Financial Accounting -SET B.docx - Google Docs PDF

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FINANCIAL ACCOUNTING & REPORTINGINSTRUCTIONS: Select the best answer for each of the following questions. ALL questions are compulsory and MUST be attempted. Mark only one answer for each item on the answer sheet provided. Strictly, NO ERASURES ALLOWED. Erasures will be render your examination a...

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FINANCIAL ACCOUNTING & REPORTING INSTRUCTIONS: Select the best answer for each of the following questions. ALL questions are compulsory and MUST be attempted. Mark only one answer for each item on the answer sheet provided. Strictly, NO ERASURES ALLOWED. Erasures will be render your examination answer sheet INVALID. Use PENCIL no. 2 only. Good luck! 1. Which statement is correct regarding inventories? a. Selling costs may be included in the cost of inventories. b. Foreign exchange differences arising directly on the recent acquisition of inventories invoice in a foreign currency are included in cost of inventories. c. The cost of inventories of items that are not ordinarily interchangeable shall be assigned by using specific identification of their individual costs. d. In accordance with PIC Q&A No. 2018-10 PAS 2 – Scope disclosure of inventory write – downs, entity should disclosed write –downs representing sales below cost during the reporting period. 2. Which of the following statements about the valuation of the inventory is correct, according to PAS 2 inventories? a. Inventory items are normally valued at the higher of cost and net realizable value. b. The cost of goods manufactured by an entity cannot include overhead costs. c. LIFO (last in, first out) may be used to value inventory in limited circumstances. d. Selling price less estimated profit margin may be used to arrive at cost if this gives a reasonable approximation of actual cost. 3. The closing inventory of Alucard corp. amounted to P 2,580,000. the following items were not included in the inventory amount: a. Purchased goods, in transit shipped FOB destination invoice price P 30,000 which included freight charges of P 2,000. b. Goods held consignment, cost P 50,000. c. Goods sold to a costumer, in transit, shipped FOB Destination, cost P 20,000.Shipping cost to customer, P 2,000. d. Purchased goods in transit, terms FOB seller, invoice price P 38,000 Freight cost, P 3,000. e. Goods out on consignment cost P 43,000. f. Goods sold to a customer, in transit, shipped FOB shipping point cost P 36,000. The adjusted cost of Alucard corp.’s inventory at December 31 should be a. P 2,686,000 c. P 2,681,000 b. P 2,684,000 d. P 2,570,000 4. Inventory record for Natalia’s chemicals revealed the following: March 1, 2019, inventory: 1,000 gallons @ P 7.20= P 7,200

Mar. 10

Purchases 600 gals.@ P 7.25

Mar. 5

Sales 400 gals.

16 23

800 gals. @ 600 gals. @

7.30 7.35

14 700 gals. 20 500 gals. 26 700 gals Ending inventory assuming FIFO in a perpetual inventory system would be: a. P 4,960 c. P5,080 b. P 5,060 d. P5,140 5. The following data have been accumulated for Freya Mfg. Inc., Raw materials- Beginning Inventory (Jan. 1, 2019) 10,000 units @ P6.00 Purchases 8,500 units @ P7.00 11,000 units @ P7.50 Transferred 21,500 units of raw materials to work in process: Work in process- beginning 5,600 units Inventory (Jan. 1, 2019) @ P 13.50 Direct Labor P 250,000 Manufacturing Overhead P 325,000 Work in Process- Ending 4,200 units Inventory (Mar. 31, 2019) @ P 13.75 If Freya Uses the FIFO method for valuing raw materials inventories, compute for the cost of goods manufactured for, the quarter ended March 31, 2019. a. P 699,150 b. P 717,000

c. P 734,850 d. P 746,850

6. The closing inventory of Tigreal Corp. amounted to P 116,400 excluding the following: ● 400 items which had cost P 4 each. All were sold after the reporting period for P 3 each, with selling expenses P 200 for the batch. ● 200 different items which had cost P 30 each. These items were found to be defected at the end of the reporting period. Rectification work after the statement of financial position date amounted to P 1,200, after which they were sold for P 35 each, with selling expenses totaling P 300. Which of the following total figures should appear in the statement of financial position of Tigreal Corp. for inventory? a. P 122,900 b. P 123,100

c. P 123,400 d. P 123,000

7. On November 20, 2019, Hylos Corporation entered into a non-cancelable contract to purchase P100,000 of inventory on Jan 15, 2020. The value of the inventory on December 31, 2019 Hylos’ year end, was P 90,000. What amount should be reported on the statement of financial position at December 31 related to this purchase commitment? a. b. c. d.

P 10,000 estimated liability on purchase commitment P 100,000 accounts payable P 90,000 Purchase commitment liability P 90,000 inventory

8. A physical inventory taken on December 31, 2019 resulted in an ending inventory of P 1,440,000. Sun Company suspects some inventory may have been taken by employees. To estimate the cost of missing inventory the following were gathered : Inventory, Dec, 31, 2018 P 1,280,000 Purchased during 2019 5,640,000 Cash sales during 2019 1,400,000 Shipment received on December 26, 2019 included in physical inventory, but not recorded as purchases 40,000 Deposits made with suppliers, entered as purchases. Goods were not received in 2019 80,000 Collections on accounts receivable, 2019 7,200,000 Accounts receivable, Jan.1, 2019 1,000,000 Accounts receivable, Dec. 31, 2019 1,200,000 Gross profit percentage on sales 40% At December 31, 2019 what is the estimated cost of missing inventory? a. P200,000 c. P240,000 b. P160,000 d. P320,000 9. The physical inventory of alpha company as of Dec 26, 2019 totaled P1, 965,000. In trying to establish the December 31 inventory, the accountant noted the following transactions from December 27 to December 31, 2019. Sales (20% markup on cost) Credit memos issued: For goods returned on: December 15 December 20 December 29 For goods delivered to customers not In accordance with specifications Credit memos received: For goods returned on: December 10 December 26 December 28 Purchases: Placed in stock In transit, FOB shipping point In transit, FOB Destination The inventory as of December 31, 2019 is a. P1,675,800 b. P1,657,000

P 600,000

27,000 35,000 36,000 9,500

17,000 23,000 8,000 120,000 50,000 33,000

c. P1,663,000 d. P1,668,667

10. The records of Akai Department Store report the following data for the month of January: Beginning inventory at cost P 440,000 Beginning inventory at sales price 800,000 Purchases at cost 4,500,000 Initial markup on purchases 2,900,000 Purchase returns at cost 240,000 Purchase returns at sales price 350,000 Freight on purchases 100,000 Additional mark up 250,000 Mark up cancellations 100,000 Mark down 600,000 Mark down cancellations 100,000 Sales 5,300,000 Sales allowances 300,000 Sales return 400,000 Employee discounts 200,000 Theft and other losses 100,000 Using the average retail inventory method, Akai ending in inventory at cost is a. P1,024,000 c. P1,536,000 b. P1,472,000 d. P1,664,000 Use the following information for the next two questions. Zilong Corp. is engage in agricultural activity. Its trial balance at 31 December 2019 presents the following assets related to its farmland: ● Two tractors (P500,000 each) ● Four computers (25,000 each) ● Computer software (P50,000) ● Fruit-bearing (estimated value, P20 millions of which P3 Million is attributed to the fruits attached to the trees). ● Harvested fruits (estimated value, P2 million). ● Trees grown for use as lumber (estimated value, P10 million). ● Tress that are cultivated both for their fruit and their lumber (estimated value , P 8 million) ● Maize and wheat (estimated value, P4 million) 11. How much should be accounted for as property, plant and equipment assets? a. P25 million c. P7 million b. P17 million d. P3 million 12. How much should be accounted for as property, plant, and equipment? a. P17.525 million c. P26.100 million b. P18.100 million d. P30.100 million 13. Which of the following provides the least reliable evidence of fair value? a. Quoted prices in active markets for identical assets that the entity can access at the measurement date. b. Quoted prices for identical or similar assets in markets that are not active.

c. Inputs other than quoted prices that are observable for the asset. d. Inputs for which market data are not available and that are developed using the best information available about the assumptions that market participants would use when pricing the asset or liability. 14. Which statement is correct regarding property, plant and equipment? a. Costs directly Attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management include costs of opening a new facility. b. An entity determines whether an exchange transaction has commercial substance by considering the extent to which its future cash flows are expected to change as a result of the transaction. c. An increase in the value of the land in which a building stands affects the determination of the depreciable amount of the building. d. An entity should disclose the gross carrying amount of any fully depreciated property, plant and equipment that is still in use. Use the following information for the next four questions. Bruno Manufacturing started operations on 1 September 2014. The entity’s accounts at 31 December 2017 included the following balances: Machinery Accumulated depreciation-machinery Vehicles (at cost; purchased 21 Nov. 2016) Accumulated depreciation-vehicles Land (at cost; purchased 25 October 2014) Buildings (at cost; purchased 25 Oct. 2014) Accumulated depreciation-building

P91,000 48,200 46,800 19,656 81,000 185,720 28,614

Details of machines owned at 31 December 2017 are as follows: Machines 1 2

Purchased Date 7 October 2014 4 February 2015

Cost P43,000 P48,000

Useful life 5 years 6 years

Residual value P2,500 P3,000

Additional information: ● ● ● ●

The entity calculates depreciation to the nearest month and balances the records at month-end. Recorded amounts are rounded to the nearest peso, and the reporting date is 31 December. The entity uses straight-line depreciation for all depreciable assets except vehicles, which are depreciated on the diminishing balance at 40% p.a. The vehicles account balance reflects the total paid for two identical delivery, of each cost P23,400. On acquiring the land and building, the entity estimated the building’s useful life and residual value at 20 years and P5,000 respectively.

The following transaction occurred from 1 January 2018:

2018 03 January

22 June 28 August

31 Dec. 2019 30 April 25 May 26 June 31 Dec.

Bought a new machine (machine 3) for a cash price of P57,000. Freight charges of P442 and installation of P1,758 were paid in cash. The useful life and residual value were estimated at five years and P4,000 respectively. Bought a second-hand vehicle for P15,200 cash. Repainting costs of P655 and four new tires costing P345 were paid for in cash. Exchanged machine 1 for furniture that had a fair value of P12,500 at the date of exchange. The fair value of machine 1 at the date of exchange was P11,500. The office furniture originally cost P36,000 and, to the date of exchange, had been depreciated by P24,100 in the previous owner’s books. The entity estimated the office furniture’s useful and residual value at eight years and P540 respectively. Recorded depreciation.

Paid for repairs and maintenance on the machinery at a cash cost of P928. Sold one of the vehicles bought on 21 November 2016 for P6,600 cash. Installed a fence around the property at a cash cost of P5,500. The fence has an estimated useful life of 10 years and zero residual value. Recorded depreciation.

QUESTIONS: 15. The gain on exchange of machine 1 on August 28,2018 is a. P1,225 c.P225 b. P900 d.P 0 16. The total depreciation expense in 2018 is a. P42,131 b. P47,531

c. P47,572 d. P47,400

17. The loss on sale of vehicle on May 25, 2019 is a. P186 c. P457 b. P1,543 d. P 0 18. The total depreciation expense in 2019 is a. P37,662 b. P39,144

c. P38,744 d. P39,019

19. As of January 1, 2019, Saber Corp. decided to change the method of computing depreciation on its sole piece of equipment from the sum-of the-years’ digits method to the straight-line method. The equipment, acquired in January 2016 for P520,000, had a estimated life of five years and a salvage value of P20,000. The amount of the depreciation expense for 2019 is a. P100,000 c. P50,000 b. P60,000 d. P42,000 20. What is the purpose of charging depreciation account?

a. To account for the ‘wearing out’ of the asset over its life. b. To allocate the cost of a non-current asset over the accounting periods expected to benefit from its use. c. To ensure that funds are available for the eventual replacement of the asset. d. To reduce the cost of the asset in the statement of financial position to its estimated market value. 21. On 1 January 2014, Miya Co. purchased a property for P400,000. The property had a useful life of 20 years and was depreciated on a straight-line basis. On 1January 2019, the property was revalued to P420,000. The company’s policy is to make the allowed transfer of excess depreciation between the revaluation surplus and retained earnings. The balance of revaluation surplus at 31 December 2019 is a. P18,667 c. P112,000 b. P19,000 d. P114,000 22. Investment property includes. a. Property occupied by an employee not paying rent. b. Property occupied by an employee paying market rent. c. Property occupied by an employee paying below market rent d. None of the above. 23. Aldous Corporation’s properties included the following items: ● Land held as potential plant site, P5,000,000. ● A vacant building to be leased out under an operating lease, P20,000,000. ● Property held for sale in the ordinary course of its business, P30,000,000. ● Property acquired exclusively with a view to subsequent disposal in the near future, P4,000,000. ● Property occupied by employees paying market rent, P3,000,000 ● Property occupied by employees below market rent, P1,000,000 ● Property held for administrative purposes, P10,000,000. ● A hotel owned and managed, P50,000,000. ● A building being leased out to a subsidiary, P8,000,000. ● A building, which cannot be sold or leased out separately, used in the production of goods and around 2% of the area being leased out to canteen operators, P2,000,000. ● Property that is being constructed for use as an investment property, P7,000,000. How much should be reported as investment properties in Aldous Corporation’s separate financial statements? a. P43,000,000 c. P38, 000,000 b. P40,000,000 d. P35,000,000 24. Vexana, Inc., a real estate company, has a property included in its inventory with a cost of P10,000,000 and a net realizable value of P8,000,000 on December 31, 2018. Because of the decline in the real estate industry, the company decided to lease out the property to a tenant under an operating lease in 2019 when the fair value of the property was P7,000,000. If the company uses the fair value model to measure its investment properties, how much should be recognized in 2019 profit or loss as a result of the transfer from inventory to investment property? a. P3,000,000 c. P2,000,000

b. P1,000,000

d. P0

25. Which statement is correct regarding intangible assets? a. If an entity cannot distinguish the research phase of an internal project to create an intangible asset from the development phase, the entity treats the expenditure for the project as if it were incurred in the development phase only. b. If payment for an intangible asset is deferred beyond normal credit terms, its cost is equal to the total payments over the credits period. c. Subsequent expenditure on brands, mastheads, publishing titles, customer lists and items similar in substance (whether externally acquired internally generated) is always recognized in profit or loss as incurred. d. An entity should disclose a brief description of significant intangible asset controlled by the entity but not recognized as assets because they did not meet the recognition criteria in PAS 38. 26. Karina Company purchased a patent on January 1,2016, for P3,570,000. The patent was being amortized over its remaining legal life 15 years. During 2019 Karina determined that the economic benefits of the patent would not last longer than ten tears from the date of acquisition. What amount should be reported in the statement of the financial position as patent, net of accumulated amortization, at December 31, 2019? a. P2,618,000 c. P2,448,000 b. P2,520,00 d. P2,142,000 27. Franco Co. incurred the following costs during 2019: Modification to the formulation of a chemical product Trouble –shooting in connection with breakdowns during Commercial production Costs of testing prototype and design modifications Seasonal or other periodic design changes to existing products Laboratory research aimed at discovery of new technology

P360,000 P450,000 P600,000 P555,000 P675,000

In its income statement for the year ended December 31, 2019, Franco should report research and development expense of a. P2,085,000 c. P1,275,000 b. P1,635,000 d. P1,035,000 28. Which statement is correct regarding exploration for and evaluation of mineral resources? a. Exploration activities include determining volume and grade of deposits. b. PFRS 6 requires an entity to recognize exploration and evaluation expenditures as assets only to the extent that such expenditure is recoverable in future period. c. An exploration and evaluation asset shall know longer be classified as such when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. d. Using a tangible asset to develop an intangible asset changes a tangible asset into an intangible asset. 29. In accordance with IFRIC 20, to the extent the benefit is improved access to ore and the criteria are met, the entity shall recognize production stripping costs a. In accordance with the principles of PAS 2.

b. As stripping activity asset. c. As expenses when incurred d. Any of these 30. Hayabusa, Incorporated embarked on new venture in Northern Luzon in 2019. It expects to glean 2,000,000 ounces of a precious ore from its holdings there, over several years. Relevant data follow: Cost of the Mineral Rights Exploration cost, 2019 (1/3 successful) Extraction cost, 2019 Ore extracted 2019 Ore sold, 2019

P500,000 1,500,000 2,000,000 500,000 oz. 300,000 oz.

What the depletion for 2019, using the successful efforts method of accounting for exploration costs? a. P350,000 c P250,000 b. P300,000 d. P150,000 31. On January 2, 2018, Ruby Corporation purchased land with valuable natural ore deposits for P10 million. The estimated residual value of the land was P2 million. At the time of purchased a geological survey estimated 2 million tons of removable ore were under the ground. Early in 2018, roads where constructed on the land to aid in the extraction and transportation of the mined ore at a cost of P750,000. In 2018, 500,000 tons were mine. In 2019, Ruby fired its mining engineering and hired a new expert. And new survey made at the end of 2019 estimated 3 million tons of ore were available for mining. In 2019, 150,000 tons were mine. All the ore mined was sold. Compute the amount of depletion for 2019. a. P372,000 c. P426,000 b. P433,500 d. P406,500 32. Which statement is correct regarding impairment of nonfinancial assets? a. External resources of information indicating that an asset may be impaired include evidence of obsolescence or physical damage of an asset. b. Am impairment loss shall be recognized immediately in profit or loss, even if the asset is carried at revalued amount. c. All intangible assets shall be tested for impairment annually, irrespective of whether there is any indication of impairment. d. An entity shall disclose the amount of impairment losses recognize in profit or loss during the period and the line item(s) of the statement of comprehensive income in which those impairment losses are included. 33. Clint Company acquired a m...