Financial Accounting and Reporting Quiz 1

QUIZ 1

Why does the IFRS Interpretations Committee publishes an Agenda Decision?

a.   To provide specific guidance on the application of a particular provision of an IFRS Accounting Standard.

b.    To explain why an Interpretation of an IFRS has been issued.

c.  To explain why a standard-setting project has been added to the work plan to address a question submitted.

d.    To explain why a standard-setting project has not been added to the work plan to address a question submitted.

d.    To explain why a standard-setting project has not been added to the work plan to address a question submitted.

Which statement is correct?

A.    The Board of Accountancy is composed of fifteen members with a chairman. (6 members and a chairman)

B.    The Financial Reporting Standards Council shall have a chairman who had been or presently a senior practitioner in public accountancy.

C.    A member of the Auditing and Assurance Standards Council must be a duly registered Certified Public Accountant with at least ten (10) years of work experience in the practice of public accountancy. (any scope of practice)

D.    Compliance with the Philippine Interpretations Committee implementation guidance is required for the fair presentation of financial statements in accordance with PFRS.

D.    Compliance with the Philippine Interpretations Committee implementation guidance is required for the fair presentation of financial statements in accordance with PFRS.

Which of the following should be classified as inventory?

I.     An entity trades in commercial property (ie it buys commercial property with a view to selling it at a profit in the near term).

II.   An entity acquired a tract of land to divide it into smaller plots to be sold in the ordinary course of business at an expected forty per cent profit margin. No rentals are expected to be generated from the land.

III.  An entity trades in transferable taxi licenses.

IV.  A vintner processes grapes harvested from its vineyards into wine in a three-year production cycle.

 

A.    I, II, III and IV

B.    I, II and III only

C.    I and II only

D.    I  only

A.    I, II, III and IV

The physical inventory of Hug Co. at December 31 showed inventory with a cost of P441,000.  It was discover that the following items were all excluded from that amount.

a.     Merchandise of P61,000 which is held by Hug on consignment.  The consignor is Kisses Company.

b.     Merchandise costing P38,000 which was shipped by Hug f.o.b. destination to a customer on December 31.  The customer was scheduled to receive the merchandise on January 2.

c.      Merchandise costing P46,000 which was shipped by Hug f.o.b. shipping point to a customer on December 29.  The customer was scheduled to receive the merchandise on January 2.

d.     Merchandise costing P83,000 shipped by a vendor f.o.b. destination on December 30 and received by Hug on January 4.

e.      Merchandise costing P51,000 shipped by a vendor f.o.b. seller on December 31 and received by Hug on January 5.

The adjusted cost of Hug Company's inventory at December 31 should be

A.   P538,000                                 C.   P479,000

B.   P530,000                                D.   P441,000

 

B.   P530,000   

A physical inventory taken on Dec. 31, 2025 resulted in an ending inventory of P1,440,000. 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, 2024	P1,280,000
Purchases during 2025	5,640,000
Cash sales during 2025	1,400,000
Shipment received on Dec. 26, 2025, included in physical inventory, but not recorded as purchases	40,000
Deposits made with suppliers, entered as purchases.  Goods were not received in 2025	80,000
Collections on accounts receivable, 2025	7,200,000
Accounts receivable, Jan. 1, 2025	1,000,000
Accounts receivable, Dec. 31, 2025	1,200,000
Gross profit percentage on sales	40%

 

At Dec. 31, 2025 what is the estimated cost of missing inventory?

a.   P200,000                                 c.   P240,000

b.   P160,000               d.   P320,000

b.   P160,000

The records of Cloy Corp. 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 returns	400,000
Employee discounts	200,000
Theft and other losses	100,000

 

Using the average retail inventory method, Cloy Corp.’s ending inventory at cost is

A.   P1,024,000                              C.   P1,536,000

B.   P1,472,000                              D.   P1,664,000

 

B.   P1,472,000  

The following information is available for an entity:

 

	Cost	Retail
Beginning inventory	P1,987,200	P2,760,000
Sales		7,812,000
Purchases	4,688,640	6,512,000
Freight in	94,560
Mark ups		720,000
Mark up cancellations		120,000
Markdown		240,000
Markdown cancellations		40,000

 

The entity uses the average retail inventory method in estimating the values of its inventories and cost of goods sold.

 

The estimated ending inventory at cost is

a.   P1,275,588                                    c.   P1,302,000

b.   P1,287,120                                    d.   P1,412,786

c.   P1,302,000

An entity in agribusiness produces cacao to sell to chocolate factories. Its statement of financial position at 31 December 2025 presents: two tractors (P500,000 each), three computers (P20,000 each) and software (P50,000) to manage the cultivation of cacao on its farmland, which is planted with cacao-bearing trees (estimated value, P10 million). The entity’s assets also included pods of recently harvested cacao (estimated value, P2 million).  How much should be classified as biological assets?

a.   P13 million                               c.   P10 million

b.   P12million                               d.   Nil

d.   Nil

An entity is engaged in agricultural activity. Its trial balance at Dec. 31 presents the following assets related to its farmland:

• Two tractors (P500,000 each)

• Four computers (P25,000 each)

• Computer software (P50,000)

• Fruit-bearing trees (estimated value, P20 million 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)

• Trees that are cultivated both for their fruit and their lumber (estimated value, P8 million)

• Maize and wheat (estimated value, P4 million)

 

How much should be accounted for as biological assets?

a.   P25 million                               c.   P7 million

b.   P17 million                               d.   P3 million

a.   P25 million    

A condition of continuing to operate an item of property, plant and equipment (for example, an aircraft) may be performing regular major inspections for faults regardless of whether parts of the item are replaced.  When each major inspection is performed, its cost is

A.    Recognized in profit or loss as incurred.

B.    Often described as for the ‘repairs and maintenance’ of the item of property, plant and equipment.

C.    Recognized in other comprehensive income as incurred.

D.    Recognized in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied.

 

D.    Recognized in the carrying amount of the item of property, plant and equipment as a replacement if the recognition criteria are satisfied.

Sang-yeon Corp. acquired some new equipment. The following data have been made available to you:

 

List price of the equipment	P14,000
Cash discount available but not taken on purchase	200
Freight paid on the new equipment	250
Cost of removing the old equipment	170
Installation costs of the new equipment	430
Testing costs before the equipment was put to regular operation (including P120 in wages of the regular equipment operator)	295
Loss on premature retirement of the old equipment	120
Estimated cost of manufacturing similar equipment in the company's own plant, including overhead	13,800

 

What amount should Sang-yeon capitalize as the cost of the new equipment?

a.   P14,525                                      c.   P14,775

b.   P14,695                                      d.   P14,945

c.   P14,775

Jayvison Company takes a full year's depreciation expense in the year of an asset's acquisition, and no depreciation expense in the year of disposition. Data relating to one of Jayvison's depreciable assets at December 31, 2024, are as follows:

 

Acquisition year	2022
Cost	P110,000
Residual value	20,000
Accumulated depreciation	72,000
Estimated useful life	5 years

 

Using the same depreciation method as used in 2022, 2023, and 2024, how much depreciation expense should Jayvison record in 2023 for this asset?

A.   P12,000                                   C.   P22,000

B.   P18,000                                   D.   P24,000

A.   P12,000   

On Jan. 1, 2025, an entity acquired two assets within the same class of plant and equipment. Information on these assets follows:

	Cost	Expected useful life
Machine 1	P100,000	5 years
Machine 2	60,000	3 years

 

The machines are expected to generate benefits evenly over their useful lives. The class of plant and equipment is measured using the revaluation model.

 

At Dec. 31, 2025, information about the assets follows:

 

	Fair value	Expected useful life
Machine 1	P84,000	4 years
Machine 2	38,000	2 years

 

1.    The amount to be recognized in 2023 profit or loss related to the revaluation of the assets is

a.   Nil                                                c.   P2,000

b.   P(2,000)                                      d.   P4,000

 

2.    The amount to be recognized in 2025 comprehensive income related to the revaluation of the assets is

a.   P(2,000)                                     c.   P  4,000

b.   P2,000                                        d.   P17,000

b.   P(2,000)   

b.   P(2,000)   

Which statement is correct regarding investment property in accordance with IAS 40?

a.   Investment property includes property occupied by an employee paying market rent.

b.   Investment property does not generate cash flows largely independently of the other assets held by an entity.

c.   An entity need not disclose the fact the fair value of investment property is not determined on the basis of a valuation by an independent valuer who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being valued.

d.   An entity shall disclose the amounts recognized in profit or loss for direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period.

d.   An entity shall disclose the amounts recognized in profit or loss for direct operating expenses (including repairs and maintenance) arising from investment property that did not generate rental income during the period

The Niagara Company owns three properties which are classified as investment properties according to PAS40 Investment property.  Details of the properties are given below (amounts in thousands):

 

	Initial cost	Fair value at Dec. 31, 2024	Fair value at Dec. 31, 2025
Property (1)	270	320	350
Property (2)	345	305	285
Property (3)	330	385	360

 

Each property was acquired in 2021 with a useful life of 50 years. The company's accounting policy is to use the fair value model for investment properties.

 

What is the gain or loss to be recognized in Niagara's profit or loss for the year ending Dec. 31, 2025?

a.   P18,900 loss                             c.   P30,000 gain

b.   P15,000 loss                             d.   P45,000 loss

b.   P15,000 loss

According to PAS 38 Intangible assets, which of the following statements about research and development expenditure is correct?

A.    If all the conditions specified in PAS 38 are met, development expenditure may be capitalized if the directors decide to do so.

B.    The financial statements should disclose the total amount of research and development expenditure recognized as an expense during the period.

C.    Amortization of capitalized development expenditure will appear as an item in a company’s statement of changes in equity.

D.    Development projects must be reviewed at each reporting date, and expenditure on any project no longer qualifying for capitalization must be amortized through the statement of comprehensive income over a period exceeding five years.

B.    The financial statements should disclose the total amount of research and development expenditure recognized as an expense during the period.

On January 1, 2025, Golden State Corporation purchased a patent for P330,000 cash.  The 20-year legal life of the patent begins from January 1, 2020 (date of registration).  Golden State initially intends to use the patent throughout its remaining useful life.  But on December 31, 2025, Golden State estimated that the total useful life of the patent would probably be 15 years from date of registration with no residual value.  At the end of the current accounting year, December 31, 2025, Golden State should patent amortization expense of:

A.   P22,000                                     C.   P30,000

B.   P27,500                                     D.   P33,000

  D.   P33,000

Wan acquired Yang, a small company that specializes in pharmaceutical drug research and development for P35 million.  The fair value of Yang’s net assets was P15 million (excluding any items referred to below).

 

Yang owns a patent for an established successful drug that has a remaining life of 8 years.  A firm of specialist advisors, Tantsahan, has estimated the current value of this patent to be P10 million; however, the company is awaiting the outcome of clinical trials where the drug has been tested to treat a different illness.  If the trials are successful, the value of the drug is then estimated to be P15 million.  Also included in the company’s balance sheet is P2 million for medical research that has been conducted on behalf of a client.

 

Compute the amount of goodwill from the acquisition of Yang by Wan.

A.   P8,000,000                              C.   P  3,000,000

B.   P5,000,000                              D.   P20,000,000

A.   P8,000,000    

On January 15, 2023, Mountain Company paid P5,400,000 for property containing natural resource of 2,000,000 tons of ore.  The entity is legally required to restore the site after mining operations.  The estimated cost of restoring the land after the resource is extracted is P450,000 and the land will have a value of P650,000 after it is restored for suitable use.  Tunnels, bunk houses and other fixed installations are constructed at a cost of P8,000,000 and such expenditures are charged to mine improvements.

 

Operations began on January 1, 2024 and resources removed totaled 600,000 tons.  During 2025, a discovery was made indicating that available resource after 2025 will total 1,875,000 tons.  At the beginning of 2025, additional bunk houses were constructed in the amount of P770,000.  In 2025, only 400,000 tons were mined because of a strike.

 

Mountain Company should report depletion for 2025 at

A.   P1,560,000                               C.   P776,000

B.   P1,040,000                               D.   P640,000

D.   P640,000