Problem 1
Robust Company purchased an investment property on January 1, 2018 at a cost of P4,000,000. The
property had a useful life of 20 years and on December 31, 2019 had a fair value of P4,800,000. On
December 31, 2019 the property was sold for net proceeds of P4,500,000. The entity used the cost model
to account for the investment property.
What is the gain to be recognized for 2019 regarding the disposal of the investment property?
A. 900,000
B. 500,000
C. 800,000
D. 700,000
Answer: A
Cost – Jan. 1, 2018
Accumulated depreciation
(4,000,000/ 20 x 2)
Carrying amount – Dec. 31, 2019
P4,000,000
Sale price
Carrying amount
Gain on disposal
P4,500,000
3,600,000
P900,000
(400,000)
P3,600,000
Reference:
Intermediate Accounting Volume 1 2019, C. Valix, p. 566
Problem 2
On January 1, 2019, Scholastic Company acquired a building to be held as investment property in a
remote location for P5,000,000. After initial recognition, the entity measured the investment property using
the cost model because the fair value cannot be measured reliably.
On December 31, 2019, management assessed the useful life of the building at 20 years from the date of
acquisition and presumed the residual value to be nil because the fair value cannot be determined
reliably.
At year-end, the entity declined an unsolicited offer to purchase the building for P6,500,000. This is a onetime offer that is unlikely to be repeated in the foreseeable future.
What is the carrying amount of the building on December 31, 2019?
A. 5,000,000
B. 6,500,000
C. 6,175,000
D. 4,750,000
Answer: D
Cost of the investment property
Accumulated depreciation
(5,000,000/ 20)
Carrying amount – Dec. 31, 2019
P5,000,000
(250,00
0)
P4,750,000
Reference:
Intermediate Accounting Volume 1 2019, C. Valix, p. 568
Problem 3
Rhino Company, a real estate entity, had a building with a carrying amount of P20,000,000 on December
31, 2019. The building was used as offices of the entity’s administrative staff.
On December 31, 2019, the entity intended to rent out the building to independent third parties. The staff
will be moved to a new building purchased early in 2019.
On December 31, 2019, the entity also had land that was held for sale in the ordinary course of business.
The land had a carrying amount of P10,000,000 and fair value of P15,000,000 on December 31, 2019.
On such date, the entity decided to hold the land for capital appreciation. The accounting policy is to carry
all investment property at fair value.
1. On December 31, 2019, what amount should be recognized in revaluation surplus as a result of
transfer of the building to investment property?
A. 20,000,000
B. 35,000,000
C. 15,000,000
D.
0
2. On December 31, 2019, what amount should be recognized in profit or loss as a result of transfer of the
land to investment property?
A. 15,000,000
B. 10,000,000
C. 5,000,000
D.
0
Question 1 Answer: C
Fair value of building
Carrying amount of building
Revaluation surplus
P35,000,000
20,000,000
P15,000,000
Question 2 Answer: C
Fair value of land
Carrying amount of land
Gain on reclassification
P15,000,000
10,000,000
P5,000,000
Reference:
Intermediate Accounting Volume 1 2019, C. Valix, p. 571
Problem 4
Chain Company has P5,000,000 life insurance policy on the president, of which Chain Company is the
beneficiary. The entity provided the following information regarding the policy for the year ended
December 31, 2019:
Cash surrender value, January 1
Cash surrender value, December 31
Annual advance premium paid January 1
435,000
540,000
200,000
During the current year, dividends of P30,000 were applied to increase the cash surrender value of the
policy.
What amount should be reported as life insurance expense for 2019?
A. 200,000
B. 125,000
C. 65,000
D. 95,000
Answer: D
Premium paid
Less: Increase in cash surrender value
(540,000 – 435,000)
Life insurance expense
P200,000
105,000
P95,000
Reference:
Intermediate Accounting Volume 1 2019, C. Valix, p. 574
Problem 5
During the year, Storm Company purchased a new machine. A P120,000 down payment was made and
three monthly instalments of P360,000. The cash price would have been P1,160,000.
The entity paid no installation charges under the monthly payment plan but a P20,000 installation charge
would have been incurred with a cash purchase.
What amount should be capitalized as cost of the machine?
A. 1,220,000
B. 1,200,000
C. 1,180,000
D. 1,160,000
Answer: C
Cash paid
Directly attributable cost
Capitalized cost of the machine
P1,160,000
20,000
P1,180,000
Reference:
Intermediate Accounting Volume 1 2019, C. Valix, p. 656
Problem 6
Grey Company acquired a machine with a cash price of P2,000,000.
Down payment
Note payable in 3 equal annual instalments
20,000 shares of Grey Company at fair value
Prior to use, installation cost of P50,000 was incurred machine has a residual value of P100,000.
What is the initial measurement of the new machine?
A. 2,000,000
B. 2,400,000
C. 2,050,000
D. 2,450,000
Answer: C
Cash price
Installation cost
Total cost
P 2,000,000
50,000
P 2,050,000
Reference:
Intermediate Accounting Volume 1 2019, C. Valix, p.656
Problem 7
Corner Company purchased a van with a list price of P3,000,000. The dealer granted a 15% reduction in
list price and an additional 10% cash discount on the net price if payment is made in 30 days.
Irrecoverable taxes amounted to P40,000 and the entity paid an extra P30,000 to have a special horn
installed.
What amount should be recorded as initial cost of the van?
A. 2,550,000
B. 2,335,500
C. 2,365,000
D. 2,325,000
Answer: C
List price
Trade discount
(3,000,000 x 15%)
Cash discount
(3,000,000 – 450,000 x 10%)
Irrecoverable taxes
Installation cost
Total cost
P 3,000,000
450,000
255,000
40,000
30,000
P 2,365,000
Reference:
Intermediate Accounting Volume 1 2019, C. Valix, p.656
Problem 8
Lax Company recently acquired two items of equipment.
 Acquired a press at an invoice price of P3,000,000 subject to a 5% cash discount which was
taken. Costs of freight and insurance during shipment were P50,000 and installation cost
amounted to P200,000.

Acquired a welding machine at an invoice price of P2,000,000 subject to a 10% cash discount
which was not taken. Additional welding supplies were acquired at a cost of P100,000.
What is the total increase in the equipment account as a result of the transactions?
A. 4,900,000
B. 5,000,000
C. 5,100,000
D. 5,200,000
Answer: A
First equipment:
Invoice price
Discount taken – 5%
Freight and insurance
Installation cost
P3,000,000
(150,000)
50,000
200,000
P3,100,000
Second equipment:
Invoice price
Discount taken – 10%
2,000,000
(200,000)
1,800,000
Total cost
P4,900,000
Reference:
Intermediate Accounting Volume 1 2019, C. Valix, p. 658
Problem 9
At the beginning of the current year, Hallmark Company exchanged an old packaging machine, which
cost P1,200,000 and was 50% depreciated, for a used machine and paid a cash difference of P160,000.
The fair value of the old packaging machine was determined to be P700,000.
1) What is the cost of the new asset acquired?
A. 700,000
B. 860,000
C. 660,000
D. 600,000
2) What is the gain on exchange?
A. 540,000
B. 100,000
C. 60,000
D.
0
Question 1 Answer: B
Fair value of asset given
Cash payment
Total cost
P700,000
160,000
P860,000
Question 2 Answer: B
Fair value of asset given
Installation cost
Total cost
P700,000
600,000
P100,000
Reference:
Intermediate Accounting Volume 1 2019, C. Valix, p. 659
Problem 10
On June 30, 2014, Louisiana Company reported the following information:
Equipment at cost
Accumulated depreciation
5,000,000
1,500,000
The equipment was measured using the cost model and depreciated on a straight line basis over a 10year period. On December 31, 2014, the management decided to change the basis of measuring the
equipment from the cost model to the revaluation model.
The equipment was recorded at fair value of P4,550,000 with remaining useful life of 5 years.
Ignoring income tax, what amount should be reported as revaluation surplus on December 31, 2014?
A. 1,050,000
B. 1,300,000
C. 1,500,000
D. 2,000,000
Answer: B
Cost – June30, 2014
Accumulated depreciation
Carrying amount – June 30, 2014
Depreciation from July 1 to December 31, 2014
(5,000,000/10 x 6/12)
Carrying amount – December 31, 2014
P5,000,000
(1,500,000)
P3,500,000
Fair value – December 31, 2014
Carrying amount – December 31, 2014
Revaluation surplus – December 31, 2014
P4,550,000
3,250,000
P1,300,000
(250,000)
P3,250,000
Reference:
Practical Accounting Volume One 2014, C. Valix, p. 662
Problem 11
On January 1, 2009, Boston Company purchased a new building at a cost of P6,000,000. Depreciation
was computed on the straight line basis at 4% per year. On January 1, 2014, the building was revalued at
fair value of P8,000,000.
1. What is the depreciation for 2014?
A. 320,000
B. 400,000
C. 100,000
D. 240,000
2. What is the revaluation surplus on December 31, 2014?
A.
B.
C.
D.
3,072,000
1,900,000
3,040,000
1,920,000
Question 1 Answer: B
Accumulated depreciation
(4% x 5 years expired)
20 %
List of asset
Expired
Remaining life
Depreciation for 2014
(8,000,000/20)
25 years
(5)
20
P400,000
Question 2 Answer: C
Fair value
Carrying amount
P8,000,000
4,800,000
Revaluation surplus – January 1, 2014
Realization in 2014
(3,200,000/20)
Revaluation surplus – December 31, 2014
P3,200,000
160,000
P3,040,000
Reference:
Practical Accounting Volume One 2014, C. Valix, p. 663
Problem 12
Cynosure Company has an equipment with carrying amount of P1,600,000 on December 31, 2014 after
recording depreciation for 2014. The following information is available on December 31, 2014 relative to
the equipment:
Fair value of similar equipment
Discounted future cash flows
Undiscounted future cash flows
1,400,000
1,300,000
1,350,000
At what amount should the equipment be reported on December 31, 2014?
A. 1,600,000
B. 1,400,000
C. 1,300,000
D. 1,350,000
Answer: B
Carrying amount
Less: Recoverable amount equal to fair value
which is higher than value in use
Impairment loss
P1,600,000
1,400,000
P200,000
Reference:
Practical Accounting Volume One 2014, C. Valix, p.670
Problem 13
On January 1, 2011, Reed Company purchased a machine for P8,000,000 and established an annual
depreciation charge of P1,000,000 over an eight-year life. During 2014, after issuing the 2013 financial
statements, the entity concluded that the machine suffered permanent impairment of its operational value,
and P2,000,000 is a reasonable estimate of the amount expected to be recovered through use of the
machine for the period January , 2014 through December 31, 2018.
In the December 31, 2014 statement of financial position, what is the carrying amount of the machine?
A. 4,000,000
B. 1,000,000
C. 1,600,000
D.
0
Answer: C
Recoverable amount - Jan. 1, 2014
Less: Depreciation for 2014
(2,000,000/ 5)
Carrying amount – Dec. 21, 2014
P2,000,000
400,00
0
P1,600,000
Reference:
Practical Accounting Volume One 2014, C. Valix, p. 680
Problem 14
Gei Company determined that, due to obsolescence, equipment with an original cost of P9,000,000 and
accumulated depreciation on January 1, 2014, of P4,200,000 had suffered permanent impairment, and as
a result should have a carrying amount of only P3,000,000 as of the beginning of the year. In addition, the
remaining useful life of the equipment was reduced from 8 years to 3.
In the December 31, 2014 statement of financial position, what amount should be reported as
accumulated depreciation?
A. 1,000,000
B. 5,200,000
C. 6,000,000
D. 7,000,000
Answer: D
Cost
Accumulated depreciation – Jan. 1, 2014
Carrying amount – Jan. 1, 2014
Expected recoverable amount
Impairment loss
P9,000,000
4,200,000
P4,800,000
3,000,000
P1,800,000
Adjusted accumulated depreciation, Jan. 1, 2014
(4,200,000 + 1,800,000)
Depreciation for 2014
(3,000,000/ 3)
Accumulated depreciation – Dec. 31, 2014
P6,000,000
1,000,000
P7,000,000
Reference:
Practical Accounting Volume One 2014, C. Valix, p. 680
Problem 15
One of the cash generating units of sanmig Company is the production of liquor. On December 31, 2014,
the entity believed that the assets of the cash generating unit (CGU) are impaired based on an analysis of
economic indicators.
The assets and liabilities of the cash generating unit at carrying amount on December 31, 2014 are:
Cash
Account receivable
Allowance for doubtful accounts
Inventory
Property, plant and equipment
Accumulated depreciation
Goodwill
Accounts payable
Loans payable
4,000,000
6,000,000
1,000,000
7,000,000
22,000,000
4,000,000
3,000,000
2,000,000
1,000,000
The entity determined that the value in use of the cash generating unit is P30,000,000.
The account receivable are considered collectible, except those considered doubtful.
1. What is the impairment loss to be allocated to property, plant and equipment?
A. 4,000,000
B. 2,880,000
C. 2,400,000
D. 4,200,000
Answer: B
Cash
Accounts receivable – net
Inventory
Property, plant and equipment – net
Goodwill
Carrying amount of cash generating unit
Value in use
Impairment loss
Impairment loss allocated to goodwill
Remaining impairment loss
Inventory
Property, plant and equipment
P4,000,000
5,000,000
7,000,000
18,000,000
3,000,000
P37,000,000
30,000,000
P7,000,000
3,000,000
P4,000,000
Carrying amount
P7,000,000
18,000,000
P25,000,000
Fraction
7/25
18/25
Loss
P1,120,000
2,880,000
P4,000,000
Reference:
Practical Accounting Volume One 2014, C. Valix, p. 690
Problem 16
Liton Company buys and sells securities expecting to earn profits on short-term differences in price.
During 2014, Liton Company purchased the following trading securities:
Security
A
B
C
Fair value
Dec. 31, 2014
P 225,000
162,000
678,000
Cost
P 195,000
300,000
660,000
Before any adjustments related to these trading securities, Liton Company had net income of P 900,000.
1. What is Liton’s net income after making any necessary trading security adjustments?
A. 900,000
B. 810,000
C. 762,000
D. 948,000
2. What would Liton’s net income be if the fair value of security B were P285,000?
A. 867,000
B. 900,000
C. 885,000
D. 933,000
Question 1 Answer: B
Net income before trading security adjustment
Unrealized loss
(1,155,000 – 1,065,000)
Net income, as adjusted
Security
A
B
C
Cost
P195,000
300,000
660,000
P1,155,000
Fair value
December 31, 2014
P225,000
162,000
678,000
P1,065,000
Question 1 Answer: D
Net income before trading
security adjustment
Unrealized loss
(1,188,000 – 1,155,000)
Net income, as adjusted
P900,000
90,00
0
P810,000
P900,000
33,000
P933,000
Security
A
B
C
Cost
P 195,000
300,000
660,000
P1,155,000
Fair value
December 31, 2014
P225,000
285,000
678,000
P1,188,000
Reference:
Auditing Problems CPA Examination Reviewer 2014, G. Roque, p. 281
Problem 17
On January 1, 2014, Rambutan Corp, purchased debt securities for cash of P765,540 to be held as
financial assets at amortized cost. The securities have a face value of P 600,000, and they mature in 15
years. The securities carry fixed interest of 10% that is receivable semiannually, on June 30 and
December 31. The prevailing market interest rate on these debt securities is 7% compounded annually.
1. The carrying value of the debt securities on December 31, 2014, at amortized cost using the effective
interest rate method is
A. 771,840
B. 759,016
C. 765,540
D. 600,000
2. The interest income to be reported for 2014 using the effective interest rate method is
A. 66,524
B.
6,534
C. 60,000
D. 53,476
Question 1 Answer: B
Carrying value, Jan. 1, 2014
Amortization of premium, Jan. 1 – June 30:
Nominal interest (600,000 x 10% x ½)
Effective interest (765,540 x 7% x ½)
Carrying value, June 30, 2014
Amortization of premium, July 1 – Dec. 31:
Nominal interest
Effective interest (762,334 x 7% x ½)
Carrying value at amortized cost, Dec. 31, 2014
Question 2 Answer: D
Effective interest, Jan. 1 – June 30
Effective interest, July 1 – June 30
Interest income 2014
Reference:
P26,794
26,682
P53,476
P765,540
30,000
(26,794)
30,000
(26,682)
(3,206)
P762,334
3,318
P759,016
Auditing Problems CPA Examination Reviewer 2014, G. Roque, p. 302
Problem 18
CHICO Company purchased the following non-trading equity securities during 2014:
Security
Cost
X
Y
P450,000
500,000
Fair value
December 31, 2014
P500,000
800,000
At initial recognition, Chico classified these securities as at fair value through other comprehensive
income. On July 28, 2015, Chico sold all the shares of Security Y for a total of P835,000. As of December
31, 2015, the shares of Security X had a fair value of P200,000 No other activity occurred during 2015
relation to the non-trading equity securities portfolio.
1. What amount should Chico Company report as realized gain in the 2015 income statement?
A. 35,000
B. 335,000
C. 300,000
D. 265,000
2. What is the cumulative unrealized gain (loss) to be reported in the statement of changes in equity for
2015?
A. 300,000
B. 150,000
C. (300,000)
D. (250,000)
Question 1 Answer: A
Cash proceeds
Less: Carrying value of Security Y, Dec.31, 2014
Realized gain on sale
P835,000
800,000
P35,000
Question 2 Answer: D
Cumulative unrealized gain, Dec. 31, 2014
Unrealized gain related to Security Y
Unrealized loss for 2015 – Security X
(500,000 – 200,000)
Cumulative unrealized loss, Dec. 31, 2015
P350,000
(300,000)
(300,000)
P(250,000)
Reference:
Auditing Problems CPA Examination Reviewer 2014, G. Roque, p. 303
Problem 19
Saxophone Company acquires a new manufacturing equipment on January 1, 2014, on instalment basis.
The deferred payment contract provides for a down payment of P300,000 and an 8-year note for
P3,104,160. The note is to be paid in 8 equal annual instalment payments of P388,020, including 10%
interest. The payments are to be made on December 31 of each year, beginning December 31, 2014.
The equipment has a cash price equivalent of P2,370,000. Saxophone’s financial year-end is December
31.
1. What is the acquisition cost of the equipment?
A. 3,404,160
B. 2,804,160
C. 2.370,000
D. 3,104,160
2. The amount to be recognized on January 1, 2014, as discount on note payable is
A. 1,034,160
B.
310,416
C.
827,160
D.
0
Question 1 Answer: C
Acquisition cost of equipment
(cash price equivalent)
P2,370,000
Question 2 Answer: A
Cost of equipment (cash price equivalent)
Less: Down payment
Amount assigned to note payable
Face value of note
Discount on note payable, Jan. 1, 2014
P2,370,000
300,000
P2,070,000
3,104,160
P1,034,260
Reference:
Auditing Problems CPA Examination Reviewer 2014, G. Roque, p. 350
Problem 20
ACCORDIAN Company incurred the following expenditures in 2014:
Purchased of land
P7,892,000
Land survey
104,000
Fees for search of title for land
12,000
Building permit fee
70,000
Temporary quarters for construction crews
215,000
Cost to demolish old building
940,000
Excavation of basement
200,000
Special assessment for street project
40,000
Dividends
100,000
Damages awarded for injuries sustained in construction
(no insurance carried)
168,000
Cost of construction
58,000,000
Cost of paving parking lot adjoining building
800,000
Cost of shrubs, trees, and other landscaping
660,000
A portion of the building site had been temporarily used by Accordian to operate a car park while the
building was being constructed. A total of P325,000 was earned by Accordian from this incidental activity.
1. What is the cost of the land?
A. 8,896,000
B. 8,048,000
C. 9,648,000
D. 10,448,000
2. What is the cost of the land improvements?
A.
660,000
B. 1,500,000
C. 1,460,000
D.
800,000
3. What is the cost of the building?
A. 58,485,000
B. 58,160,000
C. 58,252,000
D. 59,425,000
Question 1 Answer: B
Question 2 Answer: C
Question 3 Answer: D
Land
Purchased of land
Land survey
Fees for search of title for land
Building permit fee
Temporary quarters for construction
crews
Cost to demolish old building
Excavation of basement
Special assessment for street project
Cost of construction
Cost of paving parking lot adjoining
building
Cost of shrubs, trees, and other
landscaping
Totals
Land improvements
Building
P7,892,000
104,000
12,000
P70,000
215,000
940,000
200,000
40,000
58,000,000
P800,000
P8,048,000
660,000
P1,460,000
P59,425,000
Reference:
Auditing Problems CPA Examination Reviewer 2014, G. Roque, p. 366
Problem 21
Sheng Company constructed a building for use by the administration section of the company. The
completion date was January 1, 2007, and the construction cost was P16,800,000. The company
expected to remain in the building for the next 20 years, at which time the building would probably have
no real salvage value and have to be demolished. It is expected that demolition costs will amount to
P300,000.
In June 2013, following a storm that wreaked vast destruction in the city, the roof of the administration
building was considered to be in porr shape so the company decided to replace it. On January 1, 2014, a
new roof was installed at a cost of P4,400,000. The new roof was of a different material to the old roof,
which was estimated to have cost only P2,800,000 in the original construction, although at the time of
construction it was thought that the roof would last for the 20 years that the company expected to use the
building. Because the company had spent the money replacing the roof, it thought that it would delay
construction of a new building, thereby extending the original life of the building from 20 years to 25 years.
1. If the roof were treated as a separate component of the building, the total depreciation expense for
2014 would be
A. 750,000
B. 681,566
C. 606,667
D. 672,000
2. If the roof were not treated as a separate component of the building, the total depreciation expense for
2014 would be
A. 1,178,462
B.
861,944
C.
851,111
D.
750,000
Question 1 Answer: A
Roof
(4,400,000/ 18 years)
Rest of the building:
Cost
Less: Accumulated depreciation
(14,000,000 x 7/ 20)
Book value, Jan. 1, 2014
Divide by revised remaining life
(25-7)
Total
P244,444
14,000,000
4,900,000
9,100,000
18 yrs
505,556
P750,000
Question 2 Answer: C
Book value of building, Jan. 1, 2014
(16,800,000 x 13/ 20)
Add: Cost of new roof
Total
Divide by revised remaining life
(25 - 7)
Depreciation expense for 2014
P10,920,000
4,400,000
15,320,000
18
yrs
P851,111
Reference:
Auditing Problems CPA Examination Reviewer 2014, G. Roque, p. 399
Problem 22
Eagle Company owns a tract of land that it purchased for P2,000,000. The land is held as a future plant
site and has a fair value of P2,800,000 on the date of exchange.
Hall Company also owns a tract of land held as a future plant site. Hall paid P3,600,00 for the land upon
purchase and the land has a fair value of P3,800,00 on the date of exchange.
On date of exchange, Eagle exchanged its land and paid P1,000,000 cash for the land owned by Hall.
The configuration of cash flows from land acquired is expected to be significantly different from the
configuration of cash flows of the land exchanged.
At what amount should Eagle record the land acquired in the exchange?
A. 2,800,000
B. 3,000,000
C. 3,200,000
D. 3,800,000
Answer: D
Fair value
Cash paid
Land acquired in the exchange
P2,800,000
1,000,000
P3,800,000
Reference:
Conceptual Framework and Accounting Standards 2018, C. Valix, p. 299
Problem 23
Yola Company and Zaro Company are fuel distributors. To facilitate the delivery of oil to their customers,
Yola and Zaro exchanged ownership of 1,200 barrels of oil without physically moving the oil.
Yola paid Zaro P300,000 to compensate for a difference in the grade of oil. It is reliably determined that
the exchange lacks commercial substance.
On he date of the exchange, carrying amount and market value of the oil were:
Carrying amount
Market Value
Yola Company
1,000,000
1,200,000
Zaro Company
1,400,000
1,500,000
What amount should Yola Company record as cost of the oil inventory received in exchange?
A. 1,000,000
B. 1,300,000
C. 1,200,000
D. 1,500,000
Answer: B
Carrying amount
Cash paid
Cost of the oil inventory received in exchange
P1,000,000
300,000
P1,300,000
Reference:
Conceptual Framework and Accounting Standards 2018, C. Valix, p. 300
Problem 24
Galore Company ventured into construction of a condominium in Makati which is rated as the largest
state-of-the-art structure.
The board of directors decided that instead of selling the condominium, the entity would hold this property
for purposes of earning rentals by letting out space to business executive in the area.
The construction of the condominium was completed and the property was placed in service on January
1, 2018.
The cost of the construction was P50,000,000. The useful life of the condominium is 25 years and the
residual value is P5,000,000.
An independent valuation expert provided the following fair value at each subsequent year-end:
December 31, 2018
December 31, 2019
December 31, 2020
55,000,000
53,000,000
60,000,000
1. Under the cost model, what amount should be reported an annual depreciation of investment property?
A. 1,800,000
B. 2,000,000
C. 2,200,000
D.
0
2. Under the fair value model, what amount should be recognized as gain from change in fair value in
2020?
A. 5,000,000
B. 3,000,000
C. 7,000,000
D.
0
Question 1 Answer: A
Cost of the construction
Less: Residual value
Divide by useful life
Depreciation expense
P50,000,000
5,000,000
25 years
P1,800,000
Question 2 Answer: C
Fair value - December 31, 2020
Carrying amount - December 31, 2019
Gain from change in fair value
P60,000,000
53,000,000
P7,000,000
Reference:
Conceptual Framework and Accounting Standards 2018, C. Valix, p. 560
Problem 25
Eragon Company and its subsidiaries own the following properties at year-end:
Land held by Eragon for undetermined use
A vacant building owned by Eragon and to be
leased out under an operating lease
Property held by a subsidiary of Eragon, a real
estate firm, in the ordinary course of business
5,000,000
3,000,000
2,000,000
Property held by Eragon for use in production
Building owned by a subsidiary of Eragon and
for which the subsidiary provides security
and maintenance services to the lessees
Land leased by Eragon to a subsidiary under an
operating lease
Property under construction for use as investment
Property
Land held for factory site
Machinery leased out by Eragon to an unrelated
party under an operating lease
4,000,000
1,500,000
2,500,000
6,000,000
3,500,000
1,000,000
1. What is the total investment property that should be reported in the consolidated statement of financial
position of the parent and its subsidiaries?
A. 12,000,000
B. 15,500,000
C. 10,500,000
D. 9,500,000
2. What total amount should be included in property, plant and equipment in the consolidated statement
of financial position?
A. 11,000,000
B. 13,000,000
C. 10,500,000
D. 8,500,000
Question 1 Answer: B
Question 2 Answer: A
Investment property
Land held by Eragon for undetermined use
A vacant building owned by Eragon and to be
leased out under an operating lease
Property held by Eragon for use in production
Building owned by a subsidiary of Eragon and
for which the subsidiary provides security
Land leased by Eragon to a subsidiary under an
operating lease
Property under construction for use as investment
property
Land held for factory site
Machinery leased out by Eragon to an unrelated
party under an operating lease
Totals
Property, plant and
equipment
P5,000,000
3,000,000
P4,000,000
1,500,000
2,500,000
6,000,000
3,500,000
P15,500,000
1,000,000
P11,000,000
Reference:
Conceptual Framework and Accounting Standards 2018, C. Valix, p. 561
Problem 26
Bona Company purchased an investment property on January 1, 2016 for P2,200,000. The property had
a useful life of 40 years and on December 31, 2018 had a fair value of P3,000,000.
On December 31, 2018 the property was sold for net proceeds of P2,900,000. The entity used the cost
model to account for the investment property.
What is the gain or loss to be recognized for the year ended December 31, 2018 regarding the disposal of
the property?
A. 865,000 gain
B. 810,000 gain
C. 100,000 loss
D. 700,000 gain
Answer: A
Cost – Jan. 1, 2016
Accumulated depreciation
(2,200,000/ 40 x 3)
Carrying amount – Dec. 31, 2019
P2,200,000
Sale price
Carrying amount
Gain on disposal
P2,900,000
2,035,000
P865,000
(165,000)
P2,035,000
Reference:
Conceptual Framework and Accounting Standards 2018, C. Valix, p. 562
Problem 27
Dayara Company owned three investment properties with the following details:
Initial
cost
Property 1
Property 2
Property 3
2,700,000
3,450,000
3,300,000
Fair value
Fair value
December 31, 2018
December 31, 2019
3,200,000
3,050,000
3,850,000
3,500,000
2,850,000
3,600,000
Each property was acquired three years ago with a useful life of 25 years. The accounting policy is to use
the fair value model for investment property.
What is the gain or loss to be recognized for the year ended December 31, 2020?
A. 189,000 loss
B. 150,000 loss
C. 300,000 gain
D. 450,000 loss
Answer: B
Property 1
Fair value
December 31, 2018
3,200,000
Fair value
December 31, 2019
3,500,000
Gain (loss)
P300,000
Property 2
Property 3
3,050,000
3,850,000
2,850,000
3,600,000
(200,000)
(250,000)
Net loss from
change in fair value
P(150,000)
Reference:
Conceptual Framework and Accounting Standards 2018, C. Valix, p. 562
Problem 28
Baguio Company is considering the appropriate classification of the following items:
a. Land held for long-term capital appreciation
b. Land held for undecided future use
c. Building leased out under an operating lease
d. Building leased out under a finance lease
e. Vacant building held to be leased out under an
operating lease
f. Property held for use in the production or supply
of goods or services
g. Property held for administrative purposes
h. Property held for sale in the ordinary course of
business
i. Property held in the process of construction or
development for sale
j. Property being constructed or developed on
behalf of third parties
k. Property held for future use as owner-occupied
property
l. Property held for future development and
subsequent use as owner-occupied property
m. Property occupied by employees
n. Owner-occupied property awaiting disposal
o. Property that is being constructed or developed
for use as an investment property
p Existing investment property that is being
redeveloped for continuing use as investment
property
q. Building held for administrative purposes and
leased out under operating lease (40% is for
administrative purposes)
r. Building leased out under an operating lease (the
entity supplies security and maintenance
services to the lessees)
P10,000,000
20,000,000
50,000,000
30,000,000
5,000,000
4,000,000
6,000,000
1,000,000
2,000,000
8,000,000
2,500,000
3,000,000
2,400,000
500,000
7,000,000
15,000,000
10,000,000
24,000,000
How much is total amount that would normally be reported as investment property?
A. 130,000,000
Land held for long-term capital appreciation
P10,000,000
B. 128,000,000
Land held for undecided future use
20,000,000
C. 137,000,000
Building leased out under an operating lease
50,000,000
D. 106,000,000
Vacant building held to be leased out under an
operating lease
5,000,000
Answer: C
Property that is being constructed or developed
for use as an investment property
7,000,000
Existing investment property that is being
redeveloped for continuing use as investment
property
15,000,000
Building held for administrative purposes and
leased out under operating lease
(10,000,000 x 60%)
6,000,000
Building leased out under an operating lease (the
entity supplies security and maintenance
services to the lessees)
24,000,000
Total
P137,000,000
Reference:
Reviewer in Auditing Problems 2010, R. Ocampo, p. 299
Problem 29
Alaminos Inc. completedthe construction of a building at the end of 2008 for a total cost of P100 million.
The building is estimated to be economically useful for 25 years. The building was constructed for the
purpose of earning rentals under operating leases. The tenants began occupying the building after its
completion. The company opted to use the fair value model to measure the building. An independent
valuation expert was used by the company to estimate the fair value of the building on an annual basis.
According to the expert the fair values of the building at the end of 2008, 2009, and 2010 were P105
million, P120 million and P118 million, respectively.
1. How much should be recognized in profit or loss in 2008 as a result of the completion of the building at
the end of 2008?
A. 20,000,000
B. 9,000,000
C. 5,000,000
D.
0
2. The depreciation expense in 2009 is
A. 4,000,000
B. 4,800,000
C. 4,200,000
D.
0
3. How much shoud be recognized in profit or loss in 2009 as a result of the fair value changes?
A. 20,000,000
B. 19,200,000
C. 15,000,000
D.
0
4. How much should be recognized in profit or loss in 2010 as a result of the fair value changes?
A. 18,000,000
B. 3,000,000
C. 2,000,000
D.
0
5. How much is the carrying amount of the shopping mall on December 31, 2010 if Alaminos used the
cost model?
A. 100,000,000
B. 118,000,000
C. 96,600,000
D. 92,000,000
Question 1 Answer: C
Fair value - December 31, 2008
Cost
Unrealized gain on investment property
P105,000,000
100,000,000
P5,000,000
Question 2 Answer: D
Investment properties carried at fair value are not depreciated since fair value changes
are already recognized in profit or loss.
Question 3 Answer: C
Fair value - December 31, 2009
Fair value - December 31, 2008
Unrealized gain on investment property
P120,000,000
105,000,000
P15,000,000
Question 4 Answer: C
Fair value - December 31, 2010
Fair value - December 31, 2000
Unrealized loss on investment property
P118,000,000
120,000,000
P2,000,000
Question 5 Answer: D
Cost
Less: Accumulated depreciation – December 31, 2010
(100,000,000 x 2/25)
Carrying amount – December 31, 2010
P100,000,000
8,000,000
P92,000,000
Reference:
Reviewer in Auditing Problems 2010, R. Ocampo, p. 301
Problem 30
Candon, Inc. completed the construction of a building at the end of 2008 for a total cost of P20 million.
The building is estimated to be economically useful for 25 years. The building was constructed for the
purpose of earning rentals under operating leases. The tenants began occupying the building after its
completion. The company opted to use the fair value model to measure the building. An independent
valuation expert was used by the company to estimate the fair value of the building on an annual basis.
According to the expert the fair value of the building at the end of 2008, 2009, and 2010 were P22 million,
P24 million and P25 million, respectively.
The company’s business expanded in 2009. As a result, the company started to use the building in its
operations on January 1, 2010. Because of the change in use, the company reclassified the building from
investment property to property, plant and equipment.
How much is the carrying amount of the building on December 31, 2010?
A. 24,000,000
B. 23,040,000
C. 23,000,000
D. 21,120,000
Answer: C
Fair value - December 31, 2009
Less: Accumulated depreciation – December 31, 2010
(24,000,000 x 1/24)
Carrying amount – December 31, 2010
Reference:
Reviewer in Auditing Problems 2010, R. Ocampo, p. 304
P24,000,000
1,000,000
P23,000,000