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1. Aaron Company sells subscriptions to a specialized directory that is published semiannually and shipped to
subscribers on April 15 and October 15. Subscriptions received after the March 31 and September 30 cutoff dates
are held for the next publication. Cash from subscribers is received evenly during the year and is credited to
deferred revenues from subscriptions. Data relating to 2009 are as follows:
Deferred revenues from subscriptions,
balance 12/31/08 P1,500,000
Cash receipts from subscribers 7,200,000
In its December 31, 2009 balance sheet, Aaron should report deferred revenues from subscriptions of
a. P1,800,000 c. P3,600,000
b. P3,300,000 d. P5,400,000

2. At January 1, a sole proprietorship's assets totaled P210,000, and its liabilities amounted to P120,000. During the
year, owner investments amounted to P72,000, and owner withdrawals totaled P75,000. At year-end, assets totaled
P270,000, and liabilities amounted to P171,000. The amount of net income for the year was
a. P 0 c. P 9,000
b. P6,000 d. P12,000

3. The following pertains to Bulls Companys biological assets:

Price of the asset in the market P5,000
Estimated commissions to brokers and dealers 500
Estimated transport and other costs necessary to get asset to the market 300
Selling price in a binding contract to sell 5,200
The entitys biological assets should be valued at
a. P4,700 b. P4,400 c. P4,500 d. P4,200

4. Buyer Co. regularly buys shirts from Vendor Company and is allowed trade discounts of 20% and 10% from the list
price. Buyer purchased shirts from Vendor on May 27, 2009 and received an invoice with a list price of P100,000 and
payment terms 2/10, n/30. If Buyer uses the net method of recording purchases, the journal entry to record the
payment on June 8, 2009 will include
a. A debit to Accounts payable of P72,000.
b. A debit to Purchase Discounts Lost of P1,440.
c. A credit to Purchase Discounts of P1,440.
d. A credit to Cash of P70,560.

5. White Airlines sold a used jet aircraft to Brown Company for P800,000, accepting a five-year 6% note for the entire
amount. Brown's incremental borrowing rate was 14%. The annual payment of principal and interest on the note
was to be P189,930. The aircraft could have been sold at an established cash price of P651,460. The present value
of an ordinary annuity of P1 at 8% for five periods is 3.99. The aircraft should be capitalized on Brown's books at
a. P949,650 c. P757,820
b. P800,000 d. P651,460

6. On October 1, 2009, Wan acquired Yang, a small company that specializes in pharmaceutical drug research and
development. The purchase consideration was by way of a share exchange and valued at P35 million. The fair value
of Yangs 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 companys balance sheet is
P2 million for medical research that has been conducted on behalf of a client.
Compute the amount of goodwill from this acquisition.
a. P8,000,000 c. P 3,000,000
b. P5,000,000 d. P20,000,000

7. A factory equipment with an estimated useful life of 10 years was purchased by Carranglan Co. on December 30,
2005. The equipment was expected to have a residual value of P5,000 at the end of its service life. The sum of the
years digit method was used in computing depreciation. For the year ended December 31, 2009, the depreciation
applicable to this equipment was P42,000. The cost of the factory equipment purchased on December 30, 2005 was
a. P325,000 c. P335,000
b. P293,750 d. P330,000

8. On December 28, 2009, Hornets Company commits itself to purchase a financial asset to be classified as held to
maturity for P1,000,000, its fair value on commitment (trade) date. This security has a fair value of P1,002,000 and
P1,005,000 on December 31, 2009 (Hornets' financial year-end), and January 5, 2010 (settlement date),
respectively. If Hornets applies the settlement date accounting method to account for regular-way purchases of its
securities, the financial asset should be recognized on January 5, 2010 at
a. P1,000,000 b. P1,005,000 c. P1,002,000 d. P 0

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9. On 1 July 2009, Jenny Ltd leases a machine with a fair value of P109,445 to Rose Ltd for five years at an annual
rental (in advance) of P25,000, and Rose Ltd guarantees in full the estimated residual value of P15,000 on return of
the asset. What would be the interest rate implicit in the lease?
a. 14% c. 10%
b. 12% d. 9%

10. D Company had the following deferred tax balances at reporting date - Deferred tax assets, P1,200,000; Deferred tax
liabilities, P3,000,000. Effective from the first day of the next financial period, the company rate of income tax was
reduced from 40% to 30%. The adjustment to income tax expense to recognize the impact of the tax rate change is:
a. DR P600,000 c. DR P450,000
b. CR P600,000 d. CR P450,000

1. The physical inventory of Pangasinan Company on December 31, 2009, showed merchandise with a cost of
P4,000,000 was on hand at that date. You also discovered the following items were all excluded from the count:
a. Merchandise costing P160,000, which was held by Pangasinan on consignment. The consignor is a
b. A special machine, fabricated to order for a customer costing P400,000, was finished and specifically
segregated in the back part of the shipping room on December 31, 2009. The customer was billed on that date
and the machine excluded from inventory although it was shipped on January 4, 2010.
c. Merchandise costing P80,000, which was shipped by Pangasinan f.o.b. destination to a customer on
December 31, 2009. The customer expects to receive the merchandise on January 3, 2010.
d. Merchandise costing P120,000 which was shipped by Pangasinan f.o.b. shipping point to a customer on
December 29, 2009.
e. Merchandise costing P50,000 shipped by a vendor f.o.b. shipping point on December 28, 2009 and
received by Pangasinan on January 10, 2010.
The corrected balance of Pangasinans inventory should be
a. P4,530,000 c. P4,480,000
b. P4,130,000 d. P4,690,000

2. On 1 January 2004, Entity A issued a 10 per cent convertible debenture with a face value of P1,000,000 maturing on
31 December 2013. The debenture is convertible into ordinary shares of Entity A at a conversion price of P25 per
share. Interest is payable half-yearly in cash. At the date of issue, Entity A could have issued nonconvertible debt
with a ten-year term bearing a coupon interest rate of 11 per cent.
On 1 January 2009, to induce the holder to convert the convertible debenture promptly, Entity A reduces the
conversion price to P20 if the debenture is converted before 1 March 2009 (ie within 60 days). The market price of
Entity As ordinary shares on the date the terms are amended is P40 per share.
Compute the amount to be recognized in profit or loss as a result of the amendment of the terms.
a. P400,000 c. P50,000
b. P200,000 d. P 0

3. Cookie Company is negotiating a loan with Excel Bank. Cookie needs P3,600,000. As part of the loan agreement,
Excel Bank will require Cookie to maintain a compensating balance of 15% of the loan amount on deposit in a
checking account at the bank. Cookie currently maintains a balance of P200,000 in the checking account. The
interest rate Cookie is required to pay on the loan is 12%. Excel Bank pays 1% interest on checking accounts. The
amount of the loan is
a. P4,000,000 c. P3,600,000
b. P3,800,000 d. P3,400,000

4. On January 1, 2009, the lending company made a P200,000, 8% loan. The interest is receivable at the end of each
year, with the principal amount to be received at the end of 5 years. As of December 31, 2009, the interest for the
current year has not yet been received nor recorded because the borrower is experiencing financial difficulties. The
lending company negotiated a restructuring of the loan. The payment of all of the interest based on the original
principal will be delayed until the end the 5-year loan term. In addition, the amount of principal repayment will be
dropped from P200,000 to P100,000. The prevailing interest rate for similar type of loan as of December 31, 2009 is
The loan impairment loss to be recognized in 2009 profit or loss is
a. P67,700 c. P77,492
b. P73,506 d. P 0

5. Windom Corp. on January 1, 2007, granted share options for 100,000 shares of its P10 par value ordinary shares to its
key employees. The market price of the ordinary share on that date was P23 per share and the option price was P20.
The Black-Scholes option pricing model determines total compensation expense to be P600,000. The options are
exercisable beginning January 1, 2010, provided those key employees are still in Windoms employ at the time the
options are exercised. The options expire on January 1, 2011.
On January 1, 2010, when the market price of the share was P29 per share, all 100,000 options were exercised. The
amount of compensation expense Windom should record for 2009 is

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a. P100,000 c. P150,000
b. P200,000 d. P700,000

6. An entity prepares quarterly interim financial reports in accordance with PAS 34. The entity sells electrical goods,
and normally 5% of customers claim on their warranty. The provision in the first quarter was calculated as 5% of
sales to date, which was P20,000,000. However, in the second quarter, a design fault was found and warranty
claims were expected to be 10% for the whole year. Sales in the second quarter were P30,000,000. What would be
the provision charged in the second quarters interim income statement?
a. P3,000,000 c. P2,250,000
b. P4,000,000 d. P5,000,000

7. An entity has granted share options to its employees. The total expense to the vesting date of December 31, 2010,
has been calculated as P8 million. The entity has decided to settle the award early, on December 31, 2009. The
expense charged in the income statement since the grant date of January 1, 2007, had been year to December 31,
2007, P2 million, and year to December 31, 2008, P2.1 million. The expense that would have been charged in the
year to December 31, 2009, was P2.2 million. What would be the expense charged in the income statement for the
year December 31, 2009?
a. P2.2 million c. P3.9 million
b. P8.0 million d. P2.0 million

8. An entity has spent P600,000 in developing a new product. These costs meet the definition of an intangible asset
under PAS 38 and have been recognized in the balance sheet. These costs have been recognized as an expense for
tax purposes. At the year-end the intangible asset is deemed to be impaired by P50,000. The tax base of the
intangible asset at year-end is
a. P600,000 c. P50,000
b. P550,000 d. P 0

9. House Publishers offered a contest in which the winner would receive P1 million payable over 20 years. On
December 31, 2009, House announced the winner of the contest and signed a note payable to the winner for P1
million, payable in P50,000 installments every January 2. Also on December 31, 2009, House purchased an annuity
for P418,250 to provide the P950,000 prize monies remaining after the first P50,000 installment, which was paid on
January 2, 2010. In its 2009 income statement, what should House report as contest prize expense?
a. P 0 c. P 468,250
b. P418,250 d. P1,000,000

10. Atkins bought five identical plots of development land for P2 million in 2007. On 2 January 2009 Atkins sold three of
the plots of land to an investment company, Landbank, for a total of P2.4 million. This price was based on 75% of
the fair market value of P3.2 million as determined by an independent surveyor at the date of sale. The terms of the
sale contained two clauses:
Atkins can re-purchase the plots of land for the full fair value of P3.2 million (the value determined of the date of
sale) any time until 31 December 2011; and
On 1 January 2012, Landbank has the option to require Atkins to re-purchase the properties for P3.2 million. You
may assume that Landbank seeks a return on its investments of 10% per annum.
If Atkins recorded the legal form of the transaction instead of its substance, profit for 2009 will be overstated by
a. P1,440,000 c. P640,000
b. P1,200,000 d. P400,000

1. The Fitness Health Spa charges a nonrefundable annual membership fee of P6,000 for its services. For this fee, each
member receives a fitness evaluation (value P1,000), a monthly magazine (annual value P320), and 2-hours' use of
the equipment each week (annual value P7,000). Each of the three elements of the annual membership can be
purchased separately. The initial direct costs to obtain the membership are P1,200. The direct cost of the fitness
evaluation is P500, and the monthly direct costs to provide the other services are estimated to be P150 per person.
A membership was sold to a customer on April 1, 2009.
The total fees earned by the company on this membership for the year ended December 31, 2009 is
a. P6,000 c. P4,500
b. P4,680 d. P4,750

2. On January 1, 2009, Rockets Corporation issued a P3 million 6% convertible bonds at par. The bonds are
redeemable at a premium of 10% on December 31, 2012 or it may be converted into ordinary shares on the basis of
50 shares for each P1,000 bond at the option of the holder. The interest rate for an equivalent bond without the
conversion rights would have been 10%. The issuance of convertible bonds on January 1, 2009 increased the entitys
equity by (Round-off present value factors to four decimal places)
a. P175,518 b. P380,418 c. P 73,068 d. P 0

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3. Detroit Corp. sells equipment with a carrying amount P150,000 to Pistons Corp. for P170,000 when the equipment's
fair value is P100,000, and then enters into a cancellable operating lease agreement to use the equipment for two
years. In the current year, how much profit would Detroit Corp. record on the sale of the equipment?
a. P20,000 b. P70,000 c. P50,000 d. Nil

4. Cavaliers Corporation made an accounting profit before tax of P40,000 for the year ended 30 June 2009. Included in
the accounting profit were the following items of revenue and expense.
Donations to political parties (non-deductible) P 5,000
Depreciation - machinery (20%) 15,000
Annual leave expense 5,600
Rent revenue 12,000
For tax purposes the following applied:
Annual leave paid P 6,500
Rent received 10,000
Depreciation rate for machinery 25%
Income tax rate 35%
Calculate the current tax liability for the year ended 30 June 2009.
a. P13,423 b. P15,750 c. P14,000 d. P15,050

5. An entity grants to an employee the right to choose either 1,000 phantom shares, ie a right to a cash payment equal
to the value of 1,000 shares, or 1,200 shares. The grant is conditional upon the completion of three years service.
At grant date, the entitys share price is P50 per share. At the end of years 1 and 2, the share price is P52 and P55
respectively. The entity estimates that the grant date fair value of the share alternative is P48 per share.
Compute for the amount to be recognized as compensation expense in year 2.
a. P21,867 b. P19,334 c. P36,667 d. P19,200

6. A director of an entity receives a retirement benefit of 10% of his final salary per annum for his contractual period of
three years. The director does not contribute to the scheme. His anticipated salary over the three years is Year 1
P100,000, Year 2 P120,000, and Year 3 P144,000. Assume a discount rate of 5%. The pension liability at the end of
the second year is
a. P29,520 c. P27,429
b. P22,500 d. P26,775

7. Magic Company had the following capital during 2008 and 2009:
Preference share capital, P100 par, 10% cumulative, 100,000 shares P10,000,000
Ordinary share capital, P100 par, 400,000 shares 40,000,000
Magic reported profit of P8,000,000 for the year ended December 31, 2009. Magic paid no preference share
dividends during 2008 and paid P1,500,000 preference share dividends during 2009. On January 31, 2010, prior to
the date that the financial statements are authorized for issue, Magic distributed 10% ordinary share dividend.
In its 2009 income statement, what amount should Magic report as basic earnings per share?
a. P17.50 b. P16.25 c. P15.91 d. P14.77

8. Victoria Company had purchased equipment for P10,000,000 on January 1, 2007. The equipment had a 5-year life
and a residual value of 1,000,000. Victoria Company depreciated the equipment using the straight-line method. On
December 31, 2009, Victoria questioned the recoverability of the carrying amount of this equipment. On December
31, 2009, the undiscounted expected net future cash flows related to the continued use and eventual disposal of the
equipment totaled P4,800,000. The equipments fair value on December 31, 2009 is P4,000,000, while the
discounted cash flows related to the equipment is P4,200,000. After any loss on impairment has been recognized,
what is the carrying amount of the equipment?
a. P4,200,000 c. P4,600,000
b. P4,000,000 d. P4,800,000

9. On January 1, 2009, Major Company purchased a uranium mine for P800,000. On that date, Major estimated that
the mine contained 1,000 tons of ore. At the end of the productive years of the mine, Major Company will be
required to spend P4,200,000 to clean up the mine site. The appropriate discount rate is 8%, and it is estimated that
it will take approximately 14 years to mine all of the ore. Major uses the productive-output method of depreciation.
During 2009, Major extracted 100 tons of ore from the mine. Compute the amount of depletion for 2009.
a. P114,408 c. P223,000
b. P 80,000 d. P500,000

10. Citimart Inc. was granted a parcel of land by a local government authority. The condition attached to this grant was
that Citimart Inc. should clean up this land and lay roads by employing laborers from the village in which the land is
located. The entire operation will take three years and is estimated to cost P100 million. This amount will be spent
in this way: P20 million each in the first and second years and P60 million in the third year. The fair value of this
land is currently P120 million. How much should be recognized as income from government grant at the end of the
first year?
a. P20,000,000 c. P40,000,000

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b. P24,000,000 d. P 0

1. Smart Company has P3,000,000 note receivable from sale of plant bearing interest at 12% per annum. The note is
dated June 1, 2008. The note is payable in 3 annual installments of P1,000,000 plus interest on the unpaid balance
every June 1. The initial principal and interest payment was made on June 1, 2009.
The interest income for 2009 is
a. P300,000 c. P210,000
b. P290,000 d. P140,000

2. On December 1, 2009, Money Co. gave Home Co. a P200,000, 11% loan. Money paid proceeds of P194,000 after
the deduction of a P6,000 nonrefundable loan origination fee. Principal and interest are due in 60 monthly
installments of P4,310, beginning January 1, 2010. The repayments yield an effective interest rate of 11% at a
present value of P200,000 and 12.4% at a present value of P194,000. What amount of income from this loan should
Money report in its 2009 income statement?
a. P 0 c. P2,005
b. P1,833 d. P7,833

3. SEASONS INC. acquired an asset that had a cost of P130,000. The asset is being depreciated over a 5-year period
using the sum-of-the-years digit method. It has a salvage value estimated at P10,000. The loss/gain if the asset is
sold for P38,000 at the end of the third year is
a. P4,000 gain c. P68,000 loss
b. P20,000 loss d. P92,000 loss

4. Included in the sales revenue of Imbiah Company for the year 2009 is an amount of P3 million relating to sales made
under a special promotion in December 2009. These goods were sold with an accompanying voucher equal to the
selling price. Five years after the sale, these vouchers will be exchanged for goods of the customers choice. The
profit margin on these goods is expected to be 30% of the selling price, and market research estimates that 50% of
the vouchers will be redeemed. The present value (at December 31, 2009) of P1 at the time the vouchers will be
exchanged can be taken as 0.60. The provision for voucher scheme as of December 31, 2009 is
a. P1,050,000 c. P900,000
b. P 692,300 d. P630,000

5. A court case decided on 21 December 2009 awarded damages against Pylon. The judge has announced that the
amount of damages will be set at a future date, expected to be in March 2010. Pylon has received advice from its
lawyers that the amount of the damages could be anything between P20,000 and P7,000,000. As of December 31,
2009, how much should be recognized in the balance sheet regarding this court case?
a. P 20,000 c. P3,510,000
b. P7,000,000 d. P 0

6. On December 31, 2009, Entity X acquired an investment for P100,000 plus a purchase commission of P2,000. The
investment is classified as available-for-sale. On December 31, 2009, quoted market price of the investment is
P100,000. If the investment were sold, a commission of P3,000 would be paid. On December 31, 2009, the entity
should recognize unrealized loss directly in equity of
a. P2,000 c. P5,000
b. P3,000 d. P 0

7. As of June 30, 2009, the bank statement of Ang Po Trading had an ending balance of P373,612. The following data
were assembled in the course of reconciling the bank balance:
The bank erroneously credited Ang Po Trading for P2,150 on June 22.
During the month, the bank charged back NSF checks amounting to P2,340 of which P800 had been redeposited
by the 25th of June.
Collection for June 30 totalling P10,330 was deposited the following month.
Checks outstanding as of June 30 were P30,205.
Notes collected by the bank for Ang Po Trading were P8,150 and the corresponding bank charges were P50.
The adjusted bank balance on June 30, 2009 is
a. P351,587 c. P353,927
b. P358,147 d. P359,687

8. Quirino, Inc. and its subsidiaries have provided you, their PFRS specialist, with a list of the properties they own:
Land held by Quirino, Inc. for undetermined future use, P5,000,000.
A vacant building owned by Quirino, Inc. and to be leased out under an operating lease, P20,000,000.
Property held by a subsidiary of Quirino, Inc., a real estate firm, in the ordinary course of its business,
Property held by Quirino, Inc. for use in production, P1,000,000.
A hotel owned by Sugo, Inc., a subsidiary of Quirino, Inc., and for which Sugo, Inc. provides security services for
its guests belongings, P50,000,000.
A building owned by Quirino, Inc. being leased out to Status, Inc, a subsidiary of Quirino, Inc., P20,000,000.

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How much will be reported as investment properties in Quirino, Inc. and its subsidiaries consolidated financial
a. P75,000,000 c. P95,000,000
b. P25,000,000 d. P45,000,000

9. Roxy Company had the following information relating to its accounts receivable:
Accounts receivable at 12/31/2008 P1,300,000
Credit sales for 2009 5,400,000
Collections from customers for
2009, excluding recovery 4,750,000
Accounts written off 9/30/2009 125,000
Collection of accounts written off in
prior year (customer credit was
not reestablished) 25,000
Estimated uncollectible receivables
per aging of receivables at
12/31/2009 165,000
On December 31, 2009, the amortized cost of accounts receivable is
a. P1,825,000 c. P1,635,000
b. P1,800,000 d. P1,660,000

10. On June 9, 2009, Pol Corp. sold merchandise with a list price of P5,000 to Pot on account. Pol allowed trade
discounts of 30% and 20%. Credit terms were 2/15, n/40 and the sale was made FOB shipping point. Pol prepaid
P200 of delivery costs for Pot as an accommodation. On June 25, 2009, Pol received from Pot a remittance in full
payment amounting to
a. P2,744 c. P2,944
b. P2,940 d. P3,000

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