1. The objective of PAS 1 Presentation of Financial Statements is to prescribe the basis for presentation
of general purpose 昀椀nancial statements, to ensure
a. intra-comparability
c. faithful representation
b. inter-comparability
d. a and b
2. General purpose 昀椀nancial statements cater to what type of needs of users?
a. common needs
c. a and b
b. speci昀椀c needs
d. loving and caring needs
3. The ledger of COPIOUS RICH Co. as of December 31, 20x1 includes the following:
15% Note payable
16% Bonds payable
18% Serial bonds
Interest payable
50,000
100,000
200,000
-
Additional information:
COPIOUS Co.’s 昀椀nancial statements were authorized for issue on April 15, 20x2.
- The 15% note payable was issued on January 1, 20x1 and is due on January 1, 20x5. The note pays
annual interest every year-end. The agreement with the lender provides that COPIOUS Co. shall
maintain an average current ratio of 2:1. If at any time the current ratio falls below the agreement,
the note payable will become due on demand. As of the 3 rd quarter in 20x1, COPIOUS’s average
current ratio is 0.50:1. Immediately, COPIOUS informed the lender of the breach of the agreement.
On December 31, 20x1, the lender gave COPIOUS a grace period ending on December 31, 20x2 to
rectify the de昀椀ciency in the current ratio. COPIOUS promised the creditor to liquidate some of its
long-term investments in 20x2 to increase its current ratio.
- The 16% bonds are 10-year bonds issued on December 31, 1992. The bonds pay annual interest
every year-end.
- The 18% serial bonds are issued at face amount and are due in semi-annual installments of ₱20,000
every April 1 and September 30. Interests on the bonds are also due semi-annually. The last
installment on the bonds is due on September 30, 20x7.
How much is the total current liabilities?
a. 9,000
b. 100,000
c. 109,000
d. 120,000
Solution:
16% Bonds payable
Interest payable on the serial bonds (200K x 18% x 3/12)
Current liabilities
0
100,000
9,000
109,000
0
4. Entity B has the following information:
Inventory, beg.
Inventory, end.
Purchases
Freight-in
Purchase returns
Purchase discounts
120,000
192,000
480,000
24,000
12,000
16,800
How much is Entity B’s the cost of sales?
a. 402,300
b. 416,300
c. 420,300
d. 422,300
Inventory, beg.
120,000
Net purchases:
Purchases
Freight-in
480,000
24,000
Purchase returns
(12,000)
Purchase discounts
(16,800)
475,200
595,200
Total goods available for sale
Less: Inventory, end.
(192,000)
Cost of goods sold
403,200
Use the following information for the next four questions:
The nominal accounts of Hazel Lee Co. on December 31, 20x1 have the following balances:
Accounts
Sales
Interest income
Gains
Inventory, beg.
Purchases
Freight-in
Purchase returns
Purchase discounts
Freight-out
Sales commission
Advertising expense
Salaries expense
Rent expense
Depreciation expense
Utilities expense
Supplies expense
Transportation and travel expense
Dr.
Cr.
₱1,045,000
80,000
30,000
₱80,000
300,000
30,000
15,000
27,000
25,000
60,000
35,000
350,000
60,000
80,000
40,000
30,000
25,000
0
0
Insurance expense
Taxes and licenses
Interest expense
Miscellaneous expense
Loss on the sale of equipment
10,000
50,000
5,000
2,000
15,000
Additional information:
a. Ending inventory is ₱100,000.
b. Three-fourths of the salaries, rent, and depreciation expenses pertain to the sales department. The
sales department does not share in the other expenses.
5. In a statement of comprehensive income prepared using the single-step approach (nature of
expense method), how much is presented as ‘change in inventory’? (increase)/decrease
a. (288,000)
b. 288,000
c. (20,000)
d. 20,000
Single-step approach
Hazel Lee Co.
Statement of Comprehensive Income
For the period ended December 31, 20x1
INCOME
₱1,045,00
0
80,000
30,000
1,155,000
Sales
Interest income
Gains
TOTAL INCOME
EXPENSES
Net purchases (a)
Change in inventory (b)
Freight-out
Sales commission
Advertising expense
Salaries expense
Rent expense
Depreciation expense
Utilities expense
Supplies expense
Transportation and travel expense
Insurance expense
Taxes and licenses
288,000
(20,000)
25,000
60,000
35,000
350,000
60,000
80,000
40,000
30,000
25,000
10,000
50,000
0
0
Interest expense
Miscellaneous expense
Loss on sale of equipment
TOTAL EXPENSES
5,000
2,000
15,000
1,055,000
PROFIT FOR THE YEAR
Other comprehensive income
COMPREHENSIVE INCOME FOR THE YEAR
100,000
₱100,000
(a)
“Net purchases” is computed as follows:
Purchases
₱300,000
Freight-in
30,000
Purchase returns
(15,000)
Purchase discounts
(27,000)
Net Purchases
₱288,000
(b)
“Change in inventory” is computed as follows:
Inventory, beg.
₱80,000
Inventory, end
100,000
(₱20,000
Change in inventory – increase
)
6. In a statement of comprehensive income prepared using the single-step approach (nature of
expense method), how much is presented as total expenses?
a. 1,055,000
b. 1,075,000
c. 787,000
d. 772,000
7. In a statement of comprehensive income prepared using the multi-step approach (function of
expense method), how much is presented as distribution costs?
a. 398,500
b. 487,500
c. 467,500
d. 512,500
Multi-step approach
Hazel Lee Co.
Statement of Comprehensive Income
For the period ended December 31, 20x1
Notes
₱1,045,000
Sales
0
0
1
Cost of sales
GROSS PROFIT
Other income
Distribution costs
Administrative expenses
Other expenses
Interest expense
PROFIT FOR THE YEAR
Other comprehensive income
COMPREHENSIVE INCOME FOR THE YR.
2
3
4
5
Note 1: Cost of sales
Inventory, beg.
₱80,000
Purchases
300,000
Freight-in
30,000
Purchase returns
(15,000)
Purchase discounts
(27,000)
Total goods available for sale
368,000
Inventory, end
(100,000)
Cost of sales
₱268,000
Note 2: Other income
Interest income
₱80,000
Gains
Other income
30,000
₱110,000
Note 3: Distribution costs
Freight-out
₱25,000
Sales commission
60,000
Advertising expense
35,000
Salaries expense (350,000 x 3/4)
262,500
Rent expense (60,000 x 3/4)
45,000
Depreciation expense (80,000 x 3/4)
60,000
Distribution costs
₱487,500
Note 4: Administrative expenses
Salaries expense (350,000 x 1/4)
₱87,500
Rent expense (60,000 x 1/4)
15,000
Depreciation expense (80,000 x 1/4)
20,000
Utilities expense
40,000
Supplies expense
30,000
Transportation and travel expense
25,000
0
0
(268,000)
777,000
110,000
(487,500)
(279,500)
(15,000)
(5,000)
100,000
₱100,000
Insurance expense
10,000
Taxes and licenses
50,000
Miscellaneous expense
2,000
Administrative expenses
₱279,500
Note 5: Other expenses
Loss incurred on the sale of equipment – 15,000
8. In a statement of comprehensive income prepared using the multi-step approach (function of
expense method), how much is presented as administrative expenses?
a. 297,500
b. 302,500
c. 287,500
d. 279,500
Use the following information for the next two questions:
DEMOTIC POPULAR Co. acquires through foreclosure a property comprising land and buildings
that it intends to sell. The fair value of the land and buildings is ₱6,000,000 and costs to sell are
₱200,000. The related defaulted receivables have a carrying amount of ₱5,000,000.
9. The entity does not intend to transfer the property to a buyer until after it completes renovations
to increase the property’s sales value. How should DEMOTIC Co. classify the land and
buildings?
a. Included under property, plant and equipment at ₱5,000,000.
b. Included under investment property at ₱5,000,000.
c. Included under investment property at ₱5,800,000.
d. Classi昀椀ed as held for sale at ₱5,800,000
C (6M – 200K) = 5.8M investment property because the property is not available for sale in its present
condition
10. After the renovations are completed and the property is classi昀椀ed as held for sale but before a
昀椀rm purchase commitment is obtained, the entity becomes aware of environmental damage
requiring remediation. The entity still intends to sell the property. However, the entity does not
have the ability to transfer the property to a buyer until after the remediation is completed. The
costs of renovations made totaled ₱200,000. The estimated costs of remediation are ₱100,000.
How should DEMOTIC Co. classify the land and buildings?
a. Included under property, plant and equipment at ₱5,700,000.
b. Included under investment property at ₱6,000,000.
c. Included under investment property at ₱5,700,000.
d. Classi昀椀ed as held for sale at ₱5,700,000
B (5.8M (see no. 5) + 200K costs of renovations = 6M. The land and buildings are classified as investment
property and not as held for sale assets because they are not available for immediate sale in their
present condition.
0
0
11. An entity is commi琀琀ed to a plan to sell a manufacturing facility in its present condition and
classi昀椀es the facility as held for sale at that date. After a 昀椀rm purchase commitment is obtained,
the buyer’s inspection of the property identi昀椀es environmental damage not previously known to
exist. The entity is required by the buyer to make good the damage, which will extend the period
required to complete the sale beyond one year. However, the entity has initiated actions to make
good the damage, and satisfactory recti昀椀cation of the damage is highly probable. The
manufacturing facility 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 manufacturing facility?
a. Held for sale, ₱10.6M
c. PPE, ₱10M
b. Held for sale, ₱10M
d. PPE, ₱10.6M
B – The exception to the “1-yr. requirement” is met.
12. Under the indirect method, the cash 昀氀ow from operating activities is determined by adjusting
the reported pro昀椀t by (choose the incorrect statement)
a. adding back non-cash expenses
b. adding back decreases in operating assets
c. deducting decreases in operating liabilities
d. adding back increases in operating assets
13. Under the indirect method, the cash 昀氀ow from operating activities is determined by adjusting
the reported pro昀椀t by (choose the incorrect statement)
a. deducting non-cash income
b. deducting increases in operating assets
c. deducting decreases in nonoperating liabilities
d. deducting gains on sale of nonoperating assets
14. When preparing a statement of cash 昀氀ows using the direct method, amortization of patent is
a. shown as an increase in cash 昀氀ows from operating activities.
b. shown as a reduction in cash 昀氀ows from operating activities.
c. included with supplemental disclosures of noncash transactions.
d. not reported in the statement of cash 昀氀ows or related disclosures.
15. Which of the following statements regarding cash equivalents is correct?
a. A one-year Treasury note could not qualify as a cash equivalent.
b. All investments meeting the PFRS 9 Financial Instruments criteria must be reported as cash
equivalents.
c. The date a security is purchased determines its "original maturity" for cash equivalent
classi昀椀cation purposes.
d. Once established, management's policy for classifying items as cash equivalents cannot be
changed.
16. Using the indirect method, cash 昀氀ows from operating activities would be increased by which of
the following?
a. Gain on sale of investments
b. Increase in prepaid expenses
0
0
c. Decrease in accounts payable
d. Decrease in accounts receivable
Use the following information for the next three questions:
The movements in the cash account of DEADLOCK STANDSTILL Co. during 20x2 are shown
below.
beg.
Cash
400
Sales
12,000
Interest income
Rent income
Dividend income
Sale of held for trading securities
40
540
80
1,600
Sale of old building
Collection of non-trade note
Proceeds from loan with a bank
Issuance of shares
1,040
120
3,200
1,940
7,60
0
2,40
0
60
140
200
2,20
0
260
480
400
180
7,04
0
Purchases
Operating expenses
Interest expense
Income taxes
Investment in FVOCI
Purchase of equipment
Loan granted to employee
Payment of loan borrowed
Reacquisition of shares
Dividends
end.
17. How much is the cash 昀氀ows from operating activities?
a. 4,600
b. 4,840
c. 5,040
d. 4,060
D (Refer to solutions below)
18. How much is the cash 昀氀ows from investing activities?
a. (1,500)
b. 1,500
c. 1,240
d. (1,240)
A (Refer to solutions below)
19. How much is the cash 昀氀ows from 昀椀nancing activities?
a. 4,800
b. (4,800)
c. 4,240
d. 4,080
0
0
D Solutions:
DEADLOCK STANDSTILL Co.
Statement of cash flows
For the year ended December 31, 20x2
Cash flows from operating activities
12,000
Cash receipts from customers
40
Cash receipts for interest income
540
Cash receipts for rent income
80
Cash receipts for dividend income
(7,600)
Cash paid to suppliers
(2,400)
Cash paid for operating expenses
2,660
Cash generated from operations
(60)
Interest paid
(140)
Income taxes paid
1,600
Cash receipt from sale of held for trading securities
4,060
Net cash from operating activities
Cash flows from investing activities
(200)
Cash payment for acquisition of investment in FVOCI
1,040
Cash receipt from sale of old building
(2,200)
Cash payment for acquisition of equipment
120
Cash receipt from collection of loan granted
(260)
Cash payment for loan granted
(1,500)
Net cash used in investing activities
Cash flows from financing activities
3,200
Cash proceeds from loan borrowed
(480)
Cash payment for loan borrowed
1,940
Cash proceeds from issuance of share capital
(400)
Cash payment for acquisition of treasury shares
(180)
Cash payment for dividends
4,080
Net cash from financing activities
0
0
6,640
Net increase in cash and cash equivalents
400
Cash and cash equivalents, beginning
7,040
Cash and cash equivalents, end
Use the following information for the next four questions:
BLITHE JOYFUL Co. had the following information during 20x2:
Accounts receivable, January 1, 20x2
2,400
Accounts receivable, December 31, 20x2
1,600
Sales on account and cash sales
32,000
Bad debts expense
800
Accounts payable, January 1, 20x2
1,400
Accounts payable, December 31, 20x2
800
Cost of sales
16,000
Increase in inventory
3,600
Operating expenses on accrual basis
Increase in accrued payables for operating expenses
Decrease in prepaid operating expenses
4,880
1,640
1,560
Property, plant, and equipment, January 1, 20x2
Property, plant, and equipment, December 31, 20x2
7,200
10,800
Additional information:
 There were no write-o昀昀s of accounts receivable during the year.
 Equipment with an accumulated depreciation of ₱800 was sold during the year for ₱480
resulting to a gain on sale of ₱60.
20. How much is the cash receipts from customers?
a. 38,200
b. 37,400
c. 35,400
d. 32,800
D
Solution:
Accounts receivable
Jan. 1, 20x2
Sales
2,400
32,000
32,800
Write-offs
Collections of accounts
receivables (squeeze)
1,600
Dec. 31, 20x2
21. How much is the cash payments to suppliers?
a. 19,000
0
0
b. 20,200
c. 22,000
d. 23,400
B
Solution:
Jan. 1, 20x2
Net purchases (squeeze)
Inventory
19,600 16,000
3,600
Cost of sales
Dec. 31, 20x2
Accounts payable
1,400
Payments for purchases on
account (squeeze)
Dec. 31, 20x2
20,200
800
19,600
Jan. 1, 20x2
Net purchases (accrual)
22. How much is the cash payments for operating expenses?
a. 1,680
b. 4,800
c. 4,960
d. 8,080
A
Solution:
Prepaid expense / Accrued expense
Prepaid expense, beginning
1,560
Accrued expense, beg.
Cash paid for operating expenses
(squeeze)
1,680
4,880
Operating expense (accrual basis)
Accrued expense, end
1,640
Prepaid expense, end
23. How much is the cash payments for acquisition of property, plant, and equipment?
a. 3,600
b. 4,820
c. 4,080
d. 4,940
B
Solution:
The entry for the sale of equipment is re-constructed as follows:
20x2
Cash on hand (given)
Accumulated depreciation (given)
Equipment (squeeze)
Gain on sale (given)
0
0
480
800
1,220
60
Jan. 1, 20x2
Property, plant and equipment
7,200
Acquisition of PPE (squeeze)
4,820
Historical cost of equipment sold (see
1,220 journal entry above)
10,800
Dec. 31, 20x2
24. ABC Co. has the following information as of December 31, 20x1:
Jan. 1
Dec. 31
Accounts receivable
100,000
250,000
Allowance for bad
15,000
debts
20,000
Net credit sales
850,000
Bad debt expense
60,000
Recoveries
20,000
How much is the total cash receipts from customers during the period?
a. 970,000
b. 879,000
c. 907,000
d. 897,000
C
Solution:
beg.
Net credit sales
Accounts receivable
90,000
1,200,000
Recoveries
73,000
10,000
907,000
320,000
Write-offs a
Collections from customers (including
recoveries) - (squeeze)
end.
a
The amount of write-offs is computed as follows:
Allowance for doubtful accounts
26,000
Write-offs (squeeze)
73,000
10,000
80,000
end.
43,000
beg.
Recoveries
Bad debt expense
25. BLUFF DECEIVE Co. has the following information as of December 31, 20x2:
Jan. 1
16,000
(400)
3,840
6,800
Accounts receivable
Allowance for bad debts
Prepaid rent
Accounts payable
0
0
Dec. 31
20,000
(1,000)
3,200
8,800
BLUFF reported pro昀椀t of ₱8,800 for the year, after depreciation expense of ₱200, gain on sale of
equipment of ₱240, and restructuring and other provisions of ₱400. None of the provisions
recognized during the period a昀昀ected cash.
How much is the cash 昀氀ows from operating activities?
a. 4,800
b. 5,600
c. 8,800
d. 8,400
D
Solution:
Cash flows from operating activities
Profit
Adjustments for:
Depreciation expense
Gain on sale of building
Restructuring and other provisions
8,800
200
(240)
400
9,160
Increase in accounts receivable, net
(3,400)
640
2,000
8,400
[(20,000 – 1,000) – (16,000 – 400)]
Decrease in prepaid rent
Increase in accounts payable
Net cash from operating activities
Use the following information for the next two questions:
INORDINATE EXCESSIVE Co. had the following information for 20x2:
 Acquired 3-month treasury bills for ₱200,000.
 Acquired equipment with a purchase price of ₱4,000,000 by paying 20% in cash and issuing a
note payable for the balance. There were no payments made on the note during the year.
 Acquired land with fair value of ₱3,200,000 by issuing shares with aggregate par value of
₱2,400,000. The excess is credited to share premium.
 Extended a ₱1,600,000 loan to a director.
 Borrowed ₱1,280,000 from a bank. Used the cash proceeds as follows: ₱800,000 for additional
working capital and ₱480,000 to se琀琀le scrip dividends declared in 20x1.
 Se琀琀led an outstanding note payable by issuing shares with aggregate par value of ₱800,000.
Share premium resulted from the transaction amounted to ₱280,000.
26. How much is the net cash 昀氀ows from (used in) investing activities?
a. (2,400,000)
b. 2,400,000
c. 800,000
d. (800,000)
A
Cash flows from investing activities
Cash payment for acquisition of equipment (4M x 20%)
Cash proceeds of loan granted to officer
0
(800,000)
(1,600,000)
0
Net cash used in investing activities
(2,400,000)
27. How much is the net cash 昀氀ows from (used in) 昀椀nancing activities?
a. (800,000)
b. 800,000
c. (2,400,000)
d. 2,400,000
B
Cash flows from financing activities
Cash receipt from borrowings
Cash payment for dividends
Net cash used in financing activities
1,280,000
(480,000)
800,000
Use the following information for the next three questions:
Information on LA-DI-DA SHOWY Co.'s 昀椀nancial position and performance as of December 31,
20x2 and 20x1 are presented below.
LA-DI-DA SHOWY Company
Statement of 昀椀nancial position
As of December 31, 20x2
20x2
20x1
ASSETS
Current assets
Cash and cash equivalents
Held for trading securities
Accounts receivable – net
Rent receivable
Inventory
Prepaid insurance
Total current assets
Noncurrent assets
Investment in bonds
Buildings
Accumulated depreciation
Goodwill
Total noncurrent assets
TOTAL ASSETS
1,000,000
480,000
1,520,000
100,000
2,000,000
200,000
5,300,000
600,000
1,240,000
40,000
3,600,000
160,000
5,640,000
360,000
10,000,000
(800,000)
360,000
9,920,000
15,220,000
340,000
4,000,000
(800,000)
400,000
3,940,000
9,580,000
LIABILITIES AND EQUITY
Current liabilities
Accounts payable
Unearned rent
Insurance payable
Dividends payable
Income tax payable
Short-term loan payable
480,000
80,000
240,000
920,000
60,000
-
320,000
120,000
180,000
480,000
140,000
200,000
0
0
Total current liabilities
Noncurrent liabilities
Bonds payable
Discount on bonds
Deferred tax liability
Total noncurrent liabilities
TOTAL LIABILITIES
Equity
Share capital
Retained earnings
TOTAL EQUITY
TOTAL LIABILITIES AND
EQUITY
1,780,000
1,440,000
4,000,000
(380,000)
60,000
3,680,000
5,460,000
4,000,000
(400,000)
40,000
3,640,000
5,080,000
8,000,000
1,760,000
9,760,000
4,000,000
500,000
4,500,000
15,220,000
9,580,000
LA-DI-DA SHOWY Company
Statement of pro昀椀t or loss
For the year ended December 31, 20x2
Sales
20,000,000
Cost of sales
(12,000,000)
Gross income
8,000,000
Rent income
1,800,000
Interest income
80,000
Insurance expense
(400,000)
Bad debts expense
(60,000)
Interest expense
(400,000)
Loss on sale of building
(160,000)
Unrealized gain on investment
80,000
Other expenses
(4,800,000)
Pro昀椀t before tax
4,140,000
Income tax expense
(1,200,000)
Pro昀椀t for the year
2,940,000
Additional information:
 During 20x2, LA-DI-DA purchased held for trading securities for ₱400,000. The fair value of the
shares on December 31, 20x2 is ₱480,000.
 The allowance for doubtful accounts has balances of ₱80,000 and ₱40,000 as of December 31, 20x2
and 20x1, respectively.
 During 20x2, LA-DI-DA sold an old building with historical cost of ₱3,200,000 for ₱1,040,000.
 LA-DI-DA inadvertently included depreciation expense in the “Other expenses” line item.
 There were no acquisitions or disposals of investment in bonds during the period.
 During 20x2, LA-DI-DA issued shares with an aggregate par value of ₱4,000,000 for ₱4,000,000
cash.
28. How much is the net cash 昀氀ows from (used in) operating activities?
a. (6,000,000)
b. 6,000,000
0
0
c. 6,600,000
d. (7,600,000)
B
Solution:
Cash flows from operating activities
2,940,000
Profit for the year
Adjustments for:
2,000,000
Depreciation expense
40,000
Impairment loss on goodwill
160,000
Loss on sale of building
(80,000)
Unrealized gain on held for trading securities
(20,000)
Amortization of discount on investment in bonds
20,000
Amortization of discount on bonds payable
5,060,000
(280,000)
Increase in accounts receivable, net
(60,000)
Increase in rent receivable
1,600,000
Decrease in inventory
(40,000)
Increase in prepaid insurance
160,000
Increase in accounts payable
(40,000)
Decrease in unearned rent
60,000
Increase in insurance payable
(80,000)
Decrease in income tax payable
20,000
Increase in deferred tax liability
6,400,000
(400,000)
Cash paid for the acquisition of held for trading securities
6,000,000
Net cash from operating activities
29. How much is the net cash 昀氀ows from (used in) investing activities?
a. (8,160,000)
b. 8,460,000
c. (9,200,000)
d. 8,160,000
A
Solution:
0
0
Cash flows from investing activities
Cash receipt from sale of old building
Cash payment for acquisition of building
Net cash used in investing activities
1,040,000
(9,200,000)
(8,160,000)
30. How much is the net cash 昀氀ows from (used in) 昀椀nancing activities?
a. (2,560,000)
b. 2,560,000
c. (2,960,000)
d. 2,960,000
B
Solution:
Cash flows from financing activities
Cash proceeds from issuance of share capital
Cash payment for short-term loan
Cash payment for dividends
Net cash from financing activities
4,000,000
(200,000)
(1,240,000)
2,560,000
31. REMNANT REMAINDER Co.’s cash balances as of December 31, 20x2 and 20x1 were ₱7,040,000
and ₱400,000 respectively. REMNANT’s December 31, 20x2 statement of cash 昀氀ows reported net
cash used in investing activities of ₱1,500,000 and net cash from 昀椀nancing activities of
₱4,080,000.
How much is the net cash 昀氀ows from (used in) operating activities?
a. (4,060,000)
b. 4,060,000
c. 4,600,000
d. (4,600,000)
B
Solution:
4,060,000
Net cash from operating activities
squeeze
(1,500,000)
Net cash from investing activities
4,080,000
Net cash used in financing activities
6,640,000
Net increase in cash during the period
400,000
Cash, beginning balance
7,040,000
start
Cash, ending balance
0
0
32. During 20x1, ALBEIT ALTHOUGH Company decided to change from the Average cost formula
for inventory valuation to the FIFO cost formula. Inventory balances under each method were as
follows:
Average
FIFO
January 1
4,000,000
4,800,000
December 31
8,000,000
8,400,000
Income tax rate is 30%. What is the net cumulative e昀昀ect of the accounting change in ALBEIT’s
opening retained earnings balance?
a. 400,000 increase
c. 280,000 increase
b. 560,000 decrease
d. 560,000 increase
D (4,800,000 – 4,000,000) x 70% = 560,000 increase
33. On January 1, 20x1, PRISTINE UNCORRUPTED Co. acquired an equipment for ₱4,000,000. The
equipment will be depreciated using the straight-line method over 20 years. The estimated
residual value is ₱400,000.
In 20x6, following a reassessment of the realization of the expected economic bene昀椀ts from the
equipment, PRISTINE Co. changed its depreciation method to sum-of-the-years digits (SYD). The
remaining useful life of the asset is estimated to be 4 years and the residual value is changed to
₱200,000. How much is the depreciation expense in 20x6?
a. 1,160,000
b. 1,140,000
c. 1,233,560
d. 1,110,669
A [(4M – 400K) x 15/20 + 400K] – 200K x 4/10 = 1,160,000
Use the following information for the next two questions:
On January 10, 20x2, prior to the authorization of LIBERTINE IMMORAL Co.’s December 31, 20x1
昀椀nancial statements for issue, the accountant of LIBERTINE Co. received a bill for an advertisement
made in the month of December 20x1 amounting to ₱1,600,000. This expense was not accrued as of
December 31, 20x1.
34. The correcting entry, if the books are still open, includes
a. a debit to advertising expense for ₱1,600,000
b. a credit to advertising income for ₱1,600,000
c. a debit to retained earnings for ₱1,600,000
d. a credit to retained earnings for ₱1,600,000
A (Dr.) Advertising expense 1.6M; (Cr.) Advertising payable 1.6M
35. The correcting entry, if the books are already closed, includes
a. a debit to advertising expense for ₱1,600,000
b. a credit to advertising income for ₱1,600,000
c. a debit to retained earnings for ₱1,600,000
0
0
d. a credit to retained earnings for ₱1,600,000
C (Dr.) Retained earnings 1.6M; (Cr.) Advertising payable 1.6M
36. On January 15, 20x3 while 昀椀nalizing its 20x2 昀椀nancial statements, DIAPHANOUS
TRANSPARENT Co. discovered that depreciation expense recognized in 20x1 is overstated by
₱1,600,000. Ignoring income tax, the entry to correct the prior period error includes
a. a debit to depreciation expense for ₱1,600,000
b. a debit to retained earnings for ₱1,600,000
c. a credit to depreciation expense for ₱1,600,000
d. a debit to accumulated depreciation for ₱1,600,000
D (Dr.) Accum. Dep’n. 1.6M; (Cr.) Retained earnings 1.6M
Use the following information for the next four questions:
GULOSITY GREEDINESS Co. reported pro昀椀ts of ₱4,000,000 and ₱8,000,000 in 20x1 and 20x2,
respectively. In 20x3, the following prior period errors were discovered:
 The inventory on December 31, 20x1 was understated by ₱200,000.
 An equipment with an acquisition cost of ₱1,200,000 was erroneously charged as expense in
20x1. The equipment has an estimated useful life of 5 years with no residual value. GULOSITY
Co. provides full year depreciation in the year of acquisition.
The unadjusted balances of retained earnings are ₱8,800,000 and ₱16,800,000 as of December 31, 20x1
and 20x2, respectively.
37. How much is the correct pro昀椀t in 20x1?
a. 7,560,000
b. 5,610,000
c. 4,760,000
d. 5,160,000
D (Refer to solutions below)
38. How much is the correct pro昀椀t in 20x2?
a. 7,560,000
b. 5,160,000
c. 5,720,000
d. 5,610,000
A
20x1
Unadjusted pro昀椀ts
Corrections - (over) understatement:
4,000,000
0
0
20x2
8,000,000
(a) Understatement of Dec. 31, 20x1 inventory
(b.1) Capitalizable costs charged as expense
(b.2) Depreciation expense not recognized
Net adjustment to pro昀椀t
Correct pro昀椀ts
200,000
1,200,000
(240,000)
1,160,000
5,160,000
(200,000)
(240,000)
(440,000)
7,560,000
39. How much is the correct retained earnings in 20x1?
a. 9,960,000
b. 17,520,000 c. 9,860,000
d. 18,420,000
A (Refer to solutions below)
40. How much is the correct retained earnings in 20x2?
a. 9,960,000
b. 17,520,000 c. 9,860,000
d. 18,420,000
B
20x1
8,800,000
Unadjusted retained earnings
Net e昀昀ect of errors on retained earnings:
20x1: 1,160,000*
20x2: (440,000) + 1,160,000*
Adjusted retained earnings
20x2
16,800,000
1,160,000
9,960,000
720,000
17,520,000
*Amounts represent the net e昀昀ect of errors in pro昀椀ts (refer to previous solution).
Use the following information for the next four questions:
HELICAL SPIRAL Co. reported pro昀椀ts of ₱1,600,000 and ₱2,400,000 in 20x1 and 20x2, respectively.
In 20x3, the following prior period errors were discovered:
 Prepaid supplies in 20x1 were overstated by ₱80,000.
 Accrued salaries payable in 20x1 were understated by ₱160,000.
 Repairs and maintenance expenses in 20x1 amounting to ₱400,000 were erroneously capitalized
and being depreciated over a period of 4 years.
The unadjusted balances of retained earnings are ₱6,400,000 and ₱8,800,000 as of December 31, 20x1
and 20x2, respectively.
41. How much is the correct pro昀椀t in 20x1?
a. 1,006,000
b. 1,610,000
c. 1,720,000
d. 1,060,000
D (Refer to solutions below)
0
0
42. How much is the correct pro昀椀t in 20x2?
a. 2,704,000
b. 2,160,000
c. 2,740,000
d. 2,610,000
C
Solutions:
20x1
1,600,000
20x2
2,400,000
(80,000)
(160,000)
(400,000)
80,000
160,000
-
100,000
(540,000)
1,060,000
100,000
340,000
2,740,000
20x1
Unadjusted retained earnings
6,400,000
Net effect of errors on retained earnings:
20x1: (540,000)*
(540,000)
20x2: 340,000 + (540,000)*
Adjusted retained earnings
5,860,000
*Amounts represent the net effect of errors in profits (refer to previous solution).
20x2
8,800,000
Unadjusted profits
Corrections - (over) understatement:
(a) Overstatement of 20x1 prepaid assets
(b) Understatement of 20x1 accrued salaries
(c.1) Expenses erroneously capitalized
(c.2) Depreciation recognized on repair costs
(400,000 ÷ 4)
Net adjustment to profit
Correct profits
43. How much is the correct retained earnings in 20x1?
a. 5,806,000
b. 5,520,000
c. 5,860,000
d. 5,420,000
C (Refer to solutions below)
44. How much is the correct retained earnings in 20x2?
a. 8,960,000
b. 8,600,000
c. 8,860,000
d. 8,420,000
B (Refer to solutions below)
Solutions:
Use the following information for the next 昀椀fteen questions:
0
0
(200,000)
8,600,000
THRALL SLAVE Company made the following errors:
a. December 31, 20x1 inventory was understated by ₱100,000.
b. December 31, 20x2 inventory was overstated by ₱160,000.
c. Purchases on account in 20x1 were understated by ₱400,000 (not included in physical count).
d. Advances to suppliers in 20x2 totaling ₱520,000 were inappropriately charged as purchases.
e. December 31, 20x1 prepaid insurance was overstated by ₱20,000.
f. December 31, 20x1 unearned rent income was overstated by ₱104,000.
g. December 31, 20x2 interest receivable was understated by ₱68,000.
h. December 31, 20x2 accrued salaries payable was understated by ₱120,000.
i. Advances from customers in 20x2 totaling ₱240,000 were inappropriately recognized as sales but
the goods were delivered in 20x3.
j. Depreciation expense in 20x1 was overstated by ₱28,800
k. In 20x2, the acquisition cost of a delivery truck amounting to ₱360,000 was inappropriately
charged as expense. The delivery truck has a useful life of 昀椀ve years. THRALL’s policy is to
provide a full year’s straight line depreciation in the year of acquisition and none in the year of
disposal.
l. A fully depreciated equipment with no residual value was sold in 20x3 for ₱200,000 but the sale
was recorded in the following year.
Pro昀椀ts before correction of errors were ₱492,000, ₱624,000, and ₱840,000 in 20x1, 20x2, and 20x3,
respectively.
Retained earnings before correction of errors were ₱4,492,000, ₱5,116,000 and ₱5,956,000 in 20x1,
20x2, and 20x3, respectively.
45. What is the net e昀昀ect of the errors on the 20x1 pro昀椀t? (over) understatement
a. (187,200)
b. 187,200
c. (164,200)
d. 164,200
A (Refer to solutions below)
46. What is the net e昀昀ect of the errors on the 20x2 pro昀椀t? (over) understatement
a. (572,000)
b. 572,000
c. 563,400
d. (563,400)
B (Refer to solutions below)
47. What is the net e昀昀ect of the errors on the 20x3 pro昀椀t? (over) understatement
a. (78,000)
b. 78,000
c. (60,000)
0
0
d. 60,000
D (Refer to solutions below)
48. How much is the correct pro昀椀t (loss) in 20x1?
a. (348,000)
b. 348,000
c. 324,800
d. 304,800
D (Refer to solutions below)
49. How much is the correct pro昀椀t (loss) in 20x2?
a. 1,196,000
b. 1,296,000
c. 1,684,800
d. 1,286,000
A (Refer to solutions below)
50. How much is the correct pro昀椀t (loss) in 20x3?
a. 900,000
b. 926,000
c. 968,400
d. 986,000
A (Refer to solutions below)
Solutions:
Unadjusted profits
Corrections - (over)/understatement
a. Understatement of 20x1 inventory
b. Overstatement of 20x2 inventory
c. Understatement of 20x1 purchases
d. Overstatement of 20x2 purchases
e. Overstatement of 20x1 prepaid
insurance
f. Overstatement of 20x1 unearned
rent
g. Understatement of 20x2 interest
income
h. Understatement of 20x2 accrued
salaries
i. Overstatement of 20x2 advances/
sales
j. Overstatement of 20x1 depreciation
expense
20x1
492,000
20x2
624,000
20x3
840,000
100,000
(100,000)
(160,000)
400,000
520,000
160,000
(520,000)
(20,000)
20,000
-
104,000
(104,000)
-
68,000
(68,000)
(120,000)
120,000
(240,000)
240,000
-
-
(400,000)
28,800
0
0
k. Acquisition cost of delivery truck in
20x2
k.1 Depreciation on delivery truck
l. Gain on sale in 20x3 not recorded*
Net correction on profits
(over) / under
Corrected profits
360,000
(72,000)
(187,200)
304,800
572,000
1,196,000
(72,000)
200,000
60,000
900,000
*Since the equipment sold is fully depreciated and it has no residual value, the proceeds represents the gain on sale.
51. What is the net e昀昀ect of the errors on the 20x1 retained earnings? (over) understatement
a. (182,700)
b. 182,700
c. (165,200)
d. (187,200)
D (Refer to solutions below)
52. What is the net e昀昀ect of the errors on the 20x2 retained earnings? (over) understatement
a. 348,800
b. (348,800)
c. (384,800)
d. 384,800
D (Refer to solutions below)
53. What is the net e昀昀ect of the errors on the 20x3 retained earnings? (over) understatement
a. 444,800
b. (444,800)
c. 524,800
d. (524,800)
A (Refer to solutions below)
54. How much is the correct retained earnings in 20x1?
a. 4,304,800
b. 4,404,800
c. 4,524,400
d. 4,340,800
A (Refer to solutions below)
55. How much is the correct retained earnings in 20x2?
0
0
a. 5,500,800
b. 5,756,800
c. 5,246,400
d. 5,340,400
A (Refer to solutions below)
56. How much is the correct retained earnings in 20x3?
a. 6,340,800
b. 6,400,800
c. 6,479,800
d. 7,004,400
B
Solutions:
Unadjusted retained earnings
Net effect of errors on profits in:
20x1
20x2
20x3
Net effect of errors on retained earnings (over) /
under
Adjusted retained earnings
20x1
4,492,000
20x2
5,116,000
20x3
5,956,000
(187,200)
(187,200)
572,000
(187,200)
572,000
60,000
(187,200)
4,304,800
384,800
5,500,800
444,800
6,400,800
57. What is the net e昀昀ect of the errors on the 20x1 working capital? (over) understatement
a. (216,000)
b. 216,000
c. 80,000
d. (80,000)
A
58. What is the net e昀昀ect of the errors on the 20x2 working capital? (over) understatement
a. 228,000
b. (228,000)
c. (68,000)
d. 68,000
D
59. What is the net e昀昀ect of the errors on the 20x3 working capital? (over) understatement
a. No e昀昀ect
b. 132,000
c. 200,000
d. (200,000)
0
0
C
Solutions:
20x1
Effect of errors on working capital (over)/under
a. Understatement of 20x1 inventory
b. Overstatement of 20x2 inventory
c. Understatement of 20x1 accounts
payable a
d. Understatement of 20x2 advances to
suppliers b
e. Overstatement of 20x1 prepaid
insurance
f. Overstatement of 20x1 unearned rent
g. Understatement of 20x2 interest
receivable
h. Understatement of 20x2 accrued salaries
i. Understatement of 20x2 advances to
customers c
20x2
20x3
100,000
(160,000)
(400,000)
520,000
(20,000)
104,000
68,000
(120,000)
(240,000)
l. Understatement of cash due to the sale of
equipment not recorded in 20x3
200,000
Net effect of errors on working capital (over)/under
(216,000)
68,000
200,000
a
If purchases on account is understated, accounts payable is also understated. Understatement in
current liabilities overstates working capital.
b
Advances to suppliers are normally classified as current receivables. Understatement in current assets
understates working capital.
c
Advances from customers are normally classified as current liabilities. Understatement in current
liabilities overstates working capital.
60. TRIBULATION GREAT DISTRESS Co.’s current reporting period ends on December 31, 20x1.
The following transactions occurred after the end of reporting period:
 On January 5, 20x2, TRIBULATION declared ₱8,000,000 dividends.
 On January 15, 20x2, TRIBULATION issued 1,000 shares with par value per share of ₱400 for
₱2,400 per share.
 On January 20, 20x2, TRIBULATION installed an oil rig. Current legislation requires that the oil
rig be uninstalled at the end of its useful life and the site where it was installed be restored.
TRIBULATION estimates the present value of the decommissioning and restoration cost at
₱4,000,000.
 On February 1, 20x2, a building with a carrying amount as of December 31, 20x1 of ₱2,000,000
was totally razed by 昀椀re.
 On February 10, 20x2, TRIBULATION received notice of a litigation in relation to an accident
that happened on December 31, 20x1. TRIBULATION estimates a probable loss of ₱800,000.
 On March 5, 20x2, TRIBULATION purchased a subsidiary for ₱40,000,000 in a business
combination accounted for using the acquisition method. Goodwill of ₱10,000,000 was
recognized on the business combination.
The 昀椀nancial statements were authorized for issue on March 1, 20x2.
0
0
What is the total amount of the adjusting events?
a. 6,800,000
b. 800,000
c. 4,800,000
d. 30,000,000
B 800,000 probable loss on litigation
61. UNCORK RELEASE Co.’s current reporting period ends on December 31, 20x1. The following
transactions occurred after the end of reporting period:
 On January 20, 20x2, a pending litigation was resolved requiring a se琀琀lement amount of
₱400,000. The 20x1 year-end 昀椀nancial statements included a provision for loss on litigation of
₱480,000.
 Inventories costing ₱4,000,000 were recognized at their net realizable value of ₱3,600,000 in the
20x1 year-end 昀椀nancial statements. During January 20x2, the inventories were sold for
₱3,520,000. Actual selling costs amounted to ₱120,000.
 The year-end accounts receivable include a ₱400,000 receivable from RELINQUISH, Inc. No
allowance for doubtful accounts was recognized on this receivable as of December 31, 20x1. On
February 3, 20x2, RELINQUISH 昀椀led for bankruptcy. It was estimated that the receivable will
not be collected.
 The fair value of 昀椀nancial assets measured at fair value through pro昀椀t or loss signi昀椀cantly
declined to ₱320,000 on February 28, 20x2. The 昀椀nancial assets are recognized in the 20x1 yearend 昀椀nancial statements at ₱1,200,000 which is their fair value as of December 31, 20x1.
 On March 5, 20x2, a case was resolved requiring a se琀琀lement amount of ₱800,000. The 20x1 yearend 昀椀nancial statements included a provision for loss on litigation of ₱600,000.
UNCORK Co.’s pro昀椀t for the year ended December 31, 20x1 before consideration of the above
transactions is ₱8,800,000. The 昀椀nancial statements were authorized for issue on March 1, 20x2.
How much is the adjusted pro昀椀t?
a. 8,820,000
b. 9,020,000
c. 10,820,000
d. 8,280,000
D
Solution:
Unadjusted profit, December 31, 20x1
(a) Reduction in provision for loss on pending litigation
8,800,000
80,000
(200,000)
(400,000)
8,280,000
(480K – 400K)
(b) Reduction in NRV of inventories [3.6M - (3.52M –120K)]
(c) Impairment loss on receivables
Adjusted profit, December 31, 20x1
Use the following information for the next two questions:
The following relates to the transactions of GRIMACE FROWN Co. during 20x1:
0
0
Directors' and o昀฀cers' remuneration
Post-employment bene昀椀ts of o昀฀cers
Fringe bene昀椀ts in the form of housing assistance to
directors and o昀฀cers
Share options granted to o昀฀cers
O昀฀cers' expenses on travels, representation and
entertainment subject to liquidation and
reimbursement
Loans to directors and o昀฀cers
Sales to related entities
8,000,000
800,000
20,000,000
1,200,000
400,000
12,000,000
40,000,000
62. How much is the amount of related party disclosures on GRIMACE’s separate 昀椀nancial
statements?
a. 30,000,000
b. 52,000,000
c. 82,000,000
d. 42,000,000
C Key management personnel compensation (8M + 800K + 20M + 1.2M) + Related party transactions
(12M + 40M) = 82M
63. How much is the amount of related party disclosures on GRIMACE’s
statements?
a. 12,000,000
b. 30,000,000
c. 82,000,000
d. 42,000,000
consolidated 昀椀nancial
D Key management personnel compensation (8M + 800K + 20M + 1.2M) + Related party transactions
(12M) = 42M
64. DEMENTED INSANE Co. is preparing its year-end 昀椀nancial statements and has identi昀椀ed the
following operating segments:
Segment
s
Revenues
Pro昀椀t (loss)
Assets
A
4,000,000
800,000
56,000,000
B
4,800,000
560,000
72,000,000
C
1,080,000
(280,000)
48,000,000
D
960,000
(2,800,000)
4,000,000
E
1,160,000
200,000
5,600,000
Totals
12,000,000
(1,520,000)
185,600,000
0
0
What are the reportable segments?
a. A, B and D
b. A, B, C and D
c. A and B
d. A, B, C, D and E
B

Revenue test: Threshold = 1,200,000 (12,000,000 x 10%). Reportable segments are A and B.

Profit or loss test: Total profits (800,000 + 560,000 + 200,000 = 1,560,000); Total losses (280,000
+ 2,800,000 = 3,080,000).

Threshold = 308,000 (3,080,000 (higher) x 10%). Reportable segments are A, B and D.
Asset test: Threshold = 18,560,000 (185,600,000 x 10%). Reportable segments are A, B and C.

The reportable segments are A, B, C and D.
65. EMBOSOM CHERISH Co. engages in 昀椀ve diversi昀椀ed operations namely, operations A, B, C, D,
and E. Information on these segments are shown below:
Segment
s
Revenues
Pro昀椀t (loss)
Assets
A
3,200 800
40,000
B
3,200 400
8,000
C
200 40
4,000
D
600 80
8,000
E
800 280
24,000
Totals
8,000 1,600
84,000
Additional information:
a. For internal reporting purposes, segments A and B are considered as one operating segment.
b. Segment E is considered as an operating segment for internal decision making purposes.
c. Segments C and D have similar economic characteristics and share a majority of the aggregation
criteria.
What are the reportable segments?
a. A, B, C, D and E
b. A, B and E
c. A and B as one segment and E
d. A and B as one segment, E, and C and D as one segment
D
0
0

Management approach: Reportable segments are A and B aggregated as a single reportable
segment and E.

Quantitative tests: C and D aggregated as a single reportable segment.
66. SORDID DIRTY Co. is preparing its year-end 昀椀nancial statements and has identi昀椀ed the
following operating segments:
InterExternal
segment
Total
Segments
revenues
revenues
revenues
Pro昀椀t
Assets
A
4,800,000
2,400,000
7,200,000
2,800,000
48,000,000
B
1,600,000
400,000
2,000,000
1,600,000
28,000,000
C
1,000,000
1,000,000
400,000
4,000,000
D
800,000
800,000
320,000
3,200,000
E
600,000
600,000
280,000
2,800,000
F
400,000
400,000
200,000
2,000,000
Totals
9,200,000
2,800,000
12,000,000
5,600,000
88,000,000
Management believes that between segments C, D, E and F, segment C is most relevant to external
users of 昀椀nancial statements.
What are the reportable segments?
a. A and B
b. A, B, C and D
c. A, B and C
d. A, B, C, D, E and F
C

Quantitative tests: A and B. However, their total external revenues is less than the 75% limit.
Therefore, C is included as reportable in order to meet the 75% limit, even if segment C does not
qualify in any of the quantitative tests.
67. RUSTIC RURAL Co. has the following information on its operating segments.
InterExternal
segment
Total
Segments
revenues
revenues
revenues
Pro昀椀t
A
4,800,000
2,400,000
7,200,000
2,800,000
B
1,600,000
400,000
2,000,000
1,600,000
C
1,000,000
1,000,000
400,000
D
800,000
800,000
320,000
E
600,000
600,000
280,000
F
400,000
400,000
200,000
Totals
9,200,000
2,800,000
12,000,000
5,600,000
0
0
Assets
48,000,000
28,000,000
4,000,000
3,200,000
2,800,000
2,000,000
88,000,000
RUSTIC Co. shall provide disclosure for major customers if revenues from transactions with a single
external customer amount to how much?
a. 920,000
b. 280,000
c. 1,200,000
d. 560,000
A (9,200,000 x 10%) = 920,000
68. You are the accountant of Entity X. The board of directors asked you for an advice because they
feel like the company’s 昀椀nancial statements do not properly re昀氀ect the company’s 昀椀nancial
position. The board noted out that the company’s properties (i.e., land) are absurdly stated at
their historical cost. The properties were acquired 50 years ago and the market prices of the
properties have more than tripled since then. In providing your professional advice, you will
most certainly quote the provisions of which of the following standards?
a. PAS 7
b. PAS 1
c.
PAS 16
d. PAS 8
69. PFRS 8 relates to which of the following?
a. Disclosure of operating segments
b. Disclosure of related party relationships and transactions
c. Disclosure of events after the reporting period
d. Interim 昀椀nancial reporting
70. "Aanhin mo pa ang damo kung patay na ang kabayo.”
a. Relevance
b. Timeliness
c. Biological asset - Horse
d. PFRH – Philippine Financial Reporting Horse
e. b and c
B – choice (c) is wrong. A dead animal cannot qualify as a biological asset. Stocks of grass used for
feeding horses are considered “Supplies” rather than biological assets. “Bio” means life.
“I press on toward the goal to win the prize for which God has called me heavenward in Christ Jesus.” –
(Philippians 3:14)
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