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NATIONAL FEDERATION OF JUNIOR PHILIPINNE INSTITUTE OF ACCOUNTANTS –NATIONAL CAPITAL REGIONFINANCIAL ACCOUNTING REPORTING (FAR) Which choice correctly describes the following statements? Statement I: If an entity cannot distinguish the research phase from the development phase, it should treat an exp...

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NATIONAL FEDERATION OF JUNIOR PHILIPINNE INSTITUTE OF ACCOUNTANTS – NATIONAL CAPITAL REGION FINANCIAL ACCOUNTING REPORTING (FAR) 1. Which choice correctly describes the following statements? Statement I:If an entity cannot distinguish the research phase from the development phase, it should treat an expenditure on a project as if it were incurred in the research phase only and recognize an expense accordingly. Statement II:If it is difficult to distinguish between a change in accounting estimate and a change in accounting policy, then the change is treated as a change in estimate and must be accounted for currently and prospectively. Statement III:In rare circumstances, when a retirement benefit plan has attributes of both defined benefit plan and defined contribution plan, the plan is deemed as a defined contribution plan. a. Only statement I is false b. Only statement II is true c. Only statement III is true d. Only statement III is false 2.

Which is the correct order of the following steps in the accounting cycle? Step 1: Preparation of financial statements Step 2: Making closing entries in the general journal Step 3: Posting transaction entries in the general ledger Step 4: Making reversing entries in the general journal a. 2,3,4,1 b. 3,1,2,4 c. 2,4,3,1 d. 3,1,4,2

3.

Which of the following terms is NOT descriptive of SMEs? a. b. c. d.

Private entities Listed companies Small and medium-sized entities Non-publicly accountable entities

4.

What PAS a. b. c. d.

criterion is excluded in the definition of cash equivalents under 7? Subject to an insignificant change in value Short-term, highly liquid investments Investment in high-quality instruments Readily convertible to known amounts of cash

5.

The following data pertaining to the cash transactions and bank account of Squires Company for May 2017: Cash balance, per accounting records, May 31, 2017 P171,940 Cash balance, per bank statement, May 31, 2017 319,480 Bank service charge for May 1,090 Debit memo for the cost of printed checks delivered by the bank: the charged has not been recorded in the accounting records 1,250 Outstanding checks, May 31, 2017 67,280 Deposit in May 30 not recorded by bank until June 1 48,800 Proceeds of bank loan on May 30, not recorded in the accounting records 57,000 Check number 1008 issued to a supplier entered in the accounting records as P21,000 but deducted in the bank statement at an erroneous amount of 12,000 Stolen check lacking an authorized signature, deducted from Squires account by the bank in error 8,000 Customer’s check returned by the bank marked NSF, indicating that the customer’s balance was not adequate to cover the check, no entry has been made in the accounting records to record the returned check 7,600 What is the correct cash balance of Squire Company for the month ended May 31, 2017?

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14 a. P291,150 b. P300,000 6.

c. d.

P309,000 P310,090

Which of the following is LEAST likely to be included in the cost of inventory? a. Freight In b. Cost to store goods c. Purchase cost of goods d. Excise tax on goods purchased

7. The proprietor of Patrick Company, has apprehensions of possible pilferage in merchandise inventory for December 31, 2017, he requested you to have test checks based on available information and report to him your findings. The following data were furnished to you:

Physical inventory, at cost Sales, net Cost of sales Accounts receivable – trade Accounts payable – trade

P

12/31/16 450,000 4,000,000 2,400,000 200,000 500,000

12/31/17 P402,000

350,000 420,000

Additional information: In 2017, accounts receivable of P20,000 was written-off. Total Sales returns were P10,000 and purchase returns, P30,000. Cash receipts from customers (after P30,000 discounts) totaled P6,000,000 while cash payments to trade creditors amounted to P4,000,000. Assuming gross profit rate in 2017 is the same as in 2016, what is the amount of inventory shortage as of December 31, 2017? c. P248,000 a. P220,000

b. P230,000

d.

P252,000

8. Omega Finance granted a 10%, 2-year P5,000,000 loan to Duchess Company on January 1, 2017. The interest is payable every December 31 for each year during the term of the contract. Omega Finance incurred an origination cost of P328,326 but charge Duchess Company P150,000 as origination fee. The effective rate is now 8% after considering the origination costs and origination fee. After paying the interest that is due on December 31, 2017, Duchess Company informed Omega Finance about their financial difficulty. Omega Finance has now considered that the loan to Duchess Company is now impaired. Reliable estimate shows that the projected cash flows from the loan are as follows: P2,000,000 on December 31, 2018 and P3,000,000 on December 31, 2019. What amount of impairment loss on the loan should Omega Finance recognize on December 31, 2017? a. None c. P462,963 b. P373,371 d. P668,723 9. Marceline Company has the following biological assets for the year 2017:

information

pertaining

to

its

A herd of 100, 2-year old animals was held at January 1, 2017. Ten animals aged 2.5 years were purchased on July 1, 2017 for P5,400, and ten animals were born on July 1, 2017. No animals were sold or disposed of during the period. Per unit fair values less estimated point-of-sale costs were as follows: 2.0-year old animal at January 1, 2017 Newborn animal at July 1, 2017 2.5-year old animal at July 1, 2017 Newborn animal at December 31, 2017 0.5-year old animal at December 31, 2017 2.0-year old animal at December 31, 2017 2.5-year old animal at December 31, 2017 3.0-year old animal at December 31, 2017

P5,000 3,500 5,400 3,600 4,000 5,250 5,550 6,000

What is the fair value of the biological assets as of December 31, 2017?

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14 a. P554,000 b. P581,500

c. d.

P700,000 P735,000

10. Which of the following shall be treated as part of PPE (Property, Plant & Equipment) according to PAS 38 on intangible assets? a. Operating system b. Application software c. Digitally stored database d. Outsourced online program 11. Margot Corporation has one of its many departments that perform machining operations on parts that are sold to contractors. A group of machines have an aggregate book value at the latest balance sheet date (December 31, 2017) totaling P369,000. It has been determined that this group of machinery constitutes a cash generating unit for purposes of applying PAS 36. Upon analysis, the following facts about future expected cash inflows and outflows become apparent based on the diminishing productivity expected of the machinery as it ages, and the increasing costs that will be incurred to generate output from the machines.

Year 2016 2017 2018 2019 Total

Revenues P225,000 240,000 195,000 60,000 P720,000

Costs, excluding Depreciation P 84,000 126,000 165,000 45,000 P420,000

PV of Discount Rate of 5% .952 .907 .864 .823

The fair value less cost to sell of the machinery in this cash-generating unit is determined by reference to use machinery quotation sheets obtained from a prominent dealer. After deducting disposition costs, the net selling price is calculated as P253,500. What is the amount of impairment loss to be recognized by Margot Company on December 31, 2017? a. P93,105 c. P101,255 b. P99,215 d. P115,500 12. For purposes of measuring impairment losses under PAS 36, which of the following items shall be excluded in estimating future cash flows in determining the value in use of an asset? a. Cash inflows or outflows from financing activities or income tax receipts or payments b. Projections of cash inflows from the continuing use of the asset c. Projections of cash outflows that are necessarily incurred to generate the cash inflows from continuing use of the asset d. Net cash flows to be received (or paid) for the disposal of the asset at the end of its useful life 13.

On January 2, 2002, Beige Company has completed the construction of a building for a total cost of P15,000,000. The building is to be depreciated on a straight-line basis over its estimated useful life of 50 years. On January 2, 2017, Beige converted the building into a commercial establishment with only minor renovation costs incurred. In consultation with an appraiser, the building’s sound value as of January 1, 2017 was P14,700,000. In January 1, 2018, due to sudden change in the economic environment, Beige is evaluating possible impairment. Reliable estimate revealed that the building has a remaining useful life of 10 years and will provide a total net cash inflow of P1,500,000 per year. Implicit rate is 10%. What is the amount of impairment loss, if any, on January 1, 2018? a. none c. P 984,000 b. P948,000 d. P1,214,000

14. On January 2, 2016, Modern Company, a medium-sized entity, acquired all the net assets of Ancient Ltd for P3,000,000. The identifiable net assets of Ancient at the time of acquisition is P2,000,000. The net identifiable net assets of Ancient had a remaining life of 10 years.

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14 Ancient Ltd is a cash-generating-unit. On December recoverable amount of Ancient Ltd was P1,360,000.

31,

2016,

the

In year 2017, the business situation improves in the country and government policies change. As a result, management re-estimates the recoverable amount of Ancient Ltd. At the end of year 2017, the recoverable amount of Ancient Ltd is P1,910,000. Beginning of year 2017, Modern Company had decided to change it s depreciation rate to 10% per annum on carrying value of the net identifiable assets. What 2017 a. b.

amount of impairment recovery should Modern Company report in its profit or loss? None c. P440,000 P396,000 d. P686,000

15. Research and development cost for Headway Corporation for the year ended December 31, 2017: Project A. Expected total revenues P7,000,000, starting in early 2019. Expected total costs will be P5,000,000. Costs incurred to date, all in 2017, are P2,200,000. Project B. Expected total revenues P6,000,000. Costs incurred to date are P3,500,000. Expected total costs are P4,500,000. The commencement of commercial sales is uncertain due to problems in raising funds to cover the final development costs. Project C. Expected total revenues, P3,500,000 with P1,000,000 of revenue already earned in 2017. Total development costs incurred, all in 2017, were P3,800,000. Research projects.

Total costs spend in 2017 were P1,500,000.

What total amount should be charged against income in 2017 related to the research and development costs? a. 1,500,000 c. 5,300,000 b. 5,000,000 d. 6,300,000 16. Vital Company is engaged in the retail sale of high-definition televisions (HDTVs). Each HDTV has a 24-month warranty on parts. If a repair under a warranty is required, a charge for the labor is made. Management has found that 20% of the HDTVs sold require some work before the warranty expires. Furthermore, the average cost of replacement parts has been P1,200 per repair. At the beginning of January, the account for the estimated liability for product warranties had a credit balance of P286,000. During January, 112 HDTVs were returned under the warranty. The cost of the parts used in repairing the HDTVs was P175,300 and P188,840 was collected as service revenue for the labor involved. During January 2017, the month before the Super Bowl, Vital Company sold 450 new HDTVS. What is the balance of the warranty liability as of January 31, 2017? a. P175,300 c. P218,700 b. P208,700 d. P286,000 17. Any loss incurred from the sale of treasury shares shall be charged to a. Share premium from original issuance, share premium from treasury shares and then retained earnings. b. Loss on sale of treasury shares to be reported as other expense c. Retained earnings and then share premium from treasury shares d. Share premium from treasury shares and then retained earnings. 18. Salvation Corporation had two (2) issues of securities outstanding – ordinary share and an 8% convertible bond issue with a face amount of P16,000,000. Interest payment dates of the bond issue are June 30 and December 31. The conversion clause in the bond indenture entitles the bondholders to receive forty (40) shares of P20 par value ordinary share in exchange for each P1,000 bond. On June 30, 2017, the holders of P2,400,000 face value bonds exercised the conversion privilege. The equity component of the convertible debt at the time of issue is P950,000. The market price of the bonds on that date was P1,100 and

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14 the market price of the ordinary share was P35. The total unamortized bond discount at the date of conversion was P1,000,000. In applying the book value method, what amount should Salvation credit to the “Share Premium in Excess of Par” account as a result of this conversion? c. P 472,500 a. P160,000 b. P330,000 d. P1,440,000 19. Jason Company has taken out a foreign loan of $100,000 that is recorded at P4,400,000. At the reporting date, the carrying value of the loan is P4,000,000. The unrealized exchange gain of P400,000 is included in profit or loss, but will be taxable when the gain is realized on the repayment of the loan. If the current and future tax rates are 34% and 35% respectively, what amount of deferred tax asset should the company recognize? c. P140,000 a. None b. P136,000 d. P276,000 20. Dividends in the form of noncash assets are measured at a. Fair value of the assets distributed b. Carrying amount of the assets distributed c. Either the carrying amount or fair value of the assets distributed d. Neither the carrying amount nor fair value of the assets distributed 21.

On December 31, 2016, the shareholders’ equity section of Marvel Company’s balance sheet appeared as follows: Contributed capital: Common stock, P8 par value, 200,000 shares authorized issued and Outstanding 60,000 shares P 480,000 Additional paid in capital 1,280,000 Total P1,760,000 Retained earnings 824,000 Total P2,584,000 The following are selected transactions involving stockholders’ equity in 2017: On January 4, 2017 the board of directors obtained authorization for 20,000 shares of P40 par value non-cumulative preferred stock (that carried an indicated dividend rate of P4 per share and was callable at P42 per share. On January 14, the company sold 12,000 shares of preferred stock at P40 per share and issued another 2,000 in exchange for an equipment valued at P80,000. On March 8, the board of directors declared a 2 for 1 split on the common stock. On April 20, after the stock split, the company purchased 3,000 shares of common stock for the treasury at an average price of P12 per share, 1,000 of these shares subsequently were sold on May 4 at an average price of P16 per share. On July 15, the board of directors declared a cash dividend of P4 per share on the preferred stock and P.40 on common shares. The date of record was July 25 and the dividends were paid on August 15. The board of directors declared a 15% stock dividend on November 28 when the common stock was selling for P20 per share. The date of record was on December 15 and dividend was to be distributed on January 5, 2018. Net loss for the year, P218,000. What is the balance of the stockholders’ equity of Marvel Company as of December 31, 2017? a. P2,720,800 c. P2,802,800 b. P2,780,800 d. P2,820,800

22. For equity-settled share-based payment transactions, the entity shall measure the goods or services received and the corresponding increase in equity: Statement I: Directly at fair value of the goods or service received Statement II: Indirectly, by reference to the fair value of the equity instruments

granted, if the fair value of the goods or services received cannot be estimated reliably a.

Only statement I is true

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14 b. c. d.

Only statement II is true Both statements I and II are true Neither of the statements is true

23. Derby Company, a public limited company, has granted share options to its employees with a fair value of P12,000,000. The options vest in three years’ time. The company uses the fair value model to estimate the fair value of the options, the number of employees that will vest and the revision of estimates such as the following:  Grant date – January 1, 2016, estimate of employees leaving the company during the vesting period – 5%.  Revision of estimate – January 1, 2017 – estimate of employees leaving the company during the vesting period – 6%.  Actual number of employees leaving the company - December 31, 2018 – 5%.  What would be the amount of expense charged in the income statement for the year ended Dec. 31, 2018? a. P3,760,000 c. P3,880,000 b. P3,800,000 d. P4,000,000 24. The classification of a share-based payment has an impact on its measurement. What are

the classifications for share-based payment transactions under PFRS 2? a. b. c. d.

Vested, not vested Entity-settled and group settled Equity-settled, cash-settled and share option-settled Equity-settled, cash-settled, share based payment transactions with a settlement choice

25. Roberts Company, a public limited company, has granted 20 share appreciation rights to each of its 500 employees on January 1, 2016. The rights are due to vest on December 31, 2019, with payment being made on December 31, 2020. Assume that 80% of the awards vest. Share prices are as follows: January 1, 2016, P15; December 31, 2016, P18; December 31, 2019, P21; December 31, 2020, P19. How should the settlement 31, 2020? a. payment to employees b. payment to employees c. payment to employees d. payment to employees

of the transaction be accounted for on December of of of of

P32,000; P16,000, P48,000, P32,000,

no gain gain of no gain gain of

recorded P33,000 is recorded recorded 16,000 is recorded

26. Cruiser Company reported net income of P3,000,000 for year 2017. During 2017, Cruiser Company sold equipment costing P250,000 with accumulated depreciation of P120,000 for a gain of P50,000. In December 2017, the company purchased equipment costing P500,000 with cash and 12% note payable of P300,000. Depreciation expense for the year was P520,000. Changes occurred in several balance sheet accounts as follows: Equipment Accumulated depreciation Note payable

P250,000 increase 400,000 increase 300,000 increase

In Cruiser’s 2017 statement of cash flows, net cash used in investing activities should be a. P 20,000 c. P220,000 b. P120,000 d. P350,000 27. Island Company owes P2,000,000 plus P180,000 of accrued interest to First State Bank. The debt is a 10-year, 10% note. During 2014, Island's business deteriorated due to a faltering regional economy. On December 31, 2017, First State Bank agrees to accept an old machine and cancel the entire debt. The machine has a cost of P3,900,000, accumulated depreciation of P2,210,000, and a fair market value of P1,900,000.

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14 How much should Island Company recognize as a finance income in its profit or loss as a result of the financial liability’s derecognition? a. P210,000 c. P310,000 d. P490,000 b. P280,000 28. Silver Company purchased a plot of land with a building at a cost of P10,000,000 in 2015. The land portion accounted for P2,000,000 of the purchase price. The building is depreciated on a straight-line basis over 50 years, charging a full year’s deprec...