STATEMENT OF COMPREHENSIVE INCOME 4. Explain the presentation of other comprehensive income (OCI).

Essay Questions PAS 1, paragraph 82A, provides that the other comprehensive income shall be
1. Define "comprehensive income". classified by nature as follows:

Comprehensive income is the change in equity during a period resulting from a. OCI that will be reclassified subsequently to profit or loss when specific
transactions and other events, other than changes resulting from transactions with conditions are met. b. OCI that will not be reclassified subsequently to profit
owners in their capacity as owners. or loss.

In other words, comprehensive income includes the following:

1. Components of profit or loss 5. What are the components of OCI that will be reclassified subsequently to profit or loss?
2. Components of other comprehensive income
Line items for OCI that will be reclassified subsequently to profit or loss
include the following: a. Gain or loss from translating financial statements of
2. Explain the term "profit or loss". a foreign operation.
b. Unrealized gain or loss on derivative contracts designated as cash flow hedge.
Profit or loss is the total of income less expenses, excluding the components of other
comprehensive income. In other words, this is the "bottom line" in the traditional
income statement. An entity may use other term to describe this amount as long as 6. What are the components of OCI that will not be reclassified to profit or loss
the meaning is clear. For example, an entity may use "net income" or "net loss" to
describe profit or loss. subsequently? Line items for OCI that will not be reclassified subsequently to

profit or loss include the following:

3. Define other comprehensive income.
a. Unrealized gain or loss on financial asset measured at fair value through OCI.
Other comprehensive income comprises items of income and expense including Under PFRS 9, such unrealized gain or loss is reclassified to retained earnings
reclassification adjustments that are not recognized in profit or loss as required or upon disposal of the investment.
permitted by Philippine Financial Reporting Standards.
b. Change in revaluation surplus. The realization of the revaluation surplus is
The components of "other comprehensive income" include the following: through retained earnings.
1. Unrealized gain or loss on financial asset measured at fair value through othei
comprehensive income c. Remeasurements of defined benefit plan including actuarial gain or loss on
2. Gain or loss from translating the financial statements of a foreign operation defined benefit obligation are not reclassified subsequently. Such
3. Revaluation surplus during the year remeasurements are permanently excluded from profit or loss.
4. Unrealized gain or loss from derivative contracts designated as cash flow hedge
5. Remeasurements of defined benefit plan including actuarial gain or loss on
defined benefit obligation 7. What are the options in presenting comprehensive income?
Reclassification adjustments are amounts reclassified to profit or loss in the current
period that were recognized in other comprehensive income in the current or The amended PAS 1, paragraph 10A, provides that an entity has two options in
previous periods. presenting comprehensive income, namely:
 1. Two statements of computing net income or loss requires the determination of how much income
a. An income statement showing the components of profit or loss. Under the was earned during the year and how much expenses were incurred in earning the
amended PAS 1, the income statement is called "statement of profit or loss". income.
b. A statement of comprehensive income beginning with profit or loss as
shown in the income statement plus or minus the components of other The difference between the income and the expenses is net income or net loss. The
comprehensive income. transaction approach is the direct result of the application of the principle of
matching expenses with revenue. This procedure is also called the matching
2. Single statement of comprehensive income. This is the combined statement approach.
showing the components of profit or loss and components of other
comprehensive income in a single statement. Under the amended PAS 1, the 10. Illustrate the computation of cost of sales of a merchandising concern.
single statement of comprehensive income is called "statement of profit or loss
and other comprehensive income". The cost of sales of a merchandising concern is computed as follows (all amounts are
assumed):
An entity shall recognize all items of income and expense in a period in profit or loss
unless a PFRS requires or permits otherwise. When items of income or expense are Beginning inventory 500,000
material, an entity shall disclose their nature and amount separately. PAS 1, Net purchases . 2,000,000
paragraph 87, specifically mandates that an entity shall not present any items of Goods available for sale 2,500,000
income or expense as extraordinary items in the statement of comprehensive Ending inventory ( 300,000)
income or separate income statement or in the notes. Cost of sales 2,200,000
Gross purchases 1,900,000
Freight in , 150,000
8. Define an income statement. Total 2,050,000
Purchase returns, allowances and discounts ( 50,000)
An income statement is a formal statement showing the financial performance of an
Net purchases 2,000,000
entity for a given period of time. The financial performance of an entity is primarily
measured in terms of the level of income earned by the entity through the effective
and efficient utilization of its resources. This financial performance is also known as
the results of operations of the entity. 11. Illustrate the computation of cost of goods sold of a manufacturing concern. The cost

of goods sold of a manufacturing concern is computed as follows (all amounts are

The income statement for a period presents the income, expenses, gains, losses
and net income or loss recognized during the period and thereby presents an
assumed):
indication in conformity with PFRS of the results of the entity's profit-directed
activities during the period.
Beginning raw materials 500,000
Net purchases 2,000,000
9. Explain the transaction approach to income measurement? Raw materials available for use 2,500,000
Ending raw materials ( 300,000)
The two approaches to income measurement are the transaction approach and Raw materials used 2,200,000
capital maintenance approach. The "transaction approach" is the conventional or Direct labor 3,000,000
traditional preparation of income statement in conformity with PFRS. This approach Factory overhead 1,300,000
 Total manufacturing cost 6,500,000 required by PFRS 9
Beginning goods in process 900,000 c. Finance cost
Total cost of goods in process 7,400,000 d. Share of income or loss of associate and joint venture accounted for using
Ending goods in process (1,000,000) the equity method e. Income tax expense
Cost of goods manufactured 6,400,000 f. A single amount for discontinued operation
Beginning finished goods 1,600,000 g. Profit or loss for the period
Goods available for sale 8,000,000 h. Total other comprehensive income
Ending finished goods (1,500,000) i. Comprehensive income for the period
Cost of goods sold 6,500,000
12. Define distribution costs. The following items shall be disclosed in the statement of comprehensive income as
allocation of profit or loss and other comprehensive income for the period:
Distribution costs constitute costs which are directly related to selling, advertising a. Profit or loss attributable to noncontrolling interest and owners of the parent.
and delivery of goods to customers. Distribution costs ordinarily include salesmen's b. Comprehensive income attributable to noncontrolling interest and owners of the
salaries, sales commissions, traveling and marketing expenses, advertising and parent.
publicity expenses, freight out, depreciation of delivery equipment and store
equipment, and other expenses related directly with the selling function. PAS 1, paragraph 85, provides that an entity shall present additional line items,
headings and subtotals in the statement of comprehensive income or separate
income statement when such presentation is relevant to an understanding of the
13. Define administrative expenses. entity's financial performance.

Administrative expenses constitute cost of administering the business. These

ordinarily include all operating expenses not related to selling and cost of goods 16. What are the two forms of presenting the income statement? Explain each briefly.
sold. Examples include doubtful accounts, office salaries and expenses of general
executives and of the general accounting and credit department, office supplies 1. Functional presentation
used, certain taxes, contributions, professional fees, depreciation of office building The functional presentation is the traditional and common form of income
and office equipment and amortization of intangibles. statement. It is also known as the cost of sales method.
This form classifies expenses according to their function as part of cost of sales,
distribution costs and administrative activities.
14. Define other expenses. An entity classifying expenses by function shall disclose additional information on
the nature of expenses, including depreciation, amortization expense and
Other expenses are those expenses which are not directly related to the distribution employee benefit expense.
and administrative function.
2. Natural presentation
This presentation is referred to as the nature of expense method. Under this
15. What are the line items in the statement of comprehensive income? form, expenses are aggregated according to their nature and not allocated
among the various functions within the entity. The expenses which are of the
The line items in the statement of comprehensive income are: same nature are grouped or aggregated as one item, for example, depreciation,
a. Revenue purchases of raw materials, transport' costs, employee benefits and advertising
b. Gain or loss from derecognition of financial asset measured at amortized cost as costs.
 17. Illustrate the functional presentation or cost of sales method of presenting income 19. Which form of income statement is required by the standard?
statement.
PAS 1 does not prescribe any format. Paragraph 105 simply states that "because
"Functional" income statement (amounts are assumed) each method of presentation has merit for different types of entities, management is
EXAMPLAR COMPANY required to select the presentation that is reliable and more relevant".
Income Statement
Year ended December 31,2013 20. Illustrate a statement of comprehensive income.
Net sales 9,000,000
Cost of sales (5,400,000) Using the net income in the preceding illustration, the statement may appear as
Gross income 3,600,000 follows:
Other income 900,000
Investment income 500,000 EXAMPLAR COMPANY
Total income 5,000,000 Statement of Comprehensive Income
Expenses: Year ended December 31,2013
Distribution costs 1,350,000 Administrative expenses Net income 1,550,000
1,000,000 Other expenses 320,000 Finance cost 200,000 Other comprehensive income:
2,870,000 Income before tax 2,130,000 Income tax expense Foreign currency translation gain 150,000
580,000 Net income 1,550,000 Unrealized loss on derivative contract
designated as cash flow hedge (100,000) 50,000
Comprehensive income 1,600,000
18. Illustrate the natural presentation. Comprehensive income for a period includes the net income or loss for the period
plus or minus the components of other comprehensive income.
"Natural" presentation (amounts are assumed) However, the comprehensive income of Pi,600,000 is not carried to retained
earnings. Only the net income of PI,550,000 is included in the determination of
EXAMPLAR COMPANY retained earnings unappropriated. The net other comprehensive income of P50,000
Income Statement is carried to "reserves" or shown separately in the statement of changes in equity.
Year ended December 31,2013

Net sales 9,000,000 Other income 900,000 Investment 21. Illustrate a "single" statement of comprehensive income.
income 500,000 Total income 10,400,000 Expenses:
Increase in inventory ( 500,000) Net purchases 5,900,000 The single statement of comprehensive income following the "functional
Employee benefit cost 1,400,000 Sales commission 180,000 presentation" may appear as follows
Advertising 100,000 Supplies expense 120,000 Delivery
expense 250,000 Depreciation 240,000 Taxes and licenses EXAMPLAR COMPANY
20,000 Doubtful accounts 40,000 Other expenses 320,000 Statement of Comprehensive Income
Finance cost 200,000 8,270,000 Income before tax Year ended December 31, 2013
2,130,000 Income tax expense 580,000 Net income Net sales 9,000.000
1,550,000 Cost of sales (5,400,000)
Gross income 3,600,000
 Other income 900,000 Retained earnings, January 1 1,000,000
Investment income 500,000 Correction of error resulting
Total income 5,000,000 from prior year underdepreciation ( 100,000)
Expenses: Change in accounting policy from weighted average
Distribution costs 1,350,000 to FIFO inventory valuation resulting in increase 300,000
Administrative expenses 1,000,000 Corrected beginning balance 1,200,000
Other expenses 320,000 Net income for the period 1,550,000
Finance cost 200,000 2,870,000 Dividends declared during the year ( 400,000)
Income before tax 2,130,000 Appropriated for contingencies ( 200,000)
Income tax expense 580,000 Retained earnings, December 31 2,150,000
Net income 1,550,000
Other comprehensive income:
Foreign currency translation gain ' 150,000 24. What is a statement of changes in equity?
Unrealized loss on derivative contract
designated as cash flow hedge ( 100,000) 50,000 The statement of changes in equity is a basic statement that shows the movements
Comprehensive income 1,600,000 in the elements or components of the shareholders' equity.
Under PAS 1, the holders of instruments classified as equity are simply known as
"owners".
22. What is a statement of retained earnings?
The statement of retained earnings is no longer a required basic statement but it is a
The statement of retained earnings shows the changes affecting directly the retained part of the statement of changes in equity.
earnings of an entity and relates the income statement to the statement of financial
position.
The important data affecting the retained earnings that should be clearly disclosed in 25. What are the components of the statement of changes in equity?
the statement of retained earnings are:
a. Comprehensive income for the period.
a. Profit or loss for the period
b. Prior period errors b. For each component of equity, the effects of changes in accounting policies and
c. Dividends declared and paid to shareholders corrections of errors.
d. Effect of change in accounting policy
e. Appropriation of retained earnings c. For each component of equity, a reconciliation between the carrying amount at
the beginning and end of the period, separately disclosing changes from:
1. Profit or loss
23. Illustrate a statement of retained earnings. 2. Each item of other comprehensive income
3. Transactions with owners in their capacity as owners showing separately
Illustration (all amounts are assumed) contributions by and distributions to owners
EXAMPLAR COMPANY
Statement of Retained Earnings
Year ended December 31,2013 26. Illustrate a statement of changes in equity.
 Illustration - all amounts are assumed by and
distributions to owners. FA © 2014
EXAMPLAR COMPANY
Statement of Changes in Equity 3. What is the purpose of reporting comprehensive income?
Year ended December 31, 2013 A. To replace net income with a better measure.
B. To report a measure of overall entity performance.
Share Retained capital Reserves earnings Balances - January 1 C. To report changes in equity due to transactions with owners. FA © 2014
5,000,000 2,000,000 1,000,000 Correction of error resulting from D. To combine income from continuing operation with income from
prior discontinued operation.
year underdepreciation ( 100,000)
Change in accounting policy from 4. When a complete set of financial statements is presented, comprehensive income and
weighted average to FIFO - credit 300,000 its components should
Issuance of 10,000 ordinary shares A. Appear in the statement of retained earnings
with P100 par at P150 per share 1,000,000 500,000 B. Be reported net of related income tax effect, in total and individually.
Issuance of 5,000 preference shares C. Appear in a supplemental schedule in the notes to financial statements.
with P50 par at P100 per share 250,000 250,000 D. Be displayed in a statement that has the same prominence as other financial
Comprehensive income: statements. FA © 2014
Net income 1,550,000
Other comprehensive income 50,000 5. What is the two-statement approach of presenting comprehensive income?
Dividends declared during the year ( 400,000) A. A comparative statement of comprehensive income
Current appropriation for B. A combined income statement and a statement of changes in equity
contingencies 200,000 ( 200,090) C. A combined statement of comprehensive income and retained earnings
Balances - December 31 6,250,000 3,000,000 2,150,000 FA © 2014 D. A separate income statement and a separate statement of
comprehensive income

Multiple Choice Theory 6. Comprehensive income includes

A. Profit or loss
Comprehensive income B. Other comprehensive income
1. It is the change in equity during a period resulting from transactions and other events, C. Both profit or loss and other comprehensive income
other than those changes resulting from transactions with owners in their capacity D Neither profit or loss nor other comprehensive income FA © 2014
as owners.
A. Comprehensive income C. Profit or loss 7. Total comprehensive income for the period is presented showing
B. Other comprehensive income D. Share capital FA © 2014 A. an analysis of expenses by nature.
B. an analysis of expenses by function.
2. The term "comprehensive income" C. profit or loss and the total of other comprehensive income.
A. Is synonymous with the term "net income". D. separately the total amount attributable to owners of the parent and the
B. Is the net change in owners' equity for the period. noncontrolling interest. FA 2014
C. Must be reported on the face of the income statement.
D. Includes all changes in equity during a period except those resulting from investments 8. Comprehensive income includes all of the following, except
 A. Dividend revenue C. Loss on disposal of asset B. Comprehensive income D. Profit or loss FA © 2014 15. The income
B. Investment by owners D. Unrealized holding gain FA © 2014
9. Comprehensive income includes all of the following, except statement reveals
A. Revenue and gain
B. Expense and loss A. Assets and equity at a point in time. C. Net income at a point in time. FA ©
C. Preference share dividend 2014 B. Assets and equity for a period of time. D. Net income for a period of
D. Unrealized gain and loss on derivative contract FA © 2014 time.

10. Comprehensive income excludes changes in equity resulting from which of 16. The income statement reveals
the following? A. Prior period error correction A. Net earnings at a point in time.
B. Dividends paid to shareholders B. Net earnings for a period of time.
C. Loss from discontinued operations C. Resources and equity at a point in time.
D. Unrealized loss on financial assets held for trading TOA © 2013 D. Resources and equity for a period of time. FA © 2014

11. An entity shall present all items of income and expense recognized 17. The income statement would help in which of the following tasks?
in a period I. In a single statement of comprehensive income. A. Evaluate the liquidity of an entity
II. In two statements, one statement displaying the components of profit or loss, and the B. Estimate future financial flexibility
second statement beginning with profit or loss and displaying components of other C. Evaluate the solvency of an entity
comprehensive income A. I only C. Either I or II D. Estimate the amount, timing and uncertainty of future cash flows TOA © 2013
B. II only D. Both I and II FA © 2014
18. The income statement provides information that helps predict
12. Which of the following options for displaying comprehensive income is A. The timing of future cash flows C. The uncertainty of future cash flows B. The
preferred? I. A continuation from net income at the bottom of the income amount of future cash flows D. All of these FA © 2014
statement.
II. A separate statement that begins with net income. III. In the statement of 19. The income statement information would help in which of the
changes in equity. A. I only C. II and III only following tasks? A. Estimate future cash flows C. Evaluate liquidity
B. II only D. I and II only FA © 2014 B. Estimate future financial flexibility D. Evaluate solvency FA © 2014

13. Which of the following statements is true? 20. Information in the income statement helps users to
I. An entity presenting a single statement of comprehensive income shall present a A. Evaluate the past performance of the entity.
statement of changes in equity. B. Provide a basis for predicting future performance.
II. An entity presenting a separate income statement and a statement of C. Assess the risk or uncertainty of achieving future cash flows.
comprehensive income shall present a statement of changes in equity. D. All of these TOA © 2013
A. I only C. Both I and II
B. II only D. Neither I nor II FA © 2014 21. Investors and creditors use an income statement for all of the
following, except A. To evaluate past performance of an entity
Profit or loss B. To evaluate the future performance of the entity
14. It is the total of income less expenses, excluding the components of other C. To provide a basis for predicting future performance
comprehensive income. A. Accounting income C. Economic income D. To help assess the risk and uncertainty of achieving future cash flows FA © 2014
 22. Which of the following would represent the least likely use of an income B. Sale of goods at certain markup
statement? A. Use by investors interested in the financial position of the C. Exchange of inventory valued at regular selling price for an equipment
entity. D. Adjustment of inventory to lower of cost or net realizable value when net
B. Use by government agencies to formulate tax and economic policy. FA © realizable value is below cost TOA © 2013
2014 C. Use by labor unions to examine earnings closely as a basis for salary
discussions. 29. Which of the following statements regarding the term "profit" is true?
D. Use by customers to determine an entity's ability to provide needed goods and I. Profit is any amount over and above that required to maintain the capital at the
services. beginning of the period.
II. Profit is the residual amount that remains after expenses have been
23. Limitations of the income statement include all of the following, except deducted from income. A. I only C. Both I and II
A. Income measurement involves judgment. B. II only D. Neither I nor II FA © 2014
B. Items that cannot be measured reliably are not reported.
C. Only actual amounts are reported in determining net income. 30. Which of the following is not generally accepted in presenting the
D. Income numbers are affected by the accounting method employed. FA © 2014 income statement? A. The condensed income statement
B. The consolidated income statement
24. Conceptually, net income is a measure of C. Including income tax in determining income
A. Capital maintenance C. Change of wealth D. Including prior period error in determining income FA © 2014
B. Cash flow D. Wealth FA © 2014
31. Which of the following is not a generally accepted practice of presenting the
25. Which of the following approaches to income measurement underlies income statement? A. The condensed income statement
financial reporting? A. Capital maintenance approach C. Transaction B. The consolidated income statement
approach C. Including prior period errors in determining net income FA © 2014 D.
B. Economic approach D. Valuation approach FA © 2014 Including gain and loss from discontinued operation in determining net
income
26. Which of the following approaches to income measurement underlies
financial reporting? A. Valuation approach 32. Which of the following terms cannot be used to describe a line item in the statement
B. Economic approach of comprehensive income?
C. Transaction approach A. Extraordinary item C. Income before tax
D. Physical capital maintenance approach TOA © 2013 B. Gross income D. Revenue FA © 2014

27. Income determination is arrived at by 33. Which method is acceptable in the presentation of the income statement?
A. Using a transaction approach I. Nature of expense method
B. Applying the value added concept II. Function of expense or "cost of sales" method
C. Measuring the change in owners' equity A. I only C. Either I or II
D. Identifying the change in the purchasing power of the owners' equity TOA © 2013 B. II only D. Neither I nor II FA © 2014

28. Under a strict transaction approach to income measurement, which of the 34. An entity shall present an analysis of expenses based on
following would not be considered a transaction? A. The nature of expense
A. Payment of salaries B. The function of expense
 C. Either the nature of expense or the function of expense A. Cost of sales, administrative expenses and distribution expenses.
D. Neither the nature of expense nor the function of expense FA © 2014 B. Purchases of materials, transport costs, employee benefits, depreciation,
extraordinary items. C. Depreciation, purchases of materials, transport costs,
35. An entity shall present an analysis of expenses using a employee benefits and advertising costs. D. Purchases of materials, distribution
classification based on A. The nature of expenses. costs, administrative costs, employee benefits, depreciation, taxes. TOA © 2013
B. The function of expenses.
C. Either the nature of expenses or the function of expenses within the entity, 41. Separate line items in an analysis of expenses by function include
whichever the entity would prefer to present. A. Depreciation, purchases, employee benefits, advertising costs.
D. Either the nature of expenses or the function of expenses within the entity, whichever B. Purchases, employee benefits, depreciation, extraordinary items.
provides C. Cost of sales, administrative expenses and distribution expenses.
information that is reliable and more relevant. FA © 2014 D. Purchases, distribution costs, administrative costs, employee benefits. FA © 2014
42. Separate line items in an analysis of expenses by nature include
36. Separate line items in an analysis of expenses by nature include A. Cost of sales, administrative costs, transport costs and distribution costs.
A. Depreciation, purchases, transport costs, employee benefits. B. Purchases of materials, transport costs, employee benefits, depreciation,
B. Purchases, distribution costs, employee benefits, depreciation. extraordinary items. C. Depreciation, purchases of materials, transport costs,
C. Purchases, employee benefits, depreciation, extraordinary items. employee benefits and advertising costs. D. Purchases of materials, distribution
D. Cost of sales, administrative costs, transport costs and distribution costs. FA © 2014 costs, administrative costs, employee benefits, depreciation, taxes. TOA © 2013

37. Separate line items in an analysis of expenses by nature include 43. The expenses are classified according to their function, as part of cost of sales,
A. Cost of sales, administrative costs, transport costs and distribution costs distribution costs, administrative activities and other operating activities.
FA © 2014 B. Purchases, transport costs, employee benefits, depreciation, A. Account form C. Nature of expense method
extraordinary items C. Depreciation, purchases, transport costs, employee B. Cost of sales method D. Report form FA © 2014
benefits and advertising costs D. Purchases, distribution costs,
administrative costs, employee benefits, depreciation 44. Staff costs are
A. Cost of sales
38. When an entity classifies expenses by logistics, quality control, manufacturing, plant B. Distribution expenses
engineering, sales and marketing, research and development, finance and C. Administrative expenses
administration, the classification basis is by D. Allocated to the three categories according to the function of the employee to
A. Area of responsibility C. Object of expenditure which the particular staff cost relates. FA © 2014
B. Function performed D. Services received TOA © 2013
45. Under the Conceptual Framework, which of the following is an example
39. Separate line items in an analysis of expenses by function include of "expense"? A. A loss on disposal of a noncurrent asset
A. Cost of sales, administrative expenses and distribution expenses B. A reduction in income for the accounting period
B. Depreciation, purchases, employee benefits and advertising costs FA © C. A decrease in equity arising from a distribution to owners
2014 C. Purchases, transport costs, employee benefits, depreciation, D. An increase in economic benefit during the accounting period TOA © 2013
extraordinary items D. Purchases, distribution costs, administrative costs,
employee benefits, depreciation 46. A transaction that is material in amount, unusual in nature and infrequent in
occurrence, shall be presented separately as
40. Separate line items in an analysis of expenses by function include A. Prior period error, net of applicable income tax. TOA © 2013 B.
 Component of income from continuing operations, net of applicable income comprehensive income and its components?
tax. C. Component of income from discontinued operation, net of applicable A. In the notes.
income tax. D. Component of income from continuing operations, but not net B. In a statement of changes in equity.
of applicable income tax. C. In a separate statement of comprehensive income.
D. In a statement of earnings and comprehensive income. FA © 2014
47. How should exchange gains or losses resulting from foreign currency transactions
be accounted for? A. Included in net earnings for gains, but deferred for losses. 53. Which of the following is not an acceptable option in presenting other
B. Included in the statement of financial position as a deferred item comprehensive income? A. In a separate income statement
C. Included as component of other comprehensive income for the period in which B. In the notes to financial statements
the rate changes. D. Included as component of income from continuing operations C. In a statement of changes in equity
for the period in which the rate changes. TOA © 2013 D. In a single statement of comprehensive income FA © 2014 54. Items of
48. The noncontrolling interest is reported
A. Above income tax C. Below income from operations B. Above other other comprehensive income should be analyzed
income and expenses D. Below net income FA © 2014
A. By function C. Either by nature or by function
49. The following statements relate to analysis of expenses in the income statement B. By nature D. None of these FA © 2014
based on either the nature of expenses or function within the entity. Which of the
following statements is true? I. An entity classifying expenses by function shall 55. These are amounts reclassified to profit or loss in the current period but were
disclose additional information on the nature of recognized in other comprehensive income in the current or previous period.
expenses including depreciation, amortization expense and employee benefit A. Correcting entries C. Reclassification adjustments
cost. II. PAS 1 requires the use of the cost of sales method because this B. Prior period errors D. Unusual and irregular items FA © 2014
presentation often provides more relevant information to users than the nature of
expense method. 56. Why is reclassification adjustment used when reporting other
A. I only C. Both I and II comprehensive income? A. To avoid double counting of items.
B. II only D. Neither I nor II FA © 2014 B. To make net income equal to comprehensive income.
C. To adjust for the income tax effect of reporting comprehensive income.
Other comprehensive income D. To reclassify an item of comprehensive income as another item of
50. It comprises items of income and expense, including reclassification comprehensive income. FA © 2014
adjustments, that are not recognized in profit or loss as required or
permitted by PFRS. 57. Which component of other comprehensive income shall be reclassified
A. Comprehensive income C. Profit or loss subsequently to profit or loss? A. Change in revaluation surplus
B. Other comprehensive income D. Retained profit FA © 2014 B. Remeasurement of defined benefit plan
C. Gain and loss on hedging instrument in a cash flow hedge.
51. Other comprehensive income should be reported as component of D. Gain and loss from equity investment measured at fair value through OCI FA © 2014
A. Share premium
B. Retained earnings 58. Which of the following items would cause earnings to differ from
C. Both retained earnings and share premium comprehensive income? A. Loss on exchange of similar asset
D. Neither retained earnings nor share premium FA © 2014 B. Loss on exchange of dissimilar asset
C. Unrealized loss on financial asset held for trading FA © 2014 D.
52. Which of the following is not an acceptable option of reporting other
 Unrealized loss on financial asset at fair value through other comprehensive D. Unrealized gain on equity instruments measured at fair value through other
income comprehensive income TOA © 2013

59. Which of the following items would cause earnings to differ from Accumulated other comprehensive income
comprehensive income? A. Loss on exchange of similar assets 65. Accumulated other comprehensive income should be reported in the statement of
B. Loss on exchange of dissimilar assets financial position as component of
C. Unrealized loss on investments held for trading I. Retained earnings
D. Unrealized loss on equity investments measured at fair value through other II. Share premium
comprehensive income TOA © 2013 A. I only C. Both I and II
B. II only D. Neither I nor II TOA © 2013
60. All of the following are a component of other comprehensive
income, except A. Change in revaluation surplus Statement of retained earnings
B. Foreign currency translation adjustment 66. Which of the following would appear first in a statement of
C. Deferred gain and loss on derivative financial instruments retained earnings? A. Cash dividend C. Prior period error
D. Unrealized gain and loss on financial asset held for trading FA © 2014 B. Net income D. Share dividend FA © 2014
61. Other comprehensive income includes all of the following, except 67. Which of the following does not appear in a statement of
A. Dividend paid to shareholders. retained earnings? A. Net loss C. Preference share dividend
B. Gain and loss on hedging instrument in a cash flow hedge. B. Other comprehensive income D. Prior period error FA © 2014
C. Gain and loss on remeasuring financial asset at fair value through OCI.
FA © 2014 D. Gain and loss arising from translating the financial statements 68. Which of the following does not appear in the statement of
of a foreign operation. retained earnings? A. Discontinued operation C. Net loss
B. Dividend declared D. Prior period error TOA © 2013
62. The components of other comprehensive income include all of the
following, except A. Dividend paid to shareholders Statement of changes in equity
B. Actuarial gain on defined benefit plan 69. The statement of changes in equity includes a-reconciliation between
C. Loss from translating the financial statements of a foreign operation I. The carrying amount of total equity at the beginning and the end of the period.
D. Unrealized gain on derivative contract designated as cash flow hedge FA © 2014 II. The carrying amount of each component of equity at the beginning and the end
of the period separately disclosing changes resulting from profit or loss, each item
63. Which of the following changes during a period is not a component of other of comprehensive income, and the amount of investments by and dividends and
comprehensive income? A. Treasury share other distributions to owners. A. I only C. Both I and II
B. Actuarial gain on defined benefit plan B. II only D. Neither 1 nor II TOA © 2013
C. Foreign currency translation adjustment
D. Unrealized gain on equity instrument measured at fair value through other 70. In the statement of changes in equity, the effects of the retrospective
comprehensive income FA © 2014 application of a change in accounting policy is presented
A. In aggregate for total equity.
64. Which of the following changes during a period is not a component of other B. Separately for each component of equity.
comprehensive income? A. Treasury share, at cost C. Separately for the total amount attributable to owners of parent and to
B. Remeasurement of defined benefit plan noncontrolling interest. D. In aggregate for total equity and separately for the
C. Foreign currency translation adjustment total amount attributable to owners of the parent and the noncontrolling interest.
TOA © 2013
 71. In the statement of changes in equity, the effects of the correction of a prior period 73. Which of the following statements is true?
error are presented A. In aggregate for total equity. I. Dividends paid shall be recognized in the statement of comprehensive
B. Separately for each component of equity. income. II. A loss on disposal of asset shall be recognized in the
C. Separately for the total amount attributable to owners of the parent and the statement of changes in equity. A. I only C. Both I and II
noncontrolling interest. D. In aggregate for total equity and separately for the total B. II only D. Neither I nor II TOA © 2013
amounts attributable to owners of the parent and the noncontrolling interest. TOA ©
2013 Multiple Choice Problems
Gross sales
72. Which of the following should be presented in the statement of 1. Tactful Company reported that the operating expenses other than interest expense for the
changes in equity? I. Investments by owners current
II. Distributions to owners Freight in 300,000 Purchase returns 900,000 Ending inventory 500,000 Selling
III. Change in ownership interest in subsidiary that does not result in a expenses 1,250,000 Sales discount 250,000 The cost of goods sold is six times the
loss of control A. I and II only C. II and III only selling expenses.
B. l and III only D. I, II and III TOA © 2013 What is the amount of gross purchases?
A. 6,500,000 C. 8,000,000
Comprehensive B. 6,700,000 D. 8,200,000 FA © 2014 Direct labor

year amount to 40% of cost of sales but only 20% of sales. Interest expense is 5% of sales. The
5. Mercury Company showed cost of goods sold of P4,320,000 in its statement of comprehensive
amount of purchases is 120% of cost of sales. Ending inventory is twice as much as the income after the first year of operations. The total manufacturing cost comprised 50%
beginning materials used, 30%
inventory. The income after tax of 30% for the current year is P560,000. What is the amount of
direct labor incurred, and 20% manufacturing overhead. Goods in process at year-end were 10% of the
sales for the current year? Sales returns and allowances 750,000
A. 1,485,000 C. 2,285,000 Inventory on December 31 2,800,000
B. 2,080,000 D. 3,200,000 P1 © 2014 Gross profit rate on net sales 20%
What is the amount of gross sales for the current year?
2. The expenses other than interest expense of Maria Company for the current year is A. 7,000,000 C. 8,500,000
40% of cost of sales but only 20% of sales. Interest expense is 5% of sales. The B. 7,750,000 D. 9,125,000 FA © 2014
amount of purchases is 120% of cost of sales. Ending inventory is twice as much as
the beginning. The income after tax of 30% for the current year is P350,000. What is Gross purchases
the amount of sales for the current year? 4. Hiligaynon Company provided the following information for the current year Beginning
A. 1,300,000 C. 2,000,000 inventory 400,000
B. 1,625,000 D. 2,500,000 FA © 2014 total manufacturing cost. Finished goods at year-end amounted to 20% of the cost of
goods manufactured. What is the amount of the direct labor cost incurred?
3. Bicolano Company provided the following information for the current year: A. 1,800,000 C. 3,000,000
Inventory, January 1 2,000,000 B. 2,400,000 D. 5,400,000 FA © 2014
Purchases 7,500,000
Purchase returns and allowances 500,000 Cost of good manufactured
 6. Sheraton Company reported the following information for the current year. January 1 4,000,000
Ending goods in process 1,000,000 December 31 3,600,000
Depreciation on factory building 320,000 What amount should be reported as cost of goods manufactured?
Beginning raw materials 400,000 A. 2,000,000 C. 2,800,000
Direct labor 1,980,000 B. 2,150,000 D. 2,950,000 P1 © 2014
Factory supervisor's salary 560,000
Depreciation on headquarters building 210,000 Cost of goods sold
Beginning goods in process 760,000 9. Mite Company provided the following data for the current year:
Ending raw materials 340,000 Finished goods inventory, January 1 1,000,000
Indirect labor 360,000 Finished goods inventory, December 31 1,200,000
Purchases of raw materials 2,300,000 Cost of goods manufactured 5,000,000
What is the cost of goods manufactured for the current year? Loss on sale of plant equipment 100,000
A. 5,340,000 C. 5,580,000 What is the cost of goods sold for the current year?
B. 5,550,000 D. 5,820,000 FA © 2014 A. 4,800,000 C. 5,200,000
B. 4,900,000 D. 5,300,000 FA © 2014
7. Argentina Company incurred the following costs and expenses during the current year:
Raw material purchases 4,000,000 Direct labor 1,500,000 Indirect labor - 10. Dell Company provided the following information for the current year:
factory 800,000 Purchases 5,300,000
Factory repairs and maintenance 200,000 Taxes on factory building 100,000
Purchase discounts 100,000
Depreciation - factory building 300,000 Taxes on salesroom and general office 150,000
Depreciation - sales equipment 50,000 Advertising 400,000 Sales salaries 500,000 Beginning inventory 1,600,000
Office salaries 700,000 Utilities (60% applicable to factory) 500,000 Beginning Ending Ending inventory 2,150,000
Raw materials 300,000 450,000 Work in process 400,000 350,000 Finished goods Freight out 400,000
500,000 700,000 What is the cost of goods manufactured for the current year? What is the cost of goods sold for the current year?
A. 6,900,000 C. 7,200,000 A. 4,650,000 C. 5,050,000
B. 7,100,000 D. 7,300,000 P1 © 2014 B. 4,750,000 D. 5,850,000 FA © 2014

8. Vane Company provided the following income statement accounts for 11. Bart Company provided the following information for the current year:
the current year: Debit Credit Disbursements for purchases 5,800,000 Increase in trade accounts payable
Sales 5,750,000 500,000 Decrease in merchandise inventory 200,000 What is the cost of goods sold for
Cost of sales 2,400,000 the current year?
Administrative expenses 700,000 A. 5,100,000 C. 6,100,000
Loss on sale of equipment 100,000 B. 5,500,000 D. 6,500,000 FA © 2014
Sales commissions 500,000
Interest revenue 250,000 12. Diane Company provided the following information in relation to cost of goods sold
for the current year: Inventory, January 1 4,500,000
Freight out 150,000
Purchases 6,000,000
Loss on early retirement of long-term debt 200,000
Loss on inventory writedown 1,500,000
Uncollectible accounts expense 150,000 .
Inventory, December 31 at net realizable value 1,000,000
4,200,000 6,000,000
The inventory writedown is due to an unexpected and unusual technological
Finished goods inventory:
 advance by a competitor. In the income statement, what amount should be reported Manufacturing overhead 1,500,000 1,500,000
as cost of goods sold after inventory writedown? Finished goods 700,000 400,000
A. 8,000,000 C. 9,250,000 What is the cost of goods sold for the year?
B. 9,000,000 D. 9,500,000 FA © 2014 A. 6,900,000 C. 7,100,000
B. 7,000,000 D. 7,400,000 FA © 2014
13. Kay Company provided the following information for the current year:
Increase in goods in process inventory 500,000 16. Baker Company reported the following inventories:
Increase in raw materials inventory 150,000 Beginning Ending
Decrease in finished goods inventory 350,000 Raw materials 220,000 300,000
Raw materials purchased 4,300,000 Goods in process 400,000 480,000
Direct labor payroll 2,000,000 Finished goods 250,000 180,000
Factory overhead 3,000,000 During the current year, the following costs were incurred:
Freight out 450,000 Raw materials purchased 3,000,000 Direct labor 1,200,000 Indirect
What is the cost of goods sold for the current year? labor 600,000 Taxes and depreciation of factory building 200,000 Taxes
A. 8,650,000 C. 9,150,000 and depreciation on sales room and office 150,000 Utilities (60%
B. 9,000,000 D. 9,300,000 FA © 2014 applicable to factory, 20% to storeroom, and 20% to office) 500,000
What is the cost of goods sold for the current year?
14. Kay Company provided the following information for the current year: A. 5,140,000 C. 5,220,000
Increase in raw materials inventory 150,000 B. 5,210,000 D. 5,390,000 FA © 2014
Decrease in goods in process inventory 200,000
Decrease in finished goods inventory 350,000 Gross profit
Raw materials purchased 4,300,000 17. Jericho Company showed net income of P480,000 in its income statement for the
Direct labor payroll 2,000,000 current year. Selling expenses were equal to 15% of sales and also 25% of cost of
Factory overhead 3,000,000 sales. All other expenses were 13% of sales. What is the gross profit for the current
Freight out 450,000 year?
Freight in 250,000 A. 1,600,000 C. 2,400,000
What is the cost of goods sold for the current year? B. 2,000,000 D. 4,000,000 FA © 2014
A. 9,150,000 C. 9,550,000
18. Vigor Company provided the following information for the current year: Net accounts
B. 9,250,000 D. 9,950,000 P1 © 2014 receivable at January 1 900,000 Net accounts receivable at December 31 1,000,000
Account receivable turnover 5 to 1 Inventory at January 1 1,100,000 Inventory at
15. Condo Company reported the following total debits and total credits in selected December 31 1,200,000 Inventory turnover 4 to 1 What is the gross margin for the
accounts after closing entries were posted: current year?
Debits Credits A. 150,000 C. 300,000
Materials 600,000 200,000 B. 200,000 D. 400,000 P1 © 2014
Goods in process 500,000 300,000
Material purchases 2,500,000 2,500,000 Total distribution costs
Purchase discount 100,000 100,000 19. Brock Company reported operating expenses in two categories, namely distribution
Transportation in 200,000 200,000 and general and administrative. The adjusted trial balance at year-end included the
Direct labor 3,000,000 3,000,000 following expense and loss accounts for current year:
 Accounting and legal fees 1,200,000 Property taxes 250,000
Advertising 1,500,000 Freight in 1,750,000
Freight out 800,000 Doubtful accounts 1,600,000
Interest 700,000 Officers' salaries 1,500,000
Loss on sale of long-term investment 300,000 Insurance 850,000
Officers' salaries 2,250,000 Sales representative salaries 2,150,000
Rent for office space 2,200,000 What amount of these costs should be reported as administrative expenses?
Sales salaries and commissions 1,400,000 A. 2,600,000 C. 4,200,000
One-half of the rented premises is occupied by the sales department. B. 3,950,000 D. 5,950,000 FA © 2014
What amount should be reported as total distribution costs?
A. 3,600,000 C. 4,000,000 General & administrative expenses
B. 3,700,000 D. 4,800,000 P1 © 2014 23. Lee Company reported the following data for the current year:
Legal and audit fees 1,700,000 Rent for office space 2,400,000 Interest on
20. Parker Company reported operating expenses as distribution cost and general or inventory loan 2,100,000 Loss on abandoned data processing equipment
administrative. The adjusted trial balance at the end of the current year included the 350,000
following expense accounts: Accounting and legal fees 1,450,000 The office space is used equally by the sales and accounting departments. What
Advertising 1,500,000 amount should be classified as general and administrative expenses? A.
Freight out 750,000 2,900,000 C. 4,100,000
Interest 600,000 B. 3,250,000 D. 5,000,000 P1 © 2014
Loss on sale of long-term investment 300,000
Officers' salaries 2,250,000 Gain on involuntary conversion
24. Ocean Company has a comprehensive insurance policy that allows assets to be
Property taxes and insurance 300,000
replaced at current value. The policy has a P250,000 deductible clause. One of the
Rent for office space 1,800,000 entity's waterfront warehouses was destroyed in a winter storm. Such storms occur
Sales salaries and commissions 1,400,000 approximately every four years. The entity incurred P100,000 of cost in dismantling
One-half of the rented premises is occupied by the sales department. What total the warehouse and plans to replace it. The following data relate to the warehouse:
amount should be included in distribution costs for the current year? Current carrying amount 1,500,000
A. 3,650,000 C. 4,900,000 Replacement cost 5,500,000
B. 4,550,000 D. 6,000,000 FA © 2014 What amount of gain should be reported as a component of income from
continuing operations? A. 0 C. 3,900,000
Administrative expenses B. 3,650,000 D. 5,150,000 P1 © 2014
21. Griff Company reported the following data for the current year: Accounting and legal fees
250,000 Freight in 1,750,000 Freight out 1,600,000 Officers' salaries 1,500,000
Insurance 850,000 Sales representative salaries 2,150,000 What amount should be Income from continuing operations
reported as administrative expenses? 25. Remy Company had the following events and transactions during 2014:
A. 2,600,000 C. 6,350,000  Depreciation for 2012 was understated by P300,000.
B. 5,500,000 D. 8,100,000 P1 © 2014 22. Grim Company incurred the  A litigation settlement resulted in a loss of P250,000.
 The inventory on December 31,2012 was overstated by P200,000.
following costs during the current year:  The entity disposed of a recreational division at a loss of P500,000.
The income tax rate is 30%. What is the effect of these events on the income from
 continuing operations for 2014? Investment income - equity method 3,000,000 Gain on expropriation
A. 175,000 C. 525,000 2,000,000 Income tax expense 5,000,000 Dividends declared 2,500,000
B. 385,000 D. 665,000 P1 © 2014 What is the income from continuing operations?
A. 7,000,000 C. 9,000,000
26. Ocean Company had a comprehensive insurance policy that allowed assets to be B. 8,000,000 D. 9,500,000 FA © 2014
replaced at current value. The policy has a P250,000 deductible clause. One of the
waterfront warehouses was destroyed in a storm surge. Such storm surge occurs 29. Corazon Company provided the following information for the current year
approximately every four years. The entity incurred P100,000 in dismantling the Sales 7,000,000 Sales returns and allowances 100,000 Cost of goods sold
warehouse and plans to replace it. The following data relate to the warehouse: 2,800,000 Utilities expense 1,000,000 Interest revenue 150,000 Income tax
Current carrying amount 1,500,000 expense 800,000 Casualty loss due to earthquake 50,000 Finance cost
Replacement cost 5,500,000 200,000 Salaries expense 600,000 Loss on sale of investments 50,000
What amount of gain should be reported as a component of income from What amount should be reported as income from continuing operations?
continuing operations? A. 0 C. 3,900,000 A. 1,400,000 C. 1,600,000
B. 3,650,000 D. 5,150,000 FA © 2014 B. 1,550,000 D. 2,350,000 P1 © 2014

27. Rosebud Company provided the following information for the current year: 30. Igloo Company provided the following information for the current year:
Sales 5,000,000 Uncollectible accounts expense 2,000,000 Freight out 3,500,000 Cost of
Cost of goods sold 2,800,000 sales 40,000,000 Loss on sale of equipment 1,500,000 Loss from
Foreign translation adjustment - credit 400,000 typhoon 3,000,000 Sales 90,000,000 Interest income 4,000,000
Selling expenses 700,000 Administrative expenses 10,000,000 Finished goods inventory, January
Unusual and infrequent gain 400,000 1 60,000,000 Sales commissions 7,000,000 Finished goods inventory,
December 31 55,000,000 Income tax rate 30% What amount should be
Correction of inventory error 200,000
reported as income from continuing operations?
General and administrative expenses 600,000
A. 18,900,000 C. 27,000,000
Income tax expense 150,000
B. 19,500,000 D. 30,000,000 P1 © 2014
Gain on sale of investment 50,000
Proceeds from sale of land at cost 800,000 31. Karla Company reported the following trial balance of income statement accounts for
Dividends 300,000 the current year: Sales 3,000,000
What amount should be reported as income from continuing operations? Cost of sales 1,200,000
A. 1,200,000 C. 1,600,000 Administrative expenses 300,000
B. 1,350,000 D. 2,000,000 FA © 2014 Loss on sale of equipment 180,000
Commissions to salespersons 200,000
28. Bangladesh Company provided the following information for the current
Interest revenue 100,000
year: Sales 50,000,000
Freight out 60,000
Cost of goods sold 30,000,000
Loss on disposal of a major division 200,000
Distribution costs 5,000,000
Doubtful accounts 60,000 .
General and administrative expenses 4,000,000
2,200,000 3,100,000
Interest expense 2,000,000
Finished goods inventory:
Gain on early extinguishment of long-term debt 500,000
January 1 2,000,000
Correction of inventory error, net of income tax - credit 1,000,000
December 31 1,800,000
 In the income statement for the current year, what is the income from continuing Revaluation surplus during the year 1,200,000
operations before tax? Share of profit of associate 350,000
A. 900,000 C. 1,800,000 Cost of goods sold 6,000,000
B. 1,100,000 D. 1,900,000 FA © 2014 Finance cost 150,000
Distribution costs 500,000
Income before tax Administrative expenses 300,000
32. Pearl Company reported income before tax of P5,000,000 for the current year. The Translation loss on foreign operation 200,000
auditor questioned the following amounts that had been included in income before Income tax expense 950,000
tax: What is the net income for the current year?
Equity in earnings of Cinn Company - 40% interest 1,600,000 A. 2,100,000 C. 3,300,000
Dividend received from Cinn Company 320,000 Adjustment of profit of B. 2,300,000 D. 4,200,000 P1 © 2014
prior year for arithmetical error in depreciation (1,400,000) What amount
should be reported as income before tax? 36. Lotus Company provided the following data for the current year:
A. 3,400,000 C. 4,800,000 Sales 9,750,000 Share of profit of associate 450,000 Decrease in
B. 4,680,000 D. 6,080,000 FA © 2014 inventory of finished goods 250,000 Raw materials and consumables
used 3,500,000 Employee benefit expense 1,500,000 Translation gain
Net income on foreign operation 300,000 Impairment loss 800,000 Finance cost
33. Zeno Company maintains a markup of 60% based on cost. The entity's distribution 350,000 Other operating expenses 900,000 Income tax expense
and administrative expenses average 30% of sales. Sales amounted to P9,600,000 900,000 Unrealized gain on interest rate swap designated as a cash flow
for current year. What is the net income for the current year? hedge 200,000 What is the net income for the current year?
A. 720,000 C. 2,880,000 A. 1,850,000 C. 2,500,000
B. 960,000 D. 3,600,000 FA © 2014 34. Ronalyn Company reported that the financial B. 2,000,000 D. 2,900,000 P1 © 2014
records were destroyed by fire at the end of the current Adjusted net income
37. Thorpe Company reported net income of P7,410,000 for the current year. The auditor
year. However, certain statistical data related to the income statement raised questions about the following amounts that had been included in net income:
are available. Interest expense 20,000 Unrealized loss on foreign currency translation ( 540,000) Gain on early
Cost of goods sold 2,000,000 retirement of bonds payable 2,200,000 Adjustment of profit of prior year for
Sales discount 100,000 error in depreciation (net of tax effect) (750,000) Loss from fire (1,400,000)
The beginning inventory was P400,000 and decreased 20% during the year. What amount should be reported as adjusted net income?
Administrative expenses are 25% of cost of goods sold but only 10% of gross sales. A. 6,500,000 C. 8,160,000
Four-fifths of the operating expenses relate to sale activities. Ignoring income tax, B. 6,610,000 D. 8,700,000 FA © 2014
what is the net income for the current year?
A. 330,000 C. 400,000 Comprehensive income
B. 380,000 D. 480,000 FA © 2014 38. Alladin Company provided the following for the current year:
Net income 3,500,000
35. Dahlia Company provided the following information for the current year: Unrealized gain on derivative contract 250,000
Sales 9,500,000 Foreign currency translation adjustment - debit 50,000
Interest revenue 250,000 Revaluation surplus 1,000,000
Gain sale of equipment 100,000
 What is the comprehensive income for the current year? B. 3,520,000 D. 4,520,000
A. 3,700,000 C. 4,700,000
B. 4,500,000 D. 4,800,000 P1 © 2014
ANSWER EXPLANATION
39. Rose Company, an investment entity, provided the following income and expenses for
the current year: 1. Answer is (D).
Dividend income from investments 9,200,000 Distribution income from Income before income tax (560,000 / 70%) 800,000 Sales 100% Cost of sales
trusts 500,000 Interest income on deposits 700,000 Income from bank (20% / 40%) (50%) Operating expenses (20%) Interest expense (5%) Income
treasury bills 100,000 Unrealized gain on derivative contract 400,000 before income tax 25% Sales (800,000 / 25%) 3,200,000
Income from dealing in securities and derivatives held for trading 600,000
Write-down of securities and derivatives held for trading 150,000 Other 2. Answer is (C).
income 250,000 Finance cost 300,000 Administrative staff costs 3,800,000 Cost of sales = 20% / 40% = 50%
Sundry administrative costs 1,200,000 Income tax expense 1,700,000 What Sales (500,000 / 25%) 100% 2,000,000
is the comprehensive income for the current year? Cost of sales 50% 1,000,000
A. 3,800,000 C. 4,600,000 Gross income 50% 1,000,000
B. 4,200,000 D. 9,200,000 P1 © 2014 Expenses 20% 400,000
Interest expense 5% 100,000
Comprehensive Income before income tax (350,000 / 70%) 25% 500,000
Questions 1 thru 3 are based on the following information. P1 © 2014 Mount lsarog Income tax (30% x 500,000) 150,000
Company provided the following data for the current year: Net income 350,000
Retained earnings, January 1 3,000,000 Dividends 1,000,000 Sales
8,350,000 Dividend income 100,000 Inventory, January 1 1,040,000 3. Answer is (C).
Purchases 3,720,000 Salaries 1,540,000 Contribution to employees' Inventory - January 1 2,000,000 Purchases 7,500,000 Purchase returns and
pension fund 280,000 Delivery 205,000 Miscellaneous expense allowance ( 500,000) Goods available for sale 9,000,000 Inventory - December
125,000 Doubtful accounts expense 10,000 Depreciation expense 31 (2,800,000) Cost of goods sold 6,200,000 Net sales (6,200,000 / 80%)
85,000 Loss on sale of securities 40,000 Loss on inventory 7,750,000 Sales returns and allowances 750,000 Gross sales 8,500,000
writedown 150,000 Income tax 735,000
Inventory on December 31 was valued at P700,000 (P850,000 less P150,000 4. Answer is (D).
writedown of obsolete inventory). Beginning inventory 400,000
Gross purchases (SQUEEZE) 8,200,000
40. What is the cost of goods sold? Freight in 300,000
A. 3,910,000 C. 4,210,000 Purchase returns (900,000)
B. 4,060,000 D. 4,760,000 Goods available for sale 8,000,000
Ending inventory ( 500,000)
41. What is the income from continuing operations? Cost of goods sold (1,250,000 x 6) 7,500,000
A. 1,370,000 C. 1,520,000
B. 1,410,000 D. 2,105,000 5. Answer is (A).
Total manufacturing cost 100% 6,000,000 Less: Goods in process - 12/31 10%
42. What is the balance of retained earnings on December 31? 600,000 Cost of goods manufactured 90% 5,400,000 Less: Finished goods -
A. 3,370,000 C. 4,370,000 12/31 (20% x 90%) 18% 1,080,000 Cost of goods sold 72% 4,320,000 Total
 manufacturing cost (4,320,000 / 72%) 6,000,000 Direct labor cost (30% x goods inventory, December 31 (1,200,000) Cost of goods sold
6,000,000) 1,800,000 4,800,000

6. Answer is (A). 10. Answer is (A).

Beginning raw materials 400,000 Beginning inventory 1,600,000
Purchases of raw materials 2,300,000 Raw materials available for use Purchases 5,300,000
2,700,000 Purchase discounts ( 100,000)
Ending raw materials (340,000) Goods available for sale 6,800,000
Raw materials used 2,360,000 Direct labor 1,980,000 Factory overhead: Ending inventory (2,150,000)
Depreciation on factory building 320,000 Cost of goods sold 4,650,000
Factory supervisor's salary 560,000
Indirect labor 360,000 1,240,000 11. Answer is (D).
Total manufacturing cost 5,580,000 Disbursements for purchases 5,800,000 Increase in trade accounts payable
Beginning goods in process 760,000 500,000 Purchases 6,300,000 Decrease in inventory 200,000 Cost of goods
Total goods in process 6,340,000 sold 6,500,000
Ending goods in process (1,000,000)
Cost of goods manufactured 5,340,000 12. Answer is (D).
Inventory, January 1 4,500,000
7. Answer is (B). Purchases 6,000,000
Raw materials used (4,000,000 + 300,000 - 450,000) 3,850,000 Direct labor Goods available for sale 10,500,000
1,500,000 Factory overhead: Less: Inventory – December 31 1,000,000
Indirect labor 800,000 Cost of goods sold after writedown 9,500,000
Factory repairs and maintenance 200,000
Taxes on factory building 100,000 13. Answer is (B).
Depreciation - factory building 300,000 Raw materials purchased 4,300,000
Utilities (60% x 500,000) 300,000 1,700,000 Total manufacturing cost 7,050,000
Increase in raw materials (150,000)
Beginning work in process 400,000
Ending work in process ( 350,000) Cost of goods manufactured 7,100,000 Raw materials used 4,150,000
Direct labor 2,000,000
8. Answer is (A). Factory overhead 3,000,000
Finished goods inventory- January 1 4,000,000 Total manufacturing cost 9,150,000
Cost of goods manufactured (SQUEEZE) 2,000,000 Increase in goods in process (500,000)
Goods available for sale 6,000,000 Cost of goods manufactured 8,650,000
Finished goods inventory - December 31 (3,600,000) Decrease in finished goods 350,000
Cost of sales 2,400,000 Cost of goods sold 9,000,000
The cost of goods manufactured is "squeezed" by working back from the cost of sales.
14. Answer is (D).
9. Answer is (A). Raw materials purchased 4,300,000
Finished goods inventory, January 1 1,000,000 Cost of goods Freight in 250,000
manufactured 5,000,000 Good available for sale 6,000,000 Finished Increase in raw materials ( 150,000)
 Raw materials used Direct labor
4,400,000 2,000,000 Factory overhead 18. Answer is (A).
Net sales = Average accounts receivable x accounts receivable turnover =
Total manufacturing cost
3,000,000 9,400,000 950,000 x 5
Decrease in goods in process = 4,750,000
200,000 Cost of sales = Average inventory x inventory turnover =
Cost of goods manufactured 9,600,000 1,150,000x4
Decrease in finished goods 350,000 = 4,600,000
Cost of goods sold Gross margin = 4,750,000 - 4,600,000
9,950,000 = 150,000
19. Answer is (D).
15. Answer is (C). Advertising 1,500,000
Beginning materials 200,000 Freight out 800,000
Net purchases (2,500,000 – 100,000 + 200,000) 2,600,000 Rent (2,200,000x1/2) 1,100,000
Ending raw materials (600,000 – 200,000) (400,000) Sales salaries and commissions 1,400,000
Raw materials used 2,400,000 Total distribution costs 4,800,000
Direct labor 3,000,000
Manufacturing overhead 1,500,000 20. Answer is (B).
Total manufacturing cost 6,900,000 Advertising 1,500,000
Beginning goods in process 300,000 Freight out 750,000
Ending work in process (500,000 – 300,000) (200,000) Rent for office space 1,800,000
Cost of goods manufactured 7,000,000 Sales salaries and commissions 1,400,000
Beginning finished goods 400,000 Total distribution costs 4,550,000
Ending finished goods (700,000 – 400,000) (300,000) Cost of
goods sold 7,100,000 21. Answer is (A).
Accounting and legal fees 250,000
16. Answer is (B). Officers' salaries 1,500,000
Beginning raw materials 220,000 Raw materials purchased Insurance 850,000
3,000,000 Raw materials available for use 3,220,000 Ending raw Total general and administrative expenses 2,600,000
materials 300,000 Raw materials used 2,920,000 Direct labor
1,200,000 Factory overhead: (600,000 + 200,000 + 500,000 x 60%) 22. Answer is (C).
1,100,000 Total manufacturing cost 5,220,000 Beginning work in
Property taxes 250,000
process 400,000 Ending work in process (480,000) Cost of goods
manufactured 5,140,000 Beginning finished goods 250,000 Ending Doubtful accounts 1,600,000
finished goods (180,000) Cost of goods sold 5,210,000 Officers' salaries 1,500,000
Insurance 850,000
17. Answer is (A). Total administrative expenses 4,200,000
Sales 100% Cost of sales ( 15% /25%) (60%) Selling
expenses ( 15%) Other expenses ( 13%) Net income 12% 23. Answer is (A).
Sales ( 480,000/12%) 4,000,000 Cost of sales (60% x Legal and audit fees 1,700,000 Rent (2,400,000 x 1/2) 1,200,000 Total general
4,000,000) 2,400,000 Gross profit 1,600,000 and administrative expenses 2,900,000
 24. Answer is (B). 28. Answer is (D).
Replacement cost 5,500,000 Sales 50,000,000 Cost of goods sold (30,000,000) Gross income
Deductible clause ( 250,000) 20,000,000 Gain on expropriation 2,000,000 Investment income 3.000,000
Proceeds of insurance policy 5,250,000 Total income 25,000,000
Less: Carrying amount 1,500,000 Expenses:
Cost of dismantling 100,000 1,600,000 Distribution costs 5,000,000
Gain on involuntary conversion 3,650,000 General and administrative 4,000,000
The gain on involuntary conversion is reported separately as a component of income Finance cost 1,500,000 10,500,000
from continuing operations. Income before tax 14,500,000
Income tax expense ( 5,000,000) Net income 9,500,000
25. Answer is (A). Interest expense 2,000,000 Gain on early extinguishment ( 500,000)
After-tax effect of litigation loss (250,000 x 70%) 175,000 Finance cost 1,500,000
The depreciation error is treated retrospectively. The inventory error is
counterbalancing. The loss on disposition is part of discontinued operations. 29. Answer is (B).
Net sales (7,000,000-100,000) 6,900,000
26. Answer is (B). Cost of goods sold (2,800,000)
Replacement cost 5,500,000 Gross income 4,100,000
Deductible clause ( 250,000) Interest revenue 150,000
Proceeds of insurance policy 5,250,000 Total income 4,250,000
Less: Carrying amount 1,500,000 Expenses:
Cost of dismantling 100,000 1,600,000 Utilities expense 1,000,000
Gain on involuntary conversion 3,650,000 Salaries expense 600,000
The gain on involuntary conversion is reported separately as a component of income Casualty loss 50,000
from continuing operations. Loss on sale of investments 50,000
Finance cost 200,000 1,900,000
27. Answer is (A). Income before income tax 2,350,000
Sales 5,000,000 Income tax expense ( 800,000)
Cost of goods sold (2,800,000) Income from continuing operations 1,550,000
Gross income 2,200,000
Other income (400,000 + 50,000) 450,000 30. Answer is (A).
Total income 2,650,000 Sales 90,000,000
Expenses: Cost of sales (40,000,000)
Selling expenses 700,000 Gross income 50,000,000
General and administrative expenses 600,000 1,300,000 Interest income 4,000,000
Income before income tax 1,350,000 Total income 54,000,000
Income tax expense ( 150,000) Expenses:
Income from continuing operations 1,200,000 Uncollectible accounts 2,000,000
The credit balance in the foreign translation adjustment account is a component of Freight out 3,500,000
other comprehensive income. Administrative expenses 10,000,000
 Sales commissions 7,000,000 4,900,000
Loss on sale of equipment 1,500,000 Cost of goods sold (2,000,000) Gross profit 2,900,000 Administrative expenses
Loss from typhoon 3,000,000 27,000,000 (10% x 5,000,000) (500,000) Distribution costs (2,000,000) Interest expense
Income before income tax 27,000,000 (20,000) Income before income tax 380,000
Income tax (30% x 27,000,000) ( 8,100,000)
Operating expenses ( 500,000 /1/5) 2,500,000 Administrative expenses
Income from continuing operations 18,900,000
(500,000) Distribution costs 2,000,000
31. Answer is (B).
35. Answer is (B).
Sales 3,000,000
Sales 9,500,000
Cost of sales 1,200,000
Cost of goods sold 6,000,000
Gross income 1,800,000
Gross income 3,500,000
Interest revenue 100,000
Other income (250,000+ 100,000) 350,000
Total revenue 1,900,000
Share of profit of associate 350,000
Expenses (200,000 + 60,000 + 300,000 + 60,000 + 180,000) (800,000)
Total income 4,200,000
Income from continuing operations before tax 1,100,000
Expenses:
Distribution costs 500,000
32. Answer is (D).
Administrative expenses 300,000
Reported income before tax 5,000,000
Finance cost 150,000 950,000
Add: Adjustment of profit of prior year 1,400,000
Income before income tax 3,250,000
Total 6,400,000
Income tax expense 950,000
Less: Dividend received from Cinn 320,000
Net income 2,300,000
Corrected income before tax 6,080,000
The prior period error is added back to income because it is shown as a deduction in
the statement of retained earnings. The dividend received from Cinn is deducted 36. Answer is (B).
from income because it is treated as a return of investment since the interest is 40% Sales 9,750,000
and therefore the equity method is used. The equity in earnings of Cinn Company is Cost of sales (250,000 + 3,500,000) 3,750,000
properly part of income because the entity is applying the equity method. Gross income 6,000,000
Share of profit of associate 450,000
33. Answer is (A). Total income 6,450,000
Sales 9,600,000 Expenses:
Cost of sales (9,600,000 / 160%) 6,000,000 Employee benefit expense 1,500,000
Gross income 3,600,000 Finance cost 350,000
Distribution & administrative expenses (30% x 9,600,000) 2,880,000 Other operating expenses 900,000
Net income 720,000 Impairment loss 800,000 3,550,000
Income before income tax 2,900,000
34. Answer is (B). Income tax expense 900,000
Cost of goods sold (10% / 25%) 40% Net income 2,000,000

Sales (2,000,000/40%) 5,000,000 Sales discount ( 100,000) Net sales 37. Answer is (D).
 Net income per book 7,410,000 Add: Unrealized loss as component of Delivery 205,000
other comprehensive income 540,000 Miscellaneous expense 125,000
Adjustment of profit of prior year 750,000 1,290,000 Adjusted net income Doubtful accounts 10,000
8,700,000 Depreciation 85,000
Loss on sale of securities 40,000 2,285,000 Income before income
38. Answer is (C). tax 2,105,000 Income tax ( 735,000) Income from continuing
Net income 3,500,000 Other comprehensive income: operations 1,370,000
Unrealized gain on derivative contract 250,000
Foreign currency translation loss ( 50,000) 42. Answer is (A).
Revaluation surplus 1,000,000 1,200,000 Comprehensive income Retained earnings - January 1 3,000,000 Net income 1,370,000
4,700,000 Total 4,370,000 Dividends (1,000,000) Retained earnings -
December 31 3,370,000
39. Answer is (C).
Dividend income from investments 9,200,000 Distribution income
from trusts 500,000 Interest income on deposits 700,000 Income
from bank treasury bills 100,000 Income from dealing in securities
and derivatives held
for trading, net (600,000 - 150,000) 450,000 Other income 250,000
Total income 11,200,000 Expenses:
Administrative staff costs 3,800,000
Sundry administrative costs 1,200,000
Finance cost 300,000 5,300,000 Income before income tax
5,900,000 Income tax expense 1,700,000 Net income 4,200,000
Other comprehensive income:
Unrealized gain on derivative contract 400,000 Comprehensive
income 4,600,000

40. Answer is (B).

Inventory - January 1 1,040,000
Purchases 3,720,000 Goods available for sale 4,760,000 Inventory -
December 31 ( 850,000) Cost of goods sold before inventory
writedown 3,910,000 Loss on inventory writedown 150,000 Cost of
goods sold after inventory writedown 4,060,000

41. Answer is (A).

Sales 8,350,000 Cost of goods sold (4,060,000) Gross income
4,290,000 Dividend income 100,000 Total income 4,390,000
Expenses:
Salaries 1,540,000
Contribution 280,000