To Be Printed Part 1a and Part 1b Computations No Answer

Chapter 5
Receivables (Part 1)
Chapter 5: Multiple choice – Computational (SET B) – (For classroom

instruction purposes)
Trade and other receivables
Use the following information for the next two questions:
Information from the records of ABC Co. is shown below:
 Accounts receivable - net of P8,000 100,0
credit balance in customers' accounts 00
15,00
 Notes receivable (trade) 0
 Notes receivable (non-trade), P15,000 30,00
collectible within one year 0
 Dividends receivable 2,000
 Subscriptions receivable 2,000
 Advances to officers and employees
(due in 10 months) 4,000
 Accounts payable - net of P10,000
debit balance in
suppliers' accounts 3,000
1. How much is the total trade receivables?

a. 108,000 b. 118,000 c. 123,000 d. 133,000
2. How much is the total current receivables?

a. 156,000 b. 144,000 c. 150,000 d. 154,000
Goods in-transit
3. On December 27, 20x1, ABC Co. received a sale order for a credit sale of
goods with selling price of ₱3,000. The goods were shipped by ABC on
December 31, 20x1 and were received by the buyer on January 2, 20x2.
The related shipping costs amounted to ₱20. ABC Co. collected the
receivable on January 5, 20x2. If the term of the sale is FOB destination,
freight collect, how much net cash is collected on January 5, 20x2?
a. 3,020 b. 3,000 c. 2,980 d. 0
Gross method and Net method

STALWART STRONG Co. sells inventory with a list price of ₱200,000 on
account under credit terms of 20%, 10%, 2/10, n/30.
4. If STALWART uses the gross method, how much is the debit to account
receivable on initial recognition?
a. 114,120 b. 144,000 c. 200,000 d. 141,120
5. If STALWART uses the net method, how much is the debit to account
receivable on initial recognition?
a. 114,120 b. 144,000 c. 200,000 d. 141,120
Allowance for sales return

The next two questions are based on the following information:
On December 31, 20x1, ABC Co. sold goods for ₱20,000 to XYZ, Inc. on
account. To induce sale, ABC Co. provides its buyers the right to return goods
within 30 days upon purchase if the buyers are not satisfied with the goods.
Case #1: Reliable estimate

6. ABC Co. can reliably estimate that 20% of the goods sold will be returned
within the agreed period of time. However, 25% of the goods are actually
returned on January 5, 20x2. How much is the net accounts receivable
recognized on the date of sale?
a. 20,000 b. 16,000 c. 15,000 d. 0
Case #2: No reliable estimate

7. ABC Co. cannot reliably estimate future returns. much is the net accounts
receivable recognized on the date of sale?
a. 20,000 b. 16,000 c. 15,000 d. 0
Percentage of credit sales method

8. ABC Co. has the following information on December 31, 20x1 before any
year-end adjustments.
Allowance for doubtful accounts, Jan. 1 30,400
Write-offs 19,000
Recoveries 3,800
Sales (including cash sales of ₱380,000) 2,280,000
Sales returns and discounts (including ₱3,800 sales returns
22,800
on cash sales)
Accounts receivable, Dec. 31 570,000
Percentage of credit sales 3%
How much is the recoverable historical cost of accounts receivable?

a. 498,370 b. 502,630 c. 486,780 d. 478,970
Percentage of receivable method

ABC Co. has the following information on December 31, 20x1 before any
Accounts receivable, Jan. 1 80,000
Net credit sales 270,000
Collections from customers (including recoveries) 140,000
Allowance for doubtful accounts, Jan. 1 10,000
Write-offs 5,000
Recoveries 1,000
Percentage of receivables 5%
9. How much is the bad debt expense?

a. 4,250 b. 4,300 c. 4,550 d. 10,300
10. How much is the recoverable historical cost of accounts receivable?

a. 194,750 b. 200,450 c. 196,250 d. 195,700
Computation of percentage
11. ABC Co. has been recognizing bad debt expenses based on the direct
write-off method. In 20x4, ABC Co. decided to change to the allowance
method and that doubtful accounts shall be estimated using the
percentage of receivables method. The percentage is to be computed
based on all available historical data up to a maximum of four years.
Information for five years is shown below:
Year Write-offs Recoveries Net credit sales
20x0 10,000 600 80,000
20x1 7,000 1,000 100,000
20x2 10,000 3,000 160,000
20x3 15,000 5,000 200,000
20x4 28,000 2,000 240,000
70,000 11,600 780,000
The balances of accounts receivables on January 1, 20x4 and December 31,

20x4 are ₱100,000 and ₱200,000, respectively.
How much is the doubtful accounts expense to be recognized in 20x4?

a. 19,900 b. 34,000 c. 35,000 d. 24,600
Aging based on days outstanding

12. ABC Co. has the following information:
Days outstanding Receivable balances % uncollectible
0 – 60 180,000 1%
61 – 120 135,000 2%
Over 120 150,000 6%
Total accounts receivables 465,000
During the year, ABC Co. wrote off ₱10,500 receivables and recovered
₱6,000 that had been written-off in prior years. The allowance for doubtful
accounts has a beginning balance of ₱3,000.
How much is the doubtful accounts expense for the year?

a. 20,000 b. 25,000 c. 15,000 d. 30,000
Aging based on days past due

13. ABC Co. sells to wholesalers on terms of 2/15, net 30. An analysis of
ABC Co.’s trade receivable balances at December 31, 20x1, revealed the
following:
Receivable
Age in days balances
0 – 15 180,000
16 – 30 108,000
31 – 60 90,000
61 – 90 72,000
91 – 120 54,000
121 – 150 36,000
Total accounts
540,000
receivables
ABC Co. uses the aging of receivables method. The estimated percentages of
collectibility based on past experience are shown below.
Accounts which are overdue for less than 31 days 97%
Accounts which are overdue 31 – 60 days 90%
Accounts which are overdue for over 120 days 40%
The allowance for doubtful accounts has a balance of ₱18,000 as of January

1, 20x1. Write-offs and recoveries during the year amounted to ₱6,000 and
₱3,000, respectively.
How much is the doubtful accounts expense for the year?

a. 15,600 b. 9,000 c. 22,600 d. 28,200
Combination of methods
ABC Co. has the following information on December 31, 20x1 before any
Net credit sales 6,300,000
Accounts receivable, December 976,500
Allowance for doubtful accounts, Dec. 31 (before any
53,550
necessary year-end adjustments)
Percentage of credit sales 2%
The aging of receivables is shown below:

Days outstanding Receivable balances % uncollectible
0 – 60 378,000 1%
61 – 120 283,500 2%
Over 120 315,000 6%
Total accounts
976,500
receivables
Additional information:
 ABC Co. uses the percentage of credit sales in determining bad debts in
monthly financial reports and the aging of receivables for its annual
financial statements.
 Accounts written-off during the year amounted to ₱119,700 and accounts
recovered amounted to ₱28,350.
 As of December 31, ABC Co. determined that ₱63,000 accounts receivable
from a certain customer included in the “61-120 days outstanding” group
is 95% collectible and a ₱31,500 account included in the “Over 120 days
outstanding” group is worthless and needs to be written-off.
14. How much is the balance of the allowance for doubtful accounts on
January 1, 20x1?
a. 12,600 b. 18,900 c. 19,200 d. 23,400
15. How much is the adjusted bad debt expense to be reported in the year-
end financial statements?
a. 123,300 b. 128,700 c. 143,300 d. 132,300
Debit balance in allowance for doubtful accounts

16. ABC Co. has the following information before any year-end adjustment.
Accounts receivable, Dec. 31 200,000
Allowance for doubtful accounts, Jan. 1 6,000 (Dr.)
Percentage of receivables 2%
Recoveries and write-offs during the year amounted to ₱1,000 and ₱7,600,
respectively.
How much is the bad debts expense for the year?

a. 3,400 b. 4,600 c. 16,600 d. 10,600
Chapter 8
Inventories

Goods in transit
ABC Co. purchased goods with invoice price of ₱3,000 on account on
December 27, 20x1. The related shipping costs amounted to ₱50. The seller
shipped the goods on December 31, 20x1. ABC Co. received the goods on
January 2, 20x2 and settled the account on January 5, 20x2.
1. How much is the capitalizable cost of the inventory purchased if the terms
of the shipment are FOB shipping point, freight prepaid?
a. 3,050 b. 3,000 c. 2,950 d. 0
2. How much is the net cash payment to the supplier if the terms of the
shipment are FOB destination, freight collect?
a. 3,050 b. 3,000 c. 2,950 d. 0
Total inventory
3. ABC Co. provided you the following information for the purpose of
determining the amount of its inventory as of December 31, 20x1:
Goods located at the warehouse (physical count) 3,400,000
Goods located at the sales department (at cost) 15,800,000
Goods in-transit purchased FOB Destination 2,400,000
Goods in-transit purchased FOB Shipping Point 1,600,000
Freight incurred under “freight prepaid” for the goods
purchased under FOB Shipping Point 80,000
Goods held on consignment from XYZ, Inc. 1,800,000
How much is the total inventory on December 31, 20x1?

a. 25,080,000 b. 25,080,000 c. 20,880,000 d. 20,800,000
Consigned goods
4. ABC Co. consigned goods costing ₱14,000 to XYZ, Inc. Transportation
costs of delivering the goods to XYZ totaled ₱3,000. Repair costs for
goods damaged during transportation totaled ₱1,500. To induce XYZ, Inc.
in accepting the consigned goods, ABC Co. gave XYZ ₱2,000 representing
an advance commission. How much is the cost of the consigned goods?
a. 20,500 b. 18,500 c. 17,000 d. 14,000
Correct inventory and accounts payable

On December 31, 20x1, ABC Co. has a balance of ₱240,000 in its inventory
account determined through physical count and a balance of ₱90,000 in its
accounts payable account. The balances were determined before any
necessary adjustment for the following:
a. Segregated goods in the shipping area marked “Bill and hold sale” were
included in inventory because shipment was not made until January 4,
20x2. The goods were sold to the customer on a “bill and hold” sale for
₱20,000. The cost of the goods is ₱10,000. The goods were already
packed and ready for shipment. Both ABC and the buyer acknowledged
the shipping term.
b. A package containing a product costing ₱80,000 was standing in the
shipping area when the physical inventory was conducted. This was
included in the inventory although it was marked “Hold for shipping
instructions.” The sale order was dated December 17 but the package
was shipped and the customer was billed on January 4, 20x2.
c. Merchandise costing ₱10,000, shipped FOB destination from a vendor on
December 30, 20x1, was received and recorded on January 5, 20x2.
d. Goods shipped F.O.B. shipping point on December 27, 20x1, from a vendor
to ABC Co. were received on January 6, 20x2. The invoice cost of ₱30,000
was recorded on December 31, 20x1 and included in the count as “goods
in-transit.”
5. How much is the adjusted balance of inventory?

a. 240,000 b. 230,000 c. 160,000 d. 200,000
6. How much is the adjusted balance of accounts payable?

a. 90,000 b. 80,000 c. 60,000 d. 100,000
Inventories under financing agreement, Installment sales

7. The records of ABC Co. show the following:
a. Goods sold on an installment basis to XYZ, Inc., title to the goods
is retained by ABC Co. until full payment is made. XYZ, Inc. took
possession of the goods. 15
0,0
00
b. Goods sold to Alpha Co., for which ABC Co. has the option to
repurchase the goods sold at a set price that covers all costs 28
related to the inventory. 0,0
00
c. Goods sold where large returns are unpredictable. 70,
00
0
d. Goods received from Beta Co. for which an agreement was
signed requiring ABC Co. to replace such goods in the near
future. 50,
00
0
How much is included as part of inventory?

a. 50,000 b. 120,000 c. 270,000 d. 330,000
Bill and hold and Lay away

8. The following are among the transactions of ABC Co. during the year:
 Purchased goods costing ₱20,000 from XYZ, Inc. Billing was received
although delivery was delayed per request of ABC Co. The goods
purchased were segregated and ready for delivery on demand.
 Purchased goods costing ₱35,000 from Alpha Corp. on a lay away sale
agreement. The goods were not yet delivered until after ABC makes the
final payment on the purchase price. ABC Co. made total payments of
₱34,920 during the year.
How much of the goods purchased above will be included in ABC’s year-
end inventory?
a. 55,000 b. 54,920 c. 34,920 d. 0
Errors in inventory
9. ABC Co. uses the periodic inventory system. In the current year, ABC’s
ending inventory is understated by ₱20,000. Which of the following
statements is correct?
a. ABC’s cost of goods sold is understated by ₱20,000.
b. ABC’s gross income is understated by ₱20,000.
c. ABC’s net purchases are understated by ₱20,000.
d. ABC’s profit is overstated by ₱20,000.
Cost of purchase
10. ABC Co., a VAT payer, imported goods from a foreign supplier. Costs
incurred by ABC include the following: purchase price, ₱250; import
duties, ₱20; value added tax, ₱15; transportation and handling costs, ₱5;
and commission to broker, ₱2. How much is the cost of purchase of the
imported goods?
a. 292 b. 277 c. 257 d. 255
Deferred payment
11. On January 1, 20x1 ABC Co. acquired goods for sale in the ordinary
course of business for ₱250,000, excluding ₱5,000 refundable purchase
taxes. The supplier usually sells goods on 30 days’ interest-free credit.
However, as a special promotion, the purchase agreement for these goods
provided for payment to be made in full on December 31, 20x1. In
acquiring the goods transport charges of ₱2,000 were incurred; these
were due on January 1, 20x1. An appropriate discount rate is 10 per cent
per year. How much is the initial cost of the inventories?
a. 229,273 b. 224,727 c. 250,000 d. 257,000
12. ABC Co. acquired a tract of land for ₱2,000,000. The land was
developed and subdivided into residential lots at an additional cost of
₱200,000. Although the subdivided lots are relatively equal in sizes, they
were offered at different sales prices due to differences in terrain and
locations. Information on the subdivided lots is shown below:
Lot group No. of lots Price per lot
A 4 480,000
B 10 240,000
C 15 192,000
During the year, 2 lots from the A group, 3 lots from the B group and 12 lots
from the C group were sold. How much gross income is recognized during the
year?
a. 2,766,667 b. 2,783,333 c. 2,860,000 d. 2,877,333
Cost formulas
Use the following information for the next four questions:
ABC Co. is a wholesaler of guitar picks. The activity for product “Pick X”
during August is shown below:
Unit Unit Total

Date Transaction
s cost cost
2,0 ₱ ₱
1-Aug Inventory
00 28.80 57,600
3,0 29. 89,28
7 Purchase
00 76 0
4,2
12 Sales
00
4,8 30.
13 Purchase
00 40 145,920
6
14 Sales return
00
3,8
22 Sales
00
1,9 30.
29 Purchase
00 88 58,672
Purchase 3 30.
30
return 00 88 (9,264)
Total goods available ₱
for sale 342,208
13. How much are the ending inventory and cost of goods sold under the
FIFO – periodic cost flow formula?
Ending inventory Cost of goods sold
a. 219,840 122,368
b. 112,341 229,867
c. 122,368 219,840
d. 122,386 219,804
FIFO – perpetual cost flow formula?
a. 219,840 122,368
b. 112,341 229,867
c. 122,368 219,840
d. 122,386 219,804
weighted average – periodic cost flow formula?
a. 229,840 112,160
b. 126,468 215,740
c. 120,080 222,128
d. 120,072 222,153
weighted average – perpetual cost flow formula?
a. 121,813 220,395
b. 122,468 219,740
c. 122,017 220,191
d. 123,384 218,824
Write-down of inventories
17. ABC Co. buys and sells products A & B. The following unit costs are
available for the inventory as of December 31, 20x1: (All costs are borne
by ABC Co.)
A B
Number of units 2,000 3,000
Purchase cost per unit ₱125 ₱190
Delivery cost from supplier 10 30
Estimated selling price 150 250
Selling costs 22 28
General and administrative 15 18
How much total inventory shall be reported in the 20x1 financial statements?
a. 916,000 b. 930,000 c. 936,000 d. 696,000
Write-down of raw materials

18. The raw materials inventory of ABC Co. on December 31, 20x1 have a
cost of ₱20,000 and an estimated net realizable value of ₱18,000.
Information on finished goods are as follows:
Cost……………………………………….₱250,000
NRV…………………….…………………₱280,000
How much is the total inventory on December 31, 20x1?

a. 268,000 b. 270,000 c. 298,000 d. 300,000
Reversal of write-down
ABC Co. has the following comparative information regarding its inventories.
20x2 20x1
Inventory, December 31 at
cost 30,000 24,000
Inventory, December 31 at
NRV 33,000 22,000
Cost of goods sold before
adjustments 180,000 200,000
ABC recognizes write-downs of inventories in cost of goods sold.
19. How much is the cost of goods sold in 20x1?

a. 200,000 b. 202,000 c. 198,000 d. 220,000
20. How much is the cost of goods sold in 20x2?

a. 178,000 b. 177,000 c. 182,000 d. 183,000
Purchase commitment
21. On January 1, 20x1, ABC Co. signed a three year, noncancelable
purchase contract, which allows ABC Co. to purchase up to 12,000 units of
a microchip annually from XYZ Co. at ₱15 per unit and guarantees a
minimum annual purchase of 3,000 units. At year-end, it was found out
that the goods are obsolete. ABC Co. had 4,000 units of this inventory at
December 31, 20x1, and believes these parts can be sold as scrap for ₱5
per unit. How is the loss on purchase commitment to be recognized on
December 31, 20x1?
a. 70,000 b. 100,000 c. 60,000 d. 0
Gross profit based on sales
22. On October 1, 20x1, the warehouse of ABC Co. and all inventories
contained therein were damaged by flood. Off-site back up of data base
shows the following information:
Inventory, Jan. 1 10,000
Accounts payable, Jan. 1 3,000
Accounts payable, Sept. 30 2,000
Payments to suppliers 50,000
Freight-in 500
Purchase returns 500
Sales from Jan. to Sept. 80,000
Sales returns 5,000
Sales discounts 2,000
Gross profit rate based on sales 30%
Goods in transit as of October 1, 20x1 amounted to ₱1,000, cost of goods out
on consignment is ₱1,200, and materials damaged by flood can be sold at a
salvage value of ₱1,800. How much is the inventory loss due to the flood?
a. 3,000 b. 2,500 c. 4,400 d. 4,900
Gross profit rate based on cost

23. On October 1, 20x1, the warehouse of ABC Co. and all inventories
contained therein were razed by fire. Off-site back up of data base shows
the following information:
Inventory, Jan. 1 20,000
Net purchases 190,000
Net sales from Jan. to Sept. 240,000
Gross profit rate based on cost 25%
Twenty percent of the inventory contained in the warehouse has been

salvaged from the fire while half is partially damaged and can be sold as
scrap at thirty percent of its cost. How much is the inventory loss due to the
fire?
a. 18,000 b. 5,400 c. 9,000 d. 11,700
Cost of goods sold

24. Based on the following information, how much is the cost of goods
sold?
Decrease in inventory 12,000
Increase in accounts payable 16,000
Payments to suppliers 80,000
a. 108,000 b. 96,000 c. 76,000 d. 84,000

Accounts of a manufacturing entity
25. The work in process inventories of ABC Manufacturing, Inc. were
completely destroyed by fire on June 1, 20x1. Amounts for the following
accounts have been established.
January 1, 20x1 June 1, 20x1
Accounts payable 117,000 135,000
Raw materials 15,000 18,000
Work in process 60,000 ?
Finished goods 69,000 87,000
The following additional information was determined:

 Payments to suppliers for purchases on account, ₱60,000.
 Freight on purchases, ₱3,000.
 Purchase returns, ₱7,500.
 Direct labor, ₱48,000.
 Production overhead, ₱18,000.
 Sales from January 1 to May 31, ₱225,000.
 Sales returns, ₱45,000.
 Sales discounts, ₱15,000.
 Gross profit rate based on sales, 25%.
How much is the work in process destroyed by fire?

a. 48,000 b. 49,500 c. 58,500 d. 51,000
Retail method
Presented below is information pertaining to ABC Co.:
Cost Retail
35,00
Inventory, January 1 21,750
0
138,25 200,7
Purchases
0 50
Freight-In 5,000 -
Purchase discounts 1,250 -
21,50
Purchase returns 13,000
0
Departmental Transfers-In
2,500 3,750
(Debit)
Departmental Transfers-Out
2,000 3,000
(Credit)
15,00
Markups
0
Markup cancellations 5,000
30,00
Markdowns
0
Markdown cancellations 7,500
Abnormal spoilage (theft and 17,50
12,500
casualty loss) 0
109,5
Sales
00
Sales returns 6,250
Sales discounts 2,500
Employee discounts 1,250
Normal spoilage (shrinkage and
500
breakages)
26. How much is the ending inventory using the Average cost method?
a. 60,750 b. 60,000 c. 61,050 d. 62,400
27. How much is the ending inventory using the FIFO cost method?
a. 60,750 b. 60,000 c. 61,050 d. 62,400
Chapter 6

Initial measurement
1. An entity sells goods either on cash basis or on 6-month installment basis.
On January 1, 20x1, goods with cash price of ₱50,000 were sold at an
installment price of ₱75,000. Which of the following statements is correct?
a. Net receivable of ₱75,000 is recognized on the date of sale.
b. Net receivable of ₱50,000 is recognized upon full payment of the total
price.
c. The ₱20,000 difference between the cash price and installment price is
recognized as interest income on the date of sale.
d. Net receivable of ₱50,000 is recognized on the date of sale.
Initial measurement
2. An entity sells goods for ₱150,000 to a customer who was granted a
special credit period of 1 year. The entity normally sells the goods for
₱120,000 with a credit period of one month or with a ₱10,000 discount for
outright payment in cash. How much is the initial measurement of the
receivable?
a. 150,000 b. 120,000 c. 130,000 d. 110,000
Initial measurement
3. ABC Co. received the following note receivables on January 1, 20x1:
15,0
9-month, 10% note from Alpha Company.
00
6-month, noninterest bearing note from Beta, Inc.
(the 20,0
effect of discounting is deemed immaterial) 00
30,0
14%, 3-year note from Charlie Corp.
00
Market rate of interest on January 1, 20x1 10%
At what total net amount will the notes be initially recognized?

a. 65,000 b. 53,673 c. 62,357 d. 50,000
Simple interest
4. On August 1, 20x1, ABC Co. received a ₱1,200,000, 10%, 3-year note
receivable in exchange for a vacant lot carried in the books at ₱850,000.
Principal, in three equal installments, plus interest are due annually
starting August 1, 20x2. Current market rates as of April 1, 20x1,
December 31, 20x1, and December 31, 20x2 are 10%, 12% and 13%,
respectively. How much interest receivable is recognized on December 31,
20x2?
a. 33,333 b. 40,000 c. 50,000 d. 60,000
Compounded interest
5. On January 1, 20x1, ABC Co. extended a ₱1,200,000 loan to one of its
officers as part of ABC Co.’s car and housing assistance program. The note
received is due on January 1, 20x4 and bears 10% interest compounded
annually. How much interest receivable is recognized on December 31,
20x2 statement of financial position?
a. 132,000 b. 120,000 c. 168,000 d. 252,000
Noninterest-bearing note – lump sum

On January 1, 20x1, ABC Co. sold a transportation equipment with a historical
cost of ₱1,000,000 and accumulated depreciation of ₱300,000 in exchange
for cash of ₱100,000 and a noninterest-bearing note receivable of ₱800,000
due on January 1, 20x4. The prevailing rate of interest for this type of note is
12%.
6. How much is the interest income in 20x1?
a. 68,331 b. 76,532 c. 85,714 d. 96,000
7. How much is the carrying amount of the receivable on December 31,

20x2?
a. 800,000 b. 569,424 c. 637,755 d. 714,286
Noninterest-bearing note – installments

Use the following information for the next three questions:
On January 1, 20x1, ABC Co. sold transportation equipment with a historical
cost of ₱20,000,000 and accumulated depreciation of ₱7,000,000 in
exchange for cash of ₱500,000 and a noninterest-bearing note receivable of
₱8,000,000 due in 4 equal annual installments starting on December 31,
20x1 and every December 31 thereafter. The prevailing rate of interest for
this type of note is 12%.

a. 728,946 b. 678,334 c. 728,964 d. 704,236
9. How much is the current portion of the receivable on December 31, 20x1?
a. 1,271,036 b. 1,423,560 c. 3,380,102 d. 1,594,388
20x2?
a. 4,803,663 b. 3,380,102 c. 6,074,699 d. 6,000,000
Noninterest-bearing note – installment in advance

On January 1, 20x1, ABC Co. sold transportation equipment with a historical
cost of ₱12,000,000 and accumulated depreciation of ₱7,000,000 in
exchange for cash of ₱100,000 and a noninterest-bearing note receivable of
₱4,000,000 due in 4 equal annual installments starting on January 1, 20x1
and every January 1 thereafter. The prevailing rate of interest for this type of
note is 12%.

a. 408,230 b. 278,334 c. 328,964 d. 288,220
20x1?
a. 1,690,510 b. 892,857 c. 2,690,051 d. 1,594,388
13. How much is the carrying amount of the receivable on January 1,

20x3?
a. 892,857 b. 3,380,102 c. 6,074,699 d. 6,000,000
Noninterest-bearing note – semiannual cash flows
On January 1, 20x1, ABC Co. sold machinery with historical cost of
₱3,000,000 and accumulated depreciation of ₱900,000 in exchange for a 3-
year, ₱2,100,000 noninterest-bearing note receivable due in equal semi-
annual payments every July 1 and December 31 starting on July 1, 20x1. The
prevailing rate of interest for this type of note is 10%.

a. 88,825 b. 177,649 c. 128,964 d. 164,591
20x1?
a. 1,241,083 b. 982,378 c. 1,690,051 d. 1,594,388
Noninterest-bearing note – non-uniform cash flows

16. On January 1, 20x1, ABC Co. sold machinery costing ₱3,000,000 with
accumulated depreciation of ₱1,100,000 in exchange for a 3-year,
₱900,000 noninterest-bearing note receivable due as follows:
Date Amount of installment
December 31, 20x1 400,000
December 31, 20x2 300,000
December 31, 20x3 200,000
Total 900,000
The prevailing rate of interest for this type of note is 10%. How much is
the carrying amount of the receivable on December 31, 20x1?
a. 467,354 b. 438,016 c. 376,345 d. 428,346
Receivable with cash price equivalent

On January 1, 20x1, ABC Co. sold inventory costing ₱1,800,000 with a list
price of ₱2,200,000 and a cash price of ₱2,000,000 in exchange for a
₱2,400,000 noninterest-bearing note due on December 31, 20x3.
17. How much is the initial measurement of the receivable?

a. 1,800,000 b. 2,200,000 c. 2,000,000 d. 2,400,000
20x1?
a. 2,125,390 b. 2,135,341 c. 2,098,343 d. 2,000,000
Note with below-market interest (simple interest) - Principal due at

maturity, interests due periodically
19. On January 1, 20x1, ABC Co. sold machinery with historical cost of
₱5,000,000 and accumulated depreciation of ₱1,900,000 in exchange for
a 3-year, 3%, ₱3,000,000 note receivable. Principal is due on January 1,
20x4 but interest is due annually every December 31. The prevailing
interest rate for this type of note is 12%. How much is the carrying
amount of the receivable on December 31, 20x1?
a. 2,159,324 b. 2,249,324 c. 2,543,685 d. 3,000,000
Note with below-market interest (simple interest) - Principal due at

maturity, interests due in semi-annual installments
20. On July 1, 20x1, ABC Co. sold machinery costing ₱12,000,000 with
accumulated depreciation of ₱9,000,000 in exchange for a 3-year, 3%,
₱4,000,000 note receivable. Principal is due on July 1, 20x4 but interests
are due semiannually every July 1 and January 1. The prevailing interest
rate for this type of note is 12%. How much is the interest income in
20x1?
a. 186,893 b. 381,399 c. 94,147 d. 120,000
Note with below market interest (simple interest) - Principal and

interests collectible in installments
accumulated depreciation of ₱950,000 in exchange for a 3-year, 3%,
₱900,000 note receivable. Principal is due in three equal annual
installments. Interests on the outstanding principal balance are also due
annually and are to be collected together with the periodic collections on
the principal. The prevailing interest rate for this type of note is 12%. How
much is the carrying amount of the receivable on December 31, 20x1?
a. 530,261 b. 1,000,562 c. 673,531 d. 789,361
Note with below market interest (compound interest) - Principal and

interests due at maturity
accumulated depreciation of ₱950,000 in exchange for a 3-year,
₱1,200,000 note receivable. Principal and interest at 3% are due on
January 1, 20x4. The prevailing interest rate for this type of note is 12%.
How much is the carrying amount of the receivable on initial recognition
date?
a. 1,311,272 b. 2,000,000 c. 933,337 d. 854,136
Total interest income over the life of a note

23. ABC Co. received a ₱1,000,000, 8%, 5-year note that requires five
equal annual year-end payments. The effective interest rate on the
note is 9%. How much is total interest revenue to be earned on the note?
a. 250,438 b. 278,074 c. 25,882 d. 225,882
Non-interest bearing note with deferred uniform payments

24. On January 1, 20x1, ABC Co. sold a used equipment in exchange for a
₱1,200,000 noninterest-bearing note receivable due in three equal annual
installments starting January 1, 20x4. The current market rate of interest
on January 1, 20x1 is 12%. How much is the carrying amount of the
receivable on initial recognition date?
a. 890,365 b. 728,860 c. 765,890 d. 821,060
Non-interest bearing note with deferred non-uniform payments

25. On January 1, 20x1, ABC Co. sold a used equipment in exchange for a
₱4,500,000 non-interest bearing note due in three annual installments as
follows:
Jan. 1, 20x4 2,000,000
Jan. 1, 20x5 1,500,000
Jan. 1, 20x6 1,000,000
Total 4,500,000
The current market rate of interest on January 1, 20x1 is 12%. How much is
the carrying amount of the receivable on initial recognition date?
a. 1,980,685 b. 2,728,860 c. 2,944,264 d.
2,818,706
Pre-acquisition accrued interest

26. On March 1, 20x1, ABC Co. received a ₱1,000,000, 12%, one-year note
dated January 1, 20x1 from XYZ, Inc. in exchange for a ₱1,000,000 past
due account. How much interest income is recognized in 20x1?
a. 120,000 b. 100,000 c. 90,000 d. 0
Chapter 7

Origination costs and fees

1. On January 1, 20x1, ABC Bank extended a 12%, ₱1,000,000 loan to XYZ,
Inc. Principal is due on January 1, 20x5 but interests are due annually
every January 1. ABC Bank incurred direct loan origination costs of
₱88,394 and indirect loan origination costs of ₱18,000. In addition, ABC
Bank charged XYZ a 2.5-point nonrefundable loan origination fee. How
much is the interest income in 20x2?
a. 104,973 b. 105,364 c. 106,339 d. 136,661
“Day 1” difference
On January 1, 20x1, ABC Co. extended a ₱500,000, zero-interest loan to one
of its directors. The loan matures in lump sum on January 1, 20x5. The
prevailing interest rate for this type of loan is 12%.
2. If the loan proceeds extended to the director is equal to the present value
of the loan receivable, the net effect of the loan to ABC’s 20x1 profit (loss)
is
a. (182,240) b. (144,109) c. 38,131 d. 0
3. If the loan proceeds extended to the director is equal to the face amount
of the loan receivable, the net effect of the loan to ABC’s 20x1 profit (loss)
is
a. (182,240) b. (144,109) c. 38,131 d. 0
Impairment of receivable
On January 1, 20x1, ABC Bank extended a ₱900,000 loan to XYZ, Inc.
Principal is due on December 31, 20x5 but 12% interest is due annually
starting December 31, 20x1.
On December 31, 20x3, XYZ, Inc. was delinquent and it was ascertained that
the loan is impaired. ABC Bank assessed that interests accruing on the loan
will not be collected; however, the principal is expected to be received in
three equal annual installments starting on December 31, 20x4. Accrued
interest receivable on December 31, 20x3 amounted to ₱100,000. The
current market rate on December 31, 20x3 is 14%.
4. How much is the balance of allowance for impairment loss on December

31, 20x3 immediately after impairment testing?
a. 279,460 b. 303,510 c. 203,510 d. 179,460

a. 86,465 b. 60,481 c. 60,841 d. 0
Interest not accrued because of loss event

On January 1, 20x1, ABC Co. received a ₱1,000,000 note receivable from
XYZ, Inc. Principal payments of ₱200,000 and interest at 12% are due
annually at the end of each year for 5 years. The first payment starts on
December 31, 20x1.
XYZ, Inc. made the required payments during 20x1 and 20x2. However,
during 20x3 XYZ, Inc. began to experience financial difficulties, requiring ABC
Co. to reassess the collectibility of the note. Because of the loss event, ABC
Co. did not accrue the interest on December 31, 20x3. The current rate of
interest on December 31, 20x3 is 10%. ABC Co. made the following cash flow
projections on December 31, 20x3:
Date of expected Amount of cash
receipt flow
January 1, 20x4 200,000
January 1, 20x5 150,000
January 1, 20x6 150,000
6. How much is the impairment loss recognized in 20x3?

a. 146,492 b. 195,082 c. 139,669 d. 181,518

a. 54,421 b. 30,421 c. 16,071 d. 0
Reversal of impairment loss

8. On January 1, 20x1, ABC Bank extended a 3-year, 12%, ₱1,000,000 loan
to XYZ, Inc. at a price that yields an effective interest rate of 10%.
Principal is due at maturity but interest is due annually every December
31.
On December 31, 20x1, XYZ was delinquent and it was ascertained that the
loan was impaired. The loan was restructured as follows:
 Only the principal amount of ₱1,000,000 shall be collected from the loan.
This is due on December 31, 20x3.
 ABC Co. waived the collection of interest.
On December 31, 20x2, XYZ’s credit rating has improved and the loan was
again restructured as follows:
 Aside from the principal amount of ₱1,000,000, which is due on December
31, 20x3, a 14% interest will also be collected.
 The new terms shall be applied prospectively.
How much is the gain on impairment reversal on December 31, 20x2? (Do
not round-off present value factors)
a. 109,091 b. 112,561 c. 134,341 d. 141,323
Evaluation of transfers
ABC Co. transferred loans receivables with carrying amount of ₱900,000 and
fair value of ₱1,000,000 to XYZ, Inc. for cash amounting to ₱1,000,000.
9. If ABC Co. transfers substantially all the risks and rewards of ownership of
the loans receivable, how much of the transferred receivables is
derecognized?
a. 1,000,000 b. 900,000 c. 100,000 d. 0
10. If ABC Co. is obligated to repurchase the transferred loans at a future

date for the fair market value of the instrument at repurchase date plus
10% interest, how much of the transferred receivables is derecognized?
a. 1,000,000 b. 900,000 c. 100,000 d. 0
11. If ABC Co. is obligated under the terms of the transfer to repurchase
any individual loan but the aggregate amount of loans that could be
repurchased could not exceed ₱100,000, how much of the transferred
receivables is retained in the books and not derecognized?
a. 1,000,000 b. 900,000 c. 100,000 d. 0
12. If ABC Co. retains only a right of first refusal to repurchase the
transferred asset at fair value if XYZ, Inc. subsequently sells it, how much
of the transferred receivables is derecognized?
a. 1,000,000 b. 900,000 c. 100,000 d. 0
Transfer of financial asset

Fact pattern
13. ABC Co. transfers loans receivable with a fair value of ₱500,000 and
carrying amount of ₱420,000. ABC Co. obtains an option to purchase
similar loans and assumes a recourse obligation to repurchase similar
loans. ABC Co. also agrees to provide a floating rate of interest to the
transferee company. The assets and liabilities received as consideration
for the transfer are listed below:
Assets received & liabilities Fair

assumed values
250
Cash proceeds
,000
120
Interest rate swap
,000
60
Call option
,000
120
Recourse obligation
,000
How much is the gain (loss) on the derecognition of the financial asset?
a. 30,000 b. 7,500 c. (110,000) d.
(135,000)
Servicing of a financial asset

14. Use the information in the immediately preceding problem except that
ABC Co. agreed to service the loans without explicitly stating the
compensation. The fair value of the service is ₱25,000.
How much is the gain (loss) on the derecognition of the financial asset?
a. 30,000 b. 7,500 c. (110,000) d.
(135,000)
Assignment
15. On March 1, 20x1, ABC Co. assigned its ₱1,000,000 accounts
receivable to Piggy Bank in exchange for a 2-month, 12%, loan equal to
75% of the assigned receivables. ABC Co. received the loan proceeds after
a 2% deduction for service fee based on the assigned notes. During
March, ₱500,000 were collected from the receivables. Sales returns and
discounts amounted to ₱150,000. How much net cash is received from the
assignment transaction on March 1, 20x1?
a. 735,000 b. 730,000 c. 1,230,000 d. 1,235,000
Factoring: Without recourse

The next three questions are based on the following information:
Fact pattern
ABC Co. factored ₱100,000 accounts receivable to XYZ Financing Corp. on a
without recourse basis on January 1, 20x1. XYZ charged a 4% service fee and
retained a 10% holdback to cover expected sales returns. In addition, XYZ
charged a 12% interest computed on a weighted average time to maturity of
the receivables of 73 days based on 365 days.
16. How much proceeds is received from the factoring on January 1, 20x1?
a. 100,320 b. 85,600 c. 83,600 d. 88,300
17. How much is the cost of factoring assuming all of the receivables have
been collected?
a. 6,400 b. 2,400 c. 16,400 d. 12,400
Factoring: With recourse

18. Use the same information in the preceding illustration except that ABC
Co. factored the receivables on a with recourse basis. ABC Co. determines
that the recourse obligation has a fair value of ₱3,000. How much is the
loss on sale of receivables recognized on January 1, 20x1 assuming the
factoring was made on a casual basis?
a. 3,000 b. 9,400 c. 19,400 d. 6,400
Discounting - Without recourse

19. On October 1, 20x1, ABC Co. discounted a ₱600,000, one-year, 12%
note, received from a customer on January 1, 20x1, with a bank at 14% on
a without recourse basis. How much is the loss on discounting?
a. 4,960 b. 5,250 c. 4,690 d. 5,520
Dishonored note
20. On July 1, 20x1, ABC Co. discounted an ₱800,000, 90-day, 12% note,
received from a customer on June 1, 20x1, with a bank at 16% on with
recourse basis. The discounting is treated as conditional sale. The bank
uses 365 days per year in computing for discounts. On August 30, 20x1
(maturity date), the maker of the note defaulted and the bank charged
ABC Co. the maturity value of the note plus a ₱3,000 protest fee. How
much is transferred to accounts receivable due to the dishonor and before
impairment testing?
a. 826,671 b. 823,671 c. 827,000 d. 862,671
Discounting of “own” note

21. On July 1, 20x1, ABC Co. discounted its own note of ₱200,000 to a bank
at 10% for one year. How much was the net proceeds received by ABC
from the transaction?
a. 180,000 b. 190,000 c. 200,000 d. 0
Chapter 4
Cash & Cash Equivalents

Cash balance
1. The books of Kapiz Co. show the following balances at December 31,
20x1:
Cash on hand ₱ 400,000
Cash in Bank – current account 1,200,000
Cash in Bank – peso savings deposit 5,000,000
Cash in Bank – dollar deposit (unrestricted) $ 100,000
Cash in Bank – dollar deposit (restricted) 250,000
Cash in 3-month money-market account ₱ 500,000
3-month unrestricted time deposit $ 20,000
Treasury bill, purchased 11/1/20x1, maturing 2/14/20x2 ₱1,600,000
Treasury bond, purchased 3/1/20x1, maturing 2/28/20x2 1,000,000
Treasury note, purchased 12/1/20x1, maturing 2/28/20x2 400,000
Unused Credit Line 4,000,000
Redeemable preference shares, purchased 12/1/20x1, 740,000
due on 3/1/20x2
Treasury shares, purchased 12/1/20x1, to be reissued on 200,000
1/5/20x2
Sinking fund 400,000
 Cash on hand includes a ₱40,000 check payable to Kapiz Co. dated
December 29, 20x1.
 During December 20x0, check amounting to ₱30,000 was drawn against
the Cash in bank - current account in payment of accounts payable. The
check remains outstanding as of December 31, 20x1.
 The Cash in Bank – peso savings deposit includes ₱800,000 security bond
on a pending labor litigation, in favor of a previous employee. The
establishment of the bond is mandated by a court of law.
 The Cash in Bank – peso savings deposit also includes a compensating
balance amounting to ₱500,000 which is not legally restricted.
 The Cash in Bank – dollar deposit (unrestricted) account includes interest
of $4,000, net of tax, directly credited to Kapiz Co.’s account. The
exchange rate at year-end is $1 is to ₱45.
How much is the cash and cash equivalents to be reported in the 20x1
financial statements?
a. 14,720,000 b. 19,520,000 c. 12,430,000 d. 12,870,000
Bank overdraft
2. The cash balance of Ronnie Co. comprises the following:
Cash on hand 300,000
Cash in bank – savings – Alpha Bank 600,000
Cash in bank – current – Alpha Bank (160,000)
Cash in bank – current – Beta Bank (140,000)
Cash in bank – deposit in escrow – Beta Bank 240,000
Cash in bank – savings – Charlie Bank 90,000
 Cash on hand excludes undeposited collections of ₱60,000.
 The cash in bank – savings maintained at Alpha Bank includes a ₱100,000
compensating balance which is restricted.
How much is the amount of cash to be reported in the financial statements?
a. 700,000 b. 640,000 c. 730,000 d. 790,000
Petty cash fund – journal entries

3. The following were the transactions involving an entity’s petty cash fund
during the period.
July. 1, Established ₱30,000 petty cash fund.
20x1
July 1 Disbursements are made for the following:
through - Groceries for use of employees in the pantry ₱4,200
21, 20x1 - Transportation of Mang Benny, the messenger boy 1,500
- Snacks during meetings and conferences 3,000
- Gasoline for company vehicles 9,000
- Pedicure of Ms. Ana (secretary of the
boss) – authorized 9,000
Total ₱
26,700
July 22, Total coins and currencies in the petty cash box is ₱1,500.
20x1 Replenishment is made.
Assuming that the petty cash fund is not replenished and financial
statements are prepared on July 31, 20x1, the month-end adjustment to the
petty cash fund most likely does not include a:
a. debit to receivable from custodian for ₱1,800
b. credit to petty cash fund for ₱28,500
c. total debit to various expense accounts for ₱26,700
d. credit to cash in bank for ₱28,500
Petty cash fund

4. As of December 31, 20x1, the petty cash fund of Kristelle Co. with a
general leger balance of ₱15,000 comprises the following:
Coins and currencies 2,550
Petty cash vouchers:
Gasoline for delivery equipment 3,000
Medical supplies for employees 2,040 5,040
IOU’s:
Advances to employees 2,220
A sheet of paper with names of several employees
together with contribution to bereaved employee,
attached is a currency of 2,400
Checks:
Check drawn to the order of the petty cash custodian 3,000
Personal check drawn by the petty cash custodian 2,400
The entry to replenish the fund on December 31, 20x1 includes a

a. credit to cash shortage or overage for ₱2,190
b. debit to cash shortage or overage for ₱2,910
c. credit to cash in bank for ₱9,450
d. credit to petty cash fund for ₱9,450
Bank reconciliation
5. Jane Co. is preparing its September 30, 20x1 bank reconciliation. Relevant
information is shown below:
Balance per books 1,480
Balance per bank statement 2,800
Collection on note by bank (including ₱250
interest) 2,500
NSF check returned by bank 500
Bank service charges for December 70
Deposits in transit 2,200
Outstanding checks (including certified checks
of ₱100) 1,000
 A ₱600 loan amortization of Jane Co. was erroneously debited by the bank
to Tarzan Co.’s account.
 A ₱650 collection of accounts receivable was erroneously recorded in the
books as ₱560. The actual amount deposited to the bank is ₱650.
The compound entry to reconcile the accounts includes a

a. net debit to cash for ₱2,020
b. net credit to cash for ₱700
c. credit to notes receivable for ₱2,500
d. net debit to accounts receivable for ₱590
Book to Bank
6. Ching Co. has the following information:
3
Balance per books
80
6
Credit memos
70
4
Debit memos
00
5
Deposits in transit
60
2
Outstanding checks
80
How much is the cash balance per bank statement?

a. 650 b. 560 c. 930 d. 370
Computation of DIT and OC

The next three items are based on the following information:
Taken from the records of Girly Co. are the following:
Balance per books, October 31 4,4

40
Total Credits per books, November 8,32
0
Balance per books, November 30 2,4
00
Balance per bank statement, October 31 5,52
0
Balance per bank statement, November 30 4,5
60
Total Debits per bank statement, November 2,80
0
Loan proceeds directly credited to Girly’s account in 1,20
October 0
Collection of receivable directly credited to Girly’s
account in November – not yet recorded in the 600
books
NSF checks returned in October 90
0
NSF checks returned in November - not yet 300
recorded in the books
Check received from a customer amounting to
₱1,800 180
was recorded in the books in October as
Overstatement in book debit in October 800
Overstatement in book credit in November 300
Understatement in bank debit in October 29
0
Overstatement in bank credit in October 370
Deposit amounting to ₱1,050 was recorded by
the bank in November as 150
Deposits in transit – October 31 4,50

0
Outstanding checks – October 31 3,80
0
7. How much is the deposits in transit at November 30?
a. 5,820 b. 6,190 c. 5,340 d. 6,920
8. How much is the outstanding checks at November 30?

a. 7,620 b. 8,680 c. 9,120 d. 8,280
9. How much is the adjusted balance of cash at November 30?

a. 3,000 b. 3,300 c. 2,400 d. 3,580
Bank reconciliation - overdraft

10. Radeline Co.’s bank statement shows an overdraft of ₱18,500 as of
August 31, 20x1. Additional information is as follows:
 A cash deposit of ₱1,380 appears on the bank statement as ₱1,830. The
bank admits it has committed an error.
 The bank collected ₱700 from a customer on behalf of Radeline.
 Cash deposited in an overnight depository on August 30 but not shown on
the August bank statement – ₱1,800
 Interest on overdraft not yet recorded – ₱1,728
 Check issued but not presented – ₱2,200
 The bank returned a customer check for ₱2,000 to Radeline.
How much is the overdraft in Radeline’s cashbook on August 31, 20x1?

a. 16,322 b. 17,650 c. (19,350) d. (16,322)
Proof of cash
Kriselda Co. has the following information for the months of June and July.
June 30 July 31
Book balance ? 9,300
Book debits 30,700
Book credits 27,000
Bank balance 10,200 16,800
Bank debits 21,300
Bank credits ?
Notes collected by bank 2,250 3,000
Bank service charge 20 100
NSF checks 880 1,400
Understatement of recorded cash
collections 1,900 1,200
Deposit in transit 6,000 11,250
Outstanding checks 9,750 17,850
Loan amortization of Kristeta
Corp. erroneously debited to
Kriselda Co.’s account 2,400 1,800
11. How much is the adjusted cash receipts in July?
a. 24,150 b. 27,900 c. 30,750 d. 24,350
12. How much is the adjusted cash disbursements in July?

a. 27,600 b. 27,900 c. 21,000 d. 21,600
Chapter 9
Investments (Part 1)

Financial assets
1. The following are taken from the records of ABC Co. as of year-end.
Investment in 44,00
Cash and cash 10,40 subsidiary 0
equivalents 0
Accounts receivable 12,00 Shares of stocks 44,80
0 of 0
ABC Co.
Allowance for bad (1,60 Investment in 9,600
debts 0) bonds
Note receivable 4,000 Land 112,0
00
Interest receivable 1,600 Building 208,0
00
Accumulated
Claim for tax refund 9,600 depreciation (52,00
0)
Advances to 4,80 Investment 40,0
suppliers 0 property 00
Inventory 60,00 Biological assets 24,00
0 0
Prepaid expenses 4,000 Intangible 56,00
assets 0
Prepaid interest* 800 Deferred tax 48,00
assets 0
Investment in equity Cash surrender 9,600
instruments 10,40 value
0
Investment in 16,00 Sinking fund 16,00
associate 0 0
*Assume this account is not a valuation account to a financial liability.
How much is the total of the financial assets disclosed in the notes?
a. 142,400 b. 132,000 c. 132,800 d. 92,800
Financial liabilities
2. The following are taken from the records of ABC Co. as of year-end.
Accounts payable 1,6 SSS contributions 4,800
00 payable
Utilities payable 5,60 Cash dividends 3,200
0 payable
Accrued interest 4,80 Property dividends
expense 0 payable 5,600
Advances from 800 Stock dividends 2,400
customers payable
Unearned rent 7,20 Finance lease 28,00
0 liability 0
Warranty obligations 4,00 Bonds payable 96,00
0 0
Unearned interest Discount on bonds
on 2,40 payable (12,00
receivables 0 0)
Income taxes 1,60 Security deposit 1,600
payable 0
How much is the total of the financial liabilities disclosed in the notes?
a. 128,800 b. 132,800 c. 100,800 d. 136,000
Principal market vs. Most advantageous market

ABC Co. has an asset that is required by the standards to be measured at fair
value. The asset is sold in two different active markets. ABC Co. has access
to both of these markets. Information on these markets is shown below:
Active market #1 Active market #2
Market price 150 145
Transaction costs 18 12
Transport costs 10 8
Case #1: Principal market

3. If “Active market #1” is the principal market for the asset, how much is
the fair value of the asset?
a. 150 b. 132 c. 140 d. 122
Case #2: Most advantageous market

4. If neither market is the principal market for the asset, how much is the fair
value of the asset?
a. 122 b. 125 c. 145 d. 137
Financial assets designated at FVPL

On January 1, 20x1, ABC Co. purchased 1,000 shares of XYZ, Inc. for
₱250,000. Commission paid to broker amounted to ₱10,000. The equity
securities were designated by management to be measured at fair value
through profit or loss. On December 31, 20x1, the shares are quoted at ₱200
per share. It was estimated that transaction cost of ₱20 per share will be
incurred if the shares were sold on that date.
5. How much is the unrealized gain (loss) on change in fair value recognized
in the 20x1 profit or loss?
a. (70,000) b. (50,000) c. (40,000) d. 60,000
6. On January 3, 20x2, all of the shares were sold at ₱300 per share.
Commission paid for the sale amounted to ₱60,000. How much is the
realized gain (loss) from the sale?
a. 60,000 b. (10,000) c. 40,000 d. (40,000)
7. If ABC Co. uses an allowance account to account for changes in fair

values, how much is the balance of this account on December 31, 20x1?
a. 70,000 debit c. 40,000 credit
b. 50,000 debit d. 50,000 credit
Held for trading securities – equity securities

8. On January 1, 20x1, ABC Co. purchased 1,000 shares of XYZ, Inc. for
₱15,000. Taxes and licenses incurred amounted to ₱15,000. The equity
securities were classified as held for trading. On December 31, 20x1, the
shares are quoted at ₱12 per share. On January 3, 20x2, half of
investment was sold at ₱15 per share. Transaction costs incurred on the
sale amounted to ₱1,000. How much is the realized gain (loss) on the
sale?
a. 500 b. (500) c. 2,000 d. (2,000)
Held for trading securities – portfolio

On January 1, 20x1, ABC Co. purchased the following marketable securities
to be held for trading. Transaction costs incurred on the purchase amounted
to ₱2,000.
Cos Fair value – Fair value –
t 12/31/x1 12/31/x2
Apple Co. preference 30,0
40,000 25,000
shares 00
20,0
Boy Co. ordinary shares 12,000 10,000
00
12,0
Cat Co. bonds 25,000 30,000
00
62,0
Totals
00 77,000 65,000
On February 2, 20x3, half of the Apple Co. preference shares were sold for
₱14,000, net of transaction costs.
9. How much is the unrealized gain (loss) recognized in ABC’s 20x1 profit or
loss?
a. 15,000 b. (15,000) c. 13,000 d. 0
loss?
a. b. 12,000 c. (12,000) d. 0
11. How much is the realized gain (loss) recognized in ABC’s 20x3 profit or
loss?
a. (11,000) b. 1,500 c. 11,000 d. 0
Held for trading securities – debt securities

12. On January 1, 20x1, ABC Co. purchased ₱1,000,000 bonds at 98. The
bonds mature on January 1, 20x5 and pay 12% annual interest beginning
January 1, 20x2. Commission paid on the acquisition amounted to
₱10,000. The objective of the ABC Co.’s business model is to sell such
bonds in the near term to take advantage of fluctuations in fair values for
short-term profit taking. Accordingly, the bonds were classified as held for
trading securities. On December 31, 20x1, the bonds are quoted at 102.
How much is the unrealized gain (loss) on change in fair value recognized
in ABC’s 20x1 profit or loss?
a. 40,000 b. 30,000 c. 12,667 d. 0
Held for trading securities – debt securities

13. On January 1, 20x1, ABC Co. purchased ₱1,000,000 bonds at a price which
reflects a yield rate of 14%. The bonds mature on January 1, 20x4 and pay
12% annual interest beginning January 1, 20x2. Transaction costs incurred
on the acquisition amounted to ₱12,000. The bonds are classified as held
for trading securities. On December 31, 20x1, the bonds are selling at a
yield rate of 10%. How much is the unrealized gain (loss) on change in fair
value recognized in ABC’s 20x1 profit or loss?
a. 78,336 b. 85,343 c. 83,561 d. 81,143
Investment in equity securities measured at FVOCI

On January 1, 20x1, ABC Co. purchased 10,000 shares of XYZ, Inc. for
₱1,000,000. Commission paid to broker amounted to ₱15,000. Management
made an irrevocable choice to subsequently measure the shares at fair value
through other comprehensive income. On December 31, 20x1, the shares are
quoted at ₱90 per share. On January 3, 20x2, all of the shares were sold at
₱105 per share. Commission paid for the sale amounted to ₱16,000.
loss?
a. 115,000 b. (115,000) c. (85,000) d. 0
15. Howmuch is the unrealized gain (loss) recognized in ABC’s 20x1 other
comprehensive income?
a. 115,000 b. (115,000) c. (85,000) d. 0
16. How much is the realized gain (loss) recognized in ABC’s 20x3 profit or
loss?
a. 19,000 b. 134,000 c. (19,000) d. 49,000
Investment measured at FVOCI - portfolio

ABC Co. purchased the following equity securities on January 1, 20x1.
Transaction costs incurred on the acquisition amounted to ₱3,000.
Fair value – Fair value –
Cost
12/31/x1 12/31/x2
Apple Co. preference shares 30,000 40,000 25,000
Boy Co. ordinary shares 20,000 12,000 10,000
Cat Co. bonds 12,000 25,000 32,000
Totals 62,000 77,000 67,000
On February 2, 20x3, half of the Apple Co. preference shares were sold for
₱14,000 net of transaction costs.
17. How much is the unrealized gain (loss) recognized in ABC’s 20x1 other
a. 15,000 b. 12,000 c. 18,000 d. 0
18. How
much is the unrealized gain (loss) recognized in ABC’s 20x2 other
a. (10,000) b. 10,000 c. 5,000 d. 0
19. How much is the balance of accumulated fair value changes presented in
ABC’s December 31, 20x2 equity?
a. (2,000) b. 5,000 c. 2,000 d. 0
20. How much accumulated unrealized gain (loss) is transferred directly in

equity as a result of the sale in 20x3?
a. (3,226) b. (2,466) c. 4,322 d. 0
Chapter 10
Chapter 10: Multiple choice – Computational (SET B) – (For

classroom instruction purposes)
Financial assets at amortized cost – acquisition at a discount

1. On January 1, 20x1, ABC Co. acquired 8%, ₱1,000,000 bonds for
₱936,603. The principal is due on December 31, 20x4 but interest is due
annually at each year-end. The yield rate on the bonds is 10%. The
investment will be subsequently measured at amortized cost. How much
is the carrying amount of the investment on December 31, 20x2?
a. 1,000,000 b. 950,263 c. 965,289 d. 981,818
Financial assets at amortized cost – acquisition at a premium

On January 1, 20x1, ABC Co. acquired 14%, ₱1,000,000 bonds for
₱1,099,474. The principal is due on December 31, 20x3 but interest is due
annually starting December 31, 20x1. The effective interest rate on the
bonds is 10%. The bonds are classified as investment measured at amortized
cost.
2. How much is the carrying amount of the investment on December 31,

20x2?
a. 1,000,000 b. 1,036,364 c. 1,069,421 d. 1,044,312
3. Assume that half of the investment was sold on January 1, 20x2 for
₱480,000. Transaction costs incurred on the sale amounted to ₱15,000.
How much is the gain (loss) on the sale?
a. (54,711) b. (39,711) c. 16,341 d. (69,711)
Purchased accrued interest

On April 30, 20x1, ABC Co. acquired 10%, ₱100,000 bonds dated January 1,
20x1 at 102.
4. If the purchase price excludes interest, how much is the initial carrying
amount of the investment?
a. 102,000 b. 99,500 c. 98,667 d. 105,333
5. If the purchase price includes interest, how much is the initial carrying
amount of the investment?
a. 102,000 b. 99,500 c. 98,667 d. 105,333
Adjustment to effective interest rate

6. On January 1, 20x1, ABC Co. acquired 10%, ₱1,000,000 bonds at 92.
Commission paid to brokers amounted to ₱9,100. The bonds are classified
as investment measured at amortized cost. Principal is due on December
31, 20x3 but interest payments are made annually starting December 31,
20x1. How much is the carrying amount of the investment on December
31, 20x1?
a. 949,883 b. 958,364 c. 973,368 d. 938,341
Sale of bonds in between interest payment dates

7. On January 1, 20x1, ABC Co. acquired 12%, ₱1,000,000 bonds for
₱1,049,737. The principal is due on January 1, 20x4 but interest is due
annually starting December 31, 20x1. The bonds are classified as
investment measured at amortized cost. The yield rate on the bonds is
10%. On September 30, 20x2, the entire bonds were sold at 110.
Commission paid to the broker amounted to ₱10,000. How much is the
gain (loss) on the sale?
a. (67,686) b. 77,686 c. (77,686) d. (22,314)
Purchase price of bonds - acquisition on interest date

8. ABC Co. is contemplating on investing on 12%, 3-year, ₱1,000,000 bonds.
Principal is due at maturity but interest is due annually at each year-end.
ABC Co. determines that the current market rate on January 1, 20x1 is
14%. How much is the estimated purchase price of the bonds on January
1, 20x1?
a. 953,567 b. 934,123 c. 928,591 d. 961,324
Purchase price of bonds - acquisition in between interest dates
9. Use the same information in immediately preceding problem except that
ABC Co. plans to purchase the bonds on September 30, 20x1. How much
is the estimated total purchase price of the bonds on September 30,
20x1?
a. 963,692 b. 981,273 c. 1,021,341 d. 1,053,692
Amortization of serial bonds

On January 1, 20x1, ABC Co. purchased 10%, ₱3,000,000 bonds for
₱3,105,726. The bonds are classified as financial asset measured at
amortized cost. Principal on the bonds mature as follows:
1,000,
December 31, 20x1
000
1,000,
December 31, 20x2
000
1,000,
December 31, 20x3,
000
3,000,
Total
000
Interest is due annually at each year-end. The effective interest rate on the
bonds is 8%.
10. Howmuch is the current portion of the investment on January 1, 20x1?

a. 1,051,542 b. 1,035,665 c. 2,054,184 d. 1,018,519
11. Howmuch is the unamortized premium on December 31, 20x1?

a. 32,421 b. 58,321 c. 47,819 d. 54,184
Purchase price of serial bonds – acquisition on interest date

12. On January 1, 20x1, ABC Co. contemplates on acquiring 10%, ₱3,000,000
bonds as investment. Principal on the bonds will mature in four semi-
annual installments as follows:
July 1, 20x1 1,200,000
December 31, 20x1 800,000
July 1, 20x2 600,000
December 31, 20x2 400,000
Total 3,000,000
Interest on the outstanding principal balance is also due semi-annually. The

effective rate as of January 1, 20x1 is 8%. How much is the estimated
purchase price of the bonds on January 1, 20x1?
a. 3,057,796 b. 3,313,241 c. 2,845,234 d. 2,984,132
Amortization of zero-coupon bonds
13. On January 1, 20x1, ABC Co. purchased 12%, 3-year, ₱1,000,000 bonds
for ₱1,055,543. Principal and compounded interests on the bonds are due
at maturity. The effective interest rate on the bonds is 10%. How much is
the carrying amount of the investment on December 31, 20x1?
a. 829,989 b. 949,989 c. 1,161,098 d. 1,041,098
Purchase price of zero-coupon bonds – acquisition on interest date

14. On January 1, 20x1, ABC Co. contemplates on acquiring investment in
bonds with ₱1,000,000 face amount and stated rate of 12%. Both the
principal and compounded interest on the bonds are due on January 1,
20x4. The effective interest rate on January 1, 20x1 is 14%. How much is
the estimated purchase price of the bonds on January 1, 20x1?
a. 1,034,187 b. 991,233 c. 849,018 d. 948,286
Amortization of callable bonds

15. On January 1, 20x1, ABC Co. purchased 10%, ₱1,000,000 callable bonds
for ₱966,199. The bonds mature in 4 years’ time. The investment is
classified as financial asset measured at amortized cost. The effective
interest rate is 12%. If the carrying amount of the investment on
December 31, 20x1 is ₱982,143, what is the expected holding period for
the investment?
a. 4 years b. 3 years c. 2 years d. none of these
Trade date and Settlement date accounting - Purchase

On December 29, 20x1, an entity commits itself to purchase a financial asset
for ₱10,000, which is its fair value on commitment date (trade date).
Transaction costs are immaterial. On December 31, 20x1 and on January 4,
20x2 (settlement date) the fair value of the asset is ₱12,000 and ₱15,000,
respectively.
16. Ifthe entity uses the settlement date accounting and that the investment
is classified as held for trading, how much is initially debited to the
investment account?
a. 10,000 b. 12,000 c. 15,000 d. 2,000
17. If the entity uses the trade date accounting and that the investment is
classified as investment in FVOCI, how much is the unrealized gain (loss)
recognized on the investment on December 31, 20x1?
a. 2,000 b. 3,000 c. 5,000 d. 0
Trade date and Settlement date accounting – Sale

On December 29, 20x2 (trade date) Jared Co. enters into a contract to sell a
financial asset for its current fair value of ₱4,040 to Hera Co. The asset was
acquired one year earlier for ₱4,000 and its carrying amount is ₱4,000. On
December 31, 20x2 (financial year-end), the fair value of the asset is ₱4,024.
On January 4, 20x3 (settlement date), the fair value is ₱4,052.
18. Ifthe financial asset sold was classified as held for trading security and
the sale is accounted for under the trade date accounting, the entry on
December 29, 20x2 in Jared’s books will include
a. a credit to “Held for trading securities” for ₱4,000
b. a credit to “Unrealized gain” for ₱40
c. a debit to “Accounts receivable” for ₱4,000.
d. No entry will be made on this date
19. Ifthe financial asset sold was classified as held for trading security and
the sale is accounted for under the settlement date accounting, the entry
on December 29, 20x2 in Jared’s books will include
a. a credit to “Held for trading securities” for ₱4,000
b. a credit to “Unrealized gain” for ₱40
c. a debit to “Accounts receivable” for ₱4,000.
d. No entry will be made on this date
Reclassification - Amortized cost to Held for trading

20. On January 1, 20x1, Dagul Co. acquired 10%, ₱4,000,000 bonds for
₱3,807,853. The principal is due on January 1, 20x4 but interest is due
annually starting December 31, 20x1. The yield rate on the bonds is 12%.
On July, 1 20x1, Dagul Co. changed its business model. It was ascertained
that the investment in bonds at amortized cost should be reclassified to
held for trading securities on reclassification date. The bonds were quoted
at 102, 103 and 104 on July 1, 20x1, December 31, 20x1 and January 1,
20x2, respectively. How much is the gain (loss) on reclassification on
January 1, 20x2?
a. 243,676 b. 255,205 c. 295,205 d. 0
Reclassification from Held for trading to amortized cost

21. On January 1, 20x1, Bianca Co. acquired 10%, ₱4,000,000 bonds for
₱3,807,853. The objective of Bianca’s business model is to sell such bonds
in the near term to take advantage of fluctuations in fair values for short-
term profit taking. Accordingly, the bonds were classified as held for
trading securities. On December 31, 20x1, the bonds are quoted at 98. On
September 30, 20x2, Bianca Co. changed its business model. It was
ascertained that the investment should be reclassified to financial asset
measured at amortized cost on reclassification date. The bonds were
quoted at 101, 103 and 104 on September 30, 20x2, December 31, 20x2
and January 1, 20x3, respectively. How much is the gain (loss) on
reclassification?
a. (120,000) c. 295,204 d. 80,000 d. 40,000
Impairment of financial asset at amortized cost

22. On January 1, 20x1, Vaughn Co. acquired 10%, 3-year, ₱4,000,000 bonds
for ₱3,807,853. The investment is classified as financial asset measured
at amortized cost. The principal is due at maturity but interest is due
annually starting December 31, 20x1. The yield rate on the bonds is 12%.
On December 31, 20x2, the investee entered into a rehabilitation

program. The maturity date of the bonds was extended to January 1,
20x6. It was assessed that interest on the bonds will not be paid. Only the
face amount of the bonds will be paid in lump-sum on January 1, 20x6.
The interest accrued in 20x1 remains unpaid. Vaughn Co. did not
recognize interest in 20x2 because of the loss event. The current market
rate on December 31, 20x2 is 14%. How much is the impairment loss?
a. 1,081,450 b. 1,152,880 c. 1,481,450 d. 1,881,450
Reversal of impairment loss on financial asset measured at

amortized cost
23. On January 1, 20x1, ABC Co. acquired 12%, ₱1,000,000 bonds at 98.
Transaction costs incurred amounted to ₱69,737. The investment is
classified as financial asset measured at amortized cost. Principal is due
on December 31, 20x3 but interest is due annually every December 31.
The yield rate on the bonds adjusted for transaction costs is 10%.
On December 31, 20x1, the investment was assessed as impaired and

impairment loss has been recognized on this date. On December 31,
20x2, it was ascertained that the impairment has decreased. As of this
date, the carrying amount of the investment is ₱998,312 while the
present value of the remaining future cash flows on the investment is
₱1,609,959.
How much is the gain on impairment loss reversal in 20x2?

a. 51,425 b. 22,341 c. 19,870 d. 611,647
Dividend-on
24. On March 31, 20x1, Likkig, Inc. declares cash dividends of ₱40 per share
to shareholders of record on April 15, 20x1 to be distributed on April 30,
20x1. On April 9, 20x1, Ceecee Co. purchases 10,000 Likkig shares for
₱400 per share. The investment is classified as investment in equity
securities measured at FVOCI. How much is the initial carrying amount of
the investment?
a. 4,000,000 b. 4,400,000 c. 3,600,000 d. 3,890,664
Ex-dividend
25. On March 31, 20x1, Czarina, Inc. declares cash dividends of ₱40 per share
to shareholders of record on April 15, 20x1 to be distributed on April 30,
20x1. On April 26, 20x1, Jerome Co. purchases 10,000 Czarina shares for
₱400 per share. The investment is classified as investment in equity
securities measured at FVOCI. How much is the initial carrying amount of
the investment?
a. 4,000,000 b. 4,400,000 c. 3,600,000 d. 3,890,664
Cash dividends
26. Blaire Co. holds 10,000 shares of Bugan, Inc. as investment in equity
securities. On April 1, 20x1, Blaire receives notice of declaration of ₱40
per share cash dividends. On April 20, 20x1, Blair collects the cash
dividends. How much is the dividend income?
a. 400,000 b. 10,000 c. 40 d. 0
Property dividends
27. Andre Co. holds 10,000 shares of Jerome, Inc. as investment in equity
securities. On April 1, 20x1, Andre receives inventory with cost of
₱520,000 and fair value of ₱480,000 as property dividend. How much is
the dividend income?
a. 520,000 b. 480,000 c. 10,000 d. 0
Share dividends on financial assets measured at fair value

28. Devin Co holds 10,000 shares of Eureka, Inc. as investment in equity
securities. On April 1, 20x1, Devin receives shares with fair value of
₱520,000 and aggregate par value of ₱400,000 as share dividend. How
much is the dividend income?
a. 520,000 b. 400,000 c. 120,000 d. 0
Liquidating dividends
29. On April 1, 20x1, Jean Co. received ₱480,000 cash dividends, one-third of
which represents liquidating dividends. How much is the dividend
revenue?
a. 160,000 b. 320,000 c. 80,000 d. 0
Shares in lieu of cash dividend

Alvin Co. holds 10,000 shares of Aron, Inc. as investment in equity securities.
On April 1, 20x1, Alvin Co. received 1,000 shares in lieu of cash dividends of
₱32 per share.
30. Ifthe investment is measured at FVOCI and the fair value of the shares
received is ₱40 per share, how much is the dividend income?
a. 32,000 b. 40,000 c. 10,000 d. 0
31. If the investment is measured at cost, how much is the dividend
income?
a. 32,000 b. 40,000 c. 10,000 d. 0
Cash in lieu of share dividend – Investment at FVOCI

32. Buboy Co. holds 10,000 shares of Angel, Inc. as investment in equity
securities measured at FVOCI. On April 1, 20x1, Buboy Co. received
₱32,000 cash in lieu of 1,000 share dividends. The fair value of the shares
on April 1, 20x1 is ₱40 per share. How much is the net effect of the
dividends received on profit or loss?
a. 8,000 gain b. 8,000 loss c. 80,000 gain d. 0
Cash in lieu of share dividend– Investment at cost

33. Nap Co. holds 10,000 shares of Sheryl, Inc. as investment in equity
securities measured at cost. The investment has a carrying amount of
₱440,000. On April 1, 20x1, Nap Co. received ₱48,000 in lieu of 1,000
share dividends. How much is the net effect of the dividends received on
profit or loss?
a. 8,000 gain b. 8,000 loss c. 80,000 gain d. 0
Accounting for stock rights

34. Scott Co. holds 12,000 shares of Jayvee, Inc. as investment in equity
securities measured at FVOCI. The carrying amount of the investment is
₱400,000. On March 31, 20x1, Scott received 12,000 stock rights to
subscribe to new shares at ₱24 per share for every 4 rights held. On
March 31, 20x1, the shares and the stock rights have fair values of ₱40
and ₱8, respectively. How much is the initial carrying amount of the stock
rights?
a. 66,667 b. 80,000 c. 96,000 d. 0
Theoretical or parity value – Right on

35. On March 31, 20x1, Budoy Co. received 10,000 stock rights from its
investment in equity securities to subscribe to new shares at ₱60 per
share for every 4 rights held. Prior to issuance of stock rights, the shares
were selling at ₱80 per share. How much is the initial carrying amount of
the stock rights?
a. 20,000 c. 50,000
b. 40,000 d. cannot be determined
Ex-right
36. On March 31, 20x1, Bogart Co. received 10,000 stock rights from its
investment in equity securities to subscribe to new shares at ₱60 per
share for every 4 rights held. Immediately after issuance of stock rights,
the shares were selling at ₱80 per share. How much is the initial carrying
amount of the stock rights?
a. 20,000 c. 50,000
b. 40,000 d. cannot be determined
Investment in bonds with detachable warrants

37. Sparky Co. acquired investment in bonds with detachable warrants for
₱1,050,000. The bonds have a face amount of ₱1,000,000. Without the
detachable warrants, the bonds are selling at ₱950,000. The detachable
warrants have a fair value of ₱100,000. The detachable warrants were
subsequently sold at ₱120,000. How much is the gain (loss) on the sale?
a. (20,000) b. 40,000 c. 20,000 d. (40,000)
Chapter 11

Sinking fund – Contribution to the fund

On January 1, 20x1, Kulasa Co. issued ₱4,000,000 bonds due in ten years.
The bond indenture requires Kulasa Co. to set up a sinking fund to be used to
settle the bonds at maturity. Kulasa Co. determined that it can invest in a
fund that earns 12% interest. Relevant future value factors are shown below:
FV of ₱1 @ 12%, n=10…………………………………………………….3.10585
FV of an ordinary annuity of ₱1 @ 12%, n=10……………....17.54874
FV of an annuity due of ₱1 @ 12%, n=10....................................19.65458
1. If Kulasa Co. decides to make a one-time deposit to a sinking fund on

January 1, 20x1, how much is the amount of deposit which would earn
enough interest to make the fund equal to ₱4,000,000 on maturity of the
bonds?
a. 1,287,892 b. 227,937 c. 203,515 d. 202,668
2. If Kulasa Co. decides to make 10 equal annual deposits to a sinking fund

starting on December 31, 20x1, how much is the amount of annual
deposit which would earn enough interest to make the fund equal to
₱4,000,000 on maturity of the bonds?
a. 1,287,892 b. 227,937 c. 203,515 d. 202,668
3. If Kulasa Co. decides to make 10 equal annual deposits to a sinking fund
starting on January 1, 20x1, how much is the amount of annual deposit
which would earn enough interest to make the fund equal to ₱4,000,000
on maturity of the bonds?
a. 1,287,892 b. 227,937 c. 203,515 d. 202,668
Cash surrender value

On January 1, 20x1, Snyder Co. insures the life of its president for
₱4,000,000. Snyder is the beneficiary. Annual insurance premium of ₱80,000
is payable at the beginning of each year. Information on cash surrender value
on the insurance policy is shown below:
Policy year Cash surrender value
Dec. 31, 20x1 -
Dec. 31, 20x2 -
Dec. 31, 20x3 84,000
Dec. 31, 20x4 112,000
Dec. 31, 20x5 160,000
On September 1, 20x4, Snyder Co. received ₱4,000 cash dividend from the
life insurance. On April 1, 20x5, the key employee died and Kulasa Co.
collected the policy on May 1, 20x5.
4. How much is the life insurance expense in 20x4?

a. 80,000 b. 76,000 c. 52,000 d. 48,000
5. How much is the gain on settlement of life insurance?

a. 3,888,000 b. 3,876,000 c. 3,840,000 d. 3,816,000
Chapter 12
Investments in Associates

Equity method – Cost equal to fair value of interest acquired

Use the following information for the next five questions:
On January 1, 20x1, ABASE Co. purchased 20,000 shares of the 100,000 total
outstanding shares of PRAISE, Inc. for ₱4,000,000. PRAISE’s assets and
liabilities approximate their fair values. In 20x1, PRAISE, Inc. reported profit
of ₱12,000,000 and declared and paid cash dividends of ₱800,000.
In 20x2, PRAISE reported loss of ₱8,000,000, declared and issued 10% stock
dividends, and reported gain on property revaluation of ₱2,000,000 and loss
on exchange differences on translation of foreign operations of ₱400,000.
1. How much is the share in profit or loss of the associate in 20x1?

a. 2,240,000 b. 2,400,000 c. 160,000 d. 0
2. How much is the carrying amount of the investment as of December 31,

20x1?
a. 4,000,000 b. 6,240,000 c. 6,400,000 d.
6,560,000
3. How much is the investment income (loss on investment) to be

recognized in profit or loss in 20x2?
a. (1,280,000) b. 400,000 c. (1,600,000) d. 320,000
4. How much is the net share in the other comprehensive income of the
associate in 20x2?
a. 320,000 b. (1,280,000) c. (1,280,000) d. 0

20x2?
a. 4,960,000 b. 4,640,000 c. 4,000,000 d. 0
Equity method – Cost exceeds fair value of interest acquired

On January 1, 20x1, ABET Co. purchased 25% interest in the ordinary shares
of ENCOURAGE, Inc. for ₱8,000,000. ENCOURAGE’s assets and liabilities
approximate their fair values except for inventories with carrying amount of
₱2,000,000 and fair value of ₱400,000 and depreciable asset with carrying
amount of ₱12,000,000 and fair value of ₱20,000,000. The remaining useful
life of the depreciable asset is 10 years. ENCOURAGE’s net assets has a book
value of ₱20,000,000.
On December 31, 20x1, ENCOURAGE reported ₱4,800,000 profit and

declared and paid dividends of ₱2,000,000.
6. How much is the goodwill that will be subsumed in the carrying amount of
the investment?
a. 1,400,000 b. 1,250,000 c. 1,100,000 d. 0
7. How much is the net share in the profit or loss of the associate
(investment income) in 20x1?
a. 1,400,000 b. 1,200,000 c. 1,000,000 d. 0

20x1?
a. 8,000,000 b. 8,500,000 c. 8,700,000 d.
8,900,000
Equity method – Determining percentage of ownership

9. On January 1, 20x1, APPRISE Co. acquired 50,000 newly issued shares of
INFORM, Inc. at ₱40 per share. Before the acquisition, INFORM had
100,000 ordinary shares outstanding. During the year, the associate
reported profit of ₱900,000. How much is the share in the associate’s
profit?
a. 450,000 b. 300,000 c. 333,333 d. 0
Potential voting shares
Use the following for the next two questions:
AFFICIONADO Co. owns 15,000 shares out of the 100,000 outstanding shares
of FAN, Inc. As of year-end, AFFICIONADO holds 20,000 stock rights which
enable AFFICIONADO to acquire additional shares from FAN on a “2 rights for
1 share” basis. The stock rights are exercisable immediately. However,
management does not intend to exercise the stock rights. FAN does not have
any other stock rights outstanding aside from those held by AFFICIONADO.
FAN reports year-end profit of ₱4,000,000 and declares cash dividends of
₱400,000. The investment has a carrying amount of ₱1,200,000 before any
year-end adjustment.
10. How much is AFFICIONADO’s share in profit of associate for the year?
a. 0 b. 60,000 c. 600,000 d. 909,200
11. How much is the carrying amount of the investment as of year-end?

a. 1,200,000 b. 1,800,000 c. 1,740,000 d. 1,849,200
Cumulative preference shares

AUSTERE Co. owns 20% of SEVERE, Inc.’s ordinary shares. SEVERE also has
an outstanding cumulative 6% preference shares of ₱8,000,000. None of
those preference shares is held by AUSTERE. Cumulative preference share
dividends are in arrears for 3 years. SEVERE reported year-end profit of
₱4,000,000 and declared no dividends.
12. How much is AUSTERE Co.’s share in profit or loss of associate?

a. 704,000 b. 800,000 c. 512,000 d. 770,000
13. What if SEVERE Co. declared dividends that pay all of the dividends in
arrears on preference shares, how much is the share in profit or loss of
associate?
a. 704,000 b. 800,000 c. 512,000 d. 770,000
14. What if the preference shares are non-cumulative, how much is the
share in profit or loss of associate?
a. 704,000 b. 800,000 c. 512,000 d. 770,000
15. What if the shares are redeemable preference shares and SEVERE
declared ₱150,000 cash dividends on the redeemable preference shares
during the year, how much is the share in profit or loss of associate?
a. 704,000 b. 800,000 c. 512,000 d. 770,000
Loss of significant influence

16. On January 1, 20x1, ALLEVIATE Co. acquired 30,000 ordinary shares for
₱12,000,000 which represents 30% interest in LESSEN Co.’s net assets. At
the time of acquisition LESSEN’s net assets are fairly revalued at
₱40,000,000. Prior to revaluation, the net assets had a book value of
₱32,000,000. The difference between the revalued amount and carrying
amount is attributable to a building which was credited to revaluation
surplus. The building has a remaining useful life of 10 years with no
residual value. It is LESSEN’s policy to depreciate all tangible depreciable
assets using the straight-line method.
At the end of 20x1, LESSEN reported a profit of ₱4,000,000 and paid cash
dividends of ₱2,400,000. At December 31, 20x1, the shares are selling at
₱400 per share.
On July 1, 20x2, ALLEVIATE sold 60% of its investment in LESSEN at the

prevailing market price of ₱480 per share. LESSEN reported interim profit
of ₱2,000,000 for the six months ended June 30, 20x2. On December 31,
20x2, LESSEN reported total profit of ₱4,800,000 for the year and
declared ₱4,000,000 cash dividend. The shares are quoted at ₱540 per
share at year-end.
If the unsold shares were reclassified to investment in FVOCI, how much is

the total income recognized on the investment in profit or loss in 20x2?
a. 2,640,000 b. 1,632,000 c. 1,968,000 d. 2,160,000
Reclassification adjustment for other comprehensive income

17. AMBULATE Co. owns 30% of WALK, Inc.’s ordinary shares. On July 1,
20x2, AMBULATE Co. sold half of its investment for ₱1,600,000. The
adjusted balances of the related accounts as of July 1, 20x2 immediately
before the sale are:
 Investment in associate ₱4,800,000
 Cumulative share in associate’s exchange differences
on translation of a foreign operation 2,000,000 Cr
The remaining ownership of 15% (30% x 1/2) does not give AMBULATE
significant influence over WALK. How much is the reclassification gain
(loss) on July 1, 20x2?
a. 800,000 b. (800,000) c. 2,000,000 d. 1,000,000
Partial loss of significant influence – Reclassification of OCI

18. CHASTE Co. owns 40% of PURE, Inc.’s ordinary shares. On July 1, 20x2,
CHASTE Co. sold half of its investment for ₱400,000. The adjusted
balances of the related accounts as of July 1, 20x2 immediately before the
sale are:
The remaining 20% ownership (40% x 1/2) still gives CHASTE significant
influence over PURE. How much is the reclassification gain (loss) on July 1,
20x2?
a. 800,000 b. (800,000) c. 2,000,000 d.
1,000,000
Partial loss of significant influence – Reclassification of OCI

19. CIRCUMSPECT Co. owns 40% of CAUTIOUS, Inc.’s ordinary shares. On
July 1, 20x2, CIRCUMSPECT Co. sold three-fourths of its investment for
₱1,000,000. The adjusted balances of the related accounts as of July 1,
20x2 immediately before the sale are as follows:
The remaining ownership interest of 10% (1/4 of 40%) still gives

CIRCUMSPECT significant influence over CAUTIOUS. Many of CAUTIOUS’s
board of directors are appointed by CIRCUMSPECT. How much is the
reclassification gain (loss) on July 1, 20x2?
a. 2,000,000 b. 1,500,000 c. 1,000,000 d. 0
Transfer of other comprehensive income directly in equity

20. SNITCH Co. owns 30% of PILFER, Inc.’s ordinary shares. On July 1, 20x2,
SNITCH Co. sold half of its investment for ₱400,000. The adjusted
balances of the related accounts as of July 1, 20x2 immediately before the
sale are:
 Cumulative share in associate’s unrealized gains and
losses on investments in FVOCI 2,000,000 Cr
The remaining ownership of 15% (30% x 1/2) does not give SNITCH
significant influence over PILFER. How much is the reclassification gain
(loss) recognized in profit or loss on July 1, 20x2?
a. 2,000,000 b. 1,500,000 c. 1,000,000 d. 0
Change to equity method from FVPL – “STEP ACQUISITION”

On January 1, 20x1, POSTULATE Co. acquired 10,000 shares representing a
10% interest in DEMAND, Inc.’s 100,000 outstanding shares for ₱3,200,000.
In 20x1, DEMAND reported profit of ₱20,000,000 and declared and paid
dividends of ₱4,000,000. The investment was initially classified as
investment in held for trading securities measured at FVPL. The fair value of
the shares on December 31, 20x1 is ₱340 per share. As of December 31,
20x1, the investment in held for trading securities has a carrying amount of
₱3,400,000, equal to fair value.
On July 1, 20x2, POSTULATE Co. acquired additional 15,000 shares at ₱280

per share resulting to an increase in ownership interest over DEMAND from
the previous 10% to 25%. The transaction did not give rise to any goodwill or
negative goodwill. In 20x2, DEMAND reported profit of ₱24,000,000, of which
₱16,000,000 were earned in the second half of the year. In addition, DEMAND
declared and paid dividends of ₱4,000,000 on December 31, 20x2. The
DEMAND shares have quoted price of ₱360 per share on December 31, 20x2.
21. How much is the carrying amount of the investment in associate on

July 1, 20x2?
a. 7,000,000 b. 7,600,000 c. 6,600,000 d. 5,800,000
22. How much is the share in the profit of the associate in 20x2?
a. 4,000,000 b. 4,800,000 c. 3,200,000 d. 3,000,000
23. How much is the carrying amount of the investment in associate on
December 31, 20x2?
a. 10,000,000 b. 11,400,000 c. 9,800,000 d. 8,800,000
Downstream sale of inventory

PERPETUAL Co. owns 20% of EVERLASTING, Inc. and uses the equity method
because it has significant influence. In 20x1, PERPETUAL sells inventory to
EVERLASTING for ₱400,000 with a 60% gross profit on the transaction. The
inventory remains unsold during 20x1 and was sold by EVERLASTING to
external parties only in 20x2. PERPETUAL’s income tax rate is 30%.
EVERLASTING reports profit of ₱4,000,000 and ₱4,800,000 on December 31,
20x1 and 20x2, respectively.
24. How much is the share in the profit of associate in 20x1?

a. 560,000 b. 632,000 c. 728,000 d. 800,000
a. 1,128,000 b. 1,200,000 c. 1,032,000 d. 960,000
Upstream sale of inventory

LISTLESS Co. owns 20% of WEAK, Inc. and uses the equity method because it
has significant influence. In 20x1, WEAK sells inventory to LISTLESS for
₱400,000 with a 60% gross profit on the transaction. The inventory remains
unsold during 20x1 and was sold by LISTLESS to external parties only in
20x2. LISTLESS’s income tax rate is 30%. WEAK reports profit of ₱4,000,000
and ₱4,800,000 on December 31, 20x1 and 20x2, respectively.

a. 766,400 b. 752,000 c. 785,600 d. 800,000

a. 960,000 b. 974,400 c. 993,600 d. 1,008,000
Downstream sale of depreciable asset

WOOZY Co. owns 20% of DIZZY, Inc.’s outstanding ordinary shares. On
January 1, 20x1, WOOZY sold an equipment with a carrying amount of
₱400,000 and a remaining useful life of 10 years to DIZZY for ₱480,000. Gain
of ₱80,000 was recorded by WOOZY. Both WOOZY and DIZZY use the straight
line method of depreciation. DIZZY reports profit of ₱4,000,000 and
₱4,800,000 on December 31, 20x1 and 20x2, respectively.

a. 720,000 b. 728,000 c. 785,600 d. 800,000
29. Assuming the sale is an upstream sale, how much is the share in the
profit of associate in 20x1?
a. 968,000 b. 728,000 c. 785,600 d. 800,000
Downstream sale of non-depreciable asset
LUCID Co. owns 20% of CLEAR, Inc.’s outstanding ordinary shares. On
January 1, 20x1, LUCID sold land with a carrying amount of ₱400,000 to
CLEAR for ₱480,000. Gain of ₱80,000 was recorded by LUCID. CLEAR reports
profit of ₱4,000,000 and ₱4,800,000 on December 31, 20x1 and 20x2,
respectively.

a. 720,000 b. 784,000 c. 728,000 d. 800,000
31. Assuming the sale is an upstream sale, how much is the share in the
profit of associate in 20x1?
a. 720,000 b. 784,000 c. 728,000 d. 800,000
Share in losses of associate

SKEPTICAL Co. owns 20% of the ordinary shares of QUESTIONING, Inc. The
records of SKEPTICAL as of December 31, 20x1 show the following
information before any necessary year-end adjustments.
Investment in associate ₱ 800,000

Trade accounts receivable – QUESTIONING 1,200,000
Investment in preference shares – QUESTIONING 400,000
Advances to associate – QUESTIONING 200,000
Loans receivable, secured - QUESTIONING 480,000
QUESTIONING reported losses of ₱5,600,000, ₱2,000,000 and ₱400,000 in

20x1, 20x2 and 20x3, respectively. In 20x3, SKEPTICAL incurred constructive
obligation in favor of QUESTIONING in the amount of ₱480,000 and made
₱320,000 payments on behalf of QUESTIONING. In 20x4, QUESTIONING
reported profit of ₱4,000,000.
32. How much is the share in the loss of the associate in 20x1?
a. 1,120,000 b. 320,000 c. 800,000 d. 280,000
a. 0 b. 320,000 c. 400,000 d. 280,000
a. 0 b. 480,000 c. 320,000 d. 800,000
35. How much is the share in the profit of the associate in 20x4?
a. 600,000 b. 820,000 c. 1,200,000 d. 200,000
Chapter 13
Agriculture
Chapter 13: Multiple Choice – Computational (For classroom
Distinction between Biological asset, Agricultural produce, and
Inventory
The following information pertains to Madagascar Co.
Sheep 500,000 Wool 6,000
Rubber products 10,000 Thread 3,000
Trees in a timber plantation 95,000 Felled trees 8,000
Maize plants 40,000 Clothing 150,000
Lumber 62,000 Milk 9,000
Pigs 200,000 Carcass 7,000
Roasted peanuts 20,000 Sugar 67,000
Cotton plants 10,000 Harvested cotton 13,000
Peanut plants 5,000 Harvested peanuts 140,000
Sugarcane 25,000 Harvested cane 22,000
Tobacco plants 45,000 Picked leaves 3,000
Tea bushes 800,000 Oil palms 300,000
Dairy cattle 1,000,000 Picked grapes 2,000
Fruit trees 600,000 Picked fruit 10,000
Tea 43,000 Grape vines 2,000,000
Rubber trees 300,000 Harvested latex 10,000
Yarn 22,000 Cured tobacco 320,000
Carpet 33,000 Wine 500,000
Logs 45,000 Processed fruit 20,000
Wheat plants 60,000 Palm oil 50,000
Cheese 75,000 Bean plants 20,000
Sausages 88,000 Cured hams 92,000
1. How much is classified as biological assets that are accounted for under
PAS 41 Agriculture?
a. 2,660,000 b. 2,000,000 c. 6,000,000 d. 2,250,000
2. How much is classified as property, plant and equipment that are

accounted for under PAS 16 Property, Plant and Equipment?
a. 4,000,000 b. 4,860,000 c. 4,560,000 d. 3,650,000
3. How much is classified as agricultural produce?

a. 149,000 b. 248,000 c. 290,000 d. 250,000
4. How much is classified as inventory?

a. 1,480,000 b. 1,580,000 c. 1,540,000 d. 1,880,000
Measurement
The following information pertains to a biological asset of PETRIFY STUN Co.
Estimated selling price ₱80,000
Commissions to brokers 4,000
Transport costs 2,800
Levies by commodity exchange 1,200
Transfer taxes and duties 2,000
Advertising costs 800
5. How much is the fair value of the biological asset?

a. 80,000 b. 77,200 c. 70,000 d. 69,200
6. How much is the cost to sell of the biological asset?

a. 7,200 b. 10,000 c. 10,800 d. 12,000
7. How much is the valuation of the biological asset in PETRIFY’s statement

of financial position?
a. 80,000 b. 77,200 c. 70,000 d. 69,200
Access to different active markets

8. Information on a biological asset of INSTIGATE PROVOKE Co. is shown
below:
Historical cost ₱40,000
Quoted price in Active Market #1 112,000
Quoted price in Active Market #2 120,000
Costs to sell in either active market 20,000
Contract price 128,000
INSTIGATE Co. is contemplating on transacting in Active Market #1, which is

the principal market for the biological asset. At what amount would the
biological asset be recognized in the year-end financial statements?
a. 92,000 b. 100,000 c. 112,000 d. 120,000
Loss on initial recognition of biological asset

9. On January 1, 20x1, SPAT QUARREL Co. acquired a biological asset at its
fair value of ₱40,000. Necessary costs incurred on the purchase totaled
₱8,000. It was estimated that if the biological asset is to be sold currently,
costs to sell would amount to ₱2,000. How much is the loss recognized on
January 1, 20x1?
a. 38,000 b. 30,000 c. 10,000 d. 0
Gain on initial recognition of biological asset

10. On August 1, 20x1, a dairy cattle of WOO COURT Co. gave birth to a
calf. The fair value less cost to sell of a newly born calf as of August 1,
20x1 is ₱20,000. Costs incurred to induce procreation such as costs of
artificial insemination, costs of labor and cesarean birth totaled ₱12,000.
How much is the gain recognized on August 1, 20x1?
a. 8,000 b. 12,000 c. 20,000 d. 0
Gain on initial recognition of agricultural produce
11. On April 1, 20x1, HALLOWED SACRED Co. harvested ripe mangoes. The
harvested mangoes have fair value less costs to sell of ₱200,000 on April
1, 20x1. Labor costs incurred in the harvest totaled ₱20,000. The
harvested mangoes are initially recognized at
a. 20,000 b. 180,000 c. 200,000 d. 220,000
Gains or losses on changes in fair value less cost to sell

12. On January 1, 20x1, the biological assets of SUAVE POLISHED Co.
consist of ten 2 year old animals with fair value less cost to sell of ₱40,000
each for a total of ₱400,000.
Transactions during the year include the following:

 One animal aged 2.5 years was purchased on July 1, 20X1 for ₱43,200.
 One animal was born on July 1, 20X1.
 No animals were sold or disposed of during the period.
Per-unit fair values less costs to sell are as follows:

Newborn animal at July 1, 20X1 ₱28,000
2.5 year old animal at July 1, 20X1 43,200
Newborn animal at 31 December 20X1 28,800
0.5 year old animal at 31 December 20X1 32,000
2 year old animal at 31 December 20X1 42,000
2.5 year old animal at 31 December 20X1 44,400
3 year old animal at 31 December 20X1 48,000
How much is the total gain from the change in fair value less costs to sell
during 20x1?
a. 116,800 b. 156,800 c. 113,600 d. 88,800
Biological assets attached to land

13. CANDOR FAIRNESS Co. has the following assets as of December 31,
20x1:
Land held as plantation ₱1,200,000
Trees (planted on the land referred to above) 480,000
The combined market value of the assets is ₱2,000,000 while the market
value of the land is ₱1,280,000, 10% of which is attributable to
improvements on the land. How much is the valuation of the biological
asset?
a. 592,000 b. 720,000 c. 848,000 d. 836,364
Unconditional government grant

14. On January 1, 20x1, LUSTROUS BRIGHT Co. was granted by a local
government a grant of ₱400,000 to aid LUSTROUS in financing the
domestication of ostriches. The ostriches are managed to produce eggs
that are sold to the community. LUSTROUS measures its biological assets
at fair value less cost to sell. No conditions are attached to the grant. How
much is the income from government grant to be recognized in 20x1?
a. 400,000 b. 0 c. either a or b d. neither a nor b
Conditional government grant

15. On December 1, 20x1, MARAUD PLUNDER Co. was granted by a local
government a grant of ₱400,000 to aid MARAUD in planting American
evergreen trees. This certain tree has small yellowish flowers followed by
fleshy pods with many seeds that bears cacao. Cacao beans are dried,
partly fermented, powdered ground and roasted in order to produce a raw
material for the production of chocolates. The grant becomes receivable
when MARAUD acquires a suitable site to plant the trees. As of December
31, 20x1, MARAUDE has yet to comply with the condition. How much is
the income from government grant to be recognized in 20x1?
a. 400,000 b. 0 c. either a or b d. neither a nor b
Conditional government grant

In 20x1, DEADLOCK STANDSTILL Co. was granted by a local government a 3-
hectare land to plant “camote” (sweet potato). The land has a fair value of
₱2,000,000. The grant requires DEADLOCK to farm only within the city limits
for five years. If any of the conditions is breached, DEADLOCK is required to
return the entire grant.
16. How much income from government grant is recognized in 20x1?

a. 2,000,000 b. 0 c. either a or b d. neither a nor b
17. How much income from government grant is recognized in 20x6, after
the 5-year restriction has lapsed?
a. 2,000,000 b. 0 c. either a or b d. neither a nor b
Part of government grant retained due to passage of time

On January 1, 20x1, RESTIVE UNEASY Co. was granted by a local government
a ₱2,000,000 grant to aid RESTIVE Co. in planting “sayote” (chayote). The
grant requires RESTIVE to farm only within the city limits for five years. If any
of the conditions is breached, RESTIVE must return the grant taking into
consideration the portion retained based on passage of time.
18. Assuming no breach of condition, how much income from government

grant is recognized in 20x1?
a. 2,000,000 b. 400,000 c. 0 d. either a or c
19. Assuming no breach of condition, how much income from government
grant is recognized in 20x2?
a. 2,000,000 b. 400,000 c. 0 d. either a or c
Change in FVLCS attributable to price change and physical change

On January 1, 20x1, the biological assets of SUAVE POLISHED Co. consist of
ten 2 year old animals with fair value less cost to sell of ₱40,000 each for a
total of ₱400,000.

 One animal aged 2.5 years was purchased on July 1, 20x1 for ₱43,200.
 One animal was born on July 1, 20x1.
 No animals were sold or disposed of during the period.

Newborn animal at July 1, 20x1 ₱28,000
2.5 year old animal at July 1, 20x1 43,200
Newborn animal at 31 December 20x1 28,800
0.5 year old animal at 31 December 20x1 32,000
2 year old animal at 31 December 20x1 42,000
20. How much is the total gain from the change in fair value less costs to
sell during 20x1?
a. 116,800 b. 156,800 c. 113,600 d. 88,800
21. How much is the gain on change in fair value less costs to sell due to
price change?
a. 22,000 b. 94,800 c. 34,800 d. 122,000
physical change?
a. 22,000 b. 94,800 c. 98,400 d. 122,000
Change in FVLCS attributable to price change and physical change

On January 1, 20x1, the biological assets of GENTEEL POLITE Co. consist of
ten 2-year old animals with fair value less cost to sell of ₱40,000 each for a
total of ₱400,000.

 One animal aged 2.5 years was purchased on July 1, 20X1 for ₱43,200.
 One animal was born on July 1, 20X1.
 Two animals from the January 1, 20x1 biological assets were sold for
₱48,000 each on Sept. 1, 20x1.
 One animal from the January 1, 20x1 biological assets died of “mad cow”
disease on November 1, 20x1.

Newborn animal at July 1, 20x1 ₱28,000
2.5 year old animal at July 1, 20x1 43,200
Newborn animal at 31 December 20x1 28,800
23. How much is the total gain from the change in fair value less costs to
sell during 20x1?
a. 116,800 b. 156,800 c. 113,600 d. 92,800
price change?
a. 22,000 c. 94,800 c. 34,800 d. 16,000
physical change?
a. 22,000 c. 94,800 c. 122,000 d. 76,800
Chapter 14
Property, Plant and Equipment (Part 1)

Acquisition on cash basis
1. LOQUACIOUS TALKATIVE Co. acquired a factory equipment overseas on
cash basis for ₱400,000. Additional costs incurred include the following:
commissions paid to brokers for the purchase of the equipment, ₱20,000;
import duties of ₱100,000; non-refundable purchase taxes of ₱40,000;
freight cost of transferring the equipment to LOQUACIOUS’ premises,
₱4,000; costs of assembling and installing the equipment, ₱8,000; costs
of testing the equipment, ₱6,000; administration and other general
overhead costs, ₱16,800; and advertisement and promotion costs of the
new product to be produced by the equipment, ₱15,200. The samples
generated from testing the equipment were sold at ₱2,000. How much is
the initial cost of the equipment?
a. 578,000 b. 594,800 c. 576,000 d. 592,800
Acquisition on account
2. PRECLUDE PREVENT Co. acquired an equipment for ₱448,000 on account
with a credit term of 2/15, n/30. Any discount is computed based on the
purchase price. The purchase price is inclusive of 12% value added tax
(VAT). PRECLUDE Co. is VAT-registered and any input VAT paid is
refundable through deduction from monthly output VAT remitted to the
Bureau of Internal Revenue (BIR). Additional costs incurred include
₱40,000 cost of training staff who will be operating the equipment and
₱60,000 cost of relocating the equipment to a new location after it was
installed in a location originally intended by management. How much is
the initial cost of the equipment?
a. 400,000 b. 391,040 c. 491,040 d. 392,000
Deferred settlement – with cash price equivalent

3. On January 1, 20x1, SQUAMOUS SCALY Co. purchased furniture with an
installment price of ₱520,000 and a cash price equivalent of ₱400,000 by
paying ₱40,000 down payment and issuing a one-year noninterest-
bearing note of ₱120,000 payable in equal semi-annual installments on
July 1 and December 31, 20x1. How much is the initial cost of the
furniture?
a. 520,000 b. 480,000 c. 400,000 d. 360,000
Deferred settlement – no cash price equivalent

4. On January 1, 20x1, REEDY SLENDER Co. purchased fixtures with an
installment price of ₱520,000 by paying ₱40,000 down payment and
issuing a three-year noninterest bearing note of ₱480,000 payable in
three equal annual installments starting December 31, 20x1. The
prevailing rate for the note as of January 1, 20x1 is 12%. How much is the
initial cost of the fixtures?
a. 520,000 b. 480,000 c. 424,293 d. 360,000
Deferred settlement – no cash price equivalent

5. On January 1, 20x1 ABC Co. acquired a building for ₱380,000, including
₱20,000 non-refundable purchase taxes. The purchase agreement
provided for payment to be made in full on December 31, 20x1. Legal
fees of ₱8,000 were incurred in acquiring the building and paid on January
1, 20x1. An appropriate discount rate is 10%. How much is the initial cost
of the building?
a. 368,000 b. 388,000 c. 424,634 d. 353,456
Classes of PPE
6. ABC Co. had the following assets on December 31, 20x1.
Land used as plant site 50,000
Land and building classified as held for sale 780,000
Building used as office 500,000
Building rented out under operating lease 420,000
Equipment being sold in the ordinary course of business 330,000
Office furniture 24,000
Fixtures and signage 10,000
Machinery 12,000
Automobiles (used by company officers) 350,000
Delivery trucks (used by the shipping department) 420,000
Computers 70,000
Aircraft rented out to various clients 690,000
Dairy cattle (held to produce milk that is sold to customers) 10,000
Harvested milk 3,000
Apple trees (held to bear fruits to that are sold to customers) 6,000
Harvested apples 2,000
How much is the total of assets classified as property, plant and equipment?
a. 2,132,000 b. 2,126,000 c. 2,142,000 d. 2,148,000
Acquisition on lump-sum price (building not razed)

On April 1, 20x1, ESCULENT EDIBLE Co. purchased land and building by
paying ₱40,000,000 and assuming a mortgage of ₱8,000,000. The land and
building have appraised values of ₱20,000,000 and ₱40,000,000,
respectively. The building will be used by ESCULENT Co. as its new office.
Additional costs relating to the purchase include the following:

Legal cost of conveying and registering
title to land ₱32,000
Payment to tenants to vacate premises 36,000
Option paid on the land and building 24,000
Option paid on similar land and building
not acquired 12,000
Broker's fee on the land and building 60,000
Unpaid real estate taxes prior to April 1,
20x1 assumed 120,0
by ESCULENT Co. – assessed on land 00
Real estate taxes after April 1, 20x1 80,000
Repairs and renovation costs before the 160,
building 000
is occupied
200,
Repair costs after the building is occupied 000
7. How much is the cost of the land?

a. 16,192,000 b. 17,292,000 c. 15,492,000 d. 14,592,000
8. How much is the cost of the building?

a. 23,420,000 b. 32,640,000 c. 32,240,000 d. 24,440,000
Acquisition on lump-sum price (building demolished)

On April 1, 20x1, ABC Co. purchased land and building for a lump-sum price
of ₱48,000,000. The existing building will be demolished and a new building
will be constructed.
Additional costs relating to the purchase include the following:

Title guarantee 80,000
Option paid for the land and old building acquired 24,000
Payments to tenants to vacate premises 48,000
Cost of razing the old building (demolition cost) 240,000
Proceeds from sale of salvaged materials 60,000
Fair value of materials salvaged from the
old building and used in the new building 120,000
Construction cost of new building (completed) 34,000,000
9. The land and old building have fair values of ₱20,000,000 and
₱40,000,000, respectively. How much are the allocated costs of the land
and the new building?
Land New building
a. 16,864,000 33,780,000
b. 16,104,000 34,180,000
c. 15,980,000 36,670,000
d. 16,014,000 34,810,000
10. The land and old building have fair values of ₱20,000,000 and
₱40,000,000, respectively. How much is charged as loss on initial
recognition?
a. 48,000 b. 32,000,000 c. 32,048,000 d. 0
11. The old building is unusable and has an insignificant fair value. How much
are the allocated costs of the land and the new building?
Land New building
a. 46,640,000 33,780,000
b. 46,104,000 34,180,000
c. 48,152,000 34,180,000
d. 46,140,000 34,810,000
12. The old building is unusable and has an insignificant fair value. How much
is charged as loss on initial recognition?
a. 48,000 b. 32,000,000 c. 32,048,000 d. 0
Cost of self-constructed asset

LOATH HATE Co. purchased a lot for ₱8,000,000. Immediately after the
purchase, LOATH started construction of a new building on the lot. The
following were additional costs incurred by LOATH Co.
Legal cost of conveying land ₱ 40,000
Special assessment 20,000
Survey costs 60,000
Materials, labor, and overhead costs 22,000,000
Cash discounts on materials purchased not taken 120,000
Clerical and other expenses related to construction 56,000
Excavation costs 400,000
Architectural fees and building permit 240,000
Supervision by management on construction 48,000
Insurance premiums paid for workers 520,000
Payment for claim for injuries not covered by insurance 180,000
Saving on construction 800,000
Cost of changes to plans and specifications due to
560,000
Inefficiencies
Paving of streets and sidewalks (not included in
blueprint) 40,000
Income earned on a vacant space rented as parking
lot during construction 36,000
13. How much is the cost of the land?

a. 8,160,000 b. 8,100,000 c. 8,120,000 d. 8,060,000
14. How much is the cost of the building?

a. 23,144,000 b. 23,184,000 c. 23,264,000 d. 23,096,000
Cost of equipment – with decommissioning cost

15. BAWDY INDECENT Co. acquired an oil rig for ₱400,000,000. Installation
and other necessary costs in bringing the equipment to its intended
condition for use totaled ₱80,000,000. BAWDY is required by law to
dismantle the equipment and restore the site where it is installed after 20
years. The estimated decommissioning and restoration costs are
₱40,000,000. The imputed rate of interest is 12%. How much is the initial
cost of the equipment?
a. 480,000,000 b. 440,000,000 c. 484,146,672 d. 404,146,672
With fair value of asset given up

Fact pattern
FEEBLE Co. exchanged equipment with WEAK, Inc. Pertinent data are shown
below:
FEEBL WEA
E Co. K, Inc.
Equipment 4,000,000 8,000,000
Accumulated 800,000 3,200,000
depreciation
Carrying amount 3,200,000 4,800,000
Fair value 3,800,000 4,400,000
Cash paid by FEEBLE Co. 600,000 600,000
to WEAK, Inc.
16. How much is the initial cost of the equipment received by FEEBLE Co.?
a. 4,400,000 b. 5,000,000 c. 3,800,000 d. 3,400,000
17. How much is the initial cost of the equipment received by WEAK Co.?
a. 3,800,000 b. 4,400,000 c. 5,000,000 d. 3,400,000
18. How much is gain (loss) on exchange recognized by FEEBLE Co.?

a. (600,000) b. 600,000 c. 1,200,000 d. 0
19. How much is gain (loss) on exchange recognized by WEAK Co.?

a. (400,000) b. 400,000 c. (1,000,000) d. 0
Fair value of asset given up is indeterminable

Use the fact pattern in the preceding problem except that FEEBLE Co. cannot
determine the fair value of the equipment given up but is aware that the
equipment that will be received from WEAK, Inc. has a fair value of
₱4,400,000.
a. 4,400,000 b. 5,000,000 c. 3,800,000 d. 3,400,000

a. (600,000) b. 600,000 c. 1,200,000 d. 0
No commercial substance
Use the fact pattern in the preceding problem except that the exchange has
no commercial substance.
a. 4,400,000 b. 5,000,000 c. 3,800,000 d. 3,200,000

a. (600,000) b. 600,000 c. 1,200,000 d. 0
Trade-in
TRANSCEND EXCEED Co. traded in an old machine for a new model. Pertinent
data are as follows:
Old equipment:
Cost 200,000
Accumulated depreciation 80,000
Average published retail value 24,000
New equipment:
List price 380,000
Cash price without trade in 280,000
Cash price with trade in 220,000
24. How much is the initial cost of the equipment received by TRANSCEND
Co.?
a. 244,000 b. 280,000 c. 320,000 d. 184,000
25. How much is gain (loss) on exchange recognized by TRANSCEND Co.?

a. 60,000 b. 160,000 c. (60,000) d. 0
Acquisition through issuance of own equity instrument

Fact pattern
RESILIENT ELASTIC Co. acquired land with fair value of ₱4,000,000 by issuing
10,000 shares with par value of ₱40 per share and quoted price of ₱360 per
share.
26. How much is the initial cost of the equipment received by RESILIENT Co.?
a. 400,000 b. 4,000,000 c. 3,600,000 d. 180,000
27. How much is gain (loss) on exchange recognized by RESILIENT Co.?

a. 3,200,000 b. 400,000 c. (400,000) d. 0
28. Use the fact pattern above except that the fair value of the land is
indeterminable. How much is the initial cost of the equipment received by
RESILIENT Co.?
a. 400,000 b. 4,000,000 c. 3,600,000 d. 180,000
29. How much is gain (loss) on exchange recognized by RESILIENT Co.?

a. 3,200,000 b. 400,000 c. (400,000) d. 0
Acquisition through issuance of bonds payable

Fact pattern
On January 1, 20x1, LABYRINTH MAZE Co. acquired land with fair value of
₱3,800,00 by issuing a 3-year, 10%, ₱4,000,000 bonds. Principal is due on
January 1, 20x4 but interest is due at each year-end. The prevailing market
rate of interest for a similar instrument on January 1, 20x1 is 12%. The
present value of the future cash flows from the bonds discounted at 12% is
₱3,807,852.
30. How much is the initial cost of the equipment received by LABYRINTH Co.?
a. 3,800,000 b. 4,000,000 c. 3,807,852 d. 180,000
31. How much is gain (loss) on exchange recognized by LABYRINTH Co.?

a. 192,148 b. (192,148) c. (200,000) d. 0
32. Use the fact pattern above except that the fair value of the land is
indeterminable. How much is the initial cost of the equipment received by
LABYRINTH Co.?
a. 3,800,000 b. 4,000,000 c. 3,807,852 d. 180,000
33. How much is gain (loss) on exchange recognized by LABYRINTH Co.?

a. 192,148 b. (192,148) c. (200,000) d. 0
Acquisition by donation
GROVEL Co. received donation of equipment from CRAWL, Inc., an unrelated
foreign corporation. The equipment has a fair value of ₱4,000,000.
Necessary costs incurred by GROVEL Co. to bring the asset to its intended
condition for use amounted to ₱40,000.
34. The entry to record the receipt of the donation includes

a. a credit to share premium of ₱4,040,000
b. a credit to share premium of ₱3,960,000
c. a credit to income from donation of ₱4,040,000
d. a credit to income from donation of ₱3,960,000
35. Assuming the donor is a shareholder of GROVEL Co., the entry to record
the receipt of the donation includes
a. a credit to share premium of ₱4,040,000
b. a credit to share premium of ₱3,960,000
c. a credit to income from donation of ₱4,040,000
d. a credit to income from donation of ₱3,960,000
Chapter 15
Property, Plant and Equipment (Part 2)

Depreciation methods
Use the following information for the next four cases:
Fact pattern
On January 1, 20x1, SIMPLETON FOOL Co. acquired equipment with an
estimated useful life of 4 years and a residual value of ₱80,000 for a total
purchase cost of ₱400,000.
Straight line method

Case #1: Use the straight-line method for the next two questions.
1. How much is the depreciation expense in the 2nd year?
a. 100,000 b. 80,000 c. 200,000 d. 160,000
2. How much is the accumulated depreciation on December 31, 20x2?

a. 100,000 b. 80,000 c. 200,000 d. 160,000
Sum-of-the-years’ digits (SYD) method

Case #2: Use the sum-of-the-years’ digits (SYD) method for the next two
questions.
a. 120,000 b. 96,000 c. 128,000 d. 224,000

a. 120,000 b. 96,000 c. 128,000 d. 224,000
Double declining balance method

Case #3: Use the double declining balance method for the next two
questions.
a. 120,000 b. 100,000 c. 128,000 d. 224,000
a. 120,000 b. 96,000 c. 160,000 d. 300,000
Units of production method (Activity method or Variable-charge

method)
Case #4: Use the units of production method for the next two questions:
The equipment has an expected total output of 160,000 units and an
expected total input of 40,000 hours.
Information on actual operations is presented below:

Ye Units Manufacturing
ar produced hours
20x
1 60,000 16,000
20x
2 30,000 8,000
20x
3 45,000 12,000
20x
4 25,000 4,000
160,000 40,000
7. If SIMPLETON Co. uses the output method, how much is the depreciation
expense in the 2nd year?
a. 128,000 b. 96,000 c. 60,000 d. 64,000
8. If SIMPLETON Co. uses the output method, how much is the accumulated
depreciation on December 31, 20x2?
a. 120,000 b. 180,000 c. 192,000 d. 256,000
9. If SIMPLETON Co. uses the input method, how much is the depreciation
expense in the 2nd year?
a. 64,000 b. 96,000 c. 60,000 d. 64,000
10. If SIMPLETON Co. uses the input method, how much is the accumulated
depreciation on December 31, 20x2?
a. 120,000 b. 210,000 c. 192,000 d. 256,000
Increasing depreciation charge under double declining balance

method
11. The following information pertains to an equipment owned by RABBLE
MOB Co.:
Cost 800,000
Useful life 5 years
Double declining rate (2/ 5 year life) 40%
Residual value None
How much is the depreciation in 20x5?

a. 41,472 b. 103,680 c. 86,400 d. 0
Partial year depreciation

DEPLORABLE BAD Co. acquired a machine on September 21, 20x1 for a total
cost of ₱160,000. The machine was estimated to have a useful life of 4 years
and a salvage value of ₱10,000.
12. How much is the depreciation expense in 20x2 under the straight-line
method?
a. 37,500 b. 93,750 c. 36,400 d. 35,000
13. How much is the depreciation expense in 20x2 under the sum-of-years’
digits method?
a. 45,000 b. 11,250 c. 56,250 d. 57,250
14. How much is the depreciation expense in 20x2 under the double
declining balance method?
a. 70,000 b. 60,000 c. 10,000 d. 0
Composite method
On January 1, 20x1, DEVIOUS CROOKED Co. purchased the following:
Cost Residual value
Useful life
Machine tools 80,000 4,000 3 years
Meters costing 64,000 2,000 5 years
Returnable containers 120,000 - 6 years
15. What is the composite life?

a. 5.40 b. 5 c. 4.50 d. 4.71
16. What is the composite rate?

a. 21.87% b. 22.21% c. 95.45% d. 4.50%
17. How much is the depreciation expense in 20x1?

a. 57,733 b. 56,000 c. 58,667 d. 59,8774
18. During 20x3, machine tools with original cost of ₱20,000 and residual
value of ₱2,000 were sold for ₱6,000. How much is the gain (loss) on the
sale?
a. (345) b. 430 c. (667) d. 0
Retirement and Replacement methods
The small tools account of ATROCIOUS CRUEL Co. has a balance of ₱600,000
as of January 1, 20x1. Movements in this account during the year are as
follows:
Feb. April Sept. Nov.

Cost of newly acquired
small
tools 40,000 - 120,000 88,000
Cost of old small tools
retired 24,000 48,000 - 72,000
Proceeds from sale of old 3,2
small tools 2,000 00 - 4,000
19. Assuming ATROCIOUS Co. uses the retirement method, how much is
the depreciation expense in 20x1?
a. 134,800 b. 166,800 c. 144,000 d. 118,800
20. Assuming ATROCIOUS Co. uses the replacement method, how much is
a. 134,800 b. 166,800 c. 144,000 d. 118,800
Inventory method
21. The small tools account of AUGUST MAJESTIC Co. has a balance of
₱600,000 as of January 1, 20x1. Acquisitions of small tools during the
period totaled ₱240,000 and proceeds from sale of small tools retired
and/or replaced totaled ₱100,000. The annual asset count on December
31, 20x1 revealed a balance of small tools of ₱440,000. How much is the
depreciation expense under the inventory method?
a. 400,000 b. 300,000 c. 240,000 d. 140,000
Revenue method
22. On January 1, 20x1, COCKY ARROGANT Co. acquired an equipment
costing ₱4,000,000. The equipment will be used to reproduce a gaming
software which is expected to be marketed for 3 years. The equipment is
expected to be used in producing products over the next two years, after
which, the equipment will be disposed of at a negligible amount.
Estimated revenues from the software are as follows:

Yea Estimated
r revenues
20
x1 120,000,000
20
x2 80,000,000
20
x3 40,000,000
Tot
al 240,000,000
The actual revenue earned in 20x1 is ₱180,000,000. Depreciation expense in

20x1 is most likely equal to
a. 3,000,000 b. 2,000,000 c. 2,977,667 d. 333,333
Leasehold improvements
On January 1, 20x1, DIMINUTIVE SMALL Co. signed a ten-year lease for office
space. DIMINUTIVE has the option to renew the lease for an additional five-
year period on or before January 1, 2x10. During the first half of January
20x2, DIMINUTIVE Co. incurred the following costs:
- ₱3,600,000 for general improvements to the leased premises with an
estimated useful life of ten years.
- ₱400,000 for office furniture and equipment with an estimated useful life
of ten years.
- ₱800,000 for movable assembly line equipment with useful life of 5 years.
23. At the time the leasehold improvement were finished, DIMINUTIVE Co.
is uncertain as to the exercise of the renewal option. How much is the
20x2 depreciation expense on the leasehold improvements?
a. 400,000 b. 360,000 c. 533,333 d. 488,889
24. Assume that in DIMINUTIVE Co. is certain that it will exercise the
renewal option. How much is the 20x2 depreciation expense on the
leasehold improvements?
a. 400,000 b. 360,000 c. 480,000 d. 440,000
Change in depreciation method (from DDB to SL)

25. On January 1, 20x1, DISCORDANT DISAGREEING Co. acquired
machinery for a total cost of ₱80,000,000. The machinery is depreciated
using the double declining balance method over a period of 10 years. On
January 1, 20x4, DISCORDANT Co. changed its depreciation method to
straight line method. How much is the depreciation expense in 20x4?
a. 5,815,428 b. 7,314,286 c. 6,581,342 d. 5,851,429
Change in depreciation method (from SYD to DDB)

26. On January 1, 20x1, KNAVE RASCAL Co. acquired machinery for a total
cost of ₱80,000,000. The machinery is depreciated using the SYD method
over a period of 10 years. On January 1, 20x4, KNAVE Co. changed its
depreciation method to double declining balance method. How much is
a. 40,727,272 b. 11,635,782 c. 12,556,780 d. 13,556,702
Change in useful life and residual value

27. On January 1, 20x1, SMUTTY OBSCENE Co. acquired machinery for a
total cost of ₱80,000,000 and estimated residual value of ₱8,000,000. The
machinery is depreciated using the straight line method over a period of
10 years. On January 1, 20x4, SMUTTY Co. revised the total useful life of
the asset to 15 years from acquisition date and the residual value to
₱10,400,000. How much is the depreciation expense in 20x4?
a. 4,000,000 b. 3,899,567 c. 4,010,250 d. 4,129,335
Improvements and Replacements

ENTREAT Co. acquired an aircraft from BEG, Inc. on January 1, 20x1 for a
total cost of ₱24,000,000. The aircraft is estimated to have a useful life of 10
years. ENTREAT Co. uses the straight line method of depreciation. On January
1, 20x5, a major part of the equipment was replaced for a total cost of
₱3,200,000.
28. Assuming ENTREAT Co. determined that the cost of the replaced part is
₱2,000,000, how much is the loss on replacement?
a. 1,920,000 b. 1,200,000 c. 2,000,000 b. 0
29. Assuming it is impracticable to determine the cost of the replaced part,

how much is the loss on replacement?
a. 1,920,000 b. 1,200,000 c. 2,000,000 b. 0
Revaluation: Appraised value

30. On December 31, 20x1, the building of HISTRIONAL THEATRICAL Co.
with a historical cost of ₱80,000,000, accumulated depreciation of
₱20,000,000, and an estimated useful life of 20 years has been assessed
by an external valuer to have an appraised value of ₱100,000,000. How
much is the revaluation surplus?
a. 40,000,000 b. 28,000,000 c. 20,000,000 d. 10,000,000
Depreciated replacement cost (without residual value)

31. On December 31, 20x1, the building of SWIMMY UNSTEADY Co. with a
historical cost of ₱80,000,000, accumulated depreciation of ₱20,000,000,
and an estimated useful life of 20 years has been estimated to have a
replacement cost of ₱140,000,000. How much is the revaluation surplus?
a. 31,500,000 b. 36,778,750 c. 45,000,000 d. 60,000,000
Depreciated replacement cost (with residual value)

32. On December 31, 20x1, the building of LITHE FLEXIBLE Co. was
revalued. Information on revaluation date is shown below:
Cost Replacement
cost
Building 72,000,000 144,000,000
Accumulated depreciation 16,000,000
Residual value 8,000,000 8,000,000
Remaining useful life 10 years 12 years
How much is the revaluation surplus?

a. 45,000,000 b. 54,000,000 c. 36,000,000 d. 46,333,333
Methods of recording revaluation surplus – Replacement cost

On December 31, 20x1, the building of SUBTERFUGE DECEPTION Co. with a
historical cost of ₱80,000,000, accumulated depreciation of ₱20,000,000,
and an estimated useful life of 20 years has been estimated to have a
replacement cost of ₱140,000,000. Income tax rate is 30%.
33. How much is the revaluation surplus?

a. 31,500,000 b. 36,778,750 c. 45,000,000 d.
60,000,000
34. Assuming SUBTERFUGE Co. uses the proportional method, the entry to
record the revaluation includes:
a. a debit to accumulated depreciation for ₱15,000,000
b. a debit to accumulated depreciation for ₱20,000,000
c. a debit to building for ₱25,000,000
d. a debit to building for ₱60,000,000
35. Assuming SUBTERFUGE Co. uses the elimination method, the entry to
record the revaluation includes:
a. a credit to accumulated depreciation for ₱20,000,000
b. a debit to building for ₱25,000,000
c. a debit to accumulated depreciation for ₱15,000,000
d. a debit to deferred tax for ₱13,500,000
Methods of recording revaluation – Appraised value

On December 31, 20x1, the building of ABC Co. with a historical cost of
₱320,000,000, accumulated depreciation of ₱160,000,000, and an estimated
useful life of 20 years has been assessed by an external valuer to have an
appraised value of ₱200,000,000. Income tax rate is 30%
36. The entry under the proportional method to record the revaluation
includes
b. a credit to accumulated depreciation for ₱20,000,000
d. a credit to building for ₱80,000,000
37. The entry under the proportional method to record the revaluation
includes
b. a debit to accumulated depreciation for ₱20,000,000
d. a credit to building for ₱80,000,000
Revaluation: Change in useful life

On January 1, 20x1, the building of PRODIGIOUS EXTRAORDINARY Co. with a
historical cost of ₱80,000,000 purchased 5 years ago with an estimated
useful life of 20 years has been estimated to have a replacement cost of
₱140,000,000. The building is estimated to have a remaining useful life of 25
years as of January 1, 20x1. Depreciation is computed using the straight line
method. Income tax rate is 30%.

a. 31,500,000 b. 45,000,000 c. 37,500,000 d.
36,788,366

a. 2,940,000 b. 4,200,000 c. 3,200,000 d.
3,333,976
Revaluation: Change in residual value and useful life

On December 31, 20x1, the building of COLLOQUY CONVERSATION Co. was
revalued. Information on revaluation date is shown below:
Cost Replacement cost
Building 72,000,000 144,000,000
Residual value 8,000,000 16,000,000
Remaining useful life 10 years 12 years

a. 45,000,000 b. 31,500,000 c. 36,788,366 d.
51,428,571

a. 3,333,976 b. 4,200,000 c. 7,619,048 d.
8,990,344
Revaluation of non-depreciable asset

42. On December 31, 20x1, the land of FARCICAL ABSURD Co. with a
historical cost of ₱80,000,000 has been appraised at ₱140,000,000.
Income tax rate applicable to profits is 30% and the tax rate applicable to
profits made on the sale of property is 6%. How much is the revaluation
surplus?
a. 42,000,000 b. 56,400,000 c. 45,000,000 d.
51,428,572
Revaluation decrease representing impairment loss

43. On December 31, 20x1, the land of ATTAINDER DISHONOR Co. with an
original cost of ₱32,000,000 was appraised at ₱48,000,000. On December
20x4, the land was appraised at ₱28,000,000. How much is the
impairment loss in 20x4?
a. 20,000,000 b. 4,000,000 c. 2,800,000 d. 0
Revaluation increase representing reversal of impairment loss

44. On December 31, 20x1, the land of CONJUNCTION UNION Co. with an
original cost of ₱40,000,000 was revalued at ₱28,000,000. This was the
first revaluation made on the land since it was purchased 2 years ago. On
December 20x4, the building was appraised at ₱48,000,000. Ignore
income taxes. How much is the gain on impairment reversal in 20x4?
a. 8,000,000 b. 20,000,000 c. 12,000,000 d. 0
Sale of item of PPE measured under cost model

45. FORTITUDE ENDURANCE Co. purchased equipment on August 14, 20x1
for a total cost of ₱400,000. The equipment has an estimated useful life of
10 years and residual value of ₱80,000. It is the policy of FORTITUDE Co.
to provide full-year depreciation in the year of acquisition and none in the
year of disposal. On May 12, 20x4, the equipment was sold for ₱120,000.
Additional costs incurred on the sale amounted to ₱8,000. How much is
the gain (loss) on the sale?
a. (184,000) b. 184,000 c. 192,000 d. (192,000)
Sale of item of PPE measured under revaluation model

46. OBDURATE STUBBORN Co. disposed of a machinery on December 31,
20x1 for a total net disposal proceeds of ₱6,800,000. Information of the
machinery as of December 31, 20x1 is as follows:
Cost at revalued amount ₱ 9,200,000
Revaluation surplus (presented in equity) 4,800,000
How much is the gain (loss) on the sale?

a. 5,600,000 b. 4,000,000 c. (800,000) d. 800,000
Chapter 16
Depletion of Mineral Resources

Recognition of depletion in the financial statements

In 20x1, OBSTREPEROUS NOISY Mining Corp. acquired the right to use 1,000
acres of land to mine for gold. The lease cost is ₱200,000,000, and the
related exploration costs on the property amounted to ₱40,000,000. It is the
policy of OBSTREPEROUS Mining Corp. to capitalize all costs of exploration
and evaluation of mineral resources. Intangible development costs for
drilling, tunnels, shafts, and wells incurred before opening the mine
amounted to ₱340,00,000. At the end of the mine’s economic useful life,
OBSTREPEROUS Mining Corp. is required by legislation to restore the site.
Estimated restoration costs have a fair value of ₱20,000,000.
OBSTREPEROUS Mining Corp. estimates that the mine will provide
approximately 100,000,000 ounces of gold. Actual ounce of gold mined in
20x2 totaled 300,000 ounces.
1. How much is the depletion charge in 20x2?

a. 1,740,000 b. 1,800,000 c. 165,000 d. 150,000
2. Assuming that of the 300,000 ounces of gold extracted in 20x2, 280,000

ounces were sold and 20,000 ounces remain in inventory. How much
depletion is recognized in the (a) statement of financial position and (b)
statement of profit or loss and other comprehensive income?
Statement of financial position Statement of profit or loss
a. 1,680,000 120,000
b. 116,000 1,624,000
c. 11,000 154,000
d. 120,000 1,680,000
Changes in estimates
In 20x1, BUCOLIC RURAL Co. acquired land for a total cost of ₱40,000,000 to
be used to quarry marble, limestone, and construction aggregates. Costs
incurred to obtain legal right to explore the property amounted to
₱8,000,000. Expenditures incurred in the exploration for and evaluation of
mineral resources before technical feasibility and commercial viability of
extracting a mineral resource are demonstrable totaled ₱12,000,000.
Intangible development costs of drilling, tunnels, shafts, and wells before the
actual production totaled ₱20,000,000. BUCOLIC Co. estimates that total
recoverable reserves are 100,000,000 units. Furthermore, BUCOLIC Co.
expects to sell the land for ₱4,800,000 after resource is depleted. However,
no buyer will pay this price unless the mine is drained, filled and leveled, a
process that will cost ₱800,000. It is BUCOLIC’s policy to capitalize all
exploration costs.
Actual units quarried in 20x1 through 20x4 totaled 30,000,000 units. On

January 1, 20x5, BUCOLIC Co. estimated that remaining recoverable reserves
is only 25,000,000 units and after the reserves are exhausted, the land will
be sold for ₱3,200,000. Costs of disposal are estimated at ₱1,200,000. Actual
units quarried in 20x5 totaled 6,000,000 units.
3. How much is the depletion charge in 20x5?

a. 13,284,000 b. 13,480,000 c. 13,280,000 d.
13,248,000
4. What is the carrying amount of the wasting asset on December 31, 20x5?
a. 43,852,000 b. 44,272,000 c. 42,720,00 d.
43,952,000
5. In 20x1, INNOCUOUS HARMLESS Co. acquired land to be used to mine

coal. Total costs of acquisition, exploration, and intangible development
amounted to ₱40,000,000. It was estimated that total recoverable
reserves is 50,000,000 units. Total units extracted from 20x1 through
20x4 totaled 30,000,000 units. In 20x5, after extracting 5,000,000 units, it
was estimated that the remaining recoverable reserves is 20,000,000
units. How much is the depletion charge in 20x5?
a. 3,200,000 b. 3,333,333 c. 3,266,667 d.
3,400,000
Immovable tangible equipment with shorter life

In 20x1, RIBALD OFFENSIVE Co. purchased real estate containing copper for
a total cost of ₱64,000,000. Exploration costs amounted to ₱4,000,000 and
intangible development costs of drilling, tunnels, shafts, and wells totaled
₱16,000,000. Movable tangible equipment costs for heavy equipment totaled
₱32,000,000 and immovable tangible equipment costs for drilling rig
foundation totaled ₱24,000,000.
Estimated recoverable reserves from the mine are 2,100,000 units. It is

estimated that 300,000 units will be extracted each year. The heavy
equipment and the drilling rig foundation have estimated useful lives of 10
years and 5 years, respectively. Actual units extracted during 20x1 are
320,000 units.
6. How much is the 20x1 depreciation on the immovable tangible
equipment?
a. 4,800,000 b. 3,428,571 c. 4,571,429 d.
3,200,000
7. How much is the 20x1 depletion of the natural resource?

a. 12,800,000 b. 16,428,571 c. 15,229,879 d.
14,679,097
8. How much is the 20x1 depreciation on the movable tangible equipment?

a. 3,428,571 b. 3,200,000 c. 4,800,000 d.
4,571,429
Immovable tangible equipment with longer life

In 20x1, DIAPHANOUS TRANSPARENT Co. purchased real estate containing
copper for a total cost of ₱64,000,000. Exploration costs amounted to
₱4,000,000 and intangible development costs of drilling, tunnels, shafts, and
wells totaled ₱16,000,000. Movable tangible equipment costs for heavy
equipment totaled ₱32,000,000 and immovable tangible equipment costs for
drilling rig foundation totaled ₱24,000,000.
Estimated recoverable reserves from the mine are 2,100,000 units. It is

estimated that 300,000 units will be extracted each year. The heavy
equipment and the drilling rig foundation have estimated useful lives of 20
years and 10 years, respectively. Actual units extracted during 20x1 are
320,000 units.
9. How much is the depreciation on the immovable tangible equipment?

a. 3,657,600 b. 3,480,000 c. 3,460,800 d.
3,260,800
10. How much is the depletion on the natural resource?

a. 12,832,677 b. 11,988,322 c. 13,489,00 d.
12,800,000
11. How much is the depreciation on the movable tangible equipment?

a. 1,573,290 b. 1,620,000 c. 1,613,890 d.
1,600,000
No production in a period
In 20x1, THRALL SLAVE Co. purchased real estate containing copper for a
total cost of ₱40,000,000. Immovable tangible equipment costs for drilling rig
foundation totaled ₱20,000,000. Estimated recoverable reserves from the
mine are 1,000,000 units. It is estimated that 100,000 units will be extracted
each year; therefore, the life of the mine in years is 10 years. The drilling rig
foundation has an estimated useful life of 15 years.
Actual units extracted from 20x1 through 20x3 totaled 340,000 units. No
units were extracted during 20x4 due to an employee strike. Extraction
resumed in 20x5 and total units extracted during that year was 80,000 units.
12. How much is the depreciation charge on the immovable tangible

equipment in 20x4?
a. 980,967 b. 1,090,800 c. 1,100,000 d.
1,200,000
13. How much is depreciation charge on the immovable tangible

equipment in 20x5?
a. 1,400,000 b. 1,466,667 c. 1,500,000 d.
1,600,000
Liquidating dividends
14. MYNHEER MISTER Co. has the following balances in its accounts as of
December 31, 20x1:
Resource deposit – coal mine 40,000,000
Accumulated depletion 16,000,000
Ordinary share capital 80,000,000
Capital liquidated 8,000,000
Unappropriated retained earnings 20,000,000
Inventory (600,000 units) 28,000,000
Depletion rate per unit 6.00 per unit
How much is the maximum amount that can be declared as dividends?

a. 24,400,000 b. 32,400,000 c. 28,000,000 d.
31,600,000
Restoration and decommissioning costs – Wasting asset

In 20x1, MULIEBRITY FEMINITY Mining Corp. acquired the right to use 1,000
acres of land to mine for gold. The lease cost is ₱200,000,000, and the total
costs of exploration and intangible development costs are ₱40,000,000.
MULIEBRITY is required by environmental laws to restore the site after 5
years. MULIEBRITY’s best estimate for the restoration cost is ₱20,000,000
and current market-based discount rate is 12%. Total deposits expected to be
extracted is 13,000,000 ounces. Actual ounces extracted in 20x1 and 20x2
are 2,700,000 and 2,600,000, respectively.
15. How much is the initial carrying amount of the mineral deposit?
a. 24,143,840 b. 251,348,540 c. 251,764,540 d.
256,340,540
16. How much is the depletion in 20x1?
a. 52,191,000 b. 52,260,000 c. 53,140,000 d.
54,164,000
17. How much is the interest expense in 20x2?

a. 1,361,824 b. 1,198,406 c. 1,421,266 d.
1,525,244
Restoration and decommissioning costs – Equipment

On January 1, 20x1, DEMULCENT EMBARRASSING Co. acquired an oil rig for
₱400,000,000. Installation and other necessary costs in bringing the
equipment to its intended condition for use totaled ₱80,000,000.
DEMULCENT Co. uses the straight line depreciation method. DEMULCENT is
required by law to dismantle the equipment and restore the site where it is
installed after 20 years, the end of the equipment’s useful life. The estimated
decommissioning and restoration costs are ₱40,000,000. The imputed rate of
interest is 12%.
18. How much is the initial cost of the equipment?
a. 475,853,328 b. 480,000,000 c. 400,000,000 d.
484,146,672

a. 23,792,666 b. 24,000,000 c. 20,000,000 d.
24,207,332

a. 248,800 b. 437,889 c. 557,312 d. 665,443
Estimating fair value of ARO

On January 1, 20x1, VERITY FIRMNESS Mining Company purchased a quartz
mine for ₱40,000,000 that it intends to work for the next 10 years. According
to environmental laws, VERITY must restore the mine site to its original
natural prairie state after it ceases mining operations at the site.
There is no active market for retirement obligations such as these but VERITY
has been able to develop cash flow estimates based on its prior experience
in mining-site restoration. It will take 3 years to restore the mine site when
mining operations cease in 10 years. Each estimated cash outflow reflects an
annual payment at the end of each year of the 3-year restoration period. The
current market-based rate is 12%.
VERITY made the following estimates of future cash flows for the restoration
cost:
Restoration estimated cash outflow Probability assessment
8,000,000 10%
14,000,000 15%
16,000,000 50%
16,800,000 25%
100%
21. How much is the initial cost of the mine?

a. 51,677,212 b. 51,879,233 c. 51,986,412 d.
52,108,922

a. 1,233,114 b. 1,569,416 c. 1,667,892 d.
1,678,612
Changes in estimates of Restoration costs

On January 1, 20x1, PRECIPITOUS STEEP Co. acquired a quarry for
₱400,000,000. PRECIPITOUS Co. is required by law to restore the site after 5
years. The estimated restoration costs are ₱40,000,000. The imputed rate of
interest is 12%.
On January 1, 20x4, PRECIPITOUS Co. estimated that the restoration costs

should be ₱48,000,000 and the imputed rate of interest is 10%.

a. 2,723,648 b. 2,396,811 c. 3,050,488 d.
3,155,341
24. The entry on January 1, 20x4 to adjust Asset retirement obligation

(ARO) includes
a. debit to retained earnings for ₱7,781,664
b. debit to ARO for ₱7,781,664
c. debit to “resource deposit – quarry” for ₱7,781,664
d. credit to “resource deposit – quarry” for ₱7,781,664
Chapter 17
Government Grants

Grant related to asset (Gross and Net presentation)
On January 1, 20x1, CHIDE SCOLD Co. received cash of ₱16,000,000 from a
local government to be used in constructing a building. The construction was
completed on December 31, 20x1 for a total cost of ₱40,000,000. The
building will be depreciated over 20 years.
1. If CHIDE Co. uses the gross presentation of government grants, how much
is the carrying amount of the deferred income from the government grant
on December 31, 20x5?
a. 15,200,000 b. 12,800,000 c. 12,000,000 d. 0
2. If CHIDE Co. uses the net presentation of government grants, how much is
the carrying amount of the deferred income from the government grant
on December 31, 20x5?
a. 15,200,000 b. 12,800,000 c. 12,000,000 d. 0
3. If CHIDE Co. uses the gross presentation of government grants, how much
is the carrying amount of the building on December 31, 20x1?
a. 40,000,000 b. 24,000,000 c. 38,000,000 d.
22,800,000
4. If CHIDE Co. uses the net presentation of government grants, how much is
the carrying amount of the building on December 31, 20x1?
a. 40,000,000 b. 24,000,000 c. 38,000,000 d.
22,800,000
Grant related to income (Gross and Net presentation)

On January 1, 20x1, MACABRE HORRIBLE Co. received cash of ₱16,000,000
from a local government to be used to defray safety and other hazard-
related costs over a five-year period. It was estimated that such costs will
total ₱32,000,000 over the next five years. In 20x1 and 20x2, actual costs of
safety and other hazard-related costs amounted to ₱4,000,000 and
₱4,800,000, respectively.
5. If MACABRE Co. uses the gross presentation of government grants, how

much is the carrying amount of the deferred income from the government
grant on December 31, 20x1?
a. 14,000,000 b. 12,800,000 c. 12,000,000 d. 0
6. If MACABRE Co. uses the net presentation of government grants, how

much is the carrying amount of the deferred income from the government
grant on December 31, 20x1?
a. 14,000,000 b. 12,800,000 c. 12,000,000 d. 0
7. If MACABRE Co. uses the gross presentation of government grants, how
much safety expense is recognized in 20x1?
a. 4,000,000 b. 2,400,000 c. 2,000,000 d. 0
8. If MACABRE Co. uses the net presentation of government grants, how

much is safety expense is recognized in 20x1?
a. 4,000,000 b. 2,400,000 c. 2,000,000 d. 0
Grant related to non-depreciable asset

9. On January 1, 20x1, UNFLEDGED IMMATURE Co. received land from the
government with the condition that a factory building should be
constructed on it. The fair value of the land was estimated at
₱20,000,000. The construction of the factory building was completed on
January 1, 20x2 for a total cost of ₱80,000,000. The building will be
depreciated using SYD over a useful life of 10 years. The estimated
residual value is ₱8,000,000. CHIDE Co. uses the gross presentation of
government grants. How much is the carrying amount of the deferred
income from the government grant on December 31, 20x2?
a. 20,000,000 b. 16,363,636 c. 13,090,908 d. 0
Compensation for losses incurred (Financial aid)

10. On January 1, 20x1, various properties of ABOMINATE DISLIKE Co. were
destroyed due to flood. It was estimated that the cost of the destroyed
properties amounted to ₱60,000,000. On July 1, 20x1, ABOMINATE
received ₱8,000,000 from the government as a financial aid. ABOMINATE
Co. estimates that it would take about 5 years before it can recover from
the loss.
How much is the income from government grant recognized in 20x1?
a. 8,000,000 b. 1,600,000 c. (52,000,000) d. 0
Forgivable loans
11. On January 1, 20x1, because of an exemplary accomplishment that
brought international recognition to the community, the government
waived the repayment of CONGEAL TO THICKEN Co.’s loan payable with a
carrying amount of ₱800,000 and remaining term of 4 years. How much
income from government grant is recognized in 20x1?
a. 800,000 b. 200,000 c. 400,000 d. 0
Loans at below market-interest rate

12. On January 1, 20x1, BREEZY LIVERLY Co. was granted by the
government a 3-year, zero-interest loan of ₱4,000,000 payable on
December 31, 20x3. Prevailing interest rate for this type of loan is 10%.
How much is the income from government grant recognized in 20x1?
a. 3,005,260 b. 400,000 c. 300,526 d. 0
Repayment of grant related to income

13. On January 1, 20x1, SIBILATE HISS Co. received cash of ₱16,000,000
from the government to be used to defray safety and other hazard-related
costs over a five-year period. It was estimated that such costs will
accumulate to ₱32,000,000 over the next five years. In 20x1 and 20x2,
actual costs of safety and other hazard-related costs amounted to
₱4,000,000 and ₱4,800,000, respectively. On January 1, 20x3, the
government demanded repayment of the ₱16,000,000 given as grant in
20x1. How much is the loss on repayment of government grant
recognized in 20x3?
a. 4,400,000 b. 3,800,000 c. 2,800,000 d. 0
Repayment of grant related to asset

14. On January 1, 20x1, DREARY DISMAL Co. received cash of ₱16,000,000
from the government to be used in constructing a building. The
construction was completed on December 31, 20x1 for a total cost of
₱40,000,000. The building is depreciated over 20 years. On January 1,
20x4, the government demanded repayment of the ₱16,000,000 grant
given as grant in 20x1. How much is the loss on repayment of
government grant recognized in 20x4?
a. 2,800,000 b. 1,800,000 c. 1,600,000 d. 0
Chapter 18
Borrowing Costs

Specific borrowing
1. On January 1, 20x1, HOMILY SERMON Co. borrowed ₱20 million to finance
the construction of a new building. Interest is payable on the loan at 8%.
Stage payments were due throughout the construction period and
therefore excess funds were invested during that period. By the end of the
project on December 31, 20x1, investment income of ₱600,000 had been
earned. How much is the capitalizable borrowing cost?
a. 1,600,000 b. 1,000,000 c. 600,000 d. 0
General borrowing
2. On January 1, 20x1, ENERVATE TO WEAKEN Company had the following
borrowings made for general purposes and a part of the proceeds was
used to finance the construction of a qualifying asset.
Principal
12% short-term note ₱ 40,000,000
14% bank loan (3-year) 72,000,000
16% note payable (5-year) 88,000,000
The construction of the qualifying asset was started on immediately and

expenditures incurred on the qualifying asset were as follows:
Jan. 1 ₱19,200,000
Mar. 31 8,800,000
July 30 14,000,000
October 1 21,600,000
December 31 1,200,000
How much is the capitalizable borrowing cost?

a. 28,960,000 b. 7,556,423 c. 5,362,428 d. 0
General borrowing (expenditures incurred evenly)

3. On January 1, 20x1, MAGISTERIAL AUTHORITATIVE Company had the
following borrowings made for general purposes and a part of the
proceeds was used to finance the construction of a qualifying asset.
Principal
12% short-term note ₱ 40,000,000
14% bank loan (3-year) 72,000,000
16% note payable (5-year) 88,000,000
The construction started on January 1 and was completed on December

20x1. The total cost of construction was ₱72,000,000 which was incurred
evenly during the year. How much is the capitalizable borrowing cost?
a. 28,960,000 b. 5,212,800 c. 5,362,428 d. 0
Specific and General borrowing

4. On January 1, 20x1, OMNIPRESENT PRESENT EVERYWHERE EVERYTIME Co.
contracted for the construction of a building for ₱80,000,000 on a land
that it had previously purchased. The building was completed on
December 20x1. The following payments were made to the contractor:
Payment date Amount
January 1, 20x1 ₱ 8,000,000
March 31, 20x1 24,000,000
September 30, 20x1 40,000,000
December 31, 20x1 8,000,000
The following represents the borrowings of OMNIPRESENT Co. as of

December 31, 20x1.
 10%, ₱28,000,000, 4-year note dated January 1, 20x1 with simple
interest payable annually, specifically borrowed to finance the
construction project. Interest income earned on the temporary
investment of the proceeds is ₱480,000.
 12.5%, ₱40,000,000, 10-year note dated January 1, 20x1 with interest
payable annually
 10%, ₱60,000,000, 10-year note dated December 31, 19x9 with
interest payable annually

a. 13,320,000 b. 3,200,000 c. 2,867,343 d. 0
Specific borrowing used for general purposes

5. UBIQUITOUS WIDESPREAD Co. started construction of a new office
building on January 1, 20x1. Funds borrowed specifically for the
construction the building is ₱8,000,000 accruing interest at 10% annually.
However, a part of the borrowing is used for other business requirements
during the year. Investment income earned on temporary investments of
proceeds from the borrowing amounted to ₱48,000 which was received in
cash on September 1, 20x1. Expenditures on the building amounted
₱7,200,000 which was incurred evenly during the year. How much is the
capitalizable borrowing cost?
a. 358,400 b. 324,800 c. 289,600 d. 0
Limit on average expenditures

6. RETRENCH Co. started construction of a qualifying asset for CUT DOWN,
Inc. on January 1, 20x1. The following were expenditures incurred on the
construction.
Date Expenditures
January 1, 20x1 4,000,000
May 1, 20x1 1,800,000
December 1, 20x1 2,880,000
 Included in the January 1, 20x1 expenditures is cost of materials

purchased on account for ₱400,000. The account was settled on July 1,
20x1.
 Included in the May 1, 20x1 expenditures is ₱40,000 cost of materials
obtained in exchange for old equipment.
Progress billings during the year are as follows:

Date of billing Amount billed Date billings were collected
April 1, 20x1 800,000 June 1, 20x1
September 1, 20x1 2,400,000 November 1, 20x1
 Payments on billings are subject to 10% withholding by CUT DOWN, Inc.

 RETRENCH Co. determined the capitalization rate to be 10%.

a. 646,000 b. 546,000 c. 446,000 d. 0
Extended period of construction
CONVALESCE Co. started construction of a qualifying asset for RECOVER, Inc.
on January 1, 20x1. The following were expenditures incurred on
construction.
Date Expenditures
Year 20x1
January 1, 20x1 4,000,000
May 1, 20x1 1,800,000
December 1, 20x1 2,880,000
Year 20x2
January 1, 20x2 3,600,000
August 30, 20x2 1,200,000
Year 20x3
July 1, 20x3 2,400,000
COVALESCE Co. determined the capitalization rate to be 10%. The

construction of the qualifying asset was substantially completed on
September 30, 20x3.
7. How much is the capitalizable borrowing cost in 20x1?

a. 430,000 b. 445,0000 c. 544,000 d. 645,000

a. 1,233,400 b. 1,322,400 c. 1342,400 d. 1,440,400

a. 1,210,980 b. 1,233,400 c. 1,435,980 d.
1,580,980
10. How much is the total cost of the constructed qualifying asset on
September 30, 20x3?
a. 18,957,830 b. 19,776,830 c. 13,765,380 d. 18,957,380
Chapter 19
Investment Property
Classification as investment property
1. COALESCE TO UNITE Co. has the following assets.
Land held for long-term capital appreciation 800,000
Land held for a currently undetermined future use 2,800,000
Land held for future plant site 4,000,000
Land held for sale in ordinary course of business 400,000
Building rented out under finance lease 7,600,000
Building rented out under operating lease 3,200,000
Building held under an operating lease 4,400,000
Building held under finance lease and rented out under
4,800,000
operating lease
Equipment leased out under an operating lease 200,000
How much is the total investment property?

a. 11,600,000 b. 12,400,00 c. 15,600,000 d.
16,600,000
Total investment property

2. MODULATE Co. has the following assets.
Vacant building to be leased out under operating lease 4,000,000

Building being constructed for TO ADJUST, Inc. 800,000
Building under construction to be used as office 1,600,000
Building under construction to be rented out under
operating lease 400,000
Building rented out to MODULATE’s employees who pay rent
at market rates 3,200,000
Office building awaiting disposal 200,000
How much is the total investment property?

a. 4,200,000 b. 4,400,000 c. 4,600,000 d.
7,600,000
Portions sold separately

3. VARMINT RASCAL Co. has a 10-storey condominium building with a
carrying amount of ₱16,000,000. The first 4 floors are being rented out to
tenants under operating lease and the rest are used as office space. Each
portion of the building can be sold separately or leased out separately
under finance lease. Assuming that the fair values of the condominium
units are approximately equal, how much is classified as investment
property?
a. 4,600,000 b.9,600,000 c. 6,400,000 d. 0
Portions not sold separately (PPE as insignificant portion)

4. INTERCEDE MEDIATE Co. owns a 100,000 sq. meter mall. The rentable
space is 80,000 sq. meters. However, a 10 sq. meter space is occupied as
an administration office. The carrying amount of the building is
₱40,000,000. How much is classified as investment property?
a. 40,000,000 b. 39,995,000 c. 39,996,000 d. 0
Insignificant ancillary services

5. LANGUISH TO BECOME WEAK Co. owns a building being rented out to
various tenants under operating lease. LANGUISH Co. provides security
and maintenance services. The building has a carrying amount of
₱4,000,000. Leasing is not the primary business of LANGUISH. How much
would be classified as investment property?
a. 4,000,000 c. a or b as an accounting policy choice
b. 0 d. none of these
Significant ancillary services

6. LASCIVIOUS LUSTFUL Co. owns a building operated as hotel The building
has a carrying amount of ₱4,000,000. How much would be classified as
investment property?
Investment property in consolidated financial statements

7. TOKEN Co. owns a 90% interest in SYMBOL, Inc. During the year, TOKEN
rented out a building to SYMBOL. As of year-end, the building has a
carrying amount of ₱4,000,000. In the consolidated financial statements,
how much would be presented as investment property?
Initial measurement of investment property

8. LIMBO OBLIVIOUS Co. has the following transactions during the year.
 Purchased building to be held as investment property for ₱4,000,000.
Direct costs incurred amounted to ₱80,000. Costs of day-to-day servicing
for the asset totaled ₱20,000.
 Constructed building to be used as investment property. Total costs
incurred include the following:
i. Materials, labor, and overhead ₱8,000,000
ii. Start-up costs 400,000
iii. Operating losses 200,000
iv. Abnormal amounts of wasted materials during
construction 80,000
 Land acquired with currently undetermined future use by issuing note
payable with face amount of ₱4,000,000 and a present value of
₱3,200,000.
 Building acquired through finance lease to be rented out under various
operating leases. The fair value of the building is ₱2,120,000 and the
present value of minimum lease payments is ₱2,000,000.
 Land to be used as investment property was acquired through exchange.
Fair value of asset given up in exchange for the land is ₱12,000,000. Fair
value of the land received is ₱14,400,000. Additional cash paid for the land
received is ₱2,000,000. The exchange has commercial substance.
How much is the total cost of investment property on initial recognition?

a. 30,340,000 b. 31,820,000 c. 32,420,000 d.
31,280,000
Fair value model

9. On January 1, 20x1, NURTURE REAR Co. acquired a building with an
estimated useful life of 10 years and residual value of ₱400,000 for a total
cost of ₱4,000,000. The fair value of the building on January 1, 20x1 is
₱4,800,000 while the fair value on December 31, 20x1 is ₱5,200,000.
NURTURE estimates that if the building is sold currently on December 31,
20x1, costs to sell amount to ₱200,000. NURTURE uses the straight line
method in depreciating its PPE. NURTURE uses the fair value model for its
investment properties. The year-end adjusting entry will include
a. 360,000 depreciation c. 200,000 unrealized gain
b. 400,000 unrealized gain d. 1,200,000 unrealized gain
Change in accounting policy

GENRE Co. has an investment property with carrying amount of ₱4,400,000
and fair value of ₱5,200,000 on January 1, 20x1.
10. If GENRE Co. decides to change its accounting policy from the cost
model to the fair value model, how much is the gain or loss on the
change?
a. 800,000 recognized in profit or loss
b. 800,000 recognized in other comprehensive income
c. 800,000 recognized directly in equity
d. 0
11. If GENRE Co. decides to change its accounting policy from the fair
value model to the cost model, how much is the gain or loss on the
change? What is the entry to effect the change?
a. 800,000 recognized in profit or loss
b. 800,000 recognized in other comprehensive income
c. 800,000 recognized directly in equity
d. 0
Property interest in operating lease

12. On January 1, 20x1, WARY Co. entered into an operating lease with
CAUTIOUS Leasing, Inc. for a building. The building will be sublet under
various operating leases. Annual rental is ₱400,000 for 10 years.
On January 1, 20x1, WARY Co. decided to classify the property interest in the
operating lease as investment property. It was determined that the present
value of the minimum lease payments is ₱3,200,000 which is equal to the
fair value of the property interest on that date.
Prior to January 1, 20x1, WARY Co. uses the cost model to measure its
investment property. The carrying amounts and fair values of the other
investment properties are shown below:
Item of investment property Carrying amount Fair value –
– Jan. 1, 20x1 Jan. 1, 20x1
Land ₱ 2,000,000 ₱2,400,000
Building (purchased 10 years 800,000 1,200,000
ago)
₱2,800,000 ₱3,600,000
How much is the total carrying amount of the all the investment properties
held by WARY Co. on January 1, 20x1 immediately upon recognition of the
property interest as investment property?
a. 2,800,000 b. 6,000,000 c. 6,800,000 d. 3,600,000
Inability to determine fair value reliably on initial recognition

13. SLEAZY CHEAP Co. uses the fair value model for its investment
property. On January 1, 20x1, SLEAZY acquired a plant for ₱4,000,000 to
be rented out under various operating leases. The plant has an estimated
useful life of 10 years and a residual value of ₱800,000. Due to its special
nature, SLEAZY assessed that the fair value of the plant cannot be
determined reliably at initial recognition and on a continuing basis. How
much is the carrying amount of the plant as of December 31, 20x1?
a. 4,000,000 b. 3,680,000 c. 3,600,000 d. none of these
Transfer under Cost model – PPE to IP

14. On January 1, 20x1, JADED EXHAUSTED Co. decided to lease out under
operating lease one of its buildings that was previously used as office
space. The building has an original cost of ₱12,000,000 and a carrying
amount of ₱4,000,000 and fair value of ₱4,800,000 as of January 1, 20x1.
JADED Co. uses the cost model for both PPE and investment property. The
building has a remaining useful life of 10 years as of January 1, 20x1.
JADED Co. uses the straight line method of depreciation. How much is the
gain (loss) on the reclassification to investment property?
a. 800,000 b. (800,000) c. (7,200,000) d. 0
Transfer under Cost model – IP to PPE
15. On December 31, 20x1, SPELLBLIND FACINATE Co. decided to use as
office space one of its buildings that was previously leased out. The
building has an original cost of ₱12,000,000 and an accumulated
depreciation of ₱8,000,000. The recoverable value of the building is
₱3,200,000 as of December 31, 20x1. SPELLBLIND Co. uses the cost
model for PPE and investment property. The entry on December 31, 20x1
includes
a. debit to investment property for ₱3,200,000
b. debit to building for ₱4,000,000
c. debit to loss on reclassification of ₱800,000
d. debit to impairment loss of ₱800,000
Transfer under Fair value model – IP to PPE

16. On December 31, 20x1, HEFT WEIGHT Co. decided to use as office
space one of its buildings that was previously leased out. The building has
fair values of ₱4,000,000 and ₱4,800,000 on January 1, 20x1 and
December 31, 20x1, respectively. HEFT Co. uses the fair value model for
investment property. The entry on December 31, 20x1 includes
a. debit to investment property for ₱4,000,000
b. debit to investment property for ₱4,800,000
c. credit to building for ₱4,000,000
d. credit to unrealized gain for ₱800,000
Transfer under Fair value model – PPE to IP

17. On December 31, 20x1, DECAPITATE BEHEAD Co. decided to lease out
under operating lease one of its buildings that was previously used as
office space. The building has an original cost of ₱12,000,000 and
accumulated depreciation of ₱8,000,000 as of January 1, 20x1. Annual
depreciation is ₱400,000. DECAPITATE Co. uses the fair value model for
investment property. The fair value of the building on December 31, 20x1
is ₱6,000,000. The entry to record the transfer of the building to
investment property includes
a. credit to gain on reclassification for ₱2,000,000
b. credit to revaluation surplus for ₱2,000,000
c. debit to building for ₱12,000,000
d. credit to revaluation surplus for ₱2,400,000

On December 31, 20x1, DISDAINFUL PROUD Co. decided to reclassify a
building previously used as owner-occupied property to investment property.
DISDAINFUL Co. determined the following:
Historical cost ₱12,000,000
Accumulated depreciation – Dec. 31, 20x1 8,000,000
Carrying amount – Dec. 31, 20x1 4,000,000
Carrying amount had no impairment loss been
recognized previously – Dec. 31, 20x1 4,800,000
Fair value – Dec. 31, 20x1 6,400,000
DISDAINFUL Co. uses the fair value model for investment property.
18. How much is recognized in profit or loss on December 31, 20x1 relating
to the transfer?
a. 2,400,000 b. 1,600,000 c. 800,000 d. 0
19. How much is recognized in other comprehensive income and

accumulated in equity on December 31, 20x1 relating to the transfer?
a. 2,400,000 b. 1,600,000 c. 800,000 d. 0

20. On December 31, 20x1, HEAVE THROW Co. decided to reclassify a
building previously used as owner-occupied property to investment
property. HEAVE Co. determined the following:
Historical cost ₱12,000,000
Accumulated depreciation – Dec. 31, 20x1 8,000,000
Carrying amount – Dec. 31, 20x1 4,000,000
Revaluation surplus 800,000
Fair value – Dec. 31, 20x1 2,800,000
HEAVE Co. uses the fair value model for investment property. The transfer
resulted to
a. a loss of ₱400,000 c. increase in equity of ₱800,000
b. a loss of ₱1,200,000 d. no effect on profit or loss
Transfer under Fair value model – IP to Inventory

21. On December 31, 20x1, RAMBLE ROAM Co. decided to redevelop its
building to be sold in the ordinary course of business. RAMBLE Co. uses
the fair value model for investment property. Fair values of the investment
property are:
Fair value – Jan. 1, 20x1 6,800,000
Fair value – Dec. 31, 20x1 6,400,000
The transfer of the investment property to inventory resulted to

a. an unrealized loss of ₱400,000 c. increase in equity for ₱400,000
b. an unrealized gain of ₱400,000 d. no effect on profit or loss
Replacement of parts – Cost model

EXPECTORATE SPIT Co. acquired a building on January 1, 20x1 for a total cost
of ₱24,000,000 and classified it as investment property. The building is
estimated to have a useful life of 10 years. EXPECTORATE Co. uses the cost
model for its investment property and the straight line method of
depreciation. On January 1, 20x5, the elevator in the building was replaced
for a total cost of ₱3,200,000.
22. Assuming EXPECTORATE Co. determined that the cost of the old
elevator replaced is ₱2,000,000, how much is the gain (loss) on the
replacement?
a. 800,000 b. (1,200,000) c. 2,000,000 d. (1,920,000)
23. Assuming it is impracticable to determine the cost of the old elevator

replaced, how much is the gain (loss) on the replacement?
a. 1,280,000 b. (1,200,000) c. 2,000,000 d. (1,920,000)
Replacement of parts – Fair value model

24. PERIODIC REGULAR Co. acquired a building on January 1, 20x1 for a
total cost of ₱24,000,000 and classified it as investment property.
PERIODIC Co. uses the fair value model for its investment property. On
January 1, 20x5, when the carrying amount of the building is ₱16,000,000,
the elevator in the building was replaced for a total cost of ₱3,200,000. It
is impracticable to determine the fair value of the replaced part. The fair
value of the building on December 31, 20x5 is ₱17,200,000. How much is
the loss recognized during the year?
a. 3,200,000 b. 2,000,000 c. no loss d. indeterminable
Chapter 20
Intangible Assets

Research and development expense

1. DEBUNK EXPOSE Co. made expenditures for the following:
 Cost in activities aimed at obtaining new knowledge ₱40,000
 Marketing research to study consumer tastes 20,000
 Cost of developing and producing a prototype model 12,000
 Cost of testing the prototype model for safety and
environmental friendliness 160,000
 Cost revising designs for flaws in the prototype model 60,000
 Salaries of employees, consultants, and technicians involved
in R&D 80,000
 Cost of conference for the introduction of the newly
developed product including fee of a model hired as endorser 400,000
 Advertising to establish recognition of the newly developed
product 120,000
How much is recognized as research and development expense?

a. 292,000 b. 352,000 c. 392,000 d. 792,000
Research and development expense – with receivable

2. GOOSEY FOOLISH Co. made expenditures for the following:
 Cost incurred on search for alternatives for materials, devices,
products, processes, systems or services ₱40,000
 Cost of final selection of possible alternatives for a new 32,000
process
 Trouble-shooting during commercial production 20,000
 Periodic or routine design changes to existing products 12,000
 Modification of design for a specific customer 160,000
 Payments made to SPOONY, Inc. for R&D performed by 60,000
SPOONY for GOOSEY
 Cost of R&D performed by GOOSEY for SILLY Corp. 80,000

a. 132,000 b. 152,000 c. 324,000 d. 152,000
Research and development expense – with intangible asset

3. REALM KINGDOM Co. made expenditures for the following:
 Cost of design, construction and operation of a pilot plant
that is not of a scale economically feasible for commercial ₱40,000
production
 Cost of design, construction and operation of plant that is
feasible for commercial production 32,000
 Cost of design of tools, jigs, molds and dies involving new
technology 20,000
 Cost of routine, seasonal, and periodic design of tools, jigs,
molds and dies 12,000
 Cost of engineering follow through in an early phase of
commercial production 160,000
 Cost of quality control during commercial production 60,000
 Adaptation of an existing capability to a particular
customer’s need 80,000
 Costs in developing software for internal use in REALM’s
general management information system (after technological
feasibility has been established) 160,000
a. 60,000 b. 220,000 c. 92,000 d. 252,000
Research and development expense – with PPE

4. FEROCIOUS FIERCE Co. made expenditures for the following:
 Cost of purchased building to be used in various R&D ₱400,000
projects
 Depreciation on the building described above 32,000
 Cost of machine acquired to be used on only one R&D project 800,000
 Modification to the formulation of a chemical product 60,000
 Laboratory research aimed at discovery of new technology 48,000

a. 140,000 b. 880,000 c. 80,000 d. 940,000
Items not recognized as intangible assets

5. JUMBO VERY LARGE Co. has made expenditures for the following:
 Internally generated brand ₱40,000
 Self-created masthead and publishing title 20,000
 Internally created customer list and order backlog 12,000
 Purchased goodwill from a business combination 160,000
 Expenditure incurred to improve the acquired goodwill 60,000
 Internally generated goodwill 80,000
 Purchased brands, mastheads, publishing titles, customer
lists, and order and production backlogs 400,000
 Expenditures incurred to improve purchased brands,
mastheads, publishing titles, customer lists, and order and
production backlogs 120,000
How much of the expenditures incurred may qualify as intangible assets to

be accounted for under PAS 38?
a. 892,000 b. 492,000 c. 400,000 d. 520,000
Trademark acquired through purchase

6. On January 1, 20x1, SUFFICIENT Co. acquired trademark from ENOUGH,
Inc. for a total cost of ₱400,000. Other related costs incurred include the
following:
 Costs of employee benefits arising directly from bringing the
asset to its intended condition ₱40,000
 Professional fees arising directly from bringing the asset to its
intended condition 20,000
 Costs of introducing the new product including advertisement
costs 12,000
How much is the cost of the intangible asset?
a. 460,000 b. 472,000 c. 400,000 d. 412,000
Trademark obtained through self-generation

7. On January 1, 20x1, PRIME FIRST Co. generated a trademark. Costs
incurred include the following:
 Costs of materials and services used or consumed in
generating the trademark ₱200,000
 Costs of employee benefits incurred in generating the 40,000
trademark
 Fees to register the trademark 20,000
 Amortization of patents and licenses that were used to
generate the trademark 8,000
 Selling, administrative and other general overhead 120,000
expenditures
How much is the cost of the intangible asset?

a. 20,000 b. 268,000 c. 260,000 d. 388,000
Web site cost

8. BRAWNY STRONG Co., an audit firm, incurred the following costs in self-
development of its web site. The web site will be used by its auditors in,
among other things, sending emails to clients, posting updates on
financial reporting and auditing standards and other relevant regulations,
uploading and retrieving working papers, and in checking their pay slips.
 Costs incurred in purchasing web servers, staging servers,
production servers and Internet connections 2,000,000
 Costs incurred during the planning stage 400,000
 Costs incurred during the application and infrastructure,
graphical design, and content development stage. 1,200,000
 Costs incurred during operating stage 200,000
Assume that all conditions for capitalization of development costs are met,
how much is the cost of web site recognized as intangible asset?
a. 3,600,000 b. 1,200,000 c. 1,600,000 d. 0
Web site cost

9. HUMANE CONSIDERATE Co. incurred the following costs in relation to the
development of web site:
 Development costs of a web site to be used internally 200,000
 Development costs of a web site to be used externally in
promoting and advertising products. Customers place
orders personally at retail outlet stores or through
telephone or facsimile. 40,000
 Development costs of web sites held for sale to various 120,000
clients.
 Internet fee paid for the month 4,000
How much is capitalized as intangible asset?

a. 200,000 b. 240,000 c. 320,000 d. 0
Web site cost

10. SECRETE GIVE OFF Co. incurred the following costs in relation to the
development of its web site.
 Development costs of a web site to be used externally.
Customers place orders and pay directly through the web 120,000
site.
 Payment to Mr. Web developer for his assistance in
developing the web site. 40,000
 Cost of digital photographs of goods uploaded to the web 20,000
site
 Professional fee of Mr. Manny Boksingero, the product 12,000,000
endorser
 Fee of Mr. Freddie Croach for making Mr. Manny sweat
before the pictorial. 4,000,000
How much is capitalized as intangible asset?

a. 580,000 b. 16,580,000 c. 180,000 d. 160,000
Customer list
11. On January 1, 20x1, PLUMP FULLY ROUNDED Co. purchased a customer
list of a large distributor of health products for ₱180,000. This customer
database includes name, contact information, order history, and
demographic information. PLUMP expects to benefit from the information
evenly over a 3-year period. How much is the carrying amount of the
intangible on December 31, 20x1?
a. 120,000 b. 60,000 c. 180,000 d. 0
Franchise with finite useful life

12. On January 1, 20x1, WHOLESOME Co. acquired a franchise from
HEALTHY Co. for ₱1,600,000. The franchise gives WHOLESOME the right to
sell HEALTHY’s products until December 31, 20x5, at which date
WHOLESOME may renew the franchise for another fee subject to a new
franchise agreement. In January 20x1, HEALTHY has performed
substantially all the services required under the franchise contract and
WHOLESOME started operating the franchise. Annual periodic franchise
fee for 20x1 is ₱60,000. How much is the amortization expense
recognized in 20x1?
a. 320,000 b. 60,000 c. 80,000 d. 0
Franchise with finite useful life
On January 1, 20x1, CLUSTER Co. acquired a perpetual franchise from BUNCH
Co. for ₱800,000 by paying ₱400,000 cash as down payment and issuing a
note payable for the remainder. The note payable is payable in five equal
annual payments of ₱80,000 starting January 1, 20x1. The franchise gives
CLUSTER the right to manufacture and sell Queen’s balls using the processes
developed by BUNCH Co. for an indefinite period. The imputed rate of
interest is 10%
In January 20x1, BUNCH has performed substantially all the services required
under the franchise contract and CLUSTER started making balls. Annual
periodic franchise fee for 20x1 is ₱200,000.
13. How much is the initial cost of the franchise?

a. 333,600 b. 842,162 c. 656,744 d. 733,600
14. How much is the total expense recognized in 20x1 related to the
franchise?
a. 200,000 b. 225,360 c. 7,364 d. 447,364
Acquired broadcasting license

15. On January 1, 20x1, KEEN SHARP Co. acquired a broadcasting license
for ₱400,000 that is renewable every 10 years if KEEN provides at least an
average level of service to its customers and complies with the relevant
legislative requirements. The license may be renewed indefinitely at little
cost and has been renewed twice before the most recent acquisition.
KEEN intends to renew the license indefinitely and evidence supports its
ability to do so. Historically, there has been no compelling challenge to
the license renewal. The technology used in broadcasting is not expected
to be replaced by another technology at any time in the foreseeable
future.
How much is amortization expense to be recognized on December 31,

20x1?
a. 40,000 b. 400,000 c. 36,547 d. 0
Purchased patent
Use the following fact pattern for the next three questions:
Fact pattern
On January 1, 20x1, SPARSE Co. purchased a patent from THINLY SPREAD,
Inc. for ₱400,000. THINLY SPREAD has held this patent for 5 years. SPARSE
estimates that the patent has a remaining useful life of 8 years.
16. How much is the patent amortization in 20x1?

a. 80,000 b. 50,000 c. 266,667 d. 20,000
17. On January 1, 20x3, SPARSE Co. purchased a competitive patent from
MEAGER Corp. for ₱180,000 in order to protect the old patent. The
competitive patent has a remaining legal life and useful life of 20 years.
How much is the total amortization expense in 20x3?
a. 50,000 b. 80,000 c. 133,367 d. 42,500
18. On January 1, 20x4, SPARSE incurred litigation costs of ₱80,000 in an

unsuccessful defense of the patents held. How much is the total expense
recognized in 20x4?
a. 80,000 b. 160,000 c. 523,667 d. 480,000
Internally generated patent

In 20x1, VENERATE RESPECT Co. started to develop a patent. Total costs
incurred during the year amounted to ₱400,000. On January 1, 20x2, the
patent was fully developed. Legal and registration costs incurred in
registering the patent amounted to ₱240,000. It was estimated that the
patent has a useful life of 25 years.
19. How much is the carrying amount of the patent on December 31,
20x2?
a. 614,400 b. 608,000 c. 230,400 d. 228,000
20. In 20x4, VENERATE Co. started to develop a new improved patent to

extend the life of the old patent. Development costs totaled ₱800,000.
How much is the carrying amount of the patent on December 31, 20x4?
a. 204,000 b. 870,400 c. 1,272,000 d. 216,000
21. On January 1, 20x5, the new patent was completed and legal and
registration costs incurred to register the new patent amounted to
₱320,000. It was estimated that the new patent will extend the life of the
old patent by another 20 years starting January 1, 20x5. How much is the
amortization expense in 20x5?
a. 78,200 b. 26,200 c. 346,200 d. 416,200
22. On January 1, 20x6, VENERATE Co. incurred litigation costs of ₱80,000

in a successful defense of the patents held. How much is the total
expense recognized in 20x6 relating to the patent?
a. 158,200 b. 106,200 c. 80,000 d. 26,200
Patent with residual value

23. On January 1, 20x1, PROMPT Co. incurred ₱400,000 in registering a
patent. QUICK, Inc., a third party, committed to purchase the patent for
the remaining 5 years of its legal useful life for a total cost of ₱100,000.
How much is the carrying amount of the patent on December 31, 20x1?
a. 320,000 b. 240,000 c. 340,000 d. 380,000
Change in useful life

24. On January 1, 20x1, PUISSANCE POWER Co. incurred ₱400,000 in
registering a patent. It was initially estimated that the useful life of the
asset is 20 years, equal to its legal life. However, on January 1, 20x6,
PUISSANCE assessed that the useful life of the patent was only 15 years
starting on date of registration. How much is the amortization expense in
20x6?
a. 30,000 b. 32,400 c. 36,800 d. 28,000
Computer software
25. ENTITY BEING Co. incurred the following costs in self-generating
computer software.
 Completion of detailed program design ₱2,000,00
0
 Cost incurred for coding and testing to establish technological
feasibility 1,600,000
 Other coding costs after establishment of technological 4,000,000
feasibility
 Other testing costs after establishment of technological 3,200,000
feasibility
 Costs of producing product masters 2,400,000
 Reproduction and duplication costs from product masters 4,800,000
 Packaging costs for the reproduced software 1,200,000
How much is the cost of computer software recognized as intangible asset?

a. 13,200,000 b. 11,200,000 c. 7,200,000 d. 9,600,000
Amortization of computer software

26. TRAVERSE TO CROSS Co. incurred the following costs in developing
software:
Development costs prior to reaching technological
feasibility ₱800,000
Development cost after reaching technological feasibility 480,000
Cost of duplicating salable product to be sold over the life
of the software 9,600,000
Estimated revenues over 3-year total product life 24,000,00
0
Revenue in the first year of product life 8,000,000
How much is the total software-related expense for the year?

a. 4,160,000 b. 160,000 c. 960,000 d. 3,360,000
Acquisition of intangible assets in lump sum

27. SPONTANEOUS SELF-ACTING Co. acquired the intangible assets listed
below for a total lump sum price of ₱400,000.
Intangible asset Fair value
 Service mark ₱160,000
 Order and production backlogs 120,000
 In-house research and development 80,000
 Masthead 120,000
How much is the initial measurement of the masthead?

a. 100,000 b. 120,000 c. 133,333 d. 266,667
Chapter 21
Impairment of Assets

Costs of disposal
1. On December 31, 20x1, QUIRK ACCIDENT Co. identified that its machinery
with a carrying amount of ₱4,000,000 has been impaired. In estimating
the recoverable amount, QUIRK determined that the fair value of the
asset is ₱3,200,000. The following costs were also estimated:
Transaction taxes ₱200,000
Legal costs, stamp duty, commissions, and similar fees 40,000
Costs of dismantling or removing the asset included in
provision for restoration and decommissioning cost 20,000
Termination benefits and costs associated with reducing
or reorganizing a business following the disposal of an
asset 60,000
QUIRK does not have any reason to believe that the value in use of the asset
materially exceeds fair value less costs of disposal. How much is the
impairment loss?
a. 1,120,000 b. 1,060,000 c. 1,040,000 d.
800,000
Value in use
2. On December 31, 20x1, MASSIVE HEAVY Co. identified that its building
with a carrying amount of ₱2,400,000 has been impaired. In estimating
the recoverable amount, MASSIVE has determined that the fair value less
costs of disposal of the asset is ₱1,600,000.
In estimating the value in use, MASSIVE determined the following:

Yea Future cash Future cash
r in flows out flows
20x
1 1,200,000 400,000
20x
2 1,120,000 400,000
20x
3 1,040,000 320,000
 Each year’s estimated future cash flows include ₱40,000 representing cash
outflows from future restructuring not yet committed and ₱20,000
representing cash outflows on planned improvement and enhancement of
the asset.
 Not included in the estimated future cash flows are costs of day-to-day
servicing of the asset amounting to ₱8,000 per year.
 The discount rate is 10%.
How much is the impairment loss?

a. 407,424 b. 456,773 c. 365,472 d. 412,365
Value in use – with residual value

3. On December 31, 20x1, HEARTEN ENCOURAGE Co. identified that its
intangible asset with a carrying amount of ₱2,400,000 has been impaired.
In estimating the recoverable amount, HEARTEN has determined that the
fair value less costs of disposal of the intangible asset is ₱1,600,000.
HEARTEN estimated that the future net cash flows expected to arise from
the continuing use of the asset is ₱400,000 per year for the remaining
useful life of 5 years. The estimate of future cash flows includes cash out
flows for income taxes and financing activities totaling ₱40,000 per year.
The equipment has a residual value of ₱80,000. The discount rate is 10%.
a. 628,384 b. 682,384 c. 289,334 d. 298,902
Recoverable amount exceeding Carrying amount

4. One of OFFSHOOT BRANCH Co.’s plant has a carrying amount of
₱3,200,000 and a value in use of ₱3,120,000. A recent market transaction
for a similar plant involved a net selling price of ₱3,280,000. How much is
the impairment loss?
a. 80,000 b. 160,000 c. 320,000 d. 0
Impairment loss on newly constructed asset

5. LUCRATIVE PROFITABLE Co. has just completed constructing a new
building. Costs incurred are shown below:
Materials, labor, and overhead ₱2,800,000
Borrowing costs appropriately capitalized 320,000
Total construction costs ₱3,120,000
If the recoverable amount of the building is ₱3,000,000, how much is the

impairment loss?
a. 120,000 b. 200,000 c. 320,000 d. 0
Impairment loss – subsequent depreciation

6. On January 1, 20x1, RIGHTEOUS MORAL Co. acquired an equipment for
₱2,000,000. The equipment is depreciated using the straight line method
over an estimated useful life of 10 years and residual value of ₱200,000.
On January 1, 20x6, RIGHTEOUS Co. determined that the equipment is

impaired. Fair value less costs of disposal is ₱560,000. Projected future net
cash flows from revenues produced by the equipment is ₱200,000 annually.
The revised estimated useful life is 4 years and the new estimated residual
value is ₱40,000. The appropriate discount rate is 10%. How much is the
depreciation expense in 20x6?
a. 156,732 b. 155,324 c. 155,132 d. 154,324
Impairment loss – Revaluation model

7. Information on LISTLESS WEAK Co.’s impaired building is shown below:
Carrying amount 3,200,000
Revaluation surplus 320,000
Fair value less costs of disposal 2,800,000
Value in use 2,720,000

a. 80,000 b. 400,000 c. 320,000 d. 0
Impairment loss – Intangible asset with indefinite useful life

8. INSUPERABLE UNSURPASSABLE Co. determined that its trademark is
impaired. INSUPERABLE cannot estimate reliably the trademark’s fair
value less costs of disposal. However, the following information has been
determined:
Carrying amount ₱520,000

Annual future cash flows from the trademark 40,000
Discount rate 10%

a. 0 b. 80,000 c. 120,000 d. 400,000
Impairment loss – asset to be disposed of

9. One of MIME IMMITATE Co.’s machines has been impaired. Repairs and
maintenance costs on the machine have been increasing over the past
years making the machine a bottleneck in MIME’s production. At year-end,
management made a decision to sell the machine as soon as a pending
application for a loan is approved and a replacement machine is acquired.
Information on the machine is shown below:
Carrying amount ₱400,000
Fair value less costs of disposal 200,000
Value in use 240,000

a. 0 b. 160,000 c. 40,000 d. 200,000
Allocation of goodwill – business combination

10. At the end of 20x1, EXIGENCY Co. acquires PRESSING NEED Corp. for
₱40,000,000. PRESSING NEED has manufacturing plants in three
countries. Data at the end of 20x1 is shown below.
Fair Value of identifiable assets
Activities in Country #1 ₱4,000,000
Activities in Country #2 12,000,000
Activities in Country #3 16,000,000
Total fair value of identifiable assets ₱32,000,000
How much goodwill is allocated to each to the CGU in Country #3?

a. 16,000,000 b. 3,000,000 c. 4,000,000 d. 0
Allocation of goodwill – disposal of portion of CGU

11. SOP SOAK Co. has a cash-generating unit for which goodwill of
₱240,000 was allocated. During the year, an operation that was part of
the CGU was sold for ₱2,000,000. The relative values of the portions sold
and retained cannot be determined reliably. Information on the assets
included in the CGU is as follows:
Carrying amount of operation sold excluding goodwill ₱1,600,000

Carrying amount of portion not sold excluding goodwill 4,800,000
Total carrying amount of CGU excluding goodwill ₱6,400,000
How much is the gain or loss on the sale of the operation?

a. 340,000 b. 400,000 c. 60,000 d. 0
Reallocation of goodwill
12. EXUBERANT OVERFLOWING Co. previously allocated ₱240,000 goodwill
to CGU A. The goodwill allocated to CGU A cannot be identified or
associated with an asset group at a level lower than CGU A, except
arbitrarily. During the year, EXUBERANT Co. reorganizes its reporting
structure such that CGU A is divided and integrated into three other cash-
generating units – CGU’s B, C and D. Additional information is shown
below:
CG Fair
U values
B 800,000
1,600,00
C 0
2,400,00
D 0
4,800,00
0
At the end of the year, CGU D is sold for ₱2,000,000 when its carrying
amount is ₱2,320,000 excluding allocated goodwill. How much is the gain
(loss) on the sale?
a. (320,000) b. 440,000 c. (420,000) d. (440,000)
Impairment loss of CGU – no goodwill allocated

NEGATE DENY Co. determined that one of its cash-generating units is
impaired. Information on the assets of the CGU is shown below:
Carrying
Assets amount
Inventory 800,000
Investment property (at cost
model) 1,600,000
Building
2,400,000
4,800,000
It was estimated that the value in use of the CGU is ₱3,600,000 and its fair
value less costs of disposal is ₱3,200,000.
13. How much is the impairment loss?

a. 2,100,000 b. 1,600,000 c. 1,200,000 d. 1,000,000
14. How much is the carrying amount of the building after the impairment
testing?
a. 1,680,000 b. 1,120,000 c. 1,860,000 d.
2,040,000
Impairment loss of CGU – with allocated goodwill

INSTIGATE PROVOKE Co. determined that one of its cash-generating units is
Carrying
Assets amount
Inventory 800,000
model) 1,600,000
Building 2,400,000
Goodwill 1,200,000
6,000,000
It was estimated that the value in use of the CGU is ₱3,600,000 and its fair

a. 4,200,000 b. 3,200,000 c. 2,400,000 d.
2,000,000
testing?
a. 1,680,000 b. 1,120,000 c. 1,860,000 d.
2,040,000
Impairment loss of CGU – Limit on allocation of impairment loss
TRICE INSTANT Co. determined that one of its cash-generating units is
Carrying
Assets amount
Inventory 800,000
model) 1,600,000
Building 2,400,000
Goodwill 1,200,000
6,000,000
 It was estimated that the value in use of the CGU is ₱3,200,000 and its fair
 The building’s fair value less costs of disposal is ₱2,040,000.

a. 4,200,000 b. 3,200,000 c. 2,400,000 d.
2,000,000
testing?
a. 1,680,000 b. 1,120,000 c. 1,860,000 d.
2,040,000
Impairment of individual asset belonging to a CGU

Use the following information for the next two independent cases:
One of the machines of SKEWER PIERCE Co. has suffered physical damage
but is still working, although not as well as before it was damaged. The
machine does not generate independent cash inflows. The smallest
identifiable group of assets that includes the machine and generates cash
inflows that are largely independent of the cash inflows from other assets is
the production line to which the machine belongs. Information on the
machine and the production line is shown below:
Carrying amount of machine ₱ 800,000

Fair value less costs of disposal of machine 600,000
Carrying amount of production line 32,000,000
Recoverable amount of production line 36,000,000
Case #1:
19. The budgets/forecasts approved by management reflect no
commitment of management to replace the machine. How much is the
impairment loss?
a. 4,000,000 b. 200,000 c. 3,800,000 d. 0
Case #2:
20. The budgets/forecasts approved by management reflect a commitment
of management to replace the machine and sell it in the near future. Cash
flows from continuing use of the machine until its disposal are estimated
to be negligible. How much is the impairment loss?
a. 4,000,000 b. 200,000 c. 3,800,000 d. 0
Impairment of individual asset – with commitment for disposal

21. ASININE STUPID Co. determined that one of its cash-generating units is
Carrying
Assets amount
Inventory 800,000
model) 1,600,000
Building 2,400,000
Goodwill 1,200,000
6,000,000
 The recoverable amount of the CGU was estimated at ₱5,600,000.

 The building’s fair value less costs of disposal is ₱1,600,000. Management
is committed on selling the building.

a. 0 b. 400,000 c. 600,000 d. 800,000
Carrying amount of a CGU – Financial instruments excluded

22. EXUBERANT OVERFLOWING Co. determined that its CGU has been
impaired. Information on the CGU is shown below:
Cash 400,000
Accounts
receivable 800,000
Inventory 2,000,000
Machinery – net 4,000,000
Other intangible
assets 800,000
Goodwill 400,000
Accounts payable (1,200,000)
Accrued liabilities (1,600,000)
Total 5,600,000
The recoverable amount of the CGU is ₱4,000,000, representing the CGU’s

value in use. EXUBERANT Co. excluded cash flows from financial assets and
recognized liabilities when the value in use was computed

a. 3,200,000 b. 3,600,000 c. 4,000,000 d. 0
Carrying amount of a CGU – including financial instruments

23. INFRACTION VIOLATION Co. determined that its CGU has been
impaired. Information on the CGU is shown below:
Cash 400,000
Accounts
receivable 800,000
Inventory 2,000,000
Machinery – net 4,000,000

Other intangible
assets 800,000
Goodwill 400,000
Accounts payable (1,200,000)
Accrued liabilities (1,600,000)
Total 5,600,000
The recoverable amount of the CGU is ₱2,400,000, representing the CGU’s
value in use. INFRACTION Co. included cash flows from financial assets and
recognized liabilities when the value in use was computed

a. 3,200,000 b. 3,600,000 c. 4,000,000 d. 0
Allocation of corporate asset

24. On December 31, 20x1, BAFFLE CONFUSE Co. determined that an EDP
equipment, a mainframe computer used as server in BAFFLE’s network,
might have been impaired. There are three cash-generating units using
this mainframe computer. Information on these assets is shown below:
Recoverable
Carrying amount amount
CGU #1 8,000,000 8,000,000
CGU #2 24,000,000 28,000,000
CGU #3 32,000,000 40,000,000
Corporate asset - Mainframe 12,000,000 N/A
76,000,000 76,000,000

a. 0 b. 2,000,000 c. 2,666,667 d. 3,133,333
Impairment loss – restoration and decommissioning costs

25. INSUPERABLE UNSURPASSABLE Co. determined that its CGU
(comprising INSUPERABLE’s mining operations in a foreign country) is
impaired. The laws in that foreign country require INSUPERABLE to restore
the mining site at the end of the wasting asset’s useful life. INSUPERABLE
made a provision for decommissioning and restoration costs10 years ago
when it started operations. At year-end, the carrying amount of the
provision is ₱2,400,000 which is equal to the present value of the
obligation.
INSUPERABLE Co. recently received various offers to buy the mine at around
₱3,600,000. This price reflects the fact that the buyer will assume the
obligation to restore the overburden. Disposal costs for the mine are
negligible. The value in use is ₱5,600,000 excluding decommissioning and
restoration costs. The carrying amount of the mine is ₱4,800,000.

a. 800,000 b. 1,600,000 c. 1,200,333 d. 0
Impairment reversal – Revaluation model

On January 1, 20x1, FALLACIOUS MISLEADING Co. acquired a building for
₱4,000,000. The asset is depreciated using the straight line method over an
estimated useful life of 10 years.
On January 1, 20x6, the building was estimated to have a recoverable

amount of ₱1,600,000. Consequently, impairment loss was recognized on
that date. There was no change in the estimated useful life.
On January 1, 20x9, the building was estimated to have a new recoverable

amount of ₱2,400,000 and a remaining useful life of 3 years. The building is
measured under the revaluation model.
26. How much of the impairment reversal is recognized in profit or loss?

a. 160,000 b. 1,760,000 c. 1,600,000 d. 0
27. How much of the impairment reversal is recognized in equity?

a. 160,000 b. 1,760,000 c. 1,600,000 d. 0
Impairment reversal – Cost model

On January 1, 20x1, RAMIFICATION CONSEQUENCE Co. acquired a building for
₱4,000,000. The asset is depreciated using the straight line method over an
estimated useful life of 10 years.
On January 1, 20x6, the building was estimated to have a recoverable

amount of ₱1,600,000. Consequently, impairment loss was recognized on
that date. There was no change in the estimated useful life.
On January 1, 20x9, the building was estimated to have a new recoverable

amount of ₱2,400,000 and a remaining useful life of 3 years. The building is
measured under the cost model.
28. How much of the impairment reversal is recognized in profit or loss?

a. 160,000 b. 1,760,000 c. 1,600,000 d. 0
29. How much of the impairment reversal is recognized in equity?

a. 160,000 b. 1,760,000 c. 1,600,000 d. 0
Non-reversal of goodwill - with Extrapolation

After a year of operations, STRATUM LEVEL Co. is calculating the value in use
of one of its cash-generating unit on January 1, 20x2. Data is shown below.
Year Year-end Future Cash Flows
20x2 ₱ 920
20x3 1,012
20x4 1,092
20x5 1,160
20x6 1,216
The appropriate discount rate was determined to be 15%. Projections of

future cash flows should be extended up to 11 years. The long-term growth
rates were determined as 3%, -2%, -6%, -15%, -25% and -67% from year
20x7 up to year 2x12.
The gross carrying amount of the CGU is ₱12,000, inclusive of ₱4,000

allocated goodwill. As of January 1, 20x2, the CGU has an accumulated
depreciation of ₱668.
On December 31, 20x3, the entity estimates a revised recoverable amount of

₱7,640.
30. How much is the total undiscounted future cash flows?

a. 10,993 b. 5,444 c. 9,364 d. 4,987
31. How much is the value in use?

a. 10,992 b. 5,444 c. 9,364 d. 4,987

a. 5,888 b. 5,444 c. 6,345 d. 1,888
33. How much is the reversal of impairment loss to be recognized in profit

or loss on December 31, 20x3?
a. 0 b. 1,588 c. 1,635 d. 1,545

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Chapter 5

Chapter 5: Multiple choice – Computational (SET B) – (For classroom

1. How much is the total trade receivables?

2. How much is the total current receivables?

Gross method and Net method

Allowance for sales return

Case #1: Reliable estimate

Case #2: No reliable estimate

Percentage of credit sales method

How much is the recoverable historical cost of accounts receivable?

Percentage of receivable method

9. How much is the bad debt expense?

10. How much is the recoverable historical cost of accounts receivable?

The balances of accounts receivables on January 1, 20x4 and December 31,

How much is the doubtful accounts expense to be recognized in 20x4?

Aging based on days outstanding

How much is the doubtful accounts expense for the year?

Aging based on days past due

The allowance for doubtful accounts has a balance of ₱18,000 as of January

How much is the doubtful accounts expense for the year?

The aging of receivables is shown below:

Debit balance in allowance for doubtful accounts

How much is the bad debts expense for the year?

Chapter 8: Multiple choice – Computational (SET B) – (For classroom

How much is the total inventory on December 31, 20x1?

Correct inventory and accounts payable

5. How much is the adjusted balance of inventory?

6. How much is the adjusted balance of accounts payable?

Inventories under financing agreement, Installment sales

How much is included as part of inventory?

Bill and hold and Lay away

Unit Unit Total

Write-down of raw materials

How much is the total inventory on December 31, 20x1?

ABC recognizes write-downs of inventories in cost of goods sold.

19. How much is the cost of goods sold in 20x1?

20. How much is the cost of goods sold in 20x2?

Gross profit rate based on cost

Twenty percent of the inventory contained in the warehouse has been

Cost of goods sold

a. 108,000 b. 96,000 c. 76,000 d. 84,000

The following additional information was determined:

How much is the work in process destroyed by fire?

Chapter 6: Multiple choice – Computational (SET B) – (For classroom

At what total net amount will the notes be initially recognized?

Noninterest-bearing note – lump sum

7. How much is the carrying amount of the receivable on December 31,

Noninterest-bearing note – installments

8. How much is the interest income in 20x1?

Noninterest-bearing note – installment in advance

11. How much is the interest income in 20x1?

13. How much is the carrying amount of the receivable on January 1,

14. How much is the interest income in 20x1?

Noninterest-bearing note – non-uniform cash flows

Receivable with cash price equivalent

17. How much is the initial measurement of the receivable?

Note with below-market interest (simple interest) - Principal due at

Note with below-market interest (simple interest) - Principal due at