Mock Examination FinAcc

Junior Philippine Institute of Accountants Polytechnic University of the Philippines College of Accountancy and Finance JUNIOR PHILIPPIN IN!"I"U" OF ACCOUN" ACCOUN"AN"! AN"! !ta# $esa% $anila MOCK SPECIAL QUALIFYING EXAMINATION FINANCIAL ACCOUN"IN& AN' RPOR"IN&% P()P* Acade+ic ,ear *-(./*-(0

GENERAL INSTRUCTIONS 1 !elect the letter of the 2est ans3er 2y shading properly on the ans3er sheet provided# Be honest% even if others are not % even if others will not% and even if others cannot #

"heories "heories 4( point5 (# Accord According ing to Repu2lic Repu2lic Act 6*67% also 8no3n 8no3n as Philipp Philippine ine Accounta Accountancy ncy Act of *--9% the FR!C shall 2e co+posed of A# A Chair+an and (: +e+2ers ;# A Chair+an and (9 +e+2ers C# A Chair+an and (< +e+2ers '# A Chair+an and (. +e+2ers *# =hat A# ;# C# '# #

are are the co+ponents co+ponents of Faithful Faithful Repre Representation> sentation> Co+ Co +plete eteness% ss% Neu Neutral tralit ity% y% ?al ?alid idiity Neut Neutra rali lity ty%% Fr Free eedo do+ + fro+ fro+ err error% or% Co Co+p +par ara2 a2il ilit ity y ?ali alidity% ty% C Co o+para2i a2ility% ity% Cla Clarity Unde Unders rsta tand nda2 a2le le%% Inde Indepe pend nden ency cy%% C Cla lari rity ty Free eedo do+ + fro fro+ err error% or% Co+p Co+ple lete tene ness ss%% Neut Neutra rali lity ty

:# "he process process of recogniti recognition on re@uir re@uires es assigning assigning a value value to the nancial nancial state+ent ele+ent is called A# RealiBation C# $easure+ent ;# ?aluation '# Recording 9# "his "his is one one of the four four +ea +easur sure+e e+ent nt 2ases 2ases 3hich 3hich is the the disco discoun unted ted future cash o3s# A# Present ?alue C# Historical Cost ;# Current Cost '# RealiBa2le ?alue <# Advances Advances for e+ployee e+ployee travel should should 2e 2e reported reported as A# Accounts Receiva2le C# "ravel Advance ;# 'ened ;enet Asset '# Prepaid Dpense .# "he follo3ing follo3ing are eDa+ples eDa+ples of credit +e+os eDcept eDcept A# Note Notes s col colle lect cted ed 2y 2an8 an8 in in fav favor or of depo deposi sito torr Mock Special Qualifying Examination Fi i lA ti dR ti P! " P#

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Junior Philippine Institute of Accountants

;# Proceeds of 2an8 loan credited directly to the account of the depositor C# 'rafts paid 2y 2an8 in favor of depositor '# Interest earned on the co+panyEs chec8ing account 0# =hich of the follo3ing is not a reason for a 2an8 to return a chec8 to the +a8er> A# "he signature is +issing ;# "he +a8erEs account has 2een closed C# "he a+ount of the chec8 is too s+all '# "he chec8 has 2een altered 7# Under the allo3ance +ethod of recording cash discounts% sales discounts are recorded A# Only 3hen not ta8en 3ithin the discount period ;# =hen the account is collected 3ithin the discount period C# =hen oered at the date of sale '# =hen the custo+er pays 2eyond the discount period 6# An i+pair+ent loss is recogniBe in prot and loss 3hen A# "here is o2Gective evidence of i+pair+ent as a result of one or +ore events that occurred 2efore the initial recognition ;# "here is o2Gective evidence of i+pair+ent as a result of one or +ore events that occurred after the initial recognition C# "he i+pact on the esti+ated present cash o3 of the receiva2le can 2e relia2ly +easures '# "he i+pact on the esti+ated future cash o3 of the receiva2le cannot 2e relia2ly +easured (-# A# ;# C# '#

&oods on consign+ent should 2e included in the inventory of "he consignee "he consignor ;oth the consignor and the consignee =hoever has the possession of the goods

((# ;ag3is Corporation regularly 2uys s3eater fro+ Ala2 Co+pany and is allo3ed a trade discount of *- and (- fro+ the list price# ;ag3is +ade a purchase on $ay 9% *-(.% and received an invoice 3ith a list price of P6-% ---% a freight charge of P<% ---% and pay+ent ter+s of net of :- days# =hich of the follo3ing is true> A# ;ag3is Corporation should record accounts paya2le of P6<% --;# &ood Availa2le for !ale 3ill increase 2y P.7% 9-C# Ala2 Co+pany 3ill record a freight charge for P<% --'# "otal cost of inventory purchase is P.6% 7-Mock Special Qualifying Examination Fi i lA ti dR ti P! " P#

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(*# =hat is the title of IA! (.> A# Intangi2les ;# Receiva2les @uip+ent

C# '#

Inventory Property%

Plant

and

(:# It refers to the application of research ndings or other 8no3ledge to a plan or design for the production of ne3 +aterials% devices% products% process syste+s or services 2efore the start of co++ercial production or use# A# Research C# Invention ;# 'evelop+ent '# Reproduction (9# =hich is not part of cost of IA! (.> A# Cost of opening a ne3 facility ;# Professional fees C# Cost of testing 3heter the assets is functioning properly% after deducting the net proceeed fro+ selling any ite+s produced 3hile 2ringing the asset to that location and condition '# Initial delivery and handling costs# (<# =hich of the follo3ing assets does not have the characteristic of eDchangea2ility> A# &ood3ill C# Patents ;# Copyrights '# Franchise (.# !tate+ent (  Cost of closing and o2taining title% escro3s fees% surveying costs% local govern+ent special assess+ent taDes% and all other costs that are not per+anently i+prove the land are included in the cost of Land# !tate+ent *  =ater syste+s% side3al8s% drive3ays% par8ing lots and landscaping are separately reported under land i+prove+ents account and depreciated over their esti+ated useful life# A# ;oth state+ents are correct C# Only !tate+ent * is correct ;# Only !tate+ent ( is correct '# ;oth state+ents are 3rong (0# A +ethod that ignores salvage value in calculating periodic depreciation eDpense is the A# Productive/output +ethod C# !u+/of/the/yearsE digits +ethod ;# &roup or Co+posite +ethod '# 'ou2le declining 2alance +ethod (7#

An i+pair+ent loss recogniBe in prior years should 2e recovered

Mock Special Qualifying Examination Fi i lA ti dR ti P! " P#

%$ Junior Philippine Institute of Accountants

A# If and only if% there has no changes in the esti+ate used to deter+ine the assetEs recovera2le a+ount since the last i+pair+ent loss 3as recogniBed# ;# If there has 2een a changes in the esti+ate used to deter+ine the assetEs recovera2le a+ount since the 2eginning of i+pair+ent loss 3as recogniBed# C# If and only if% there has 2een a changes in the esti+ate used to deter+ine the assetEs recovera2le a+ount since the last i+pair+ent loss 3as recogniBed# '# If and only if there has no changes in the esti+ate used to deter+ine the assetEs recovera2le a+ount since the 2eginning of i+pair+ent loss 3as recogniBed # (7# I  vidence indicating that the econo+ic perfor+ance of an asset is% or 3ill 2e% 3orse than eDpected# II  vidence of o2solescence or physical da+age of an asset# III  Dcess of the carrying a+ount of the net assets of the reporting enterprise over its +ar8et capitaliBation# I?  !ignicant changes in the technological% +ar8et% econo+ic or legal environ+ent 3ith adverse eect on the enterprise# ?  !ignicant changes in the eDtent or +anner in 3hich an asset is used or is eDpected to 2e used 3ith adverse eect on the enterprise# =hich of the follo3ing are internal source indicators that an asset +ay 2e i+paired> A# I% II% III C# I% III% I? # I% II% ? ;# II% III% I? '# II% III% ? (6# =hich if the follo3ing is correct> A# An enterprise has control over an asset is it has the po3er to o2tain the future econo+ic 2enets fro+ the assets# ;# Patent is a right granted to an author of literary% +usical or artistic 3or8 for the pu2lication% distri2ution and adaptation of that 3or8# C# Franchises are 3ords% na+es% sy+2ols% or other devices used in trade to indicate the source of a product and to distinguish it fro+ the product of others# '# As dened in IA! (.% Intangi2le Asset is an identia2le non/ +onetary assets 3ithout physical su2stance# *-# A+ortiBation of intangi2le asset shall 2egin A# =hen the asset is in the location and condition necessary for it to 2e capa2le of operating in the +anner intended 2y +anage+ent# ;# =hen the asset has 2een approved 2y the Intellectual Property Oce Mock Special Qualifying Examination Fi i lA ti dR ti P! " P#

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C# =hen the asset is placed in the +ar8et and 2asic advertise+ents have 2een +ade# '# Fro+ the +o+ent it 3as +ade and presented to the 2oard or +anage+ent# "he 2oard shall assess the nu+2er of years to 2e a+ortiBed the intangi2le asset# *(# "he follo3ing are true a2out &ood3ill eDcept A# It is not su2Gect to a+ortiBation ;# It does not generate cash o3s independent of other assets% as it is specically identia2le C# It results fro+ several factors such as high e+ployee +orale% eective pro+otions and other factors that contri2ute to higher earnings for the enterprise '# It shall 2e tested for i+pair+ent at least annually% or +ore fre@uently% if there is an indication for i+pair+ent **# "hese are present o2ligation of an enterprise arising fro+ the past event% the settle+ent of 3hich is eDpected to result in an outo3 fro+ the enterprise of resources e+2odying econo+ic 2enets# A# Lia2ility ;# Dpenses C# Cost '# Dpenditures *:# Ronald Co# has co/signed the +ortgage note on the residential house of its president guaranteeing the inde2tedness in the vent that the president should default# Ronald considers the li8elihood of the default to 2e re+ote# Ho3 should the guaranty 2e treated in RonaldEs nancial state+ents> A# 'isclosed Only C# Accrued Only ;# Accrued and 'isclosed '# Neither 'isclosed or Accrued *9# A# ;#

;onds +aturing on a single date are called Calla2le 2onds C# 'e2enture ;onds !erial ;onds '# "er+ ;onds

*<# Joseph Co+pany failed to a+ortiBe discount on outstanding (-/ year 2onds paya2le# =hat is the eect to the failure to record a+ortiBation on interest eDpense% prot and 2ond carrying value% receptively> A# Understate% Overstate% Understate ;# Overstate% Understate% Overstate C# Understate% Overstate% Overstate '# Overstate% Understate% Understate


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*.# Ja+ Co+pany declared a cash dividend on its ordinary shares in April *-(.% paya2le in $ay *-(.# Retained earnings 3ould A# Increase on the date of declaration ;# Not 2e aected on the date of declaration C# Not 2e aected on the date of pay+ent '# 'ecrease on the date of pay+ent *0# "he e@ual +onthly rentals pay+ents +ade 2y the lessee in an operating lease should 2e A# Recorded partly as interest eDpense and party a reduction of lease lia2ility ;# Recorded as rent eDpense C# Recorded as reduction of leases lia2ility '# Allocated 2et3een interest eDpense and depreciation eDpense *7# "he portion of the lease pay+ents that is not Ded in a+ount 2ut is 2ased on a factor other than Gust the passage of ti+e such as percentage of sales% a+ount of usage% price indeD% and the +ar8et rate of interest is called A# ;argain Purchase Option C# Contingent Rent ;# ?aria2le "end '# Decutory Cost *6# According to the National Internal Revenue Code% the corporation is o2liged to pay the ;ureau of Internal Revenue A# An inco+e taD of :- 2ased on co+puted taDa2le prot or * of gross inco+e% 3hichever is higher# ;# An inco+e taD of *- 2ased on co+puted taDa2le prot or < of gross inco+e% 3hichever is higher C# An inco+e taD of :- 2ased on co+puted taDa2le prot or * of gross inco+e% 3hichever is lo3er '# An inco+e taD of *- 2ased on co+puted taDa2le prot or < of gross inco+e% 3hichever is lo3er # An inco+e taD of *< 2ased on co+puted taDa2le prot and < of gross inco+e :-# According to IA! (6% these are plans e+ployees 3ill receive at retire+ent 2ased A# Funded plans ; 'ened contri2ution plans

that dene the 2enet that on a for+ula C# Contri2utory plans '# 'ened 2enet plans

Problems ! "o#nts$

:(# !hields Co+pany provided the follo3ing adGusted account 2alances on 'ece+2er :(% *-(<1 Cash 9--% --=ages Paya2le *<-% --Mock Special Qualifying Examination Fi i lA ti dR ti P! " P#

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"aDes Paya2le Inventories Prepaid Rent $ortgage Paya2le 'ividends Paya2le !in8ing Fund Accounts Paya2le Invest+ent in Associate Accounts Receiva2le !hort/ter+ Invest+ents

**-% --.--% --(<-% --(% <--% --(<-% --<--% --*9-% --*% ---% --:<-% --<<-% ---

=hat a+ount should 2e reported as current assets on 'ece+2er :(% *-(<> A# P *% -<-% --C# P *% ---% --; P 9% <<-% --'# P *% 9--% --:*# $ic8a Co+pany provided the follo3ing account 2alances on 'ece+2er :(% *-(<1 ;onds Paya2le (% ---% --Accounts Receiva2le *--% --Notes Paya2le% due January :(% *-(. 7--% --Allo3ance for 'ou2tful accounts 'ividends Paya2le Accounts Paya2le "reasury !hares Pre+iu+ on ;onds Paya2le

<-% --9<-% --*% -<-% --*<-% --<--% ---

=hat a+ount should 2e reported as current lia2ilities> A# P :% :--% --C# P 9% 7--% --;# P :% 7<-% --'# P 9% 7<-% --::# "he adGusted trial 2alance of Jonnel Co+pany on 'ece+2er :(% *-(< included the follo3ing accounts1 !hare Pre+iu+ <--% -- "reasury !hares% at cost :--% --Revaluation !urplus (% *<-% --Retained arnings appropriated (% ---% --Actuarial loss recogniBed through other co+prehensive inco+e *<-% --!hare Capital :% ---% --Cu+ulative translation adGust+ent  credit 6--% --Retained earnings unappropriated *% ---% --=hat a+ount should 2e reported as total shareholdersE e@uity> A# P .% 6--% --C# P 7% (--% --Mock Special Qualifying Examination Fi i lA ti dR ti P! " P#

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;#

P .% :--% ---

'#

P 0% 9<-% ---

:9# On 'ece+2er :(% *-(<% Jorge Co+pany had the follo3ing cash 2alances1 Cash in 2an8 Petty cash fund "i+e deposit 4due January :(% *-(.5

(% <--% --(<-% --:--% ---

Cash in 2an8 included P 9--% --- of co+pensating 2alances against short/ter+ 2orro3ing arrange+ent on 'ece+2er :(% *-(<# "he co+pensating 2alance is legally restricted as to 3ithdra3al# In the 'ece+2er :(% *-(< state+ent of nancial position% 3hat total a+ount should 2e reported as cash and cash e@uivalents> A# P (% 6<-% --C# P (% <<-% --;# P (% 7--% --'# P (% 9--% --:<# Russel Co+panyEs +onth/end 2an8 state+ent sho3ed a 2alance of P :% 7--% ---# Outstanding chec8s a+ounted to P <--% ---% a deposit of P 6--% --- 3as in transit at +onth/end% and a chec8 for P *<-% --- 3as erroneously charged 2y the 2an8 against the account# =hat is the correct 2alance in the 2an8 account at +onth/end> A# P 9% 6<-% --C# P 9% -<-% --;# P 9% 9<-% --'# P :% .<-% ---

:.# In reconciling the cash 2alance on 'ece+2er :(% *-(< 3ith that sho3n in the 2an8 state+ent% the follo3ing facts are gathered fro+ the records of Klein Co+pany1 ;alance per 2an8 state+ent --;alance per 2oo8 Outstanding chec8s --'eposit in transit !ervice charge --Proceeds of 2an8 loan% 'ece+2er ( discounted For . +onths at (*% not recorded on KleinEs 2oo8s --Custo+erEs chec8 charged 2ac8 2y 2an8 for Mock Special Qualifying Examination Fi i lA ti dR ti P! " P#

P

:%

7<-%

*% .<-% --0--% 96<% --(<% 6.-%

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A2sence of counter signature

0-%

--'eposit of P(<-% -- incorrectly recorded 2y 2an8 as (<% --Chec8 of Calvin Co+pany charged 2y 2an8 against Klein account (.-% --Custo+erEs note collected 2y 2an8 in favor of Klein Co+pany# Face 9--% --Interest 9-% -- "otal 99-% --Collection fee (-% --rroneous de2it +e+o of 'ece+2er *7% to charge Klein account 3ith settle+ent of 2an8 loan *(-% --'eposit of Calvin Co+pany credited to Klein account (6<% --=hat is the adGusted cash in 2an8 on 'ece+2er :(% *-(<> A# P 9% *0<% --C# P :% 6<<% --;# P 9% (9-% --'# P :% 77<% --:0# ric8a Co+pany provided the follo3ing infor+ation relating to current operations1 Accounts receiva2le% January ( P :% <--% --Accounts receiva2le collected 0% 99<% --Cash !ales *% <.<% --Inventory% January ( .% *(<% --Inventory% 'ece+2er :( <% 67<% --Purchases 0% 00-% --&ross +argin on sales :% .0<% --=hat is the 2alance of accounts receiva2le on 'ece+2er :(> A# P <% (.<% --C# P 9% 6<-% --;# P <% -0<% --'# P 9% 7*<% --:7# Locre Co+pany started 2usiness on January (% *-(<# After considering the collection eDperience of other entities in the industry% the entity esta2lished an allo3ance for dou2tful accounts esti+ated at < of credit sales# Outstanding accounts receiva2le recorded on 'ece+2er :(% *-(< totaled P 9.-% ---% 3hile the allo3ance for dou2tful accounts has a credit 2alance of P <-% --- after recording esti+ated dou2tful account eDpense for 'ece+2er and after 3riting/o P (-% --- of uncollecti2le accounts# Further analysis sho3ed that +erchandise inventory 3as P :--% ---# &oods 3ere sold at 9- a2ove cost# "he total sales co+prised 7- sales on account and *- cash sales# "otal Mock Special Qualifying Examination Fi i lA ti dR ti P! " P#

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collections fro+ custo+ers% eDcluding cash sales% a+ounted to p (% *--% ---# =hat is the eect of the transactions on the accounts receiva2le and allo3ance for dou2tful accounts% respectively> A# ;# C# '#

(-% --- understated *-% --- understated ::-% --- understated ::-% --- understated

*9% :9% 9-% <-%

------9--

understated understated understated understated

:6# $ervryl Co+pany assigned P .% ---% --- of accounts receiva2le as collateral for a P :% <--%--- 3ith a 2an8 loan of (-# "he entity also paid the nance fee of < on the transaction upfront# =hat a+ount should 2e recoded as a gain or loss on the transfer of accounts receiva2le> A# :<9% 70* loss C# *:.% 606 gain ;# *7(% :6< gain '# 9-# On April :-% *-(<% John Paul Co+pany sold goods for P *-% ---% --- and accepted the custo+erEs (* one/year note in eDchange# "he (* interest rate approDi+ately the +ar8et return# =hat a+ount should 2e reported as interest inco+e for the year ended 'ece+2er :(% *-(<> A# P (% 7::% --C# P (% .--% --;# P (% 7--% --'# P (% :::% --9(# Clar8 Co+pany sold one of its factories on January (% *-(< for P7% ---% ---# "he entity received a cash do3n pay+ent of P (% <--% --and a 9/year% (* note for the 2alance# "he notes paya2le in e@ual annual pay+ents of principal and interest of P (% 60<% 9-paya2le on 'ece+2er :( of each year until *-(7# =hat is the carrying a+ount of the note receiva2le on 'ece+2er :(% *-(<> A# P .% *-<% .-C# P <% .(9% .-;# P <% 6(<% .-'# P <% :-9% .-9*# Cedrec Co+pany incurred the follo3ing costs in relation to a certain product1 'irect +aterials and la2or (7-% --?aria2le production overhead *<% --Factory ad+inistrative costs (<% --FiDed production costs *-% --=hat is the correct +easure+ent of the product> A# *9-% --C# *-<% --;# **<% --'# (6<% --9:# Honey Co+pany provided the follo3ing for the current year1 Central Held 2y 3arehouse Consignees Mock Special Qualifying Examination Fi i lA ti dR ti P! " P#

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;eginning inventory Purchases Freight in "ransportation consignees Freight out nding inventory

(% 76-% --:% 90<% --(<-% ---

*(-% --00<% ---

to

0<% --:--% --(% 9<-% ---

=hat is the cost of sales for the current year> A# P 9% 0(<% --;# P 9% <.-% ---

7-% --<.<% --C# '#

P 9% :.<% --P 9% (<-% ---

99# Kate Co+pany sold +erchandise for P 7--% -- on 'ece+2er :(% *-(<# "he ter+s of the sale state that pay+ent is due in one yearEs ti+e# "he i+puted rate of interest is 6# =hat a+ount of sales revenue 2e recogniBed> A# 70*% --C# 7--% --;# 0::% .-'# 0(*% 9-9<# "ricia Co+pany has a herd of (- */year old ani+als on January (% *-(<# One ani+al aged *#< year 3as purchased on July (% *-(< for P(-7% and one ani+al 3as 2orn on the sa+e day# No ani+als 3ere sold or disposed of during the year# "he fair value less cost of disposal per unit is as follo3s1 *  year old ani+al on January ( (-*#<  year old ani+al on (uly ( (-7 Ne3 2orn ani+al on July ( 0*  year old ani+al on 'ece+2er :( (-< *#<  year old ani+al on 'ece+2er :( ((( Ne3 2orn ani+al on 'ece+2er :( 0* :  year old ani+al on 'ece+2er :( (*-#<  year old ani+al on 'ece+2er :( 7=hat is the gain fro+ change in fair value due to price and physical change% respectively> A# *6* and << C# *:0 and *6* ;# << and *6* '# << and *:0 9.#

"an Co+pany provided the follo3ing net inco+e and inventory1 *-(9 *-(< Net inco+e using LIFO *% 0<-% --- :% ---% -- ,ear/end inventory  FIFO (% 9--% --- *% ---% -- ,ear/end inventory  LIFO 6--% -(% .--% -=hat is the net inco+e for *-(< using the FIFO cost o3> A# P *% 6--% --C# P :% :--% --;# P :% (--% -'# P :% <--% ---


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90# On 'ece+2er :(% *-(<% Katrina Co+panyEs ending inventory 3as P :% ---% ---% and the allo3ance for inventory 3rite do3n 2efore ant adGust+ent 3as P (<-% ---# Relevant infor+ation on 'ece+2er :(% *-(< follo3s1 Product Product * Product : Product 9 ( Historical cost 7--% --(% ---% 0--% --<--% ----!ales price (% *--% (% :--% (% *<-% (% ---% --------Nor+al prot *<-% --(<-% --:--% --:--% --Replace+ent cost 6--% --- (% *--% -(% ---% .--% ----Net realiBa2le <<-% --(% (--% 6<-% --:<-% --value --=hat a+ount of loss on inventory 3rite do3n should 2e included in cost of goods sold> A# (--% --C# 9--% --;# *<-% --'# <--% --97# Joyce Co+pany provided the follo3ing infor+ation1 June July August !ales on account 0% *--% --0% :.-% --- 0% .--% --Cash sales 0*-% --7--% --- (% -9-% --All +erchandise is +ar8ed up to sell at invoice cost plus *-# Inventory at the 2eginning of each +onth is :- of that +onthEs cost of goods sold# =hat is the a+ount of purchases for July> A# P .% <*7% --C# P 7% :-9% --;# P .% 7--% --'# P .% 6*-% --96# Kevin Co+pany is provided a grant 2y a foreign govern+ent for the purpose of ac@uiring land for a 2uilding site# "he grant is a Bero/ interest loan for < years evidence 2y a pro+issory note# "he loan rate 3as granted on January (% *-(< for P 7% ---% ---# "he +ar8et of interest is .# =hat is the carrying a+ount of note paya2le on 'ece+2er :(% *-(.> A# P 7% ---% --C# P .% 0(0% ::;# P .% 070% -9'# P .% ::0% (-9 <-# On Fe2ruary (% *-(.% Kate Co+pany purchased a parcel of land as a factory site for P (% ---% ---# An old 2uilding on the property 3as de+olished and construction 2egan on a ne3 2uilding 3hich 3as co+pleted on Nove+2er (% *-(.# Other costs incurred 3ere as follo3s1 'e+olition of old 2uilding (--% --Architect fee (0<% --Mock Special Qualifying Examination Fi i lA ti dR ti P! " P#

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Legal fee for title investigation and purchase contract *<% --Construction cost <% 9<-% --!alvaged +aterials resulting fro+ de+olition <-% --=hat a+ount should 2e recorded as cost of land and cost of 2uilding% respectively> A# (% (*<% --- and <% <0<% --C# (% (--% --- and <% .<-% --;# (% -0<% --- and <% .*<% --'# (% -<-% --- and <% 9<-% --<(# "ricia Co+pany provided the follo3ing1 "otal cost Residual sti+ated value life $achine A <% <--% --<--% --*$achine ; *% ---% --*--% --(< "he $achine C 9--% --< entity co+puted depreciation on the straight line +ethod# =hat is the co+posite life of the assets> A# (:#: years ;# (. years C# (7 years '# (6#7 years <*# ;olaos Co+pany purchase a +achine on January (% *-(< for P 7% (--% ---# "he useful life of the +achine is esti+ated at : years 3ith the residual value at the end of this period of P.--% ---# 'uring its useful life% the eDpected units of production are (*--units in *-(<% 0--- units in *-(.% and <--- units in *-(0# =hat is the depreciation eDpense for *-(9 using the +ost appropriate depreciation +ethod> A# P *% 0--% --C# P :% 0<-% --;# P *% (70% <-'# P *% <--% --<:# 'orias Co# reported the follo3ing operating inco+e 4loss5 for its rst three years of operations1 *-(: *-(9 *-(<

P :--% --40--% ---5 (% *--% ---

For each year% there 3ere no deferred inco+e taDes% and 'oriasE eective inco+e taD rate 3as :-# In its *-(9 inco+e taD return% 'orias elected to carry 2ac8 the +aDi+u+ a+ount of loss possi2le# Additionally% there 3as +ore negative evidence than positive evidence concerning prota2ility for 'orias in *-(<# In its *-(< inco+e state+ent% 3hat a+ount should 'orias report as total inco+e taD eDpense> A# P (*-% --C# P *9-% --;# P (<-% --'# P :.-% --<9# Ca+ille Corporation incurred the follo3ing costs in *-(*1 Ac@uisition of R)' e@uip+ent 3ith a useful Mock Special Qualifying Examination Fi i lA ti dR ti P! " P#

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life of 9 years in R)' proGects P .--%--!tart/up costs incurred 3hen opening a ne3 plant (9-%--Advertising eDpense to introduce a ne3 product 0--%--ngineering costs incurred to advance a product to full production stage 4econo+ic via2ility not achieved5 9--%--=hat a+ount should Ca+ille record as research ) develop+ent eDpense in *-(*> A# P <<-% --C# P (% ---% --2# P 09-% --'# P (% (9-% --<<# Ryan co+pany has the follo3ing infor+ation related to its 3arranty o2ligation1 In year *-(*% goods are sold for P(-%---%---# Dperience indicates that 6- of the products sold re@uire no 3arranty repairsM . of products sold re@uire +inor repairs costing :- of the sales priceM and 9 of products sold re@uire +aGor repairs or replace+ent costing 0- of sales price# "he eDpenditures for 3arranty repairs and replace+ents for products sold in *-(- are eDpected to 2e +ade .- in *-(:% :- in *-(9 and (- in *-(<% in each case at the end of the period# ;ecause the cash o3s already reect the pro2a2ilities of the cash o3s% and assu+ing there are no other ris8s or uncertainties that +ust 2e reected% to deter+ine the present values of those cash o3s the entity uses a ris8 free discount rate 2ased on govern+ent 2onds 3ith the sa+e ter+ as eDpected cash o3s 4. for one/year 2onds and 0 for t3o/year and three/ year 2onds5# =hat a+ount of provision on 3arranty should Ryan Co+pany report in its state+ent of nancial position for the year ended 'ece+2er :(% *-(*> A# P 9(7% 9<0 C# P *.-% :07 ;# P :7-% 6-0 '# P (*-% <*6 <.# !tephanie Co+pany o3es P (% 667% --- to Ki+% Inc# "he de2t is a (-/ year% (( note# ;ecause !tephanie Co+pany is in nancial trou2le% Ki+% Inc# agrees to accept so+e property and cancel the entire de2t# "he property has a 2oo8 value of P7--% --- and fair +ar8et value of (% *--% ---# =hat a+ount of gain or loss on the settle+ent of the lia2ility should !tephanie Co+pany recogniBe> A# P//- C# P 067% --;# P 9--% --'# P (% (67% ---


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<0# Jerey Co+pany is eDperiencing nancial diculty and is negotiating trou2le de2t restructuring 3ith its creditors to relieve its nancial stress# Jerey has a P:% ---% --- note paya2le to !heena# "he 2an8 is considering acceptance of an e@uity interest in Jerey Co+pany in the for+ of *--% --- ordinary shares 3ith a fair value of P(* per share# "he par value of the ordinary share is P(- per share# Jerey Co+pany incurred total transaction costs of P7-% --- related to the issue of shares# =hat is the a+ount of share pre+iu+ to 2e reported 2y Jerey in its state+ent of nancial position as a result of the restructuring applying IFRIC (6> A# P :*-% --C# P 6*-% --;# P 9--% --'# P (% ---% --<7# Kelvin Co+pany grants (<- share options to each of its <-e+ployees on January *% *-(-% and eDercisa2le starting 'ece+2er :(% *-(* for a */year period# ach grant is conditional upon the e+ployee 3or8ing for the entity over the neDt three years# Kelvin esti+ates that the fair value of each option is P9-# On the 2asis of 3eighted average pro2a2ility% the entity esti+ates that *- of the e+ployees 3ill leave during the three/ year period and forfeit their rights to the share options# 'uring the year *-(-% *e+ployees leave and Kelvin Co+pany still 2elieves that *- is a fair esti+ate of e+ployee departures# 'uring *-(( a further ** e+ployees leave# 'ue to the lo3 turn/ over as if 'ece+2er :(% *-((% Kelvin revises its esti+ates of e+ployee departures over the three/year period fro+ *- to (<# 'uring *-(*% a further (7 e+ployees leave# =hat is the co+pensation eDpense to 2e recogniBed 2y Kelvin Co+pany for the share options in *-(*> A# P 7--% --C# P 67-% --;# P 69-% --'# P (% 0--% --<6# "he $iracle Co+pany leased so+e plant and +achinery for (- years% its useful life% 3ith eect fro+ January (% *-(*# At that date the fair value of the plant and +achinery 3as P 96-% ---# Annual rentals of P 0-% --- are paya2le in advance on ( January and the interest rate i+plicit in the lease is 6# =hat is the total lease lia2ility 3hich $iracle should recogniBe in its state+ent of nancial position at 'ece+2er :(% *-(*% according to PA! (0> A# P 69% 7
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*- ordinary shares# "he 2onds 3ere dated January (% *-((# Net inco+e after taD of :* for *-(( 3as P9(7% ---# Ho3 +uch should Raven Co+pany report as earnings per share in its nancial state+ents> A# P(#6C# P *#(: ;# P*#-6 '# P *#76 .(# Ho+e Co+pany reported the follo3ing a+ounts in the stoc8holdersE e@uity section of its 2alance sheet dated 'ece+2er :(% *-((1 Preference share capital 4P(<- par value% *-%--- shares5 :% ---% --Ordinary share capital 4P:0#<- par value% (--%--- shares5 :% 0<-% --!hare pre+iu+ reserve .%---%--Accu+ulated prots 9% <--% -- "reasury stoc8% at cost 4<% --- ordinary shares5 *<-% --On January *% *-(*% Ho+e sold *-% --- additional shares of ordinary share for P6- per share# Late in *-(*% it 3as learned that 2ecause of +athe+atical error% an overstate+ent of depreciation eDpense 2y P:0<% --- had occurred in *--<# Ho+e reported net inco+e of P7*<% --- for *-(*# Ho+e declared cash dividends of P(<-% --- on preference share and P9<-% --- on the ordinary share during *-(*# All the treasury shares 3ere re/issued for P:< per share on 'ece+2er :(% *-(*# =hat should 2e the accu+ulated prots 2alance on 'ece+2er :(% *-((> A# P 9% <--% --C# P 9% 70<% --;# P 9% 6-<% --'# P <% -*<% --Use the following information for the next two questions.

On $arch (% *-(*% Ponytail Corporation purchased 7 P:-% ---% --2onds of "otoy Co+pany 3hen the +ar8et interest in purchasing this type of 2onds 3as (( 3ithout incurring any cost# "he 2onds pay interest annually every 'ece+2er :( and +ature on 'ece+2er *-(.# As one of the fe3 entities 3ho early adopted the revised standard for nancial instru+ents% the co+pany opted not to use the fair value option for de2t instru+ents under PFR! 6 after +eeting the re@uire+ents in +easuring the nancial asset at a+ortiBed cost# "ransaction costs incurred 2y Ponytail Corporation a+ounted to P(% -*9% 6-9# "he +ar8et rate at 'ece+2er :(% *-(* for this type of instru+ent 3as 6#


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.*# 'eter+ine the a+ount of a+ortiBed of transaction costs recogniBed in *-(*Es state+ent of co+prehensive inco+e# A# P (:9% .*7 C# P 76-% *0. ;# P (.(% <<9 '# P *% 06*% *-9 .:# Assu+ing the fair value option 3as used at initial recognition of the nancial instru+ent% ho3 +uch is the net increase in co+prehensive inco+e in *-(*> A# P *% 06<% :9. C# P :% :*6% 96. ;# P :% 7.:% .9. '# P :% *9-% 90( .9# "he +e+orandu+ records of Revised Inc# for its dened 2enet plan sho3 the follo3ing 2alances1 Plan asset% January (% *-(9 P <%---% --'ened 2enet o2ligation% January (% *-(9 <%*--%--*-(9 infor+ation1 Current service cost 0<-%--$ar8et yields on govern+ent 2onds at year / end (- Contri2utions +ade (%7--%--;enets paid 97-%--Past service cost as a result of plan a+end+ent *%:--%--Plan asset% at fair value% 'ece+2er :(% *-(9 7%---%--'ened 2enet o2ligation% re/+easured% 'ece+2er :(% *-(9

7%:<-%-- "he fair value of Plan asset at year end includes the unpaid contri2utions due fro+ the Revised Inc# to the fund% as 3ell as the non/transfera2le F?PL issued 2y the Revised Inc# and held 2y the fund a+ounting to P0--%--- and P:--%---% respectively# 'eter+ine the a+ount recogniBed in prot or loss in accordance 3ith revised PA! (6  +ployee ;enets# A# P :% -<-% --C# P :% <0-% --;# P :% -0-% --'# P *% :--% --.<#

;ONU!Q

AN!=R !H"

(# *#

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96# <-# $ !)


:# 9# <# .# 0# 7# 6# (-# ((# (*# (:# (9# (<# (.#

(6# *-# *(# **# *:# *9# *<# *.# *0# *7# *6# :-# :(# :*#

:<# :.# :0# :7# :6# 9-# 9(# 9*# 9:# 99# 9<# 9.# 90# 97#

<(# <*# <:# <9# <<# <.# <0# <7# <6# .-# .(# .*# .:# .9#

Prepared 2y1 $ervryl '# $ercado ?ice President for Acade+ic Aairs Acade+ic ,ear *-(.  *-(0


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Mock Examination FinAcc

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