1.

On January 1, 2005, Tagaytay Company purchased a tract of land with an old building which was razed
shortly after acquisition. The costs incurred in connection with the acquisition were:

Purchase price 5,000,000

Agent commission 250,000
Legal fees for the purchase contract 100,000
Guarantee insurance 10,000
Cost of razing the old building 200,000
Salvage value of old building materials 50,000
Property taxes for 2004 and 2005 (equally each year) 300,000
Option paid for an alternative land which was not acquired 30,000
Cost of relocating squatters 20,000

The cost of the land should be

5,680,000

2. On January 1, 2005, Kawit Company borrowed P6,000,000 at an interest rate of 10% specifically for the construction of
its new building. Interest earned from the temporary investment of the proceeds the loan prior to their disbursement
amounted to P75,000. Kawit also had the following other loans in 2005 which were borrowed for general purposes. The
proceeds of these loans were used in part for the construction of the building:
Principal Interest
10% bank loan 4,500,000 450,000
12% long-term loan 6,000,000 720,000
10,500,000
1,170,000
11.14%

The construction began on January 1, 2005 and the building was completed on December 31, 2005.
Expenditures on the building were made as follows:

January 2 1,500,000
April 1 3,750,000
July 1 4,500,000
September 30 3,750,000
December 31 1,500,000
15,000,000

The amount of capitalizable borrowing cost is

a. 1,350,000 b. 690,000
C. 525,000 d. 165,000
SOLUTION
1/2/05 1,500,000 X 12/12 = 1,500,000
4/1/05 3,750,000 X 9/12 = 2,812,500
7/1/05 4,500,000 X 6/12 = 2,250,000
9/30 3,750,000 X 3/12 = 937,500
AVERAGE 7,500,000
LESS: SPECIFIC 6,000,000
GENERAL 1,500,000

SPECIFIC 6,000,000 X 10% = 600,000-75,000 525,000

GENERAL 1,500,000 X 11.14% 167,100
TOTAL 692,100

3. Ponggay Inc. had 10,200 units on April 2019, based on physical count of goods on that day. The following
items have not yet been recorded as purchases and sales as of April 30:
No. Transaction Terms Number of Units
1 Purchase FOB Shipping Point 250
2 Purchase FOB Destination 300
3 Sale FOB Shipping Point 650
4 Sale FOB Destination 500
Items 1-4 were shipped by the seller, April 30, 2019 and received by the buyer on May 5, 2019. How many units
should be considered as inventory at the end of April 2019?
10,950
Solution: 10,200+250+500

4. The physical inventory on December 31, 2019 of Christine Co. showed merchandise at P172,000. You discov-
ered that the following items were excluded from this amount:
 Merchandise costing P31,500 shipped by a vendor FOB shipping point on December 31, 2019 and re-
ceived by Christine on January 5, 2020.
  Merchandise costing P40,000 shipped by a vendor FOB destination on December 30, 2019 and received
by Christine on January 4, 2020.
 Merchandise costing P12,500 which was shipped FOB destination to a customer on December 29, 2019.
The customer expected to receive the merchandise on January 6, 2020.
 Merchandise costing P28,500 which was shipped FOB shipping point to a customer on December 29,
2019. The goods are scheduled to arrive at the destination point on January 2, 2020.
What is the correct amount of inventory that should appear on Christine’s December 31, 2019 statement of finan-
cial position?
P216,000

5. De Leon Company had 150,000 units of product A on hand at January 1, costing P21 each. Purchases of prod-
uct A during the month of January were:
Units Unit Cost
January 10 200,000 22
18 250,000 23
28 100,000 24

A physical count on January 31 shows 250,000 units of Product A on hand. What is the cost of the inventory on
January 31 under the FIFO method?

100,000 x 24 = 2,400,000
150,000 x 23 = 3,450,000
Total = 5,850,000
6. Clarisse Company is engaged in raising dairy livestock. The entity provided the following information during the
current year:

Carrying amount on January 1 5,000,000

Increase due to purchase 2,000,000
Gain arising from change in fair value less cost of disposal
attributable to price change 400,000
Gain arising from change in fair value less cost of disposal
Attributable to physical change 600,000
Decrease due to sales 850,000
Decrease due to harvest 200,000

What is the carrying amount of the biological asset on December 31?

P6,950,000
7. Lin Company sells its merchandise at a gross profit of 30%. On June 30, 2011, all of Lin's inventory was
destroyed by fire.
The following figures pertain to Lin's operations for the six months ended June 30, 2011:
Net sales 8,000,000
Beginning inventory 2,000,000
Net purchases 5,200,000
What is the estimated cost of the destroyed inventory?

Beginning inventory 2,000,000

Net purchases 5,200,000
GAS 7,200,000

NET SALES 8,000,000 X 70% = 5,600,000

GAS 7,200,000
COST OF SALES 5,600,000
EI 1,600,000

8. On March 1, 2010, Newton Company purchased land for an office site by paying P540,000 cash. Newton began
construction on the office building on March 1. The following expenditures were incurred for construction:
Date Expenditures
March 1, 2010 P 360,000
April 1, 2010 504,000
May 1, 2010 900,000
June 1, 2010 1,440,000
The office was completed and ready for occupancy on July 1. To help pay for construction, P720,000 was borrowed
on March 1, 2010 on a 9%, 3-year note payable. Other than the construction note, the only debt outstanding during
2010 was a P300,000, 12%, 6-year note payable dated January 1, 2010. The weighted-average accumulated
expenditures on the construction project during 2010 were
(P900,000 × 4/12) + (P504,000 × 3/12) + (P900,000 × 2/12) +
(P1,440,000 × 1/12) = P696,000

9. La Bianco Company purchased land for a manufacturing facility for P1,100,000. The company paid P70,000 to tear
down a building on the land. Salvage was sold for P10,500. Legal fees of P6,500 were paid for title investigation and
making the purchase. Architect's fees were P40,500. Title insurance cost P4,500, and liability insurance during
construction cost P13,500. Excavation cost P12,000. The contractor was paid P1,357,000. A one -time assessment
made by the city for sidewalks was P7,500. La Bianca installed lighting and signage at a cost of P11,000. The cost of
the land that should be recorded by La Bianca is

P1,178,000

10. Referring to the previous item, La Bianca should record land improvements of
P11,000

1. Which of the following assets do not qualify for capitalization of interest costs incurred during construction of the
assets?
a. Assets under construction for a company's own use.
b. Assets intended for sale or lease that are produced as discrete projects.
c. Assets financed through the issuance of long-term debt.
d. Assets not currently undergoing the activities necessary to prepare them for their intended use.
2. Which of the following is not a major characteristic of a plant asset?
a. Possesses physical substance
b. Acquired for resale
c. Acquired for use
d. Long-term in nature
3. Fences and parking lots are reported on the statement of financial position as
A. current assets. B. land improvements.
C. land. D. property and equipment
4. Which of the following terms best describes the removal of an asset from an entity’s statement of financial posi-
tion?
a. Derecognition b. Impairment
C. Write-off d. Depreciation
5. Which of the following items is capitalized as part of the cost of PPE?
a. Cost of opening a new facility
b. Cost of relocating or reorganizing an entity’s operations
c. Cost of introducing a new product or conducting business in a new location
d. Cost of site preparation
6. Where there is a long aging or maturation process after harvest, the accounting for such products shall be dealt
with by
A. PAS 41, Agriculture B. PAS 2, Inventories
C. PAS 40, Investment property D. PAS 16, Property, plant and equipment

7. Agricultural activity results in which of the following type of asset?

A. Biological asset
B. Agricultural produce
C. Both biological asset and agricultural produce
D. Neither biological asset nor agricultural produce
8. It is a market in which transactions for the asset or liability take place with sufficient regularity and volume to pro-
vide pricing information on an ongoing basis.
A. Active market B. Financial market
C. Global market D. Principal market
9. An entity had a plantation forest that is likely to be harvested and sold in 30 years. The income shall be accounted
for in which of the following?
A. No income shall reported annually until first harvest and sale in 30 years.
B. The eventual sale proceeds shall be estimated and matched to the profit and loss account over the 30-year pe-
riod.
C. Income shall be measured annually and reported using a fair value approach that recognizes and measures bio-
logical growth.
 D. The plantation forest shall be valued every 5 years and the increase in value shall be recognized as component of
other comprehensive income
10. An entity owns a herd of cattle. Where should changes in the fair value of a herd of cattle be recognized in the fi-
nancial statements?
A. In profit or loss only B. In the statement of cash flows only
C. In other comprehensive income only D. In profit or loss or other comprehensive income

11. What condition is not necessary when using the retail inventory method?
A. A record of sales for the period
B. A record of total cost of goods sold for the period
C. A record of total cost and retail value of goods purchased for the period
D. A record of total cost and retail value of goods available for sale for the period

12. The retail inventory method would include which of the following in the calculation of the goods available for sale at
both cost and retail?
A. Freight in B. Markdowns
C. Markups D. Purchase returns

13. The conventional retail method produces an ending inventory that approximates
A. Lower of cost or net realizable value
B. Lower of LIFO cost or net realizable value
C. Lower of FIFO cost or net realizable value
D. Lower of average cost or net realizable value

14. When the conventional retail inventory method is used, markdowns are commonly ignored in the computation
of cost to retail ratio because
A. There may be no markdowns in a given year.
B. This tends to give a better approximation of the lower of cost or net realizable value.
C. Markups are also ignored.
D. This tends to result in the showing of a normal profit margin in a period when no markdown goods have been
sold.

15. Which of the following should not be reported as inventory?

A. Land acquired for resale by a real estate firm
B. Shares and bonds held for resale by a brokerage firm
C. Partially completed goods held by a manufacturing entity
D. Machinery acquired by a manufacturing entity for use in the production process

16. Which of the following should be included in inventory?

A. Goods received from another entity for sale on consignment.
B. Goods in transit which were purchased FOB destination.
C. Goods sold to a customer which are being held for the customer to call for at the customer convenience.
D. None of these should be included
17. The cost of purchase of inventory does not include
A. Purchase price
B. Import duties and irrecoverable taxes
C. Trade discounts, rebates and other similar items
D. Freight, handling and other cost directly attributable to the acquisition of goods

18. Fixed production overheads include all of the following, except

A. Depreciation of factory building B. Maintenance of factory equipment
C. Indirect materials and indirect labor D. Cost of factory management and administration

19. The costs of inventory of a service provider include which of the following?
I. Labor and other cost of personnel directly engaged in providing the service.
II. Compensation of supervisor directly engaged in providing the service.
III. Attributable overhead incurred in providing the service.
A. I only B. I and II only
C. I and III only D. I, II and III

20. An entry debiting inventory and crediting cost of goods sold would be made when
A. Merchandise is sold and the periodic inventory method is used.
B. Merchandise is sold and the perpetual inventory method is used.
C. Merchandise is returned and the periodic inventory method is used.
D. Merchandise is returned and the perpetual inventory method is used.