Part II

1. Roseneft Co. uses the perpetual inventory system. The transaction for August of current
year were as follow:
Units UC Total Cost
Aug. 1 Beg 20,000 4.00 80,000
Purchase 10,000 4.20 42,000
Purchase 10,000 4.30 86,000
Sale 15,000 ? (60,000)
Purchase 20,000 4.60 92,000
Sale 40,000 ? ?
Sales Return 30,000 ? ?

The sales return relates to the August 20 sale. If the FIFO Cost Flow method is used, the sales
return would be costed back into inventory at what unit cost?
Ans. 4.60

2. On Nov. 15, 2011, Drax Co. Entered into a commitment purchase 10,000 ounces of good on
Feb 15, 2012 at a price of P310 per ounce. On 2011, price is P270 per ounce. On Feb. 15,
2012, the price of gold is P300 per ounce.
Ans. 300-270= 30 x 10,000= 300,000

2. The accountant for SONAE Co. Examined the petty cash fund immediately after the close of
business, July 31, 2015 the end of the company natural business year. The petty cash
custodian presented the following during the count.

Currency 1,650
Petty Cash vouchers:
Postage 420
OSE 900
T Expense 340
Computer Repairs 800
Advance to office staff 1500

 A check drawn by SONAE, payable to petty cash custodian P7,200.

 Postage stamps P300
 An employee check, returned by bank, marked NSF P1,000.
 An envelope containing currency of P1890 for a gift for a retiring employee.
The general ledger shows an imprest petty cash fund balance of P12, 500.
Ans. 1,310 Overage

3. The following data are assembled by the accountant of H.Co.

Nov. 30, 2015 Dec. 31, 2015
Cash Account balance P 41,175 P 100,712.50
Bank Statement Balance P 267,705 P 344,542.50
DIT P 20,502.50 P 32,200
OC P 69,295 P 75,280
BSC P 1,800,000 P 1,500
NSF P 20,625
Company’s notes receivable P 179,537.50 P 202,250
collected by bank

The bank statement, the company’s cash records shows the following totals:
Canceled check and DM per bank statement P 595,932.50
Cash receipt per cash book P 411,592.50
Checks written per cash book P 529,792.50
Deposits and CM per bank statement P 622,770.00

Adjusted book balance on December 31?

Ans. P 301, 462.50
For Questions 4-5.
Fitness Co. Uses soybeans to make one of their nutritional supplemental products. Fitness
anticipates a need of 25,000 pounds of soybeans on January of 2012. On October 1, Fitness
purchase a call option for 25,000 pounds of soybeans on January 1, 2012 at a price of P20 per
pound, which is the market price on October 1. Fitness paid P60,000 for their call option and
designated this option as a hedge against price fluctuations for their January purchase of
soybeans. On December 31, 2011, and January 2, 2012, the prevailing market price for
soybeans is P23 per pound.

4. The unrealized gain or loss to be recognized in equity as of December 31, 2011 is:
Ans. P15,000 gain
5. If the prevailing market price is P18 per pound on December 31, 2011, the unrealized gain
or loss to be recognized in equity as of December 31, 2011.
Ans. P60, 000 loss

6. Bunge Co. Purchased a P1,000,000 ordinary life insurance policy on its president. The
policy year and Bunge’s accounting year coincide. Additional data available for the year ended
December 31, 2011:

Cash Surrender Value, January 1 P 43,500

Cash Surrender Value, December 31 P 54,000
Annual advance premium paid January 1 P 20,000
Dividend received July 1 P 3,000

Bunge Co. is the beneficiary under the life insurance policy. How much should Bunge report as
life insurance expense for 2011?
Ans. P6, 500

7. The following relates to non current investments that Fondaria-SAI Company placed in trust
as required by the underwriter of its bonds.

Bond Sinking Fund balance, January 1, P 4,000,000

2011
2011 additional Investments P 900,000
Dividends on Investments P 150,000
Interest Revenue P 300,000
Administration Costs P 50,000
Carrying Amount of Bonds Payable P 8,000,000

What amount should Fondaria report on December 31, 2011 related to its non current
investment for bond sinking fond requirements?
Ans. P5,300,000

For Questions 8-11.

On acquisition date, Pitney Co. Designates purchased debt and equity securities available for
sale. Pitney’s intent in buying investment in securities is to sell the instrument to contractual
maturity and realize fair value changes and earn profit from short-term fluctuations in price.
Pitney’s fiscal year ends on December 31. No investments were held by the company at the
beginning of the year. Described below are the company’s investment transactions.
2011
MARCH 1 Purchased 1 million, PG Inc ordinary shares for P62 Million, plus brokerage fees
and commissions of 1/2 of 1%.
APRIL 15 Purchased P100 million of 10% bonds at Face Value from OW Corporation.
JULY 23 Received cash dividends of P1,500,000 on the investment in PG, Inc. on March
1
OCT 15 Received semiannual interest of P5,000,000 on the investment in OW
Corporation.
OCT 16 Sold the OW Corporation bonds for P102.5 million
NOV 2 Purchased 250,000 ESP Co. Preference shares for P20 million, plus
commission of 1/2 of 1%.
DEC 31 Recorded the necessary adjusting entries relating to the investment. The market
values of the investments are P64 per share for PG Inc. and P74 per share for
ESP Co. Preference share.
2012
JAN 27 Sold half the PG Inc. Share for P65 per share.
MAR 2 Sold the ESP Co. Preference share for P78 per share.
8. What is the gain (loss) on the sale of the OW Corporation bonds on October 16, 2011?
Ans. P2,500,000
9. What is the total amount that would be reported on Pitney’s December 31, 2011, statement
of comprehensive income relative to these investments?
Ans. P 9,090,000
10. What is the gain (loss) on the sale of the PG Inc. shares on January 27, 2012?
Ans. P500,000
11. What is the gain (loss) on the sale of the ESP Co. Preference shares on March 2, 2012?
Ans. P1,000,000
For Questions 12-13.
Galp Company’s investments in debt and equity securities reveals the following information:
A. ) On January 1, 2011, X Company issued P500,000 in debt securities. The stated
interest is 8% with interest payable semiannually, on June 30 and December 31. On
February 1, Galp purchased these debt securities from an investor who acquired them
when they were originally issued. Galp paid the investor an amount equal to the face
value of the securities plus accrued interest. The securities were designated as held-for-
trading.
B. ) On June 1, Galp purchased 10,000 shares of equity securities for P32 per share.
These securities were designated as financial asset at Fair Value through other
comprehensive income. Galp paid P200 broker’s commission on the purchase.

12. The entry to record acquisition of debt securities on January 1 is:

Ans. Investment in Trading Securities 500,000
Interest Income 3,333
Cash 503,333
13. The entry to record purchase of equity securities on June 1 is:
Ans. Investment in Financial Assets through OCI 320,200
Cash 320,200
14. On January 1, 2015, Granger Co. Purchased debt securities with a face value of P500,000.
The seucrities mature in 7 years and are classified as Financial Asset at Amortized cost. The
securities have a stated interest rate of 8%, and interest is paid semi annually, on January 1,
and July 1. The prevailing market interest rate on these debt securities is 12% compounded
semiannually.
The following present value factors are taken from the present value tables:
Present Value of 1 at:
12% for 7 periods 0.45235 8% for 7 periods 0.58349
6% for 14 perods 0.44230 4% for 14 periods 0.57748
Present Value of an Ordinary Annuity of 1 at:
12% for 7 periods 4.56376 8% for 7 periods 5.20637
6% for 14 periods 9.29498 4% for 14 periods 10.56312
What is the Fair Value of the debt securities on January 1, 2015?
Ans. P407,050
For Questions 15-16.
On January 1, 2015, Resona Company purchased debt securities for cash P765,540. The
securities have a face value of P600,000 and they mature in 15 years. The securities carry
fixed interest of 10%, that is receivable semiannually, on June 30 and December 31. The
prevailing market interest rate on these debt securities ids 7% compounded semi-annually.
Resona Company’s business model is to hold the assets and collect the contractual cash flows
and the contractual terms of the financial asset give rise to specific dates, to cash flows that
are solely payments of principal and interest on the principal outstanding.
15. The carrying value of the debt securities on December 31, 2015, at amortized cost using
the effective interest rate method is:
Ans. P759, 016
16. The interest income to be reported for 2015 using the effective interest rate method is:
Ans. P53,476.

17. Lagardere Co. Holds 60,000 shares of Stock A and 120,0000 shares of Stock B. The
company classifies Stock A as a trading security and stock b as a Financial Asset Through
OCI. The company received dividends of P2.50 per share from Stock A and P0.65 per share
from Stock B.
How much dividend should be reported as revenue in Lagardere’s statement of
Comprehensive Income?
Ans. P228,000
For Questions 18-19.
Company Azkal has 15% interest in the shares outstanding of Bruhi Company which it
acquired at P4,000,000. Company Azkal designated its holding at the date of initial recognition
as Investment to Other Comprehensive Income. The current fair value and carrying value of
the investment is P10,400,000. There is no active market in Bruhi Company’s shares. On
January 2, 2014, Company Azkal sell its 15% investment in Bruhi Company’s shares to
Sterling Bank for a consideration of P10,000,000 but retain a call option to purchase the
investment for P10,500,000 on December 31, 2015.
At the date of transfer, the call option is “out-of-the-money” meaning, the call option has no real
value because the strike price (which represents the price contract between Company Azkal
and the Sterling Bank) exceeds the market price of the stock.
18. What amount of Financial Asset Investment in Equity should Company Azkal immediately
recognize after transfer?
Ans. P10,400,000
19. What amount of Financial Liability should Company Azkal recognize associated with the
transfer on January 2, 2014?
Ans. P10,000,000
For Questions 20-21.
D’ Leteren Co. Bought 40% of the outstanding common shares of Iparinga Company on
January 2, 2011. At the date of purchase, the book value of Iparinga’s net assets was P77.5
million. The book values and fair values for all statement of Financial Position items were the
same except for inventory and plant facilities. The fair value exceeded book value by P500,000
for the inventory and by P2,000,000 for plant facilities. The estimated useful life of the plant
facilities is 8 years. All inventory acquired was sold during 2011. Iparinga reported net income
of P14,000,000 for the year ended December 31, 2011, and paid a cash dividend of
P3,000,000. DLeteren’s statement of financial position as of December 31,2011, shows an
amount of P44,100,000 as its investment in Iparinga Co.
20. Of an amount paid by D’Leteren for the 40% interest in Iparinga Company, how much is
attributable to goodwill?
Ans. P8,000,000
21. What should D’Leteren report on its statement of cash flows regarding its investment in
Iparinga Co.?
Ans. P40,000,000 cash out flow from Investing Activities and P1,200,000 cash inflow
among operating activities.
22. The December 31, 2015 trial balance of Kesco Co. Includes the following accounts:
Cash P 500,000
Petty Cash Fund P 20,000
Security Bank Current Account P 1,000,000
PNB Current account No.1 P 400,000
PNB Current account No.2 P (50,000)
BSP Treasury bill- 60 days P 3,000,000
BPI Time Deposit- 30 days P 2,000,000

 The cash on hand includes a customer postdated check of P100,000 and postal money
order of P40,000.
 The petty cash fund includes unreplenished petty cash vouchers for P2,000 and an
employee check for P3,000 dated January 31, 2016.
 A check of P200,000 was drawn against Security Bank Account, dated January 15, 2012,
*delivered to the payee and recorded December 31, 2016.
 The *BPI Time Deposit is set aside for acquisition of land and to be used as a factory site.
The statement of financial position on December 31, 2015 should show cash and cash
equivalent.
Ans. P4,965,000
30. The Crocodile Co. Was organized in 2010 to produce a single product. The company’s
production and sales records for the period 2010-2012 are summarized below:

No. Of Units Production Cost No. Of Units Sales Revenue

2010 340,000 1,530,000 200,000 1,870,000

2011 310,000 1,612,000 290,000 2,300,000
2012 270,000 1,539,000 260,000 2,210,000

All units produced in a given year are assigned the same average cost. Determine the Gross
Profit in 2012.
Ans. Sales 2,210,000- CGS 1,402,000= 808,000

31. Universal Corp. Prepares monthly income statements. A physical inventory is taken only at
year end, hence month end inventories must be estimated. All sales are made on accounts.
The rate of mark up on selling price is 50%.

June
Accounts Receivable, June 1 P 102,000
Accounts Receivable, June 30 P 153,000
Collection of Accounts Receivable P 255,000
Inventory, June 1 P 183,600
Purchases of inventory during June P 163,200

Cost of inventory on June 30?

Ans. 193,800
32. On the eve of June 15, 2008, a fire destroyed the entire merchandise inventory of
California. The merchandise were not insured with any insurance company. The ff. Data were
gathered:
Inventory 250,000
Purchases Jan.-June 15 1,500,000
Sales Jan.-June 15 2,000,000
Mark Up Percentage on Sales 25%
What is the approximate inventory loss as a result of the fire?
Ans. P250,000
33. ATN Co. Was organized on Jan. 1, 2010. On December 31, 2011, the company lost most
of its inventory in a warehouse fire just before the year end count of inventory was to place.
The company’s records disclosed the ff. Data:
2010 2011
Inventory Jan.1 0 204,000
Purchases 860,000 692,000
Purchase and Return and Allowances 46,120 64,600
Sales 788,000 836,000
Sales Returns and Allowances 16,000 20,000
On Jan. 1, 2011, ATN’s pricing policy was changed so that the gross profit would be three
percentage points higher than the one earned on 2010.
Salvaged undamaged merchandise marked to sell at P15,000 had an estimated realizable
value of P3,600. How much is the inventory fire loss?
Ans. 189,400
34. On September 14, 2019, P. Co. Damaged a warehouse of S. Co. The entire company and
many accounting records stored in a warehouse were completely destroyed. Aalthough the
inventory was not insured, a portion could be sold for scrap. The company back up files
provide the following information.
Inventory P 750,000
Cash Sales Jan. 1-Sept.14 P 445,000
Purchases Jan. 1-Sept.14 P 2,770,000
Collections of AR January-September 14 P 4,320,000
Accounts Receivable January 1 P 350,000
Accounts Receivable September 14 P 530,000
Salvage Value of Inventory P 15,000
Gross Profit Percentage on Sales P 32%

How much is the inventory loss?

Ans. P206,600
35. On Dec. 24, 2016, a fire destroyed totally the raw materials, bodega of MEDCO
Manufacturing Co.

Inventories Jan. 1, 2016 Dec. 31, 2016

Raw Materials 180,000 ?
Factory Supplies 12,000 10,000
Goods in Process 370,000 420,000
Finished Goods 440,000 450,000

Sales 2,400,00
Purchase of Raw Materials 800,000
Purchase of Factory Supplies 60,000
Freight in Raw Materials 30,000
Direct Labor 440,000
Manufacturing Overhead, 75% of direct
labor, Gross Profit 35% of Sales

Cost of raw materials destroyed by fire?

Ans. P160,000
36. On Nov. 30, 2016 a big flood caused severe damaged to the warehouse of Aries Prime Co.
The company suffered a big loss on its merchandise inventory.
The ff. Information was available from the accounting records of Aries:
01/01/16--11/30/16 2015
Merchandise Inventory 400,000 0
Purchases 2,380,000 2,240,000
Purchase Returns 60,000 40,000
Sales 3,120,000 2,400,000
Selling Expenses 120,000 100,000
Depreciation Charges 40,000 56,000

At the beginning of 2016, the company changed its policy on the selling prices of merchandise
in order to produce a gross profit rate of 5% higher than the gross profit rate in 2015.
Undamaged merchandise marked to sell at P200,000 were salvaged. Damaged merchandise
marked to sell at P30,000 had an estimated realizable value of P8,000.
What is the estimated inventory cost lost from the flood on November 30,2016?
Ans. P388,000
37. Presented below is info related to Alliance Global Co:
COST RETAIL
Inventory, January 1, 2016 P 250,000 390,000
Purchases 914,000 1,460,000
Purchase Returns 60,000 80,000
Purchase Discount 18,000 0
Gross Sales(after employee discounts) 0 1,260,000
Sales Returns 0 97,500
Mark Ups 0 120,000
Mark Up Cancellations 0 40,000
Mark Downs 0 45,000
Mark Down Cancellations 0 20,000
Freight In 79,000 0
Employee Discounts 0 8,000
Loss from Breakage 0 2,500

Assuming that Alliance uses the conventional retail inventory method, how much would be the
cost of its ending inventory at December 31, 2016?
Ans. P410,000
38. Which of the following statements relate to agricultural produce.
Which statement is correct?
I. In all cases, an entity shall measure agricultural produce at the point of harvest at fair vaalue
less cost to sell.
II. PAS 41 reflects the view that the fair value of agricultural produce at the point of harvest can
always be measured reliably.
Ans. Both I & II
39. An entity has issued the ff. Two types of financial instruments to raise capital.
 Convertible bonds which are redeemable for cash in five years of time. The holders have
the right to request the issue of a fixed number of new ordinary shares in lieu of cash. The
holders have not yet indicated whether they will exercise the right to receive the new
ordinary shares.
 Preference shares with no fixed date for redemption. The preference shares are
 redeemable for cash at any time in the future at the option of the issuer. The issuer must
give 6 months written notice of its intention to redeem the preference shares and no notice
has been given.
In accordance with PAS 32, classifications are:
Ans. CONVERTIBLE BONDS - Compound Instrument
PREFERENCE SHARES- Equity Instrument
40. On which of the following circumstances is derecognition of a financial asset not
appropriate?
Ans. The financial asset has been transferred and the entity has retained substantially
all the risks and rewards of ownership of the transferred asset.
41. J. Co. Acquired a real property for speculation purposes with the intention of selling it at a
higher price. The property was acquired at cash price of P3,000,000. The property has
P100,000 unpaid real property tax assumed by J. In addition, the company also paid the
following transaction costs:
Broker’s commission P 20,000
And the Registration Cost of P 35,000
How much should J. record the new asset?
Ans. P3, 155,000
42. At the beginning of the year 2010, F. Co. Has an investment property acquired at cost of
P2,000,000 that is to be acquired under the cost model. Depreciation of P50,000 is recognized
annually and periodic continuing repair costs of P5,000 per year as well as property tax of
P5,000 are incurred by the company on an annual basis. What should be the carrying value of
investment at the end of the year 2010?
Ans. P 1,950,000
43. Finatis Inc. Insures the life of its president for P6,000,000, the corporation being the
beneficiary of an ordinary life policy. The annual premium of P144,000 is payable every
January 2nd of the year. The policy is dated January 2, 2009, and carries the following cash
surrender values.
End of Policy Year Cash Surrender Value
2009 0
2010 0
2011 50, 400
2012 60, 000
2013 79, 200
2014 100, 800

The corporation follows the calendar year as its fiscal period. The president dies on September
30, 2014 and the policy is collected on December 2, 2014.
What is the gain in life insurance settlement?
Ans. P5, 868,600
44. An investor owns 10% of the ordinary shares of an investee throughout the year, the
investee has no preference shares outstanding. The investor’s interest gives the right to:
Ans. Receive dividends equal to 10% of the total dividend paid by the investee for the
year to shareholders.
45. In the prior year, an entity acquired at a premium 10-year bond as a long term investment.
At the end of the current year, the bond is quoted at a small discount. Which of the ff.
Situations is the most likely cause of the decline in the bonds market value?
Ans. Interest rates have increased since the investor purchased the bind.
46. How is the impairment test carried out for an investment in associate?
Ans. The entire carrying amount of an investment is tested for impairment by
comparing its recoverable amount with the carrying amount.
47. PAS 40 gives a choice between two different models as the accounting policy to be used in
relation to investment property. Which of the following disclosure shall be made when the fair
value model has been adopted?
Ans. Net gains or losses from the fair value adjustments.
48. Gains and Losses on the hedged asset or liability and the hedged instrument for a fair
value hedge shall be recognized:
Ans. In current earnings.
49. Bad Bananas Co. Has purchased 100,000 shares of X Corp. At a cost of P1,000,000 which
represents a 10% shareholding. Bad B. has the intent and ability to hold this investment for
long term and plans to classify it as Financial Asset at amortized cost and measure it at cost.
In which of the following categories can the management of Bad Bananas classify this
investment in equity securities.
Ans.
Amortized Cost FVTPL FVOCI
NO YES YES

50. On January 1, 2015, M.Co. enters into a forward contract to purchase on january 1, 2017,
a specified number of barrels of oil at a fixed price. Entity A is speculating that the entire price
of the oil will increase and plans to net settle the contract if the price increases. M.Co. Does
not pay anything to enter into the forward contact on January 1, 2015. M. Co. Does not
designate the forward contract as a hedging instrument. At the end of 2015, the fair value of
the forward contract has increased to P200,000. At the end of 2016, the fair value of the
forward contract has declined to P180,000.
How much should be recognized in 2016 profit or loss related to this forward contract.
Ans. P20,000