CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/SANTOS
MAY 2025 LECPA BATCH 97

ACCOUNTING CHANGES

1. On January 1, 2022, an entity purchased a machine for P5,280,000 and depreciated it by the straight line
method using an estimated useful life of eight years with no residual value. On January 1, 2025, the entity
determined that the machine had a useful life of six years from the date of acquisition and the residual
value was P480,000. An accounting change was made in 2025 to reflect this additional information.
I. The carrying amount of the machine on December 31, 2024 is P3,300,000.
II. The accumulated depreciation on December 31, 2025 should be reported at P2,920,000.
III. A change in estimated useful life of an asset is a change in accounting estimate and should be treated
currently and prospectively.
A. All statements are true
B. Only statements I and II are true.
C. All statements are not true
D. Only statement II is true.

2. On January 1, 2023, an entity purchased for P4,800,000 a machine with useful life of ten years and
residual value of P200,000. The machine was depreciated by the double declining balance method and
the carrying amount of the machine was P3,072,000 on December 31, 2024. The entity changed to the
straight line method on January 1, 2025 and the residual value did not change.
I. The depreciation for 2025 should be reported at P359,000.
II. The accumulated depreciation on December 31, 2025 should be reported at P2,087,000.
III. A change in depreciation method is a change in accounting policy.
A. All statements are true
B. Only statements I and II are true
C. All statements are not true
D. Only statement I is true.

3. On January 1, 2025, an entity decided to decrease the useful life of an existing patent from 10 years to 8
years. The patent was purchased on January 1, 2020 for P3,000,000 with no residual value. The entity
decided on January 1, 2025 to change the depreciation method from an accelerated method to the straight
line method. On January 1, 2025, the cost of an equipment was P8,000,000 and the accumulated
depreciation P3,400,000. The remaining useful life of the equipment on January 1, 2025 is 10 years and
the residual value P200,000.
What is the total charge against income for 2025 as a result of the accounting changes?
A. 940,000
B. 960,000
C. 627,500
D. 647,500

4. An entity was incorporated on January 1, 2022. In preparing the financial statements for the year ended
December 31, 2024, the entity used the following original cost and useful life:
Building 15,000,000 15 years
Machinery 10,500,000 10 years
Furniture 3,500,000 7 years
On January 1, 2025, the entity determined that the remaining useful life is 10 years for the building, 7
years for the machinery and 5 years for the furniture. The entity used the straight line method of
depreciation with no residual value.
What amount should be reported as total depreciation for 2025?
A. 2,650,000
B. 3,700,000
C. 2,550,000
D. 3,500,000

7375
 Page 2
5. During 2025, an entity decided to change from the FIFO method of inventory valuation to the weighted
average method. Inventory balances under each method were:
FIFO Weighted Average
December 31, 2022 4,500,000 5,400,000
December 31, 2023 7,800,000 7,100,000
December 31, 2024 8,300,000 7,800,000
The income tax rate is 25%.
I. The cumulative effect of the change is a decrease in retained earnings in 2025 at P375,000.
II. A change in inventory method is a change in accounting policy and should be treated retrospectively
as adjustment of the beginning retained earnings
III. A change in accounting policy may occur when required by IFRS or when it provides reliable and
more relevant information
A. All statements are true
B. Only statements II and III are true
C. Only statement II is true
D. All statements are not true
6. On January 1, 2025 an entity changed from average cost to FIFO to account for inventory. The entity
provided the following ending inventory:
2024 2025
Average cost 500,000 900,000
FIFO cost 700,000 1,400,000
The income statement reported the following using average cost method
2024 2025
Sales 10,000,000 13,000,000
Cost of goods sold 7,000,000 9,000,000
Operating expenses 1,500,000 2,000,000
Income tax rate 25%
I. The income before tax under the average method should be reported at P2,000,000 for 2025.
II. The net income after the change from average method to FIFO should be reported at P1,725,000 for
2025.
A. Statements I and II are true
B. Statements I and II are not true
C. Only statement I is true
D. Only statement II is true

End

7375