Intermediate Accounting 3 Page |1

Name: Course/year: Date:

Instructions. Shade the letter of your answer on the answer sheet provided. No erasures on your final answer. Erasures,
changing of answers, and the like are considered wrong.

1. The standard that addresses the accounting for revenues is

a. PFRS 16. b. PFRS 18. c. PFRS 5. d. PFRS 15.

2. The objective of PAS 1 Presentation of Financial Statements is

a. to provide the basic principles in the presentation of general purpose financial statements to improve comparability.
b. to provide the basic principles in the presentation of general and special purpose financial statements to improve
comparability.
c. to provide the basic principles in the presentation of general purpose financial statements to improve consistency.
d. all of these

3. The heading of a financial statement most likely will not include

a. the name of the reporting entity. c. the date of the financial statement.
b. the title of the financial statement. d. the name(s) of the business owner(s).

4. A liability shall be classified as current when it satisfies any of the following criteria, except
a. it is expected to be settled in the entity’s normal operating cycle
b. it is held primarily for the purpose of being traded
c. it is due to be settled within twelve months after the balance sheet date
d. the entity has an unconditional right to defer settlement of the liability for at least twelve months after the balance
sheet date.

5. If an entity expects, and has the discretion, to refinance or roll over an obligation for at least twelve months after the
balance sheet date under an existing loan facility, it classifies the obligation as non-current,
a. even if it would otherwise be due within a shorter period.
b. even if the original term was for a period longer than twelve months
c. even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting
period and before the financial statements are authorized for issue
d. choices b and c

6. When an entity breaches an undertaking under a long-term loan agreement on or before the end of the reporting period
with the effect that the liability becomes payable on demand, (choose the incorrect statement)
a. The liability is classified as current, even if the lender has agreed, after the balance sheet date and before the
authorization of the financial statements for issue, not to demand payment as a consequence of the breach.
b. The liability is classified as current because, at the balance sheet date, the entity does not have an unconditional right
to defer its settlement for at least twelve months after that date.
c. The liability is classified as non-current, even if the lender has agreed, after the balance sheet date and before the
authorization of the financial statements for issue, not to demand payment as a consequence of the breach.
d. The liability is normally classified as current; however, the liability is classified as non-current if the lender agreed by
the balance sheet date to provide a period of grace ending at least twelve months after the balance sheet date, within
which the entity can rectify the breach and during that period the lender cannot demand immediate repayment.

7. According to PAS 1, an asset shall be classified as current when it satisfies any of the following criteria, except
a. it is expected to be realized in, or is intended for sale or consumption in, the entity’s normal operating cycle
b. it is held primarily for the purpose of being traded
c. it is expected to be realized within twelve months after the balance sheet date
d. it is cash or a cash equivalent that is restricted

8. Identify the incorrect statement.

a. When an entity has departed from a requirement of a Standard or an Interpretation in a prior period, and that
departure affects the amounts recognized in the financial statements for the current period, it shall disclose the (a)
title of the Standard or Interpretation from which the entity has departed and the (b) impact of such departure.
b. In the extremely rare circumstances in which management concludes that compliance with a requirement in a
Standard or an Interpretation would be so misleading that it would conflict with the objective of financial statements
set out in the Framework, but the relevant regulatory framework prohibits departure from the requirement, the entity
shall, to the maximum extent possible, reduce the perceived misleading aspects of compliance by disclosing:(a) the
title of the Standard or Interpretation in question and (b) for each period presented, the adjustments to each item in
the financial statements that management has concluded would be necessary to achieve a fair presentation.
c. Financial statements shall be prepared on a going concern basis unless management either intends to liquidate the
entity or to cease trading, or has no realistic alternative but to do so.
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d. PAS 1 requires an entity preparing financial statements, to make an assessment of the entity’s ability to continue as a
going concern. In assessing whether the going concern assumption is appropriate, management takes into account all
available information about the future, which is at least, but is not limited to, five years from the balance sheet date.

9. Identify the incorrect statement.

a. The final stage in the process of aggregation and classification is the presentation of condensed and classified data,
which form line items on the face of the financial statements.
b. PAS 1 sometimes uses the term ‘disclosure’ in a broad sense, encompassing items presented on the face of the
balance sheet, statement of profit or loss and other comprehensive income, statement of changes in equity and cash
flow statement, as well as in the notes.
c. Applying the concept of materiality means that a specific disclosure requirement in a Standard or an Interpretation
need not be satisfied if the information is not material.
d. An entity shall prepare its financial statements, including cash flow information, using the accrual basis of accounting.
e. PAS 1 requires an entity presenting its current year financial statements to also present its financial statements for
the previous year.

10. The ledger of SCHOLIAST COMMENTATOR Co. as of December 31, 20x1 includes the following:
Assets
Cash 10,000
Trade accounts receivable (net of ₱10,000 credit balance in
accounts) 40,000
Held for trading securities 80,000
Financial assets designated at FVPL 30,000
Investment in equity securities at FVOCI 70,000
Investment in bonds measured at amortized cost (due in 3 years) 60,000
Prepaid assets 10,000
Deferred tax asset (expected to reverse in 20x2) 12,000
Investment in Associate 36,000
Investment property 46,000
Sinking fund 38,000
Property, plant, and equipment 100,000
Goodwill 28,000
Totals 560,000

How much is the total current assets?

a. 220,000 b. 180,000 c. 340,000 d. 164,000

11. The ledger of PERNICIOUS DEADLY Co. as of December 31, 20x1 includes the following:
Liabilities
Bank overdraft 10,000
Trade accounts payable (net of ₱10,000 debit balance in
accounts) 40,000
Notes payable (due in 20 semi-annual payments of ₱4,000) 80,000
Interest payable 30,000
Bonds payable (due on March 31, 20x2) 70,000
Discount on bonds payable (30,000)
Dividends payable 10,000
Share dividends payable 12,000
Deferred tax liability (expected to reverse in 20x2) 36,000
Income tax payable 44,000
Contingent liability 100,000
Reserve for contingencies 28,000
Totals 430,000

How much is the total current liabilities?

a. 192,000 b. 186,000 c. 212,000 d. 178,000

Use the following information for the next two questions:

GUILE DECEITFULNESS Co. was incorporated on January 1, 20x1. The following were the transactions during the year:
- Total consideration from share issuances amounted to ₱2,000,000.
- A land and building were acquired through a lump sum payment of ₱400,000. A mortgage amounting to ₱100,000 was
assumed on the land and building.
- Total payments of ₱80,000 were made during the year on the mortgage assumed on the land and building, The payments
are inclusive of interest amounting to ₱10,000.
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- Additional capital of ₱200,000 was obtained through bank loans. None of the bank loans were paid during the year. Half
of the bank loans required a secondary mortgage on the land and building.
- There is no accrued interest as of year-end.
- Dividends declared during the year but remained unpaid amounted to ₱60,000.
- No other transactions during the year affected liabilities.
- Retained earnings as of December 31, 20x1 is ₱120,000.

12. How much is the profit for the year?

a. 120,000 b. 160,000 c. 180,000 d. 220,000
13. How much is the total assets as of December 31, 20x1?
a. 2,410,000 b. 2,520,000 c. 2,380,000 d. 2,420,000

14. The ledger of DEROGATORY DEGRADING Co. in 20x1 includes the following:
Cash 200,000 Inventory 1,000,000 Accounts payable 300,000
Accounts receivable 400,000 Note payable 100,000

During the audit of DEROGATORY’s 20x1 financial statements, the following were noted by the auditor:
- Cash sales in 20x2 amounting to ₱20,000 were inadvertently included as sales in 20x1. DEROGATORY recognized gross
profit of ₱6,000 on the sales.
- A collection of a ₱40,000 accounts receivable in 20x2 was recorded as collection in 20x1. A cash discount of ₱2,000 was
given to the customer.
- During January 20x2, a short-term bank loan of ₱50,000 obtained in 20x1 was paid together with ₱5,000 interest accruing
in January 20x2. The payment transaction in 20x2 was inadvertently included as 20x1 transaction.

How much is the adjusted working capital as of December 31, 20x1?

a. 1,651,000 b. 1,014,000 c. 1,450,000 d. 1,201,000

15. According to PAS 1 Presentation of Financial Statements, expenses are presented using
a. Nature of expense method b. Function of expense method c. a or b d. Classified and Unclassified

Use the following information for the next two questions:

Anne Jeng Inc.’s accounts show the following balances:
Cost of goods sold ₱320,000 Rent expense (one-half pertains sales department) 80,000
Insurance expense 75,000 Salaries expense (1/4 pertains to non-sales personnel) 150,000
Advertising expense 25,000 Loss on sale of equipment 7,000
Freight-out 30,000 Sales commission expense 10,000
Bad debts expense 5,000 Interest expense 5,000

16. How much is the total distribution costs (selling expenses)?

a. 198,000 b. 210,500 c. 217,500 d. 221,500

17. How much is the total administrative expenses?

a. 157,500 b. 156,500 c. 147,500 d. 175,500

18. Entity A has the following information:

Inventory, beg. 80,000 Freight-in 16,000 Purchase discounts 11,200
Inventory, end. 128,000 Purchases 320,000 Purchase returns 8,000

How much is Entity A’s cost of sales?

a. 286,800 b. 292,800 c. 288,600 d. 268,800

19. A correct dating of financial statements is

Statement of financial position Statement of comprehensive income
a. as of a point in time for a period of time
b. for a period of time as of a point in time
c. for a period of time for a period of time
d. time after time time and time again

20. Which of the following is considered revenue?

a. gain on sale of equipment b. service fees c. other income d. other comprehensive income

21. Which of the following items is likely to be presented in the statement of comprehensive income of a merchandising
business but not of a service business?
a. Service fees b. Salaries expense c. Cost of sales d. Income tax expense
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22. In a two-statement presentation, information on profit or loss and other comprehensive income is shown
a. in two separate statements, a statement of profit or loss and a statement showing other comprehensive income.
b. in two separate statements, a statement of profit or loss and an income statement.
c. in two separate statements, a single-step statement and a multi-step statement.
d. in a single statement called “statement of comprehensive income.”

23. Under this presentation method, expenses are presented in the statement of comprehensive income without distinctions
as to their functions within the entity.
a. nature of expense method c. single-statement presentation
b. function of expense method d. two-statement presentation

24. Under this presentation, expenses are classified as either operating or non-operating item. At a minimum, cost of sales is
presented separately.
a. nature of expense method c. single-statement presentation
b. function of expense method d. two-statement presentation

25. In a statement of comprehensive income showing expenses according to their function, which of the following is included
in the line item “Distribution costs” or “Selling costs?”
a. Insurance expense b. Legal and accounting fees c. Freight-in d. Advertising expense

26. In a statement of comprehensive income showing expenses according to their function, which of the following is included
in the line item “Administrative expenses?”
a. Salaries of sales personnel b. Cost of sales c. Freight-out d. Legal and accounting fees

Use the following information for the next five questions:

The nominal accounts of Rommel SP Corp. on December 31, 20x1 have the following balances:

Accounts Dr. Cr.

Sales ₱739,000
Interest income 45,000
Gains 15,000
Inventory, beg. ₱65,000
Purchases 180,000
Freight-in 10,000
Purchase returns 5,000
Purchase discounts 9,000
Freight-out 30,000
Sales commission 45,000
Advertising expense 25,000
Salaries expense 240,000
Rent expense 30,000
Depreciation expense 50,000
Utilities expense 25,000
Supplies expense 15,000
Transportation and travel expense 15,000
Insurance expense 10,000
Taxes and licenses 60,000
Interest expense 5,000
Miscellaneous expense 3,000
Loss on the sale of equipment 5,000

Additional information:
a. Ending inventory is ₱90,000.
b. One-fourth of the salaries, rent, and depreciation expenses pertain to the non-sales department. The sales department
does not share in the other expenses.

27. How much is the net purchases?

a. ₱185,000 ₱176,000 c. ₱194,000 d. ₱192,000

28. How much is the “change in inventory” in 20x1?

a. ₱90,000 increase b. ₱65,000 decrease c. ₱25,000 decrease d. ₱25,000 increase

29. How much is the cost of goods sold?

a. ₱151,000 b. ₱95,000 c. ₱169,000 d. ₱127,000
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30. How much is the total selling expense?

a. ₱420,000 b. ₱260,000 c. ₱180,000 d. ₱340,000

31. How much is the total general and administrative expense?

a. 280,000 b. 320,000 c. 330,000 d. 208,000
32. One of the conditions that must be satisfied in order to recognize revenue in a transaction involving the rendering of
services over a contractual period is that the stage of completion of the transaction at the end of the reporting period can be
measured reliably. Which of the following methods for determining the stage of completion of a contract involving the
rendering of services are specifically referred to in PFRS 15 as being acceptable?
I. Costs incurred to date as a percentage of the estimated total costs of the transaction
II. Advances received to date as a percentage of the total amount receivable
III. Surveys of work performed
IV. Revenue to date divided by total contract revenue
a. I, III, IV b. I, III c. I, II, IV d. I, II, III

33. The Grand Company placed an order with The Little Company for new specialist machinery. The order was non-cancellable
once signed and Grand agreed to pay for the machinery at the time the order was signed on 1 February 20X7. Little held the
machinery to Grand's order from 1 June 20X7, the date on which it was completed. Grand commenced using the machinery
on 1 August 20X7 when Little completed the installation process. The installation is not distinct. Little had staff on standby to
deal with any operating problems until the warranty period ended on 1 November 20X7. The warranty does not provide
service in addition to assurance that the machinery complies with agreed-upon specifications. Under PFRS15 Revenue, Little
should recognize the revenue from the sale of this specialist machinery on
a. 1 February 20X7 b. 1 June 20X7 c. 1 August 20X7 d. 1 November 20X7

34. Which is incorrect concerning recognition of revenue?

a. Revenue from rendering of services over an extended contractual period shall be recognized by reference to the stage
of completion of the transaction at balance sheet date.
b. Interest revenue shall be recognized on a time proportion basis that does not take into account the effective yield on
the asset.
c. Royalty revenue shall be recognized on an accrual basis in accordance with the substance of the relevant agreement,
d. Dividend revenue shall be recognized when the stockholder’s right to receive payment is established.

35. In a normal sale, generally the most uncertain factor in the revenue recognition process is
a. the seller's fulfillment of its responsibility in the transaction
b. the measurability of the resource or item received by the seller
c. the realizability of the resource or item received by the seller
d. the relevance of the resource or item received by the seller

36. Which of the following methods of service revenue recognition usually would be most appropriate for a business engaged
in packing, loading, transporting and delivering freight (where each of the processes is an input to a combined output
specified by the customer)?
a. Proportional performance method (i.e., over time as the entity progresses towards the complete satisfaction of the
performance obligation)
b. Completed performance method (i.e., at a point in time when the entity completes the output specified in the
contract)
c. Specific performance method (i.e., when the customer pays for the completion of a single specific activity)
d. Collection method (i.e., when cash is collected)

37. An entity is a large manufacturer of machines. A major customer has placed an order for a special machine for which it has
given a deposit to the entity. The parties have agreed on a price for the machine. As per the terms of the sale agreement, it is
FOB (tree on board) contract and the title passes to the buyer when goods are loaded into the ship at the port. When should
the revenue be recognized by the entity?
a. When the customer orders the machine. c. When the machine is loaded on the port.
b. When the deposit is received. d. When the machine has been received by the customer.

38. A company manufacturing and selling consumable products has come out with an offer to refund the cost of purchase
within one month of sale if the customer is not satisfied with the product. When should the company recognize the revenue?
a. When goods are sold to the customers.
b. After one month of sale.
c. Only if goods are not returned by the customers after the period of one month.
d. At the time of sale along with an offset to revenue for the refund liability for the products expected to be returned.

39. A computer chip manufacturing company sells its products to its distributors for onward sales to the ultimate customers.
Due to frequent fluctuations in the market prices for these goods, the company has a “price protection” clause in the
distributor agreement that entitles it to raise additional billings in case of upward price movement, Another clause in the
distributor’s agreement is that the company can at any lime reduce its inventory by buying back goods at the cost at which it
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sold the goods to the distributors. Distributors pay for the goods within 60 days from the sale of goods to them. When should
the company recognize revenue on sale of goods to the distributors?
a. When the goods are sold to the distributors.
b. When the distributors pay to the company the cost of the goods.
c. When goods are sold to the distributors provided estimated additional revenue is also booked under the “protection
clause” based on past experience,
d. When the distributors sell goods to the ultimate customers and there is no uncertainty with respect to the “price
protection” clause or the buyback of goods.

40. An entity manufactures and sells standard machinery. One of the conditions in the sale contract is that installation of
machinery will be undertaken by the entity. During December of the current year, the entity received a special onetime
contract from a customer to manufacture, install and maintain customized machinery. It is the first time the entity will be
producing this kind of machinery, and it is expecting numerous changes that would need to be made to the machine after the
installation is completed, which one period is described in the contract of sale as the “maintenance period.” The maintenance
services are an input to a combined output specified in the contract. The total cost of making the changes during the
maintenance period cannot be reasonably estimated at the time of the installation. Costs incurred are not recoverable if,
during the maintenance period, the machinery is discovered as non-compliant with agreed-upon specifications and the non-
compliance is beyond remediation. The customer shall signify its acceptance of the machinery at the end of the maintenance
period. When should revenue from the sale of the special machine most likely be recognized?
a. When the machinery is produced. c. When the installation is complete
b. When the machinery is produced and delivered. d.When the maintenance period as per the contract of sale expires.

41. Revenue is recognized at the time of sale under the:

a. cost recovery method (i.e., the outcome of a performance obligation cannot be reasonably measured but the entity
expects to recover the costs incurred in satisfying the performance obligation)
b. collection method (i.e., when cash is collected)
c. percentage-of-completion method (i.e., the performance obligation is satisfied over time)
d. sales method when goods are sold on credit (i.e., the performance obligation is satisfied when the goods are
transferred to the customer).

The next three items are based on the following information:

Lake Corporation’s accounting records showed the following investments at January 1, 20x3:
Ordinary shares:
Kar Corp. (1,000 shares) 10,000
Aub Corp. (5,000 shares) 100,000

Real estate:
Parking lot (leased to Day Co.) 300,000

Other:
Trademark (at cost, less accumulated amortization) 25,000
435,00
Total investments
0

Lake owns 1% of Kar and 30% of Aub. The Day lease, which commenced on January 1, 20x1, is for ten years, at an annual
rental of ₱48,000. In addition, on January 1, 20x1, Day paid a nonrefundable deposit of ₱50,000, as well as a security deposit
of ₱8,000 to be refunded upon expiration of the lease. The trademark was licensed to Barr Co. for royalties of 10% of sales of
the trademarked items. Royalties are payable semiannually on March 1 (for sales in July through December of the prior year),
and on September 1 (for sales in January through June of the same year).

During the year ended December 31, 20x3, Lake received cash dividends of ₱1,000 from Kar, and ₱15,000 from Aub, whose
20x3 net incomes were ₱75,000 and ₱150,000, respectively. Lake also received ₱48,000 rent from Day in 20x3 and the
following royalties from Barr:

March 1 September 1
20x2 3,000 5,000
20x3 4,000 7,000

Barr estimated that sales of the trademarked items would total ₱20,000 for the last half of 20x3.

42. In Lake’s 20x3 income statement, how much should be reported for dividend revenue?
a. 16,000 b. 2,400 c. 1,000 d. 150

43. In Lake’s 20x3 income statement, how much should be reported for royalty revenue?
a. 14,000 b. 13,000 c. 11,000 d. 9,000
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44. In Lake’s 20x3 income statement, how much should be reported for rental revenue?
a. 43,000 b. 48,000 c. 53,000 d. 53,800

Use the following information for the next two questions:

DECORTICATE PEEL, Inc. is committed to a plan to sell a manufacturing facility and has initiated actions to locate a buyer. As of
this date, the building has a carrying amount of ₱6,000,000, a fair value of ₱5,000,000 and estimated costs to sell of ₱200,000.
At the plan commitment date, there is a backlog of uncompleted customer orders.

45. DECORTICATE, Inc. intends to sell the manufacturing facility with its operations. Any uncompleted customer orders at the
sale date will be transferred to the buyer. The transfer of uncompleted customer orders at the sale date will not affect the
timing of the transfer of the facility. How should DECORTICATE Co. classify the manufacturing facility?
a. Included under property, plant and equipment at ₱6,000,000. c. Classified as held for sale at ₱6,000,000
b. Included under property, plant and equipment at ₱4,800,000. d. Classified as held for sale at ₱4,800,000

46. DECORTICATE, Inc. intends to sell the manufacturing facility, but without its operations. The entity does not intend to
transfer the facility to a buyer until after it ceases all operations of the facility and eliminates the backlog of uncompleted
customer orders. How should DECORTICATE Co. classify the manufacturing facility?
a. Included under property, plant and equipment at ₱6,000,000. c. Classified as held for sale at ₱6,000,000
b. Included under property, plant and equipment at ₱4,800,000. d. Classified as held for sale at ₱4,800,000

47. An entity in the power generating industry is committed to a plan to sell a disposal group that represents a significant
portion of its regulated operations. The sale requires regulatory approval, which could extend the period required to complete
the sale beyond one year. Actions necessary to obtain that approval cannot be initiated until after a buyer is known and a firm
purchase commitment is obtained. However, a firm purchase commitment is highly probable within one year. The disposal
group has a carrying amount of ₱10,000,000 and fair value less costs to sell of ₱10,600,000. How should the entity classify the
disposal group?
a. Held for sale, ₱10.6M c. Under previous classifications, ₱10M
b. Held for sale, ₱10M d. Under previous classifications, ₱10.6M

Use the following information for the next two questions:

In 20x1, FORGETIVE CREATIVE Co. classified a property as held for sale. The carrying amount prior to classification is ₱400,000
while fair value less cost to sell is ₱360,000. The property is being sold at ₱360,000.

During 20x1, the market conditions that existed at the date the asset was classified initially as held for sale deteriorate and, as
a result, the asset is not sold by the end of that period. During that period, FORGETIVE actively solicited but did not receive
any reasonable offers to purchase the asset and, in response, FORGETIVE reduced the price from ₱360,000 to ₱320,000. The
fair value less costs to sell on December 31, 20x1 is ₱340,000.

48. How should FORGETIVE Co. classify the property in its 20x1 annual financial statements?
a. Held for sale, ₱320,000 b. Held for sale, ₱340,000 c. PPE, ₱340,000 d. PPE, ₱400,000

49. During 20x2, the market conditions deteriorate further, and the asset is not sold by December 31, 20x2. FORGETIVE Co.
believes that the market conditions will improve and has not further reduced the price of the asset. The fair value less costs to
sell on December 31, 20x2 is ₱300,000. If the property was not classified as held for sale in 20x1, its carrying amount by this
time would have been ₱350,000.
a. Held for sale, ₱300,000 b. Held for sale, ₱320,000 c. PPE, ₱300,000 d. PPE, ₱350,000

50. WAYFARER TRAVELER Co. is preparing its December 31, 20x1, current year financial statements. A land included in
WAYFARER’s property, plant and equipment that did not qualify as held for sale as of December 31, 20x1 was actually sold on
January 5, 20x2. The financial statements were authorized for issue on March 1, 20x2. On December 31, 20x1, WAYFARER has
total current assets of ₱9,000,000. Not included in this amount is the fair value less costs to sell of the land amounting to
₱1,000,000. How much is the total current assets current in WAYFARER’s December 31, 20x1 financial statements?
a. ₱8,000,000 b. ₱9,000,000 c. ₱10,000,000 d. ₱11,000,000

51. On December 31, 20x1, STRIDENT HARSH-SOUNDING Co. classified its building with a historical cost of ₱4,000,000 and
accumulated depreciation of ₱2,400,000 as held for sale. All of the criteria under PFRS 5 are complied with. On that date, the
land has a fair value of ₱1,400,000 and cost to sell of ₱80,000. The entry on December 31, 20x1 includes
a. a debit to building for ₱1,320,000 c. a debit to impairment loss for ₱280,000
b. a credit to accumulated depreciation for ₱2,400,000 d. No reclassification entry will be made on December 31, 20x1

52. On December 31, 20x1, OBSTINACY STUBBORNESS Co. classified its building with a carrying amount of ₱1,600,000 and fair
value less cost to sell of ₱1,320,000 as held for sale.

The building was not sold in 20x2. However, the exception to the one-year requirement was met. On December 31, 20x2, the
fair value less cost to sell of building is ₱1,240,000.
Intermediate Accounting 3 Page |8

The building was not sold in 20x3. However, the exception to the one-year requirement was still met. On December 31, 20x3,
the fair value less cost to sell of building increased to ₱1,680,000. How much is the gain on reversal of impairment to be
recognized on December 31, 20x3?
a. 440,000 b. 360,000 c. 280,000 d. 0

Use the following information for the next four questions:

On December 31, 20x1, INSOUCIANT CAREFREE Co. plans to dispose of a group of its assets. Information on these assets is
shown below:
Carrying amount on Dec. 31, Carrying amount as remeasured
20x1 before classification as immediately before classification
held for sale as held for sale
Inventory 9,600,000 8,800,000
Investment in FVOCI 7,200,000 6,000,000
Investment property (at cost model) 22,800,000 22,800,000
PPE (at cost model) 18,400,000 16,000,000
Goodwill 6,000,000 6,000,000
Total 64,000,000 59,600,000

INSOUCIANT Co. entity estimates that the fair value less costs to sell of the disposal group amounts to ₱52,000,000.

53. How would the reduction in the value of the assets on classification as held for sale be treated in the financial statements?
a. The entity recognizes a loss of ₱4.4M immediately before classification as held for sale and then recognizes an
impairment loss of ₱7.6M.
b. The entity recognizes an impairment loss of ₱12 million.
c. The entity recognizes an impairment loss of ₱7.6M.
d. The entity recognizes a loss of ₱12M immediately before classifying the disposal group as held for sale.

54. How much is the carrying amount of the inventory after classification of the disposal group as held for sale?
a. 8,800,000 b. 7,950,576 c. 7,899,324 d. 7,765,391

55. How much is the carrying amount of the Investment property (at cost model) after classification of the disposal group as
held for sale?
a. 22,800,000 b. 21,859,794 c. 21,786,665 d. 20,766,298

56. How much is the carrying amount of the PPE (at cost model) after classification of the disposal group as held for sale?
a. 16,000,000 b. 15,780,740 c. 15,340,206 d. 15,211,612

57. On December 31, 20x1, INGENIOUS NATURAL Co. classified its building with a carrying amount of ₱1,600,000 and fair
value less costs to sell of ₱1,320,000 as held for sale. Impairment loss of ₱280,000 was recognized on that date. The building
has a remaining useful life of 4 years and it was depreciated using the straight-line method.

As of December 31, 20x2, the building was not yet sold and management decided not to sell the building anymore. The fair
value less cost to sell of the building on December 31, 20x2 is ₱1,240,000 while the value in use is ₱1,220,000.

How much is the carrying amount of the building upon reclassification back to property, plant and equipment?
a. 1,220,000 b. 1,320,000 c. 1,240,000 d. 1,200,000

58. On December 31, 20x1, INIMICAL UNFRIENDLY Co. entered into an agreement to sell a component. On that date, INIMICAL
estimated the gain from the disposal to be made in 20x2 at ₱2,000,000 and the operating losses prior to the date of sale to be
₱1,200,000. As a result of the sale, the component’s operations and cash flows will be eliminated from the entity’s operations
and the entity will not have any significant continuing post-sale involvement in the component’s operations. Accordingly, the
component was classified as held for sale and discontinued operations.

The component’s actual operating losses in 20x1 and 20x2 were ₱2,800,000 and ₱2,600,000, respectively, and the actual gain
on disposal of the component in 20x2 was ₱1,600,000. INIMICAL’s income tax rate is 30%. Any income tax benefit is expected
to be realizable. There were no other temporary differences during the year.

What single, post-tax amounts should be reported for discontinued operations in INIMICAL’s comparative 20x2 and 20x1
income statements, respectively?
a. (1,960,000), (700,000) b. (560,000), (1,960,000) c. (650,000), (1,950,000) d. (700,000), (1,960,000)

59. On April 30, 20x1, ABROGATE ABOLISH Co. approved a plan to dispose of a component of its operations. The disposal
meets the requirements for classification as discontinued operations.
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From January 1 to April 30, 20x1, the component earned operating profit of ₱400,000 and from May 1 to December 31, 20x1,
the segment suffered operating losses of ₱200,000.

The net assets of the component has a carrying amount of ₱32,000,000 as of April 30, 20x1. The fair value less costs to sell of
the component is ₱26,000,000. Additional estimated disposal loss includes severance pay of ₱220,000 and employee
relocation costs of ₱100,000, both of which are directly associated with the decision to dispose of the segment. ABROGATE’s
income tax rate is 30%. Any income tax benefit is expected to be realizable. There were no other temporary differences during
the year.

How much is the profit (loss) from discontinued operations to be reported in ABROGATE's statement of profit or loss and
other comprehensive income for the year ended December 31, 20x1?
a. 4,564,000 b. 4,060,000 c. 4,340,000 d. 4,284,000

60. You are a CPA. Your client asked you for an advice regarding the items that are presented as other comprehensive income.
You will tell your client to refer to which of the following standards?
a. PAS 1 b. PFRS 1 c. PFRS 15 d. PAS 8

61. Non-current assets held for sale and discontinued operations are accounted for under
a. PFRS 4. b. PAS 41. c. PFRS 5. d. PFRS 8.

62. When measuring the fair value of an asset or a liability, an entity refers to
a. PFRS 13. b. PAS 28. c. PAS 1. d. PAS 33.

63. This standard deal with the recognition and measurement of financial instruments.
a. PAS 1 b. PAS 7 c. PFRS 9 d. PFRS 5

64. Which of the following shows a correct effect on equity?

Transaction Effect on equity Transaction Effect on equity
a. Issuance of shares Decrease c. Profit Decrease
b. Retirement of shares Increase d. Loss Decrease

65. The amount of profit or loss appears in which of the following financial statements?
a. Statement of financial position c. Statement of changes in equity
b. Statement of comprehensive income d. b and c

66. The statement of changes in equity is dated

a. as of a point in time. b. for a period of time. c. after some time. d. Not dated.

67. AAA’s total shareholders’ equity on January 1, 20x1 was ₱180,000. The following were the transactions during the year:
• AAA issued additional share capital amounting to ₱360,000. • Total expenses incurred amounted to ₱560,000.
• Total income earned amounted to ₱1,000,000. • AAA declared dividends of ₱140,000.

How much is the total shareholders’ equity on December 31, 20x1?

a. 840,000 b. 700,000 c. 640,000 d. 540,000

68. The first line in the Statement of changes in owner’s equity is

a. Profit or loss b. Beginning capital c. Additional contributions d. Drawings

69. According to PAS 1, dividends declared by an entity are disclosed in the

a. Statement of financial position c. Statement of changes in equity e. c or d
b. Statement of profit or loss and OCI d. Notes f. Any of these

70. The standard that addresses the accounting for revenues is

a. PFRS 16. b. PFRS 18. c. PFRS 5. d. PFRS 15.

“What is the meaning of life? This meaning is not for you to find, but for you to define.”
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