Jack Company operates two major lines of business namely, candle manufacturing and clothing retailing. On December 31, 2018, in
response to an unsolicited ofter, Jack Company disposed of its candle-making operation for P1,000,000 when the carrying amount of
the operation‘s assets were factory building, P400,000; machinery, P300,000 and trademark, P200,000. The candle– making operation
has no other assets and has no liability, but as a result of the disposal the company has an income tax payable of P20,000 related to
the gain on dlsposal. The candle-making has a profit after tax of P150,000 for the year ended December 31, 2018.
Emilia Company is an experienced home appliance dealer. Emilia Company also offers a number of services together with the home
appliances that it sells (installation and maintenance). Emilia Company sells dishwashers on a standalone basis, it also sells
installation and maintenance service for the dishwashers.
Pricing for dishwashers is as follows:
Dishwasher only P1,600
Dishwasher with installation service 1,700
Dishwasher with maintenance services 1,950
Dishwasher with installation and maintenance services 2,000
In cases where maintenance services are provided, the maintenance service is separately priced within the arrangement at P350.
Dishwashers are sold subject to a general right of return. If a customer purchases a dishwasher with installation and/or maintenance
services, in the event Emilia Company does not complete the service satisfactorily, the customer is only entitled to a refund of the
portion of the fee that exceeds P1,600. On January 1, 2018, Emilia Company sell 100 dishwashers to Condo Complex, Inc. A
developer of high-rise condos. The dishwashers are installed and Condo Complex, Inc. purchases the dishwashers with the
installation and maintenance services. The total price for the 100 dishwashers is P190,000.
The Hawk Company maintains a general current account at the Pacific Bank. Pacific Bank provides a bank statement and canceled
checks one a month. The cut-off date is the last day of the month. The bank statement for the month of October is summarized below:
Balance October 1, 2018 P321,200
Deposits 821,400
Checks processed (784,330)
Service charges ( 800)
NSF checks ( -21,870)
Note payment collected by bank 11,200
Balance October 31, 2018 P346,800
The company’s general ledger account has a balance of P352,760 at the end of, October. A review of the company records and the
bank statement reveals the following:
1. Cash receipts not yet deposited totaled P29,650
2. A deposit of P10,200 was made on October 31 that was not credited to the company’s account until November.
3. All checks written in September have been processed by the bank. Checks written in October that had not been processed by the
bank total P55,360.
4. A check written for P17,900 was incorrectly recorded by the company as P7,900 disbursement. The check was for payment to a
supplier of raw materials.
Bliss Company owes First Bank P30 million under a 10% note with two years remaining to maturity. Due to financial difficulties of
Bliss Company, the previous year’s interest (P3 million) was not paid. First Bank agrees to; forgive the interest accrued from last year,
reduced the two interest payments to P2 million each and reduced the principal to P25 million. The current prevailing rate of interest is
11%.
The following data concerning the retail inventory method are taken from the financial records of Welch Company.
Cost Retail
Beginning inventory P 49,000 P 70,000
Purchases 224,000 320,000
Freight-in 6,000 –
Net mark-ups – 20,000
Net markdowns – 14,000
Sales – 336,000
01. In the statement. of comprehensive income, what single amount should Jack Company disclose related to the discontinued
operation?
a. None c. P150,000
b. P100,000 d. P230,000
02. How much revenue should Emilia Company allocate to the installation?
a. none c. P 9,500
b.P4,750 d. P33,250
03. What is the correct cash balance of Hawk Company for the month ended October 31, 2318?
a. P331,290 c. P342,340
b. P332,520 d.P345,620
04. What amount of loss should First Bank recognize in relation to the loans owed by Bliss Company?
a. None c. P8,867,768
b. P3,513,757 d. P9,284,392
05. If the ending inventory of Welch Company is to be valued at approximately the lower–of-cost-or-net realizable value, the calculation
oi the cost to retail ratio should be based on goods available for sale at (1) cost and (2) retail, respectively of
a. P279,000 and P410,000 c. P279,000 and P390,000
b. P279,000 and P396,000 d. P273,000 and 390,000.
The Perch Company purchased a jewel polishing machine for P694,000 on 1 January 2018 and received a government grant of
P108,000 towards the capital cost. Company policy is to treat the grant as a deferred income. The machine was to be depreciated on
a sum-of-years-digit over 8 years and was estimated to have a residual value of P10,000 at the end of this period.
On June 30, 2018, Sky Company, which uses PFRS 9, sold an investment in other comprehensive income for P1,200,000. This
investment was originally purchased at a cost of P800,000. At the time of disposal, the carrying amount of the investment at fair value
gain P100,000. The investment has a related fair value gain of P100,000 that was recognized in the fair value reserve.
On January 1, 2018, Texas Company, a medium-sized entity, acquired 30% of the ordinary shares that carry voting rights at a
general meeting of shareholders of Houston Company for P6,000,000. For the year ended December 31, 2018 Houston Company
recognized a profit of P8,000,000 and declared a paid dividend of P4,000,000. The fair value of Texas Company investment on
December 31, 2018 is P5,800,000. Texas Company uses the cost less impairment loss model of accounting its investment because
Houston Company shares have no published price quotations.
On January 2, 2018, Horizon Company, a medium-sized entity acquired 20% of the outstanding ordinary shares of Meadow
Company tor P2,200,000 which included P50,000 transaction cost. This investment gave Horizon the ability to exercise significant
influence over Meadow Company. The book value of the acquired shares was P1,800,000. The excess of cost over book value was
attributed to a depreciable asset which was undervalued on Meadow Company’s balance sheet and which had ten years Useful life
remaining. For the year ended December 31. 2018, Meadow Company reported net income of P1,500,000 and paid cash dividends of
P300,000 on its ordinary.
The Niagara Company owns three properties which are classified as investment properties according to IAS40 Investment property.
Details of the properties are given below:
Initial cost Fair value at Fair value at
31 Dec 2018 31 Dec 2019
Property (1) 270,000 320,000 350,000
Property (2) 345,000 305,000 285,000
Property (3) 330,000 385,000 360,000
Each property was acquired in 2018 with a useful life of 50 years. The company’s accounting policy’ is to use the fair value model for
investment properties.
06. Under IAS20 Government grants and government assistance, what should be the net effect in the profit or loss with respect to the
machine and grant for the year ended December 31, 2019?
a. P96,000 c. P112,000
b. P128,000 d. 133,000
07. What amount of unrealized gain or loss should be transferred to retained earnings immediately after the sale?
a. none c. P300,000
b. P200,000 d. P400,000
08. What is the net amount should Texas Company report in its statement of comprehensive income related to its investment in Maxim
Company for the year ended December 31, 2018?
a. P200,000 c. P1,200,000
b. P1,000,000 d. P2,400,000
09. If Horizon Company uses the equity model to account,for its investment and the investment has a recoverable amount of
P2,000,000 on December 31, 2018, what is the net effect in its statement of comprehensive income in relation to its investment in
Meadow Company?
a. P100,000 decrease c. P200,000 increase
b. P140,000 decrease d. P300,000 increase
10. What is the gain or loss to be recognized in Niagara‘s profit or loss for the year ending 31 December 2019?
a. P15,000 loss c. P30,000 gain
b. P18,900 loss d. P45,030 loss
The Lancer Company has a single investment property which had originally cost P580,000 on 1 January 2017 at 31 December 2017
its fair value was P550,000 and at 31 December 2010 it had a fair value of P510,000. On acquisition the property had a useful life of
40 years.
On January 1, 2017. Star Company purchased the debt instruments of Trek Company with a face value of P5,000,000 bearing
interest rate of 8% for P4,620,921 to yield 10% interest per year. The bonds mature on January 1, 2022 and pay interested value on
December 30. on December 31, 2017 the fair value of the investment is P4,838,014 which is based on the prevailing market right of
9%.
At September 30, 2017 the following balances existed in the records of Loves Company:
Equipment P860,000
Accumulated depreciation 397,000
During the Year ended September 30, 2018, equipment with a written down value of P37,000 was sold for P49,000. The equipment
had originally cost P80,000. Equipment purchased during the year cost P180,000. It is the company’s policy to charge full year’s
depreciation in the year of acquisition of an asset are none in the year of sale. using a rate of 10% on the straight line basis.
A cash-generating unit of Tailor Company contains: Property, plant equipment P6,000,000; patent P4,000,000 and Goodwill
P2,000,000. an annual impairment review is required as the cash-generating unit contains goodwill.The most recent review assesses
its recoverable amount to be P9,000,000. An impairment loss of P3,000,000 has occurred and is recognized in the profit or loss.
Jackson Oil company paid P2,300,000 for an offshore oil rig to extract oil in the Philippine Sea. After the oil is extracted from the
offshore site, the equipment will be sold. Jackson Oil Company is required by its licensing agreement to remove the oil rig at the end of
the production and restore the seabed. The company has provided the following three cash flow possibilities for the restoration costs
to be paid in three years, after the extraction is completed.
Cash outflow Probability
1. 500,000 30%
2. 600,000 50%
3. 700,000 20%
The company’s risk free interest rate is 8%. A 5% risk adjustment factor to the probability-weight expected cash flows is considered
appropriate to reflect the uncertainties in the cash flow estimates.
11. According to IA340 Investment property, what amount should be included in expense. Lancer’s profit or loss for the year ending 31
December 2018 under each of the fair value model and the cost model, respectively?
a. P40,000 and P12,000 c. P40,000 and P26,500
b. P40,000 and P14,500 d. P40,000 and P55.500
12. What amount of interest income should Star Company report in its December 31, 2018 statement of comprehensive income
assuming the debt instrument was designated at initial recognition as investment at Fair Value to Other Comprehensive Income?
a. P400,000 c. P438,609
b. P435,421 d. P468,308
13. What net amount should appear in Loves Company’s balance sheet at September 30, 2018 for equipment? a. P467,000
c. P563,000
b. P510,000 d. P606,000
14. After the recognition oi the impairment loss on the cash-generating unit of Tailor Company, at what amount should the property,
plant and equipment be valued?
a. P5,000,000 c. P5,600,000
b. P5,400,000 d. P6,000,000
15. At what amount should the oil rig be initially recorded?
a. P2,300,000 c. P2,791,360
b. P2,768,360 d. P2,890,000
The Clear Company accounts for non-current assets using the cost model. On 20 July 2018 Clear classified a noncurrent asset as
held for sale in accordance With IFRS5 Non-current assets as held for sale and discontinuedoperations. At that date the asset’s
carrying amount was P580,000 its fair value was estimated at P860,000 and the cost to sell at P58,000.The asset was sold on 18
October 2018 for P848,000.
Sunrise corporation inccured the following development costs:
2015
2016
2017
2018
2019
Development costs
10,000,000
20,000,000
20,000,000
30,000,000
20,000,000
Commercial production commenced in 2018 and the product is expected to last 5 years. Sunrise corporation uses the straight–line
method of amortization for development costs.
Crazy company has recognized a provision for lawsuit at P400,000 in its statement of financial position at 31 december 2017. At
december 31 2018, the risk adjusted present value of the best estimate of the amount required to settle the lawsuit is P900,000 but
portion of the increased during 2018 included as 7% that is attributable to the unwinding of the discount and the remainder of the
increased is attributed to better information becoming available on which to base the estimates.
Happy company has the following information related to its warranty obligation:
In year 2018, goods are sold for P10,000,000. Experience indicates that 90% of the product sold require no warranty repairs; 6% of
the products sold require minor repair cost a 30% of the sales price; in 4% of the products sold require major repairs on a replacement
costing 70% on sales price. The expenditures for made 60% in 2019,, 30% in 2020 and 10% and 2021, in each case at the end of the
period. Because the cash flow already reflect the probabilities of the cash flows, and assuming there are no other risks or uncertainties
that must be reflected, to determine the present values of those cash flows the entity uses a “risk free” discount rate based on
government bonds with the same term as expected cash flows (6% for one-year bonds and 7% for two-year and three-year bonds).
On december 31 2018 , cordial company is pursuing a claim against an insurance company through legal processes the court is
expected to rule in late december 2019 . at the reporting date december 31 2018 the outcome of the case is uncertain . furthermore ,
they believe that there is 20% chance that the entity will be awarded P200,000 (the amount sought by the cordial company) an 80%
chance that cordial company will be awarded P100,000 the amount that was recently awarded by the same judge in a similar case.)
Other outcomes are unlikely. a 7% adjustment factor to the probability with an expected cash flows is considered appropriate to reflect
the uncertainties in the cash flow estimate . An appropriate discount rate is 10%.
16. In accordance with IFRSS, at what amount should the asset be stated in Clear’s statement of financial position at 30 September
2018?
a. P580,000 c. P802,000
b. P790,000 d. 848,000
17. What is the amount of deferred development cost at the end year 2019?
a. P45,000,000 c. P64,000,000
b. P63,000,000 d. P80,000,000
18. In the statement of comprehensive income for the year ended December 31, 2018, what amount of loss from the lawsuit Crazy
Company must disclosed?
