EASY 1

Which of the following may be included as part of the initial cost capitalized of PPE?

I. Input VAT
II. RPT accruing after acquisition of land
III. DST shouldered by the seller of the property

ANSWER: I only

EASY 2

In 2018, Brighton Co. changed from the individual item approach to the aggregate approach in applying
the lower of FIFO cost or market to inventories. The change should be reported in Brighton’s financial
statements as a

a) Change in estimate on a prospective basis.

b) Cumulative effect of change in accounting principle on the current year income statement.
c) Retrospective application to the earliest period presented if practicable.
d) Prior period adjustment with a separate disclosure.

ANSWER: C

A change in inventory method no longer receives cumulative effect treatment on the income
statement. The accounting change is given retrospective application to the earliest period presented,
if practicable.

EASY 3

Any gain on a subsequent increase in the fair value less cost to sell of a noncurrent asset classified as
held for sale should be treated as follows:

a. The gain should be recognized in full.

b. The gain should not be recognized.
c. The gain should be recognized but not in excess of the cumulative impairment loss.
d. The gain should be recognized but only in retained earnings.
ANSWER: C

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations paragraph 21 states that ‘An
entity shall recognize a gain for any subsequent increase in fair value less costs to sell of an asset, but
not in excess of the cumulative impairment loss that has been recognised either in accordance with
this IFRS or previously in accordance with IAS 36 Impairment of Assets.’

EASY 4

Under IFRS 8 Operating Segments, entity-wide disclosures include the following except:

a) Information about intersegment sales or transfer

b) Information about major customers
c) Information about geographical areas
d) Information about products and services

ANSWER: A

IFRS 8 Operating Segments paragraphs 32 – 34, entity-wide disclosures do not include information
about intersegment sales or transfer.

EASY 5

Assume that an entity enters into a contract with a customer to sell 10 widgets for P100 each. The
customer has the right to return the widgets, but if it does so, it will be charged a 10% restocking fee (or
P10 per returned widget). The entity estimates that 10% of all widgets that are sold will be returned.
Upon transfer of control of the 10 widgets, the entity will recognize revenue and a refund liability of:
Apply PFRS 15.

ANSWER: P910; P90

EASY 6

Candice Company reported net income of P34,000 for the year ended December 31, 2017 which
included depreciation expense of P8,400 and a gain on sale of equipment of P1,700. The equipment had
an historical cost of P40,000 and accumulated depreciation of P24,000. Each of the following accounts
increased during 2017 (Assume that the increases in the following accounts are due to cash transactions
only.):

Patent P9,800
Prepaid rent* 4,500
Available for sale investment 8,000
Bonds payable 5,000
*To be consumed within 12 months from the balance sheet date
In relation to above information, what amount should be reported as net cash provided (used) by
investing activities for the year ended December 31, 2017?

ANSWER: (P100)

EASY 7

On January 2, 2013, Brandon Company received a grant of P60,000,000 to compensate it for costs it
incurred in planting trees over a period of five years. Brandon Company will incur such cost in this
manner:

Years 2013 2014 2015 2016 2017

Costs P2,000,000 P4,000,000 P6,000,000 P8,000,000 P10,000,000

What amount of income should Brandon Company recognize at the end of the year 2017?

ANSWER: P20,000,000

PAS 20 Accounting for Government Grants and Disclosure of Government Assistance provides that
grants shall be recognized in profit or loss on a systematic basis over the periods in which the entity
recognizes as expenses the related costs for which grants are intended to compensate.
Year Grant Ratio Income Recognized
2011 P60,000,000 X 2/30 = P4,000,000
2012 P60,000,000 X 4/30 = P8,000,000
2013 P60,000,000 X 6/30 = P12,000,000
2014 P60,000,000 X 8/30 = P16,000,000
2015 P60,000,000 X 10/30 = P20,000,000

EASY 8

The following stock dividends were declared and distributed by Mike Company:

% of common stock outstanding at declaration date Fair Value Par Value

10% 1,500,000 1,000,000
20% 4,000,000 3,500.000

What aggregate amount should be debited to retained earnings for these stock dividends?

ANSWER: P5,000,000

10% stock dividend at fair value 1,500,000

20% stock dividend at par value 3,500,000
Total amount debited to retained earnings 5,000,000

EASY 9

Paris Corporation incurred P198,900 of research and development costs to develop a product for which
a patent was granted on January 2, 2014. Legal fees and other costs associated with registration of the
patent totaled P44,200. On January 2, 2017, Paris paid P62,400 for legal fees in a successful defense of
the patent. The patent has a useful economic life of 20 years. What amount should Paris record as
amortization expense for 2017?

ANSWER: P2,210

Legal fees and other costs for registration of the patentP44,200

Legal life 20 years
Annual amortization P2,210

IAS 38 Intangible Assets states that an intangible asset shall be recognized if and only if: (a) it is
probable that the expected future economic benefits that are attributable to the asset will flow to the
entity, and (b) the cost can be measured reliably. Based on the given facts, only legal fees and other
costs for registration can be capitalized as cost of the patent.

Legal fees for the successful defense cannot be capitalized as it is incurred only to maintain the asset
and will not enhance and contribute to the expected future benefits from the patent.

Research and development costs as a rule are not capitalized except for development costs under
strict conditions in PAS 38 of which the problem is silent.

EASY 10

Mackerel, a company listed on a recognized stock exchange, reports operating results from its North
American activities to its chief operating decision maker. The segment information for the year is:

Revenue P3,675,000
Profit 970,000
Assets 1,700,000
Number of employees 2,500

Mackerel's results for all of its segments in total are:

Revenue P39,250,000
Profit 9,600,000
Assets 17,500,000
Number of employees 18,500

According to IFRS 8 Operating segments, which piece of information determines for Mackerel that the
North American activities are a reportable segment?

a) Revenue
b) Profit
c) Assets
d) Number of employees
ANSWER: B

AVERAGE 1

When an owner-occupied property becomes an investment property to be carried at fair value, the
resulting increase in carrying amount is:

a. treated to the extent that the increase reverses a previous impairment loss, the increase is
recognized in other comprehensive income.
b. treated as part of other comprehensive income or revaluation surplus within equity, if no previous
impairment has been recorded.
c. recognized directly to profit or loss.
d. None of the above.

ANSWER: B

Paragraph 62 of PAS 40 Investment Property

TRANSFERS

Up to the date when an owner-occupied property becomes an investment property carried at fair
value, an entity depreciates the property and recognizes any impairment losses that have occurred.
The entity treats any difference at that date between the carrying amount of the property in
accordance with IAS 16 and its fair value in the same way as a revaluation in accordance with IAS 16.
In other words:

a) any resulting decrease in the carrying amount of the property is recognized in profit or loss.
However, to the extent that an amount is included in revaluation surplus for that property, the
decrease is recognized in other comprehensive income and reduces the revaluation surplus within
equity.
b) any resulting increase in the carrying amount is treated as follows:
i. to the extent that the increase reverses a previous impairment loss for that property, the
increase is recognized in profit or loss. The amount recognized in profit or loss does not exceed
the amount needed to restore the carrying amount to the carrying amount that would have
been determined (net of depreciation) had no impairment loss been recognized.
ii. any remaining part of the increase is recognized in other comprehensive income and increases
the revaluation surplus within equity. On subsequent disposal of the investment property, the
revaluation surplus included in equity may be transferred to retained earnings. The transfer
from revaluation surplus to retained earnings is not made through profit or loss.

AVERAGE 2

Service Company markets products to real estate agents and to new homeowners, purchased a
customer list for P600,000 on January 2, 2017. Because turnover among real-estate agents and new
homeowners gradually become established homeowners, the list is expected to have economic value
for only four years. The Company uses the straight-line method of depreciation. In January 2018, the
customer list was tested for impairment as a result of substantial turndown in the real estate market in
the area. It is estimated that the customer list will generate future cash flows of P100,000 per year for
the next three years and that the fair value (less costs to sell) of the customer list is P240,000. The
market rate of interest on this date is 8%. Round PV factor to 3 decimal places. What amount of
impairment loss on customer lists should Service Company recognize?

ANSWER: P192,300

Recoverable amount (Note A) P257,700

Carrying value (600,000 x ¾) (450,000)
Impairment Loss P192,300
Note A - Recoverable amount is higher between:
Fair value less cost to sell P240,000
Value in use (P100,000 x 2.577) P257,700

AVERAGE 3

The Whitianga Company commenced the construction of a new packaging plant on 1 February 20X7.
The cost of PHP1,800,000 was funded from existing borrowings. The construction was completed on 30
September 20X7. Whitianga's borrowings during 20X7 comprised:

Loan from Largo Bank: PHP800,000 at 6% per annum;

Loan from Andante Bank: PHP1 million at 6.6% per annum; and
Loan from Allegro Bank: PHP3 million at 7% per annum.

In accordance with IAS23 Borrowing costs, the amount of borrowing costs to be capitalized in relation to
the packaging plant is

ANSWER: P81,000

The answer is PHP81,000.

The weighted average is calculated as follows, per IAS23 para 12.
(800,000 x 0.06) + (1,000,000 x 0.066) + (3,000,000 x 0.07) = 6.75%
(800,000 + 1,000,000 + 3,000,000)
Borrowing costs to be capitalized:
Cost of asset 1,800,000 x 6.75% x 8/12 = PHP81,000

AVERAGE 4

Rowena Company grants 150 share options to each of its 500 employees on January 2, 2015, and
exercisable starting December 31, 2017 for a 2-year period. Each grant is conditional upon the employee
working for the entity over the next three years. Rowena estimates the fair value of each option is P40.
On the basis of weighted average probability, the entity estimates that 20% of the employees will leave
during the three-year period and forfeit their rights to share options. During the year 2015, 20
employees leave. During 2016, a further 22 employee leave. Due to low turnover as of December 31,
2016, Rowena revises its estimate of employee departures over the three-year period from 20% to 15%.
During 2017, a further 18 employees leave. What is the compensation expense to be recognized by
Antonia Company for the share options in 2017?

ANSWER: P940,000

Cumulative compensation expense 2017:

150 x 40 x (500-60) persons P2,640,000
Cumulative compensation expense 2016:
150 x 40 x (500 x 85%) persons x 2/3 1,700,000
Compensation expense – 2017 940,000

AVERAGE 5

Italy, Inc. began operations in January 2015, and reported the following results for each of its three
years of operations.

2015 P300,000 net loss

2016 30,000 net loss
2017 3,950,000 net income

At Dec 31, 2017, the company’s capital accounts were as follows:

5% cumulative preference shares, par value P100;

Authorized, 100,000 shares; issued and outstanding, 60,000 shares P6,000,000

Ordinary shares, par value P10; authorized,

1,000,000 shares; issued and outstanding,
800,000 shares 8,000,000

Italy, Inc. has never paid a cash or stock dividend and there has been no change in the capital accounts
since it began operations.

What is the book value of the preference and ordinary shares respectively, on Dec 31, 2017 assuming
that the preference shares have a liquidation value of P105 per share?

ANSWER: 120 Preference; 13.02 Ordinary

Excess Over Par Preference Ordinary

Balances P3,620,000 6,000,000 8,000,000
Liquidation Premium (300,000) 300,000
(P5 x 60,000)
Preference dividend (900,000) 900,000
(5% x P6,000,000 x 3yrs
Balance to ordinary shares 2,420,000 2,420,000
Total shareholder’s equity 7,200,000 10,420,000
 Shares outstanding ÷60,000 ÷800,000
Book value per share P120 13.02

AVERAGE 6

In year 1, Roasted, Inc. purchased a P1,000,000 life insurance policy on its president, of which Roasted is
the beneficiary. Information regarding the policy for the year ended December 31, year 4, follows:

Cash surrender value, 1/1/Y4 P87,000

Cash surrender value, 12/31/Y4 108,000
Annual advance premium paid 1/1/Y4 40,000

During year 4, dividends of P6,000 were applied to increase the cash surrender value of the policy. What
amount should Roasted report as life insurance expense for year 4?

ANSWER: P19,000

The cash surrender value (CSV) of the life insurance policy increased by P21,000 during year 4
(P108,000 – P87,000). Therefore, part of the premium paid is not expense but a payment to increase
the CSV. The formula to compute insurance expense is

Cash paid – (Ending CSV – Beginning CSV) – Cash dividends received

P40,000 – (P108,000 – P87,000) – P0 = P19,000

The dividends in this problem are not cash dividends received. They are dividends that the insurance
company applied to increase the CSV. They are not separately considered in the formula above
because the effect of the dividends is reflected in the increase in CSV, which is included in the formula.
Year 4 journal entries are presented below.

Cash surr. value P15,000 (P21,000 – P6,000)

Ins. Expense 25,000
Cash P40,000

Cash surr. value P6,000

Ins. expense 6,000

AVERAGE 7

• On January 1, 2017, Luther Company sold land with carrying amount of P 1,500,000 in exchange for
a 9-month, 10% note with face value of P2,000,000. The 10% rate properly reflects the time value of
money for this type of note.
• On April 1, 2017, Luther Company discounted the note with recourse. The bank discount rate is 12%.
The discounting transaction is accounted for as a secured borrowing.
What is the interest expense to be recognized by Luther Company on April 1, 2017?

ANSWER: 29,000
Principal 2,000,000
Interest (2,000,000 x 10% x 9/12) 150,000
Maturity value 2,150,000
Discount (2,150,000 x 12% x 6/12) 129,000
Net proceeds 2,021,000
Principal 2,000,000
Accrued interest receivable (2,000,000 x 10% x 3/12) 50,000
Book value of note receivable 2,050,000
Net proceeds 2,021,000
Less: Book value of note receivable 2,050,000
Interest expense (29,000)

AVERAGE 8

Alpha Finance granted a 10%, 2 year P5,000,000 loan to Omega Company on January 1, 2015. The
interest is payable every December 31 for each year during the term of the contract. Alpha Finance
incurred an origination cost of P328,326 but charge Omega Company P150,000 as origination fee. The
effective rate is now 8% after considering the origination costs and origination fee. Due to financial
difficulty, Omega was unable to pay the interest on December 31, 2015. Alpha Finance has now
considered that the loan to Omega Company is now impaired. Reliable estimate shows that the
projected cash flows from the loan are as follows: P2,000,000 on December 31, 2016 and P3,000,000 on
December 31, 2017. What amount of impairment loss on the loan should Alpha Finance recognize on
December 31, 2015?

ANSWER: 668, 723

Answer: C
January 1, 2015 5,178,326
December 31, 2015 500,000 - 414,266 = 85,734 5,092,592.08
December 31, 2016 500,000 - 407,407 = 92,592 5,000,000
Present value
2,000,000 x .925926 = 1,851,852
3,000,000 x .857339 = 2,572,017 4,423,868.313
Amortized cost 5,092,592
Less: Present value 4,423,869
Impairment loss 668,723

AVERAGE 9

On June 30, 2017, Kimmy Company sold equipment with an estimated useful life of 10 years and
immediately leased it back for 5 years. The equipment’s carrying amount was P820,000. The sales price
was P750,000. The fair value of the equipment was P790,000. The lease agreement is an operating
lease.

What amount of deferred loss should the Company recognize on June 30, 2017 assuming future rental is
equal to market rate rent?

ANSWER: P0
PAS 17 Leases provides that for operating leases, if the sales price is below fair value, any profit or loss
shall be recognized immediately, except that if the loss is compensated by future lease payments at
below market price, it shall be deferred and amortized in proportion to the lease payments over the
period for which the asset is expected to be used. Since the loss is not compensated by lower future
rentals, the loss is not deferred and expensed immediately.

Fair Value P790,000

Selling Price (750,000)
Loss recognized outright 40,000
Deferred loss P-0-

AVERAGE 10

On December 31, 2017, Ronnin Company has 200,000 ordinary shares outstanding with a par value of
P100 per share. Information revealed that Ronnin had a 9% convertible debenture, P1,000,000 face
value bonds. The bond has a carrying value of P1,067,830 as of January 2, 2017 based on a prevailing
rate of 7%. Each 1,000 bond is convertible into 20 ordinary shares. The bonds were dated January 1,
2017. Net income after tax of 32% for 2015 was P418,000.

How much should Ronnin Company report as diluted earnings per share in its financial statements?

ANSWER: P2.09

Basic earnings per share (P418,000/200,000) P2.09

Diluted earnings per share:
Net income after tax 418,000
Interest after tax of convertible debt
P1,067,380 x 7% x (1-32%) 50,807
Total 468,807
Outstanding shares if bond was converted from the beginning [200,000 + (1,000,000/1,000 x 20)]
220,000

Earnings per share 2.13

Diluted earnings per share P2.09

Because diluted earnings per share is increased when taking into account the convertible bond, the
convertible bond is antidilutive and is ignored in the calculation of diluted earnings per share.
Therefore, diluted earnings per share is equal to the basic earnings per share of P2.09.
ANSWER: A
DIFFICULT 1

Which of the following statements is false about IAS 16’s and IAS 18’s treatment of derecognition?

a) The two rules from IAS 18 for determining the date of disposal are the entity has transferred to
the buyer the significant risks and rewards of ownership of the asset, and the costs incurred or
to be incurred in respect of the transaction can be measured reliably.
b) Gains and losses on derecognition are taken to the income statement, being the difference
between the asset’s carrying value and the net disposal proceeds, if any.
c) Assets should be eliminated from the balance sheet on disposal or when no future economic
benefits are expected from their use or disposal.
d) IAS 16 stresses that gains on disposal of assets should not be classified as revenue

ANSWER: A

DIFFICULT 2

Which of the following statements regarding interest methods of allocations is not true?

a. The term “interest methods of allocation” refers both to the convention for periodic reporting and
to the several approaches to dealing with changes in estimated future cash flows.
b. Interest methods of allocation are reporting conventions that use present value techniques in the
absence of a fresh-start measurement to compute changes in the carrying amount of an asset or
liability from one period to the next.
c. Interest methods of allocation are grounded in the notion of current cost.
d. Holding gains and losses are generally excluded from allocation systems.

ANSWER: C

Like depreciation and amortization conventions, interest methods are grounded in notions of
historical cost, not current cost.

DIFFICULT 3

Which of the following is/are true, about the consensus regarding IFRIC 1?
a) If the related asset is measured using the cost model, a change in the existing decommissioning,
restoration or similar liability related to cash flows or discount rate shall be added to or deducted
from the cost of the related asset in the current period.
b) The amount deducted from the cost of the asset shall not exceed its carrying amount. If a decrease
in the liability exceeds the carrying amount of the asset, the excess shall be recognized immediately
in profit or loss.
c) The adjusted depreciable amount of the asset is depreciated over its useful life. Therefore, once the
related asset has reached the end of its useful life, all subsequent changes in the liability shall be
recognized in profit or loss as they occur. This applies under the cost model, but not the revaluation
model.
d) A and B only
e) A, B and C
ANSWER: D

DIFFICULT 2

Assuming that Waveland Inc. uses the conventional retail inventory method, compute the cost of its
ending inventory at December 31, 2017:

Beginning inventory at cost 250,000

Beginning inventory at retail 390,000
Purchases at cost 914,500
Purchases at sales price 1,460,000
Purchase returns at cost 60,000
Purchase returns at sales price 80,000
Purchase discounts 18,000
Freight-in 42,000
Markups 120,000
Markup cancellation 40,000
Markdowns 45,000
Markdown cancellations 20,000
Employee discount granted 8,000
Loss from breakage (normal) 4,500
Gross sales revenue after employee discount 1,410,000
Sales returns 97,500

ANSWER: P305,000

P500,000*61% = P305,000

DIFFICULT 5

A manufacturer gives warranties at the time of sale to purchasers of its product. Under the terms of the
contract for sale the manufacturer undertakes to make good, by repair or replacement, manufacturing
defects that become apparent within one year from the date of sale. On the basis of experience, it is
probable that there will be some claims under the warranties.

Sales of Php10,000,000 were made evenly throughout 2016.

At December 31, 2016 the expenditures for warranty repairs and replacements for the product sold in
2016 are expected to be made 50 percent in 2016 and 50 percent in 2017. Assume for simplicity that all
the 2017 outflows of economic benefits related to the warranty repairs and replacements take place on
June 30, 2017.

Experience indicates that 95 percent of products require no warranty repairs, 3 percent of products sold
require minor repairs costing 10 percent of sales price; and 2 percent of products sold require major
repairs and replacement costing 90 percent of sales price. There is no reason to believe future warranty
claims will be different from its experience.

At December 31, 2016 the discount rate for expected cash flows is 10.25 percent for 2017. Furthermore,
an appropriate risk adjustment factor to reflect uncertainties in the cash flow estimates is an increment
of 6 percent.

On December 31, 2016, the entity recognizes a warranty provision measured at:

ANSWER: Php106,000
Expected cash flow:
Minor repairs P10,000,000 x (3% x 10%) Php30,000
Major repairs and replacement
P10,000,000 x (2% x 90%) 180,000
Total 210,000

To be paid in 2016 (210,000 x 50%) 105,000

Risk adjusted amount (105,000 x 106%) 111,300

PV factor [1/(1+0.1025)^(6/12)] 0.9524
Warranty Provision (111,300 x 0.9524) Php106,000

DIFFICULT 6

The following are the details abstracted from the records of CINDY Corp.

i. The President is to receive a bonus consisting of a basic amount equivalent to 5% of the

Company’s net income before deduction of bonus but after deduction of corporate income tax.
ii. In addition, the basic bonus will be increased by the Company’s tax savings because the total
amount of bonus is deductible in computing the Company’s taxable income. The tax savings is
the difference between the income tax the Company would have paid if there were no bonus
and the taxes the Company must pay after deducting the bonus.
iii. CINDY Corp. reported a net income of P280,000 in 2017 before deduction of the President’s
bonus and the corporate income tax.
iv. The Company is subject to a corporate income tax of 35% of its net income after deducting the
President’s bonus.

Compute for the total amount of bonus the President should receive in 2017.

ANSWER: P14,387

B=(5%)(280,000 – T) + ((280,000 x 35%) - T)

T=35% x (280,000 – B)
T=98,000 – 0.35B
B=5%(280,000– 98,000+ 0.35B) + (98,000 – 98,000 +0.35B)
B=5% (182,000 + 0.35B) +0.35B
B=9,100 + 0.0175B + 0.35B
0.6325B=9,100
B=14,387

DIFFICULT 7

Jackson Company is engaged in a small export business. The Company maintains limited records. Most
of the Company’s transactions are summarized in a cash journal while; non-cash transactions are
recorded by making memo entries. The following are abstracted from the Company’s records.

Accounts receivable 370,000 Increase

Notes receivable 200,000 Decrease
Accounts payable 150,000 Decrease
Notes payable-trade 200,000 Increase
Notes payable-bank 300,000 Increase
Sales returns 30,000
Sales discounts 20,000
Purchase returns 80,000
Purchase discounts 35,000
Accounts written – off 60,000
Recovery of accounts written off 18,000
Cash sales 300,000
Cash purchases 250,000
Cash received from account customers 1,500,000
Cash payment to trade creditors 1,200,000

What is the amount of gross sales?

ANSWER: P2,062,000

Increase in accounts receivable P 370,000

Sales returns 30,000
Accounts written off 60,000
Collection 1,500,000
Sales Discount 20,000
Total P1,980,000
Less: Decrease in notes receivable P200,000
Recovery of write-off 18,000 218,000
Sales on account P1,762,000
Cash Sales 300,000
Gross sales P2,062,000

DIFFICULT 9

Below are the account balances prepared by the bookkeeper for Jack & Jill Company as of December 31,
2015:
 Cash P 1,465,000
Accts receivable, net 930,007
Inventories 750,000
Investments 763,000

Additional information:

 Included in the cash account are: Cash for the retirement of bonds payable of P600,000; Contingency
fund of P500,000; Three-months money market funds of P750,000 and short term operating funds of
P50,000.

 The receivable includes, among others; Customers’ account with credit balance of P45,000; Share
subscription receivable of P100,000 collectible within two years from initial recognition. Shares were
originally subscribed on January 2, 2015. Also, it included a P600,000 (which had been past due for 6
months) charged to the account of customer Seven Seas which at the moment is experiencing financial
difficulty but promised to pay in full with in a period of three years. The delivery of the full amount will
be as follows: P100,000 at the end of 2016; P200,000 at the end of 2017 and P300,000 at the end of
2018. Jack Company agreed to the terms of payment and charges no interest for the future recovery of
recognized receivable. Implicit rate of interest for a similar financial asset at the time the receivable was
originally recognized is 9%.

 Inventories do not include goods costing P100,000 sent to a consignee, however, Jack Company charged
the consignee for the total sales value of the goods. The amount charge against the consignee was
included in the receivable. The goods are mark to sell at 25% on cost. The “account sales” (report from
the consignee) revealed that 75% of the goods were already sold. Charges of the consignee are as
follows: 8% commission on the sales value of merchandise sold and a P10,000 delivery cost for
merchandise received on consignment and a P3,000 delivery cost for goods sold.

 The investment account included among others the following: Prepaid operating costs, P30,000;
Investment in equity to profit or loss, P150,000; Investment in equity at fair value to other
comprehensive income, P200,000; Investment in associate, P700,000. The fair value of the investment in
equity to profit or loss is P170,000 while the investment in equity at fair value to other comprehensive
income has a fair value of P250,000. The other investments had no determinable fair value at the end of
year 2015.

How much of the above accounts should be reported as current assets and non-current assets for the
year ended December 31, 2015?

ANSWER: P1,757,500; P2,132,991

DIFFICULT 10

Yin-Yang Company is involved in the exploration for and extraction of mineral resources. The Company’s
accounting policy for recognition purpose for these types of activities is the “successful effort” method.

On January 1, 2016 Yin-Yang Company acquired two quarrying rights. A schedule of the expenditures
made with respect to the quarrying sites is provided as follows:
 Site O Site X
Quarrying rights 2,300,000 1,000,000
Topographical studies 1,200,000 200,000
Exploratory drilling 1,100,000 300,000
Trenching and sampling 1,600,000 400,000
Development costs (road construction to access site) 1,400,000 100,000
Depreciation of drilling rigs used for exploration 300,000 120,000

At the end of 2016 Yin-Yang Company had decided to continue exploration and extraction activities in
site O (technically and commercial viable). Unfortunately, further exploratory and development plans on
site X would be abandoned (not technically feasible and viable)

On January 1, 2017 Yin-Yang started extracting the mineral reserves from site O. It was expected that a
total of 10,000,000 tons of mineral ore would be extracted from the site and it would be totally
extracted within 8 years.

Yin-Yang Company acquired an extraction equipment for P600,000. The equipment which Yin-Yang
Company intends to use in another mining site was estimated to have a useful life of 12 years with
salvage value of P5,000.

Fixed installations were likewise completed at the start of 2017. The total cost incurred was P800,000.
The installations expected useful life is 10 years with no expected salvage value. Yin-Yang Company uses
the straight-line method as its depreciation policy for its long-lived assets.

Total tons extracted in 2017 and 2018 were 1,200,000 and 1,600,000 respectively.

Determine the amount of Depletion and Depreciation for 2018.

ANSWER: Year 2018 P1,040,000; P177,583

The exploration and evaluation assets to be reported in the 2016 statement of financial position is
a. 6,500,000 b. 7,900,000 c. 8,520,000 d. 8,620,000

Depletion for 2017

a. 780,000 b. 948,000 c. 876,000 d. 1,044,000

Depreciation for 2017

a. 145,583 b. 129,583 c. 167,400 d. 174,375
AVERAGE 4

The records of Binmaley’s Department Store report the following data for the month of January 2017:

Sales P 7,100,000
Sales allowance 100,000
Sales returns 500,000
Employee discounts 200,000
Theft and other losses 100,000
Initial markup on purchases 2,900,000
Additional mark up 250,000
Mark up cancellations 100,000
Mark down 600,000
Mark down cancellations 100,000
Freight on purchases 100,000
Purchases at cost 4,500,000
Purchase returns at cost 240,000
Purchase returns at sales price 350,000
Beginning inventory at cost 440,000
Beginning inventory at sales price 800,000

Using the average retail inventory method, Binmaley’s ending inventory is

ANSWER: P384,000

Question No. 47 (DIFFICULT)

At the end of January 2013, the city government provided SUNJI Company a zero interest P30,000,000
3-year loan used by the Company in acquiring a building on the same date. The prevailing market rate
of interest for this type of loan is 8%. The government imposes that the building must be used for
social housing for ten years. The Company estimated that there is reasonable assurance that it will
meet the terms of the grant. The Company will classify the building as owner occupied property after
the socialized housing project. The Company opted to use the cost model of accounting the building
with a 15-year life from the date of acquisition.

Applying provisions of PAS 20 – Accounting for Government Grants and Disclosures of Government
Assistance, what is the amount recognized as income from the grant as of December 31, 2013?
(Round PV factors to 4 decimal places)
0.7938
23,814,000

Answer: P567,050

An entity plans to dispose of a group of its assets (as an asset sale). The assets form a disposal group,
and are measured as follows:

Carrying amount Carrying amount as

before re-measured
 reclassification as immediately before
held for sale reclassification as
held for sale
Goodwill P 1,500,000 P 1,500,000
PPE (carried at revalued amount) 4,600,000 4,000,000
PPE (carried at cost) 5,700,000 5,700,000
Inventory 2,400,000 2,200,000
Investment in equity securities 1,800,000 1,500,000
Total P16,000,000 P14,900,000

The entity measures the fair value less costs to sell of the disposal group as P13,000,000.

Determine the carrying amount of the PPE (carried at revalued amount) after classifying the group as
held for sale. (Round off amounts in nearest peso)

ANSWER: P3,835,052