INSTRUCTIONS: Select the correct answer for each of the following questions.

Mark only
one answer for each item by shading the box corresponding to the letter of your choice on the
sheet provided. STRICTLY NO ERASURES ARE ALLOWED. Use pencil no. 2 only.

1. An entity provided the following information on December 31, 2024:

Cash in bank 2,000,000

Accounts receivable 4,000,000
Allowance for doubtful accounts 250,000
Notes receivable 1,250,000
Note receivable discounted 250,000
Inventory 2,250,000
Prepaid expenses (including cash surrender value of P300,000) 1,000,000
Deferred tax asset 1,500,000
Equipment classified as “held for sale” 1,800,000

The accounts receivable included sale price of P1,500,000 of unsold goods out on consignment
at 125% of cost and excluded from ending inventory. Which of the following statements is
false?

a. Current and noncurrent presentation of assets and liabilities provide useful information when
an entity supplies goods or services within a clearly identifiable operating cycle.
b. The operating cycle of an entity is always a period of 12 months.
c. Total current assets amount to P11,200,000.
d. Total noncurrent assets amount to P1,800,000.

2. An entity reported the following data for the current year:

Legal and audit fees 1,400,000 Freight out 1,600,000

Rent for office space 2,000,000 Officers’ salaries 1,500,000
Interest on inventory loan 1,100,000 Insurance 950,000
Loss on abandoned equipment 450,000 Sales representative salaries 2,150,000
Doubtful accounts expense 1,750,000 Gross profit 15,000,000

The office space is used equally by the sales and accounting departments. Which of the
following is true?

a. An entity is required to present expenses in the income statement according to function.

b. The total distribution costs amount to P6,500,000.
c. The total general and administration costs amount to P6,600,000.
d. Net income for the year is P3,200,000.

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3. An entity reported changes in certain accounts included accounts payable P150,000
decrease, inventory P50,000 increase and accounts receivable P100,000 decrease. All
purchases of inventory were on account. Depreciation during the year was P900,000 and
equipment was sold at gain of P300,000. The entity reported net income of P3,500,000 for the
current year and the cash flows for the current year were as follows: collection from customers,
P9,500,000; payment for inventory purchase P4,100,000; payment for other expenses,
P1,400,000.

Statement I: The indirect method of preparing the cash flow statement is known as the
reconciliation method.
Statement II: The net cash flow provided by operating activities is P4,000,000.

a. Only statement I is true.

b. Only statement II is true.
c. Statements I and II are true.
d. Statements I and II are false.

4. An entity acquired new machinery and the following items were analyzed in computing the
initial cost:

Invoice price of the machinery 1,400,000

Cash discount available but not taken on purchase 20,000
Freight paid on the new machinery 40,000
Cost of removing the old machinery 15,000
Installation cost of the new machinery 50,000
Testing cost before the machinery was put into
regular operation includingP10,000 in wages of the regular machinery operator 30,000
Loss on premature retirement of the old machinery 5,000
Estimated cost of manufacturing similar machinery including overhead 1,300,000

The machine has a useful life of 5 years and was put into use on January 1, 2024. The entity
used the double declining balance method of depreciation. On January 1, 2026, the entity
decided to change to the straight-line method of depreciation and the revised total useful life
of the asset is 10 years. Which of the following statements is true?

a. Change in useful life and change in depreciation method are changes in accounting policies.
b. The initial cost of the machine is P1,515,000.
c. The depreciation expense for the year 2026 is P67,500
d. The accumulated depreciation on December 31, 2025 is P953,600.

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5. On June 1, 2024, an entity had equipment with cost of P10,000,000 and accumulated
depreciation of P6,000,000. On that date, the entity classified the equipment as held for sale.
On same date, the equipment had an estimated selling price of P2,600,000, estimated selling
cost of P200,000 and remaining life of 4 years. On December 31, 2024, the estimated selling
price of the equipment had increased to P3,000,000 with estimated selling cost of P150,000.

Statement I: Noncurrent assets held for sale are measured at fair value less cost of disposal.
Statement II: The asset is measured at P2,850,000 on December 31, 2024.
Statement III: The gain on reversal of impairment on December 31, 2024 is P1,150,000.

a. All statements are true

b. Only statement II is true.
c. Statements II and III are true.
d. All statements are false.

6. On January 1, 2024, an entity changed from the average cost method to the FIFO method to
account for inventory. The entity the provided the following ending inventory for each method:
2023 2024
Average cost 1,000,000 1,800,000
FIFO cost 1,400,00 ?

Using the average cost method, income before tax for the years 2023 and 2024 were
P3,000,000 and P4,000,000 respectively. It was determined that the net income for 2024 using
the FIFO cost method was P3,450,000. The income tax rate is 25%. What is the 2024 FIFO
cost of ending inventory?

a. 800,000
b. 1,000,000
c. 1,250,000
d. 2,800,000

7. An entity provided the following on December 31, 2024:

Preference share capital, 10% cumulative and

nonparticipating, 45,000 shares, P100 par 4,500,000
Ordinary share capital, P100, 60,000 shares 6,000,000
Subscribed ordinary share capital 30,000 shares 3,000,000
Subscription receivable 750,000
Share premium 4,500,000
Retained earnings 7,200,000
Treasury ordinary shares outstanding 15,000 shares 1,200,000

Preference dividends are in arrears for 5 years. What is the book value per ordinary share?
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a. 230
b. 192
c. 383
d. 224

8. Under PFRS 5, the results of a discontinued operations

I. Shall be presented within profit or loss (gross of tax), after the computation of income or
loss from continuing operations.
II. Shall be presented in the statement of comprehensive income separate from other
comprehensive income and losses but within profit or loss.

A. I only C. Both I and II

B. II only D. Neither I nor II

9. According to PAS 8, which of the following is incorrect?

A. When it is difficult to distinguish a change in an accounting policy from a change in

accounting estimate, the change is treated as a change in an accounting estimate.
B. Change in an accounting estimate does not affect the financial statements of prior period
C. Retrospective application means restating the opening balances of assets, liabilities and
equity for the earliest prior period presented.
D. Changes in accounting policy is NOT always be treated retrospectively.

10. Which of the following statement is correct regarding the general features of financial
statements as mentioned in PAS 1?

First Statement: PAS 1 requires an entity to present comparative information in respect of the
preceding period for all amounts only. Comparative information for narratives is NOT
required.

Second Statement: Under PAS 1, the reporting of assets net of valuation allowance is NOT
offsetting (e.g. ending balance of accounts receivable less allowance for doubtful accounts).

Third Statement: PAS 1 requires an entity whose financial statements comply with
PFRS, to make an explicit and unreserved statement of such
compliance in the notes to financial statements.

A. First and second statements only.

B. First and third statements only.
C. Second and third statements only.
D. First statement only

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11. Which of the following statements is FALSE regarding operating segments?

A. PFRS 8 shall apply to the separate or individual financial statements of an entity, and to the
consolidated financial statements of a group with a parent which is a public entity.
B. PFRS 8 adopts the management approach in identifying which segments are reportable.
C. Additional operating segments shall be identified as reportable segments even if they do
not meet the quantitative thresholds until at least 75% of the
entity’s total revenue is included in reportable segments.
D. Segment data for a prior period presented for comparative purposes shall be restated if an
operating segment is identified as a reportable segment in the current period.

12. HANZO CORP. has reported a net income amounting to P200,000 for the year 2024 and
P300,000 for the year 2025. The following errors were discovered during 2025:

(a) Inventory on December 31, 2024 was understated by P10,000.

(b) An accrual for salaries expense in 2025 amounting to P15,000 was omitted.
(c) Rent of P36,000 on an equipment applicable for six months was received on November 1,
2024. The entire amount was reported as income upon receipt.
(d) An item of PPE purchased last April 1, 2024 was fully expensed by HANZO, amounting
to P80,000. The PPE was supposed to be depreciated using straight- line method and has a
useful life of 10 years.
(e) Prepaid expense as of the end of 2023 is understated by P5,000. Based on the above
information, evaluate the following statements:

First Statement: The adjusted net income for the year 2024 is P260,000.
Second Statement: The total net adjustments to the 2025 beginning balance of retained
earnings is net credit of P55,000.
Third Statement: The adjusted net income in 2025 is P291,000.

A. True, false, false C. False, false, true

B. False, true, true D. True, false, true

13. Which of the following statements is true regarding interim reporting under PAS 34?

A. PAS 34 requires listed entities to provide interim financial reports.

B. If an entity does not prepare interim financial reports, then the year-end financial statements
are deemed not to comply with PFRS.
C. Interim financial reports may be prepared using either
D. The discrete view is required for interim reporting.

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14. Which of the following is (are) related parties?

I. An entity with a director or key manager in common with the reporting entity.
II. Two venturers who have joint control over a joint venture.
III. Both entities are associates of the same third party.
IV. One entity is a joint venture of a third entity and the other entity is an associate of the third
entity.

A. I, II, III, and IV C. II and IV only

B. II, III, and IV only D. IV only

15. Which statement is true according to PAS10 Events after the reporting period?

A. A decline in the market value of investments would normally be classified as an adjusting

event.
B. The settlement of a long-running court case would normally be classified as a non-adjusting
event.
C. Notes to the financial statements should give details of all material adjusting events included
in those financial statements.
D. Notes to the financial statements should give details of material non-adjusting events which
could influence the economic decisions of users.

16. In January 2022, Solar Ltd. has installation costs of P90,000 on new machinery that were
charged to Repairs Expense. Other costs of this machinery of P300,000 were correctly
recorded and have been depreciated using the straight-line method with an estimated life of 10
years and no residual value. On December 31, 2023, Solar decides that the machinery has
remaining useful life of 15 years, starting with January 1, 2024.

If the books have not been closed for 2024 and depreciation expense has not yet been recorded
for 2024, the entry that Solar makes in 2024 to correct for the error of expensing installation
costs on the machinery will include and the correct amount of depreciation expense that should
be recognized in 2024, respectively?

a. a debit to Retained Earnings for P18,000 and depreciation expense of P16,000.

b. a credit to Retained Earnings for P27,000 and depreciation expense of P16,000.
c. a debit to Retained Earnings for P27,000 and depreciation expense of P20,800.
d. a credit to Retained Earnings for P72,000 and depreciation expense of P20,800.

17. The Supplies account had a balance at the beginning of year 3 of P4,000 (before the
reversing entry). Payments for purchases of supplies during year 3 amounted to P25,000 and
were recorded as expense. A physical count at the end of year 3 revealed supplies costing
P5,750 were on hand. Reversing entries are used by this company. The required adjusting entry
at the end of year 3 will include a debit to:

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a. Supplies Expense for P1,750. c. Supplies expense for P23,250
b. Supplies for P1,750. d. Supplies for P5,750.

18. Pong Pong Corporation paid cash of P21,000 on August 1, 2024, for one year's insurance
in advance and recorded the transaction with a debit to Prepaid Insurance. On Pong Pong’s
income statement for the year ending December 31, 2024, P20,650 was reported for insurance
expense. If Pong Pong’s prepaid insurance balance was P11,900 on January 1, 2024, what was
the balance in Prepaid Insurance on December 31, 2024?

a. P8,750
b. P12,250
c. P29,750
d. P32,900

19. When converting from cash basis to accrual basis accounting, which of the following
adjustments should be made to cash paid for operating expenses to determine accrual basis
operating expenses?

a. Add beginning accrued liabilities.

b. Subtract beginning prepaid expense.
c. Subtract ending prepaid expense.
d. Subtract interest expense.

20. If ending accounts receivable exceeds the beginning accounts receivable:

a. cash collections during the period exceed the amount of revenue recognized.
b. net income for the period is less than the amount of cash basis income.
c. no cash was collected during the period.
d. cash collections during the year are less than the amount of revenue recognized.

21. An entity reported net income of P3,000,000 for the current year. During the year, the
entity sold equipment costing P250,000 with accumulated depreciation of P120,000 for a gain
of P50,000. In December, the entity purchased equipment costing P500,000 with P200,000
cash and a 12% note payable of P300,000. Changes occurred in certain accounts were
equipment P250,000 increase, accumulated depreciation P400,000 increase and note payable
P300,000 increase. What amount should be reported as net cash provided by operating
activities?

a. 3,400,000
b. 3,470,000
c. 3,520,000
d. 3,570,000

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22. An entity reported net income of P7,500,000 for the current year. Changes in certain
accounts were:

Investment in shares carried at equity 1,000,000 Increase

Accumulated depreciation, caused by major repair 500,000 Decrease
Unearned interest income 100,000 Increase
Premium on bonds payable 150,000 Decrease
Deferred tax liability 250,000 Decrease

What amount should be reported as net cash provided by operating activities?

a. 7,200,000
b. 6,800,000
c. 6,200,000
d. 6,500,000

23. An entity reported changes in certain accounts included accounts payable P150,000
decrease, inventory P50,000 increase and accounts receivable P100,000 decrease. All
purchases of inventory were on account. Depreciation during the year was P900,000.
Equipment was sold at gain of P300,000. The cash flows for the current year were:

Cash collected from customers 9,500,000

Cash paid for inventory (4,100,000)
Cash paid for other expenses (1,400,000)
Net cash provided by operating activities 4,000,000

What amount should be reported as net income for the current year?

a. 3,200,000
b. 3,500,000
c. 3,400,000
d. 4,000,000

For items 24 and 25:

At the beginning of current year, an entity reported cash of P8,000,000. During the current
year, some changes included accounts receivable P2,000,000 increase, inventory P1,500,000
decrease and accounts payable P3,000,000 decrease. Total sales and cost of goods sold were
P30,000,000 and P20,000,000 respectively. All sales and purchases were made on credit.
Various expenses of P5,000,000 were paid in cash. There were no other pertinent transactions.

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24. What amount should be reported as net cash provided by operating activities?

a. 28,000,000
b. 21,500,000
c. 6,500,000
d. 1,500,000

25. What amount should be reported as cash at the end of the current year?

a. 9,500,000
b. 3,000,000
c. 6,500,000
d. 8,000,000

For items 26 and 27:

An entity provided the following data for the current year:

Purchase of real estate for cash 5,500,000

Cash borrowed from bank to purchase the real estate 5,500,000
Sale of investment securities for cash 5,000,000
Purchase of patent for cash 1,250,000
Dividend declared during the current year 1,000,000
Retirement of preference shares for cash 2,000,000
Payment of bank loan 1,500,000
Issuance of bonds payable for cash 3,000,000
Increase in customers’ deposit 500,000

26. What amount should be reported as net cash used in investing activities?

a. 6,750,000
b. 3,750,000
c. 1,750,000
d. 2,250,000

27. What amount should be reported as net cash provided by financing activities?

a. 6,000,000
b. 4,000,000
c. 5,000,000
d. 4,500,000

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28. An entity provided the following information for the current year:

• Purchased a building for P1,200,000. Paid P400,000 and signed a mortgage with the
seller for the remaining P800,000.
• Executed a debt-equity swap and replaced a P600,000 loan by giving the lender ordinary
shares worth P600,000 on the date the swap was executed.
• Purchased land for P1,000,000. Paid P350,000 and issued ordinary shares worth
P650,000.
• Borrowed P550,000 under a long-term loan agreement. Used the cash from the loan
proceeds for purchase of additional inventory P150,000, payment of cash dividend
P300,000 and increase in the cash balance P100,000.

What amount should be reported as net cash used in investing activities?

a. 1,200,000
b. 2,200,000
c. 400,000
d. 750,000

29. An entity provided the following information at the end of the year:

2022 2021
Borrowings 2,500,000 800,000
Share capital 3,500,000 2,000,000
Retained earnings 950,000 750,000

Borrowings of P300,000 were repaid during 2022 and new borrowings included P200,000
vendor financing arising on the acquisition of a property. The movement in retained earnings
comprised net income for 2022 of P900,000 and dividend paid P700,000. The movement in
share capital arose from issuance of shares for cash during the year.

What amount should be reported as net cash flow from financing activities?

a. 2,400,000
b. 2,200,000
c. 2,500,000
d. 2,300,000

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30. Layla Co.’s advertising expense account had a balance of P292,000 at December 31, 20x1,
before any necessary year-end adjustment relating to the following:

• Included in the P292,000 is the P30,000 cost of printing catalogs for a sales promotional
campaign in January 20x2.
• Radio advertisements broadcast during December 20x1 were billed to Layla on January 2,
20x2. Layla paid the P18,000 invoice on January 11, 20x2.’

What amount should Layla report as advertising expense in its income statement for the year
ended December 31, 20x1?

a. P244,000
b. P262,
c. P280,000
d. P310,000

31. Mavis Corp. frequently borrows from the bank in order to maintain sufficient operating
cash. The following loans were at a 12% interest rate, with interest payable maturity. Loeb
repaid each loan on its scheduled maturity date.

Date of loan Amount Maturity Date Term of Loan

11/1/Y1 P5,000 10/31/Y2 1 year
2/1/Y2 15,000 7/31/Y2 6 months
5/1/Y2 8,000 1/31/Y3 9 months

Mavis records interest expense when the loans are repaid. As a result, interest expense of
P1,500 was recorded in 20x2. If no correction is made, by what amount would 20x2 interest
expense be understated?

a. P540
b. P620
c. P640
d. P720

For items 32 and 33:

During 20x3, Aloy Corp. decided to change from the FIFO method of inventory valuation to
the weighted-average method. Inventory balances under each method were as follows:

FIFO Weighted average

January 1, 20x3 P71,000 P77,000
December 31, 20x3 79,000 83,000

Aloy’s income tax rate is 30%.

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32. In its 20x3 financial statements, what amount should Aloy report as the gain or loss on the
cumulative effect of this accounting change?

a. P2,800
b. P4,000
c. P4,200
d. P0

33. In accordance with the Codification, Aloy should report the effect of this accounting
change as a(n)

a. Prior period adjustment.

b. Component of income from continuing operations.
c. Retrospective application to previous year’s financial statements.
d. Component of income after extraordinary items.

34. Which of the following statements is correct regarding accounting changes that result in
financial statements that are, in effect, the statements of a different reporting entity?

a. Cumulative-effect adjustments should be reported as separate items on the financial

statements pertaining to the year of change.
b. No restatements or adjustments are required if the changes involve consolidated methods of
accounting for subsidiaries.
c. No restatements or adjustments are required if the changes involve the cost or equity
methods of accounting for investments.
d. The financial statements of all prior periods presented are adjusted retrospectively.

35. Cardo Dalisay Co. used single-step income statement. In its income statement, the section
titled “Revenues” consisted of the following:

Net sales revenue P374,000

Results from discontinued operations:
Loss from discontinued
component Z including loss on disposal
of P2,400 P32,800
Less tax benefit (25% RCIT) 8,200 (24,600)
Interest revenue 20,400
Gain on sale of equipment 9,400
Total revenues P379,200

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In its first year’s income statement, Cardo Dalisay should have reported total income of

a. P374,000
b. P412,000
c. P379,200
d. P403,800

36. Aristotle Corp. reports operating expenses in two categories: (1) selling, and (2) general
and administrative. The adjusted trial balance at December 31, 20x1, included the following
expense and loss accounts:

Accounting and legal fees P 240,000

Advertising 300,000
Freight-out 160,000
Interest 140,000
Loss on sale of long-term investment 60,000
Officers’ salaries 450,000
Rent for office space 440,000
Sales salaries and commissions 280,000

One-half of the rented premises is occupied by the sales department. Aristotle’s total selling
expenses for 20x1 are

a. P960,000
b. P800,000
c. P740,000
d. P720,000

37. On January 1, 20x1, Cornelius Corp. met the criteria for discontinuance of a business
component. For the period January 1 through October 15, 20x1, the component had revenues
of P250,000 and expenses of P400,000. The assets of the component were sold on October 15,
20x1, at a loss for which no tax benefit is available. In its income statement for the year ended
December 31, 20x1, how should Cornelius report the component’s operations from January 1
to October 15, 20x1?

a. P250,000 and P400,000 should be included with revenues and expenses, respectively, as
part of continuing operations.
b. P150,000 should be reported as part of the loss on operations and disposal of a component.
c. P150,000 should be reported as an extraordinary loss.
d. P250,000 should be reported as revenues from operations of a discontinued component.

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38. During 20x1, the “other revenues and gains” section of Aristocrat Company’s Statement
of Earnings and Comprehensive Income contains P10,000 in interest revenue, P30,000 equity
in Aurelius Co. earnings, and P50,000 gain on sale of securities which are irrevocably
designated at FVOCI.

Assuming the sale of the securities increased the current portion of income tax expense by
P20,000, determine the amount of Aristocrat’s reclassification adjustment to other
comprehensive income.

a. P0
b. P5,000
c. P10,000
d. P30,000

39. An overstatement in reported profit may result from failure to record

a. An accrued expense
b. A contingent liability
c. Amortization of premium on bonds payable
d. Dividends in arrears on outstanding preference share

40. Which of the following requires an adjustment to the opening balance of retained earnings
in the earliest period of the comparative financial statements presented?

a. A change in the estimated useful life of machinery

b. A change in the expected residual value of a property
c. A change from straight-line to declining balance depreciation
d. A change from First-In, First-Out (FIFO) to weighted average inventory cost flow
assumption

- END OF EXAMINATION –

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