Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

FAR OCAMPO/OCAMPO
PREWEEK LECTURE MAY 2023

1. In accordance with RA 9298, which of the following b. Preparation of post-closing trial balance
‘passed’ the Licensure Examination for CPAs (LECPA)? c. Closing of nominal accounts
a. b. c. d. d. Preparation of adjusting entries
FAR 81.00 81.00 90.00 98.00
8. Which statement is incorrect?
AFAR 70.00 76.00 80.00 65.00
a. Prepayments occur when cash flow precedes
MAS 74.00 70.00 70.00 65.00
expense recognition.
AUD 76.00 78.00 90.00 96.00
b. Failure to record the unexpired portion of
TAX 72.00 37.00 64.00 65.00 insurance premium paid would understate profit.
RFBT 74.00 75.00 74.00 65.00 c. Failure to record the unearned portion of rent
AVERAGE 74.50 69.50 78.00 75.67 received in advance would overstate owner’s
equity.
2. Which statement pertains to the Professional d. The adjusting entry to record the earned portion
Regulatory Board of Accountancy (BOA)? of rent received in advance may be reversed.
a. Its main function is to establish generally
accepted accounting principles in the Philippines. 9. An entity provided the following data:
b. Has a chairman who had been or presently a
Total assets, end P80,000
senior practitioner in public accountancy.
c. It has the authority to establish the accounting Share capital, end 15,000
framework to be used by companies under its Retained earnings, beg. 22,000
jurisdiction. Net income 15,000
Dividends declared 7,000
d. It is composed of a chairman and six (6) members
appointed by the President of the Philippines. Compute the total liabilities at year-end.
a. P35,000 c. P50,000
3. The Insurance Commission is represented in b. P43,000 d. P65,000
I. FSRSC
II. PIC 10. Which statement is correct regarding the Conceptual
III. AASC Framework for Financial Reporting?
a. I, II and III c. II and III only a. Prevails in cases where there is conflict with a
PFRS.
b. I and II only d. III only
b. Its foundation is the elements of financial
statements.
4. Earning of CPD units is required for
c. Assists users of financial statements in applying
a. Renewal of license
b. Accreditation to practice the accounting standards.
c. Both a and b d. It addresses the characteristics that make
d. Neither a nor b financial information useful.

11. The recognition of income occurs at the same time as

5. Which statement is incorrect regarding CPD
requirements for CPAs? a. The initial recognition of an asset, or an increase
a. OFWs are not covered by the CPD requirement. in the carrying amount of an asset.
b. Newly licensed CPAs are not covered by the CPD b. The derecognition of a liability, or a decrease in
the carrying amount of a liability.
requirement for their first renewal cycle.
c. CPAs getting BoA accreditation will need 120 units c. Either a or b.
of CPD training. d. Neither a nor b.
d. All other CPAs renewing their Professional ID Card
will need 15 CPD units of training under the 12. Which of the following meets the definition of
expense?
technical competence area.
I. Decrease in carrying amount of asset due to
revaluation.
6. Why does the IFRS Interpretations Committee
publishes an Agenda Decision? II. Decrease in fair value of equity investment
a. To explain why a standard-setting project has not designated at fair value through other
been added to the work plan to address a comprehensive income.
III. Loss on re-issuance of treasury shares.
question submitted.
IV. Loss on retirement of preference shares.
b. To explain why a standard-setting project has
been added to the work plan to address a a. I, II, III and IV
question submitted. b. I and II only
c. To provide specific guidance on the application of c. II only
a particular provision of an IFRS Accounting d. None of these
Standard.
d. To explain why an Interpretation of an IFRS has 13. Which of the following is least likely affected by the
been issued. COVID-19 outbreak?
a. Impairment of assets
7. Which of the following step in the accounting process b. Leases
comes first? c. Ability of the entity to continue as going concern
a. Preparation of financial statements d. Identification of related parties

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14. An entity furnishes you with the following list of 17. An entity commits to a plan to dispose of one of its
accounts: operating segments. The disposal meets the
Accounts payable P 66,000 requirements for discontinued operations.
Accounts receivable 40,000 Records and other information disclosed the following
Accumulated depreciation 44,000 for the disposal group:
Advances to sales persons 10,000
Carrying amount P8,000,000
Advertising Expense 72,000
Fair value less costs to sell 6,500,000
Allowance for Bad Debts 10,000
Loss from operations 2,000,000
Bonds payable 80,000
Expected operating loss prior to
Cash 22,000
disposal 500,000
Certificates of deposit 16,000
Share capital, (par) 100,000 Disregarding income tax, how much will be reported
Deferred income tax liability 46,000 as loss from discontinued operations?
Equipment 215,500 a. P4,000,000 c. P2,000,000
Inventory 55,000 b. P3,500,000 d. P1,500,000
Investment in X Co. shares
(20% of outstanding shares 76,500
owned) Use the following information for the next five questions.
Investment in Y Co. shares
(trading securities) 21,000 An entity uses the direct method to prepare its statement
Share premium 42,500 of cash flows. Its trial balances at Dec. 31 current year
Premium on Bonds Payable 6,000 (CY) and prior year (PY) are as follows:
Prepaid Insurance 6,000 12/31/CY 12/31/PY
Rent revenue 37,000 Debits
Rent revenue received in advance 12,000 Cash P 35,000 P 32,000
(4 months) Accounts receivable 33,000 30,000
Retained earnings 97,500 Inventory 31,000 47,000
Taxes payable 10,000 Property, plant & equipment 100,000 95,000
Tools 52,000 Unamortized bond discount 4,500 5,000
The entity’s working capital is Cost of goods sold 250,000 380,000
a. P72,000 c. P62,000 Selling expenses 141,500 172,000
b. P66,000 d. P46,000 General and administrative
expenses 137,000 151,300
15. The net income of an entity for the year was P28,000. Interest expense 4,300 2,600
Selling expenses were equal to 18% of sales and 30% Income tax expense 20,400 61,200
of the cost of sales. All other expenses were 12% of P756,700 P976,100
sales. The cost of sales of the entity for the year was Credits
a. P 84,000 c. P168,000 Allowance for uncollectible
b. P112,000 d. P251,000 accounts P 1,300 P 1,100
Accumulated depreciation 16,500 15,000
16. Jimmy Corp. reported profit of P10,000,000 for the Trade accounts payable 25,000 17,500
current period. The auditor raised questions about the Income taxes payable 21,000 27,100
following amounts that had been included in profit: Deferred tax liability 5,300 4,600
8% callable bonds payable 45,000 20,000
Unrealized loss on decline in value of FA at Share capital 50,000 40,000
FVTOCI P 500,000 Share premium 9,100 7,500
Loss on write-off of inventory due to a Retained earnings 44,700 64,600
government ban net of tax 1,500,000 Sales 538,800 778,700
Adjustment of profit of prior year net-debit 2,000,000 P756,700 P976,100
Loss from expropriation of property,
net of tax 3,500,000 • The entity purchased P5,000 in equipment during the
Exchange differences gain on translating current year.
foreign operations 4,500,000
Revaluation surplus realized 1,000,000 • The entity allocated one-third of its depreciation
Equity in earnings of Joni Corp. 600,000 expense to selling expenses and the remainder to
Dividends received from Joni Corp. 300,000 general and administrative expenses.
Defined benefit expense 800,000
QUESTIONS:
Additional information:
• The loss from expropriation was unusual in Based on the foregoing, what amounts should the entity
occurrence in Jimmy’s line of business. report in its statement of cash flows for the current year
• Jimmy owns 20% of Joni's ordinary shares. ended for:
• Defined benefit expense includes: Service cost,
18. Cash collected from customers?
P500,000; Interest cost, P200,000; Actuarial loss
a. P541,800 c. P536,000
on defined benefit obligation, P100,000.
b. P541,600 d. P535,800
Jimmy Corp.’s current period statement of
19. Cash paid for goods to be sold?
comprehensive income should report profit of
a. P258,500 c. P242,500
a. P6,600,000 c. P6,800,000
b. P257,500 d. P226,500
b. P6,700,000 d. P7,000,000
20. Cash paid for interest?
a. P4,800 c. P3,800
b. P4,300 d. P1,700

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21. Cash paid for income taxes? 28. Which of the following describes the ‘general
a. P25,800 c. P19,700 approach’ of accounting for impairment of financial
b. P20,400 d. P15,000 assets?
a. At each reporting date, an entity shall recognize a
22. Cash paid for selling expenses?
loss allowance based on either 12-month ECLs or
a. P142,000 c. P141,000
lifetime ECLs, depending on whether there has
b. P141,500 d. P140,000
been a significant increase in credit risk on the
financial instrument since initial recognition.
23. An entity reported cash and cash equivalents of
b. An entity shall always measure the loss allowance
P2,100,000 in its statement of financial position. This
at an amount equal to lifetime expected credit
amount included the following:
losses.
• Credit card receipts representing sales on Dec. 31,
c. An entity shall only recognize the cumulative
2023, P90,000.
changes in lifetime expected credit losses since
• Cryptocurrencies, P360,000. These are not held
initial recognition as a loss allowance.
for sale in the ordinary course of business nor for
d. An entity shall recognize a loss allowance if, and
investment purposes.
only if, there is objective evidence of impairment.
• Cash set aside for payment of income tax,
P140,000.
29. An entity may use practical expedients when
• Cash surrender value of life insurance policy,
measuring expected credit losses. An example of a
P33,000.
practical expedient is the calculation of the expected
• Investment in preference shares acquired on Dec.
credit losses on trade receivables using
28, 2023, P240,000. The shares are redeemable
a. Direct write off method.
on Mar. 28, 2024.
b. Incurred loss method.
• Customer’s check for P65,000 dated Jan. 2, 2024,
c. Percent of net sales method.
received on Dec. 29, 2023.
d. A provision matrix.
How much is the adjusted cash and cash equivalents?
a. P1,312,000 c. P1,672,000 30. Which statement is correct regarding classification of
b. P1,552,000 d. P1,912,000 financial assets in accordance with PFRS 9?
a. A derivative may be classified as a financial asset
24. If a petty cash fund is established in the amount of at fair value through other comprehensive
P2,500, and contains P2,000 in cash and P450 in income.
receipts for disbursements when it is replenished, the b. An equity instrument may be classified as a
journal entry to record replenishment should include financial asset measured at amortized cost.
credit to the following accounts c. An equity instrument acquired principally for the
a. Petty Cash, P450. purpose of selling it in the near term may be
b. Petty Cash, P500. designated as a financial asset at fair value
c. Cash, P450; Cash Over and Short, P50. through other comprehensive income.
d. Cash, P500. d. Reclassification of financial assets that are equity
instruments is not allowed.
25. The policy of an entity is to debit bad debt expense
for 3% of all new sales. The following are the entity’s
sales and allowance for bad debts for the past four Use the following information for the next four questions.
years.
An entity purchased P5,000,000 of 8%, 5-year bonds on
Allowance Jan. 1, 2023 with interest payable on June 30 and Dec.
Sales for bad debts 31. The bonds were purchased for P5,100,000 plus
2020 P3,000,000 P45,000 transaction cost of P108,000 at an effective interest rate
2021 2,950,000 56,000 of 7%. The business model for this investment is to collect
2022 3,120,000 60,000 contractual cash flows and sell the bonds in the open
2023 2,420,000 75,000 market. On Dec. 31, 2023, the bonds were quoted at 106.
Compared to 2022, the accounts written off in 2023
31. What amount of interest income should be reported
decreased by
for 2023?
a. P10,000 c. P40,000
a. P400,000 c. P364,560
b. P32,000 d. P57,600
b. P200,000 d. P363,940
26. An entity accepted a P10,000, 2% interest-bearing 32. What is the adjusted carrying amount of the
note on Dec. 31, 2023, in exchange for a machine investment on Dec. 31, 2023?
with a list price of P8,000 and a cash price of P7,500. a. P5,300,000 c. P5,174,560
The note is payable on Dec. 31, 2025. In its Dec. 31, b. P5,171,940 d. P5,000,000
2023 statement of financial position, the entity should
report the note receivable at 33. What amount should be recognized in OCI in the
a. P7,500 c. P10,000 statement of comprehensive income for 2023?
b. P8,000 d. P10,400 a. P300,000 c. P128,060
b. P125,440 d. P 92,000
27. An entity purchased a P20,000, 8%, five-year note 34. If the entity elected the fair value option, what total
that required five equal annual year-end payments of amount of income should be recognized for 2023?
P5,009. The note was discounted to yield a 9% rate to a. P400,000 c. P600,000
the entity. At the date of purchase, the entity b. P492,000 d. P200,000
recorded the note at its present value of P19,485.
What should be the total interest revenue earned by
the entity over the life of this note?
a. P5,045 c. P8,000
b. P5,560 d. P9,000

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35. The following information pertains to investment in

a. I, II and III c. II and III only
ordinary shares of Entity X:
b. I and II only d. III only
• Dec. 1, 2022 - acquired ordinary shares of Entity
A for P200,000. The transaction costs paid were
40. During the current year, an entity pays an insurance
P3,000.
premium of P31,800 on a P1,000,000 life insurance
• Dec. 31, 2022 - the fair value of the investment
policy covering the life of its president. The cash
was P208,000 and the transaction costs that
surrender value of the policy will increase from
would be incurred on sale were estimated at
P165,000 to P175,200 during the year. The entity
P3,200.
received dividends of P3,300 from the insurance
• Mar. 31, 2023 - sold the investment for its fair
company during the year. The president died half-way
value of P220,000. The transaction costs paid
through the year. The policy indicates that the cash
were P3,300.
surrender value is P170,100 at that date and 50% of
Compute for the gain on sale of investment on Mar. the premium is refunded. The gain on life insurance
31, 2023. settlement is
a. P 8,700 c. P12,000 a. P814,000 c. P 829,900
b. P11,900 d. P15,200 b. P826,600 d. P1,000,000

41. If an entity is required by PFRS 9 to separate the

Use the following information for the next two questions. embedded derivative from its host, but is unable to
measure the embedded derivative separately either at
Both Rian Inc. and Bryan Corp. have 100,000 shares of
acquisition or at the end of a subsequent financial
no-par ordinary shares outstanding. Friendliness Inc.
reporting period, it shall
acquired 10,000 shares of Rian for P6 per share and
a. Designate the entire hybrid contract as at fair
25,000 shares of Bryan for P10 per share on Jan. 1, 2022.
value through profit or loss.
Changes in retained earnings for Rian and Bryan for 2022
b. Designate the entire hybrid contract as at fair
and 2023 are as follows:
value through other comprehensive income.
c. Designate the entire hybrid contract as at
Bryan
amortized cost.
Rian Inc. Corp.
d. Any of these.
Retained earnings, (deficit),
Jan. 1, 2022 P200,000 P(35,000) 42. An entity reported inventories of P5,400,000 in its
Cash dividends, 2022 (25,000) - statement of financial position. This amount included
P175,000 P(35,000) the following:
Net income, 2022 40,000 65,000 • Equipment held for sale in accordance with PFRS
Retained earnings, 5, at carrying amount, P52,000. Fair value less
Dec. 31, 2022 P215,000 P30,000 costs to sell, P48,000.
Cash dividends, 2023 (30,000) (10,000) • Goods held on consignment, P36,000.
• Goods out on consignment, P75,000.
Net income, 2023 60,000 25,000
• Goods in transit to customers (shipped FOB
Retained earnings,
seller), P87,000.
Dec. 31, 2023 P245,000 P 45,000
• Goods in transit to customers (shipped FOB
Fair value of shares: buyer), P73,000.
Dec. 31, 2022 P 7.00 P 12.00 • Office supplies, P12,000.
Dec. 31, 2023 7.50 11.00
How much is the adjusted inventories?
36. The total amount to be recognized by Friendliness Inc. a. P5,213,000 c. P5,227,000
in its 2023 profit or loss related to these investments b. P5,217,000 d. P5,573,000
is
a. P 9,250 c. P14,250 43. Entity A imported goods at a cost of P130,000,
b. P12,450 d. P24,250 including P20,000 non-refundable import duties and
P10,000 refundable purchase taxes. The risks and
37. The carrying amount of Investment in Bryan Corp. as rewards of ownership of the imported goods were
of Dec. 31, 2023 is transferred to the entity upon collection of the goods
a. P275,000 c. P261,250 from the harbor warehouse. The entity was required
b. P270,000 d. P253,750 to pay for the goods upon collection. The entity
incurred P5,000 to transport the goods to its retail
38. In accordance with PIC Q&A No. 2016-02, how should outlet and a further P2,000 in delivering the goods to
proprietary club shares held by an entity be accounted its customer. Further selling costs of P3,000 were
for assuming the entity’s holding does not give it incurred in selling the goods.
control, joint control or significant influence over the
club? How much is the total cost of inventory of Entity A?
a. As financial assets a. P120,000 c. P150,000
b. As intangible assets b. P125,000 d. P155,000
c. Either a or b
d. Neither a nor b 44. In a period of declining prices, the use of the following
inventory cost flow method that would result in the
39. The following are transactions related to a sinking highest cost of goods sold is ___________.
fund being managed by the entity itself. Which of the a. Moving average method
following will increase the sinking fund? b. Specific identification method
c. FIFO
I. Purchase of securities d. Weighted average method
II. Sale of securities a gain
III. Receipt of dividends

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45. Information on the inventory of an entity: Cost, P12; to finance the construction of an another building
Estimated selling price, P13.60; Estimated disposal completed in 2022.
cost, P.20; Normal gross margin, P2.20; Replacement • 8 percent, six-year note payable, dated June 30,
cost, P10.90. Under the lower of cost or net realizable 2022, P5,000,000.
value rule, the measurement of the inventory item of
Determine the amount of interest to be capitalized by
the entity should be at ___________.
Entity L for 2023.
a. P10.90 c. P12.00
a. P534,650 c. P595,000
b. P10.70 d. P11.20
b. P570,000 d. P620,000
46. An entity is engaged in raising dairy livestock. Data
50. Which statement is correct regarding government
provided in the current year follows:
grants?
Carrying amount on Dec. 31, P2,500,000; Increase a. All government assistance are government grants.
due to purchases, P1,000,000; Gain arising from b. Grants related to income are government grants
change in fair value less costs to sell attributable to whose primary condition is that an entity
price change, P200,000; Gain arising from change in qualifying for them should purchase, construct or
fair value less costs to sell attributable to physical otherwise acquire long-term assets.
change, P300,000; Decrease due to sales, P400,000; c. Government grants include free technical or
Decrease due to harvest, P100,000. marketing advice received from the government.
d. An entity shall disclose unfulfilled conditions and
The carrying amount of the biological assets on Jan. 1
other contingencies attaching to government
is
assistance that has been recognized.
a. P1,000,000 c. P1,500,000
b. P1,400,000 d. P3,500,000
51. On Jan. 1, 2020, an entity acquired equipment at a
cost of P540,000. The entity used the sum-of-the-
47. An entity reported property, plant and equipment of
years’-digits method of depreciation for this
P7,190,000 in its statement of financial position. This
equipment and had been recording depreciation over
amount consists the following:
an estimated life of eight years, with no residual
Head office building P1,300,000 value. At the beginning of 2023, a decision was made
Factory building 1,450,000 to change to the straight-line method of depreciation
Store building 920,000 for this equipment. The depreciation expense for 2023
Building occupied by employees 870,000 would be
Land held for a currently a. P28,125 c. P 67,500
undetermined future use 1,200,000 b. P45,000 d. P108,000
Delivery vehicles 830,000
Equipment for rental to others 52. Which the following will likely qualify as investment
under operating leases 240,000 property?
Bearer plants 380,000 a. Telecommunications tower
P7,190,000 b. Advertising billboard
c. Both a and b
• The entity uses the cost model for all items of d. Neither a nor b
property, plant and equipment.
• The employees pay rent at market rates. 53. An entity reported intangible assets of P2,280,000 in
• Fair value less costs to sell of bearer plants, its statement of financial position. This amount
P460,000. consists the following:

How much is the adjusted property, plant and Patents P350,000

equipment? Trademarks 460,000
a. P5,990,000 c. P5,120,000 Costs of training employees 280,000
b. P5,610,000 d. P4,880,000 Research and development costs 880,000
Organization costs 310,000
48. Entity A exchanged a car for a computer from X Corp. P2,280,000
to be used as a noncurrent operating asset. The
• The costs of training employees resulted in a team
following information relates to this exchange:
of skilled staff.
Carrying amount of the car P30,000 • The entity cannot distinguish the research phase
Listed selling price of the car 45,000 from the development phase of its project to
Fair value of the computer 43,000 create an intangible asset.
Cash difference paid by Entity A 5,000
How much is the adjusted intangible assets?
How much profit should Entity A recognize on this a. P1,970,000 c. P810,000
exchange? b. P1,090,000 d. P350,000
a. Nil c. P10,000
b. P8,000 d. P13,000 54. Entity S reported an impairment loss of P1,000,000 in
profit or loss for the year 2022. This loss was related
49. During 2023, Entity L constructed a new building. The to an equipment which was acquired on Jan. 1, 2021
weighted average expenditures for 2023 were for P6,250,000, useful life of 10 years and no residual
calculated to be P8,500,000. The entity had the value. The straight-line method is used in recording
following debt outstanding at Dec. 31, 2023: depreciation of this asset. On the Dec. 31, 2022
• 7 percent, five-year note to finance construction statement of financial position, the entity reported this
of the building, dated Jan. 1, 2023, P6,000,000. asset at P4,000,000 (the recoverable amount on that
• 5 percent, 10-year bonds issued at face value on date). The entity revised the remaining life of the
July 1, 2020, P10,000,000. The bonds were issued asset to 5 years starting Jan. 1, 2023.

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On Dec. 31, 2023, the entity decided to measure the

The decrease in fair value of the financial liability to
asset using revaluation model. This asset was then
be recognized in profit or loss is
appraised at a fair value of P4,500,000.
a. Nil c. P 90,000
The reversal of impairment loss to be recognized by b. P70,000 d. P100,000
Entity S in 2023 profit or loss is
a. P 825,000 c. P1,175,000 60. An entity has an outstanding 10% note payable dated
b. P1,000,000 d. P1,300,000 Oct. 1, 2021 and is payable in three equal annual
payments of P600,000 plus interest. The first interest
55. Entity J accounts for non-current assets using the and principal payment was made on Oct. 1, 2022. In
revaluation model. On Oct. 1 of the current year, it the entity’s June 30, 2023 statement of financial
classified an equipment as held for sale in accordance position, what amount should be reported as accrued
with PFRS 5. At that date the asset’s carrying amount interest payable for this note?
was P600,000 and the balance on the revaluation a. P30,000 c. P 90,000
surplus was P36,000. At that date its fair value was b. P45,000 d. P135,000
estimated at P595,000 and the costs to sell at P25,000.
At Dec. 31 of the current year, the asset's fair value 61. The 10% bonds payable of an entity had a net
was estimated at P588,000 and the costs to sell at carrying amount of P570,000 on Dec. 31, 2022. The
P28,000. bonds, which had a face value of P600,000, were
issued at a discount to yield 12%. The amortization of
The impairment loss to be recognized in Entity J’s profit
the bond discount was recorded under the effective-
or loss for the current year is
interest method. Interest is paid on Jan. 1 and July 1
a. P 4,000 c. P35,000
of each year. On July 2, 2023, several years before
b. P25,000 d. P40,000
their maturity, the entity retired the bonds at 102.
The interest payment on July 1, 2023 was made as
56. Which of the following are measured at initial
scheduled. What is the loss that the entity should
recognition at their cost?
record on the early retirement of the bonds on July 2,
I. Inventories 2023?
II. Biological assets a. P12,000 c. P37,800
III. Property, plant and equipment b. P33,600 d. P42,000
IV. Investment properties
V. Intangible assets 62. An entity issued P500,000 convertible bonds. In part,
VI. Exploration and evaluation assets the journal entry to record the bond issue included a
VII. Right-of-use assets credit to the conversion feature of P21,450 and a
VIII. Financial assets debit to discount on bonds for P19,560. What was the
amount of cash received for the convertible bond
a. All of these issue?
b. I, II, III, IV, V and VI only a. P458,990 c. P501,890
c. I, III, IV, V and VI only b. P480,440 d. P521,450
d. III, IV, V and VI only
63. Which statement is incorrect regarding provisions in
accordance with PAS 37?
57. Which of the following may be measured subsequent a. Provision is a liability of uncertain timing or
to initial recognition using the revaluation model? amount.
I. Biological assets b. Provision is recognized at the best estimate of the
II. Property, plant and equipment expenditure required to settle the present
III. Investment properties obligation at the end of the reporting period
IV. Intangible assets c. Provisions are presented as a separate line item in
V. Exploration and evaluation assets the statement of financial position.
VI. Right-of-use assets d. Provisions are required to be presented as
a. All of these current.
b. II, III, IV, V and VI only
c. II, IV, V and VI only 64. An entity is the defendant in a breach of patent
d. II, IV and V only lawsuit. Its lawyers believe there is a 70 per cent
chance that the entity will successfully defend the
58. An entity is required to disclose a reconciliation of the case. However, if the court rules in favor of the
carrying amount at the beginning and end of the claimant, the lawyers believe that there is a 60 per
period of which of the following? cent chance that the entity will be required to pay
I. Inventories damages of P2 million (the amount sought by the
II. Biological assets claimant) and a 40 per cent chance that the entity will
III. Investment properties be required to pay damages of P1 million (the amount
IV. Intangible assets that was recently awarded by the same judge in a
similar case). Other amounts of damages are unlikely.
a. I, II, III and IV c. III and IV only
b. II, III and IV only d. IV only The court is expected to rule in late December of the
following year. There is no indication that the
59. An entity issued a financial liability designated at claimant will settle out of court.
FVTPL for P1 million. At the end of the reporting A 7 per cent risk adjustment factor to the cash flows
period, the fair value of the financial liability is considered appropriate to reflect the uncertainties
decreased by P100,000 attributable to: in the cash flow estimates. An appropriate discount
Credit risk P30,000 rate is 5%.
Interest rate risk 60,000
Other price risk 10,000

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How much should the entity recognize as provision for 68. An entity maintains escrow accounts and pays real
damages at the end of the current year? estate taxes for mortgage customers. Escrow funds
a. P1,500,000 c. P1,141,356 are kept in interest bearing accounts. Interest, less a
b. P1,712,000 d. Nil 20% services fee, is credited to the mortgagee's
account and used to reduce future escrow payments.
65. An entity began marketing a new soft drink product in The information regarding the escrow accounts kept
the current year. To help promote the product, the by the entity follows: escrow accounts liability as of
management is offering a special mug to each Jan. 1 was P2,000,000, while the entity received
customer for every 20 specially marked bottle caps of payments from customers during the year amounting
the soft drink. The entity estimates that out of the to P4,200,000. The entity paid real estate taxes
300,000 bottles sold during the year, only 50% of the during the year in the amount of P3,500,000, while
marked bottle caps will be redeemed. For the current the interest earned on the escrow funds was
year, 8,000 mugs were ordered by the entity at a P500,000. What amount should the entity report as
total cost of P360,000. A total of 4,500 mugs were escrow accounts liability in its Dec. 31 statement of
already distributed to customers. What is the amount financial position?
of the liability that the entity should report on its a. P3,200,000 c. P2,300,000
statement of financial position at the end of the b. P3,100,000 d. P2,700,000
current year?
a. P135,000 c. P337,500 69. The Retained Earnings account of Lester Corp. for the
b. P202,500 d. P360,000 year 2023 consists of the following items:
Debit Credit
66. An entity distributes to consumers coupons which may Balance, Jan. 1, 2023 P112,500
be presented (on or before a stated expiration date) Write-off of organization costs P 6,000
to grocers for discounts on certain products of the Excess of issuing price of share
entity. The grocers are reimbursed when they send capital over par value 24,000
the coupons to the entity. In the entity’s experience, Loss on the sale of equipment 2,500
50% of such coupons are redeemed, and generally Correction of error of prior
one month elapses between the date a grocer year 10,500
receives a coupon from a consumer and the date the Gain on sale of treasury shares 3,500
entity receives it. During 2023 the entity issued two Cash and share dividends 60,000
separate series of coupons as follows: Net income for the year 58,500
Amount Balance, Dec. 31, 2023 119,500 .
Consumer Disbursed
P198,500 P198,500
Issued Expiration as of
On Total Value Date 12/31/23 The correct balance of Lester Corp.’s retained
1/1/23 P500,000 06/30/23 P236,000 earnings on Dec. 31, 2023 is
7/1/23 720,000 12/31/23 300,000 a. P119,500 c. P94,500
b. P100,500 d. P92,000
The only journal entries to date recorded debits to
coupon expense and credits to cash of P536,000. The
Dec. 31, 2023 statement of financial position should
Use the following information for the next two questions.
include a liability for unredeemed coupons of
a. Nil c. P 74,000 An entity reported the following amounts in the equity
b. P60,000 d. P360,000 section of its Dec. 31, 2022, statement of financial
position.
67. An entity sells its products in reusable containers. The
customer is charged a deposit for each container Share capital – Preference. 8%, P100
delivered and receives a refund for each container par (10,000 shares authorized,
returned within two years after the year of delivery. 2,000 shares issued) P200,000
The entity accounts for the containers not returned Share capital – Ordinary, P5 par
within the time limit as being retired by the sale at the (100,000 shares authorized, 20,000
deposit amount. Information for 2023 follows: shares issued) 100,000
Share premium 125,000
Container deposits at Dec. Retained earnings 450,000
31, 2022, from Total P875,000
deliveries in
2021 P150,000 During 2023, the entity took part in the following
2022 430,000 P580,000 transactions concerning equity.
Deposits for containers 1. Paid the annual 2022 P8 per share dividend on
delivered in 2023 780,000 preference shares and a P2 per share dividend on
Deposits for containers ordinary shares. These dividends had been declared on
returned in 2023 from Dec. 31, 2022.
deliveries in 2. Purchase 2,700 shares of its own outstanding ordinary
2021 P 90,000 shares for P40 per share. The entity uses the cost
2022 250,000 method.
2023 286,000 626,000 3. Reissued 700 treasury shares for land valued at
In the entity’s Dec. 31, 2023 statement of financial P30,000.
position, the liability for deposits on returnable 4. Issued 500 preference shares at P105 per share.
containers should be 5. Declared a 10% share dividend on the outstanding
a. P494,000 c. P674,000 ordinary shares when the shares are selling for P45 per
b. P584,000 d. P734,000 share.
6. Issued the share dividend.

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7. Declared the annual 2023 P8 per share dividend on • Year 1 (12 × P3,000) = P36,000
preference shares and the P2 per share dividend on • Year 2 (12 × P4,500) = P54,000
ordinary shares. These dividends are payable in 2024. • Year 3 (12 × P6,000) = P72,000
8. Profit for 2023 is P330,000. • Year 4 (12 × P6,000) = P72,000
Dunn’s rent payments were due on the first day of the
70. The balance of Retained earnings account as of Dec.
month, beginning on April 1, year 1. What amount
31, 2023 would be
should Hall report as rent income in its monthly
a. P450,000 c. P309,400
income statement for April, year 3?
b. P693,400 d. P639,400
a. P3,000 c. P4,875
b. P4,500 d. P6,000
71. Total shareholder’s equity as of Dec. 31, 2023 would
amount to
a. P1,119,900 c. P 760,000
Use the following information for the next three questions.
b. P1,199,900 d. P1,919,900
An entity is a dealer in equipment and uses leases to
72. An entity’s computation of basic EPS for the current facilitate the sale of its product. The entity expects a 12%
period is presented below: return. At the end of the lease term, the equipment will
revert to the lessor.
Profit for the period P800,000
Less dividends on convertible
On Jan. 1, 2023, equipment is leased to a lessee with the
preference shares 50,000
following information:
Profit attributable to ordinary
equity holders 750,000 Cost of equipment to the entity 3,500,000
/ WAN of OSO 300,000 Fair value of equipment 5,500,000
Basic EPS P 2.50 Residual value – unguaranteed 600,000
Initial direct cost 200,000
The entity has potential ordinary shares outstanding Annual rental payable in advance 900,000
during the entire period with the following details: Useful life and lease term 8 years
• Preference shares convertible into 15,000 Implicit interest rate 12%
ordinary shares. PV of 1 at 12% for 8 periods 0.40
• Bonds payable convertible into 75,000 ordinary PV of an ordinary annuity of 1 at
shares. The entity recognized P150,000 (after- 12% for 8 periods 4.97
tax) interest expense for the period on these PV of an annuity due of 1 at 12%
bonds. for 8 periods 5.56
• Options to issue 20,000 ordinary shares for P5 First lease payment Jan. 1, 2023
per share. Average market price of ordinary
shares is P8 per share. 76. What is the total financial revenue?
a. P1,956,000 c. P2,196,000
The diluted EPS is b. P2,556,000 d. P2,796,000
a. P2.35 c. P2.39 77. What amount should be recognized as interest income
b. P2.44 d. P2.50 for 2022?
a. P492,480 c. P536,760
73. Which statement is incorrect regarding measurement b. P521,280 d. P600,480
of lease liabilities in accordance with PFRS 16?
a. An entity measures lease liabilities at the present 78. What amount of cost of goods sold should be
value of future lease payments. recognized in recording the lease?
b. Lease liabilities include only economically a. P3,260,000 c. P3,500,000
unavoidable payments. b. P3,460,000 d. P3,740,000
c. Lease liabilities include fixed payments (including
inflation-linked payments) and only those optional 79. An entity began operations on Jan. 1, 2022. For
payments that the company is reasonably certain financial reporting, the entity recognizes revenue from
to make. all sales under the accrual method. However, in its
d. Lease liabilities include variable lease payments income tax returns, the entity reports qualifying sales
linked to future use or sales. under the installment method. The entity’s gross
profit on these installment sales under each method
74. Which statement is incorrect if an entity entered into was as follows:
a contract to lease a plot of land for 20 years? Year Accrual method Installment method
a. The entity should recognize a right-of-use asset 2022 P1,600,000 P 600,000
(ROUA). 2023 2,600,000 1,400,000
b. If the entity will return the land to the lessor after
20 years, the ROUA is depreciated over 20 years. The income tax rate is 30% for 2022 and future
c. If the rental contract transfers the ownership to years. There are no other temporary or permanent
the land to the entity at the end of the lease term, differences. In its Dec. 31, 2023 statement of financial
the ROUA is not depreciated. position, what amount should the entity report as
d. None of these. liability for deferred income taxes?
a. P360,000 c. P660,000
75. On April 1, year 1, Hall Fitness Center leased its gym b. P600,000 d. P840,000
to Dunn Fitness Center under a four-year operating
lease. Hall normally charges P6,000 per month to 80. Balances of the deferred tax accounts of an entity
lease its gym, but as an incentive, Hall gave Dunn half were as follows.
off the first year’s rent, and one quarter off the 12/31/22 12/31/23
second year’s rent. Dunn’s rental payments were as Deferred tax liability P3,200 P2,000
follows: Deferred tax asset 2,650 1,900

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85. An entity with total liabilities of P100 million is

Income tax expense for the year ended Dec. 31, 2023
considered as a
was P1,550. The current tax payable at Dec. 31, 2023
a. Large and/or public interest entity
is P200 less than the current tax payable at the
b. Medium-sized entity
preceding year-end. What was the amount of income
c. Small entity
tax paid during the year ended Dec. 31, 2023?
d. Micro entity
a. P1,100 c. P2,000
b. P1,500 d. P2,200
86. Which statement is correct regarding an entity
preparing its financial statements in accordance with
81. Which statement is incorrect regarding accounting for
the PFRS for SMEs?
employee benefits?
a. The entity is required to measure its investments
a. An entity shall disclose the amount recognized as
in shares that are traded in an active market at
an expense for defined contribution plans.
the lower of cost or fair value.
b. Accounting for defined benefit plans is complex
b. The entity has a policy choice to measure
because actuarial assumptions are required to
investment properties either at cost or at fair
measure the obligation and the expense and there
value.
is a possibility of actuarial gains and losses.
c. The entity has a policy choice of not recognizing
c. Short-term employee benefits in the form of
deferred taxes in the financial statements.
accumulating paid absences are recognized when
d. The entity is required to use the projected unit
the employees render service that increases their
credit method for its defined benefit plan only
entitlement to future paid absences.
when it could be applied without undue cost or
d. Other long-term employee benefits are accounted
effort.
for in exactly the same way as the accounting for
post-employment benefits.
87. As a policy option, an entity recognized actuarial loss
on its defined benefit plan in other comprehensive
82. The following information relates to the defined
income. The entity is
benefit pension plan for an entity.
a. A large entity
Defined benefit obligation, Jan. 1 P4,600,000 b. A medium-sized entity
Defined benefit obligation, Dec. 31 4,729,000 c. A small entity
Fair value of plan assets, Jan. 1 5,035,000 d. Any of these
Fair value of plan assets, Dec. 31 5,565,000
Expected return on plan assets 450,000
Employer contributions 425,000 Use the following information for the next two questions.
Benefits paid to retirees 390,000
Discount rate 10% An SME acquired an investment in equity instrument for
P500,000. The direct acquisition costs incurred were
Service cost for the year would be P25,000.
a. P59,000 c. P129,000
b. P94,000 d. P390,000 At the end of the reporting period, the fair value of the
instrument was P600,000 and the transaction costs that
83. Cyrene Company, a calendar-year corporation, has would be incurred on sale were estimated at P30,000.
the following income before income tax provision and
estimated effective annual income tax rates for the 88. If the fair value of the investment can be measured
first three quarters of the current year: reliably without undue cost or effort, it should be
Estimated reported at the end of period statement of financial
Income before effective annual position at
income tax tax rate at end of a. P500,000 c. P570,000
Quarter provision quarter b. P525,000 d. P600,000
First P60,000 40%
Second 70,000 40% 89. If the fair value of the investment cannot be measured
Third 40,000 45% reliably without undue cost or effort and the best
estimate of the amount that the entity would receive
Cyrene's income tax provision in its interim income for the sale of the investment is P600,000, the
statement for the third quarter should be investment should be reported at the end of period
a. P18,000 c. P25,500 statement of financial position at
b. P24,500 d. P76,500 a. P500,000 c. P570,000
b. P525,000 d. P600,000
84. The following information pertains to an entity and its
operating segments for the current year. Sales to 90. Which of the following may appear in the statement of
unaffiliated customers; P10,000,000, intersegment financial position of an entity prepared in accordance
sales, P3,000,000; interest earned on loans to other with the PFRS for Small Entities?
segment, P500,000; traceable operating expenses, a. Finance lease liability
P6,000,000; indirect operating expenses, P2,500,000; b. Purchase commitment liability
general corporate expenses, P90,000; interest c. Property, plant and equipment at fair value
expense P400,000; income taxes, P1,200,000. The d. Investment in associate carried at fair value
entity and all of its segments are engaged solely in
manufacturing operations and evaluates segment
performance based on controllable contribution. The - end of preweek lecture -
entity has a reportable segment if that segment's J GOOD LUCK, YOU CAN MAKE IT! J
operating profit is at least
a. P150,000 c. P410,000
b. P370,000 d. P450,000

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