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JOSE MARIA COLLEGE

Philippine Japan Friendship Highway, Sasa, Davao City

INTERMEDIATE ACCOUNTING 3 Set 1

PRELIM EXAMINATION
Sept. 18, 2024 10:30 AM– 12:00 NN

Directions: Read thoroughly the given information. For every question, choose the letter which
represents the correct answer and shade the space below the letter. All final answers should be
written on the given Answer Sheet. In problem solving, number your corresponding traceable
solutions. No credit will be given for an answer with no support.

1. 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

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

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

3. 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

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
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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. Material Omissions or misstatements of items are material if they could,

individually or collectively; influence the economic decisions of users taken on the
basis of the financial statements. Materiality depends on
a. the peso amount and degree of financial consequence of the omission or
misstatement judged in the surrounding circumstances
b. the size and peso amount of the omission or misstatement judged in the
surrounding circumstances
c. the peso amount and nature of the omission but not the misstatement judged in
the surrounding circumstances
d. the size and nature of the omission or misstatement judged in the surrounding
circumstances

8. 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
100,00
Property, plant, and equipment 0
Goodwill 28,000
560,0
Totals 00

How much are the total current assets?

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

9. The ledger of PERNICIOUS DEADLY Co. as of December 31, 20x1 includes the
following:

Liabilities
10,00
Bank overdraft 0
Trade accounts payable (net of ₱10,000 debit
balance 40,00
in accounts) 0
Notes payable (due in 20 semi-annual
payments of 80,00
₱4,000) 0
30,00
Interest payable 0
70,00
Bonds payable (due on March 31, 20x2) 0
Discount on bonds payable (30,000)
10,00
Dividends payable 0
12,00
Share dividends payable 0
Deferred tax liability (expected to reverse in 36,00
20x2) 0
44,00
Income tax payable 0
100,0
Contingent liability 00
28,00
Reserve for contingencies 0
430,00
Totals 0

How much are the total current liabilities?

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

10. The ledger of DEROGATORY DEGRADING Co. in 20x1 includes the following:
200,00
Cash 0
400,00
Accounts receivable 0
1,000,0
Inventory 00
300,00
Accounts payable 0
100,0
Note payable 00
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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

11. 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

12. How much are the total distribution costs (selling expenses)?
a. 198,000
b. 210,500
c. 217,500
d. 221,500

13. How much are the total administrative expenses?

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

14. Entity A has the following information:

Inventory, beg. 80,000

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

How much is Entity A’s cost of sales?

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

15. 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
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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

16. 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.”

17. 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
b. function of expense method
c. single-statement presentation
d. two-statement presentation

18. 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

19. 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

20. A statement of comprehensive income that presents cost of sales separately from
other expenses is prepared under the
a. single-step method.
b. single-presentation.
c. multi-step method.
d. two-statement presentation.

21. It is an agreement between two or more parties that creates enforceable rights and
obligations.
a. obligation
b. contract
c. revenue
d. any of these

22. IFRS 15 applies to

a. contracts with customers
b. contracts with sellers
c. a and b
d. all contracts entered into by an entity in the ordinary course of its business.
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23. Warwick Co. and Spector, Inc. are unrelated parties both engaged in the same line
of business. In 20x1, Warwick and Spector agreed to exchange inventories to
facilitate sales to customers. Information on the inventories is as follows:

Warwick Spector
Carrying amount of asset given up 380,000 400,000
Fair value of asset given up 475,000 512,000
Cash (paid)/ received on the exchange (35,000) 35,000

What amount of revenue should Spector Co. recognize from the exchange assuming
the inventories exchanged are considered “dissimilar” and “similar?”

Dissimilar Similar
a. 475,000 475,000
b. 512,000 475,000
c. 512,000 510,000
d. 0 0

24. ABC Co., a seller of concrete aggregates, enters into the following contracts:
i. A contract with Delta Co. to deliver goods. Payment is due one month after
delivery.
ii. A contract with Echo Co. for the sale of 300 units of each of Products X and Y.
The contract states that the price of Product Y will be retrospectively reduced
by 50% if Echo Co. makes a cumulative purchase of at least 1,000 units of
Product X within 6 months.
iii. A contract with Fafa Co. to deliver goods. At contract inception, Fafa Co. is in
financial difficulties. ABC Co. assesses Fafa Co.’s ability and intention to pay the
consideration on due date and concludes that a 50% price concession will be
given to the customer.
iv. A contract with Gamma Co., an entity which is also engaged in the concrete
aggregates business, to exchange inventory to facilitate sales to customers in
different geographical areas of operations.

Identify the contracts to which IFRS 15 Revenue from Contract with Customers may
not be applied.
a. Delta and Echo
b. Fafa and Gamma
c. Fafa
d. Gamma

25. Compost Co. enters into a contract with a customer on August 15, 20x1. The
customer pays a non-refundable down payment. At contract inception, Compost Co.
considers the customer’s ability and intention to pay the balance of the
consideration and concludes that the collectability is doubtful. How should Compost
Co. account for the contract on August 15, 20x1?
a. Apply PFRS 15 but recognize a loss allowance.
b. Not account for the contract but disclose it only.
c. Recognize the non-refundable payment as revenue but writes-off the balance as
loss.
d. Recognize a liability for the consideration received.

26. 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
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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 IFRS 15
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

27. On September 4, 20x1, Sepra Co. sells goods to a customer for ₱8,000. The terms of
the sale agreement state that payment is due in one year's time, which Sepra Co.
determines to provide the customer with a significant benefit of financing. The cash
selling price of the goods is not directly observable. However, Sepra Co.
determines the imputed rate of interest in the agreement to be 9%. How much
revenue should Sepra Co. recognize on September 4, 20x1?
a. 8,720
b. 8,000
c. 7,339
d. 0

28. Wet Screen (WS) Co. sells Product X, Product Y and Product Z to a customer for a
lump sum price of ₱90,000. The products will be delivered at different points in
time. WS Co. regularly sells Products X, Y and Z separately for ₱20,000, ₱40,000
and ₱60,000, respectively. WS Co. also regularly sells Products Y and Z together for
₱70,000. How much is the customer’s discount on Product Y?
a. 0
b. 10,000
c. 12,000
d. 18,000

29. ABC Co. enters into a contract for the sale of Product A for ₱100. As part of the
contract, ABC Co. gives the customer a 40% discount voucher for any future
purchases up to ₱100 in the next 30 days. ABC Co. intends to offer a 10% discount
on all sales during the next 30 days as part of a seasonal promotion. The 10%
discount cannot be used in addition to the 40% discount voucher. Past experience
shows that 80% of customers redeem the voucher and the average additional
purchase is ₱50. What amount of the transaction price is allocated to the discount
voucher?
a. 0
b. 11
c. 12
d. 14

30. It can be described as a change order, a variation or an amendment.

a. Contract modification
b. Contract asset
c. Change in accounting estimate
d. Combination of contracts

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
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₱200,000. At the plan commitment date, there is a backlog of uncompleted customer

orders.

31. 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.
b. Included under property, plant and equipment at ₱4,800,000.
c. Classified as held for sale at ₱6,000,000
d. Classified as held for sale at ₱4,800,000

32. 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.
b. Included under property, plant and equipment at ₱4,800,000.
c. Classified as held for sale at ₱6,000,000
d. Classified as held for sale at ₱4,800,000

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.

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

34. 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 c. PPE, ₱300,000
b. Held for sale, ₱320,000 d. PPE, ₱350,000

35. 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.
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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 as
Carrying amount remeasured
on Dec. 31, 20x1 immediately before
before classification classification as held
as held for sale 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.

36. 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.

37. 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

38. 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

39. 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
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c. 15,340,206
d. 15,211,612

40. 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.

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

“Give thanks in all circumstances; for this is God’s will for you in Christ Jesus.” - (1 Thessalonians 5:18)
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