900,000 2,250,000 (1,350,000)

8. Which of the following is true?

a. Under the historical cost measurement basis, assets are recorded at the amount of cash or cash
equivalents received or the fair value of the consideration received to acquire them at the time of their
acquisition.
 b. Under the current cost measurement basis, assets are carried at the amount of cash or cash
equivalents that would have to be received if the same or an equivalent asset was acquired currently.
c. Under the realizable value measurement basis, assets are carried at the amount of cash or
cash equivalents that could currently be obtained by selling the asset in an orderly disposal.
d. Under the present value measurement basis, assets are carried at the historical discounted value of
the future net cash inflows that the item is expected to generate in the normal course of business.

Answer: C
Paragraph 4.55 of The Conceptual Framework for Financial Reporting defines a number of different
measurement bases used in the financial statements as follows:

Under the historical cost measurement basis, assets are recorded at the amount of cash or cash equivalents
paid or the fair value of the consideration given to acquire them at the time of their acquisition.

Under the current cost measurement basis, assets are carried at the amount of cash or cash equivalents that
would have to be paid if the same or an equivalent asset was acquired currently.

Under the realizable value measurement basis, assets are carried at the amount of cash or cash equivalents
that could currently be obtained by selling the asset in an orderly disposal.

Under the present value measurement basis, assets are carried at the present discounted value of the future
net cash inflows that the item is expected to generate in the normal course of business.

9. Which of the following should be included in the scope of IAS 16: Property, Plant and Equipment?
a. Mineral rights and mineral reserves such as oil, natural gas, and similar non-regenerative
resources
b. Biological assets related to agricultural activity
c. Property that is being constructed or developed for future use as investment property
d. All of the above
e. None of the above

A. Incorrect. Mineral rights and mineral reserves such as oil, natural gas, and similar non-
regenerative resources are excluded from the scope of IAS 16. PFRS 6
B. Incorrect. Biological assets related to agricultural activity are excluded from the scope of IAS 16.
PAS 41
C. Incorrect. Property that is being constructed or developed for future use as investment property is
within the scope of IAS 40 Investment Property. PAS 40
D. Incorrect.
E Correct. None of the above is included in the scope of IAS 16.

10. Revenue under accrual basis for the year 2013 amounted to P 3,750,000 while accounts receivable written
off amounted to P 28,750. If the balance of accounts receivables increased by P 620,000, then how much
revenue should be reported for the year under cash basis?
a. P3,101,250
b. P3,130,000
c. P3,158,750
d. P4,341,250
Answer: A
Revenue, accrual basis P3,750,000
Less: AR, written off 28,750
Less: Net increase in AR 620,000
Total collections P3,101,250