1

CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila
FINANCIAL ACCOUNTING AND REPORTING PREWEEK LECTURE
MAY 2025 CPALE BATCH 97
1. An entity provided the following account balances at year-end which had been adjusted except for
income tax expense:
Cash 3,600,000
Accounts receivable 3,500,000
Cost in excess of billings on long-term contracts 1,500,000
Billings in excess of cost on long-term contracts 700,000
Prepaid taxes 1,400,000
Property, plant and equipment, at carrying amount 4,000,000
Note payable - noncurrent 3,500,000
Share capital 2,000,000
Share premium 1,000,000
Retained earnings unappropriated 1,800,000
Retained earnings restricted for note payable 1,000,000
Earnings from long-term contracts 9,000,000
Costs and expenses 5,000,000
All receivables on long-term contracts are collectible with 12 months. During the year, estimated tax
payments of P1,400,000 were charged to prepaid taxes. The entity has not recorded income tax expense.
The rate is 25%.
I. The total current assets should be reported at P8,300,000.
II. The total noncurrent liabilities should be reported P3,500,000.
III. The total shareholder’s equity should be reported at P8,800,000.
IV. Cash or cash equivalent restricted to settle a liability for more than twelve months after reporting
period should be classified as current. non current
A. All statements are true
B. All statements are not true
C. Only statements II and III are true.
D. Only statements I, II and III are true

2. An entity reported the following liabilities on December 31, 2025:

Accounts payable, after deducting debit balances in suppliers’ accounts of P300,000 2,000,000
Short-term borrowings 1,500,000
Bonds payable due December 31, 2026 3,000,000
Discount on bonds payable 400,000
Bank loan due June 30, 2026 1,000,000
Credit balances in customers’ accounts 500,000
Share dividend payable 600,000
Claims for increase in wages by employees covered in pending lawsuit 700,000
Installment note payable, current portion of P500,000 3,500,000
Deferred tax liability 1,200,000
The P1,000,000 bank loan was refinanced with a 5-year loan on January 15, 2026. The financial
statements were issued on March 1, 2026. The deferred tax liability is expected to reverse in 2026. Which
of the following statements is false?

A. On December 31, 2025, total current liabilities should be reported at P9,600,000. >
-
8 4M
.

B. On December 31, 2025, total noncurrent liabilities should be reported at P4,200,000. True
C. A financial liability due within twelve months after the reporting period should be classified as
noncurrent if the entity has an existing right at the end of reporting period to defer settlement for at
least twelve months after the reporting period. True
D. If a liability is expected to be settled within the normal operating cycle, it is classified as current. True

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3. An entity reported that the financial records were destroyed by fire at the end of the current year.
However, certain statistical data related to the income statement are available: interest expense –
P200,000; cost of goods sold – P3,000,000; Sales discount – P300,000. The beginning inventory was
P500,000 and decreased 20% during the year. Administrative expenses are 25% of cost of goods sold
but only 10% of gross sales. Distribution costs represent 70% of the operating expenses.
I. The entity should report gross sales at P7,500,000.
II. The entity should report distribution costs at P2,500,000.
III. The entity should report income before tax at P1,500,000.
A. All statements are true.
B. All statements are false.
C. Only statements I is true.
D. Only statements I and III are true.
4. Dean Company acquired 100% of Morey Company in the prior year. During the current year, the
individual entities included in their financial statements the following:
Dean Morey
Key officers’ salaries 750,000 500,000
Officers’ expenses 200,000 100,000
Loans to officers 1,250,000 500,000
Intercompany sales 1,500,000
What total amount should be reported as related party disclosures in the notes to Dean Company’s
consolidated financial statements for the current year?
A. 1,500,000
B. 1,550,000
C. 1,750,000
D. 3,000,000
5. An entity provided the following net of tax figures for the current year:
Net income 7,700,000
Net remeasurement loss on defined benefit plan 300,000
Unrealized gain on equity investment at FVOCI 1,500,000
Unrealized gain on debt investment at FVOCI 600,000
Share warrants outstanding 400,000
Cumulative effect of change in accounting policy – credit 500,000
Interest revenue 100,000
Equity in associate’s earnings 300,000
Prior period error – underdepreciation 200,000
Unrealized loss on debt investment (business model is realizing fair value changes) 750,000
I. Total comprehensive income is defined as the change in equity during a period resulting from
transactions and other events, other than those changes resulting from transactions with owners in
their capacity as owners.
II. The entity shall report net amount of other comprehensive at P1,050,000 for the current year.
III. The entity shall report comprehensive income at P9,500,000 for the current year.
A. All statements are true.
B. All statements are false.
C. Statements I and II are true.
D. Statements I and III are true.
6. An entity provided the following data relating its to operating segments for current year: total revenue
– P50,000,000; sales to external customers included in total revenue – P10,000,000.

To be a major customer, the minimum amount revenue of that customer should be at least

A. 1,000,000 C. 6,000,000
B. 5,000,000 D. 7,500,000
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7. An entity purchased an equipment for P15,000,000 on January 1, 2025. The equipment had a useful life
of 5 years with no residual value. On December 31, 2025, the entity classified the equipment as held for
sale. On such date, the fair value less cost of disposal of the equipment was P10,500,000. On December
31, 2026, the entity believed that the criteria for classification as held for sale can no longer be met.
Accordingly, the entity decided not to sell the equipment but to continue to use it. On December 31,
2026, the fair value less cost of disposal of the equipment was P8,100,000.
Statement I: Noncurrent assets classified as held for sale are measured at the lower of carrying amount
and fair value less cost of disposal.
Statement II: The impairment loss for 2025 is P1,500,000.
Statement III: The equipment shall be reported at P9,000,000 on December 31, 2026.

A. All statements are true.

B. Statements I and II are true.
C. Only statement II is true.
D. Only statement III is true.

8. An entity maintains a checking account at the East Bank. The bank provides a bank statement along with
canceled checks on the last day of each month. The May bank statement included the following
information:
Balance, May 1 3,200,000
Deposits 8,600,000
Checks processed 7,500,000
Service charges 50,000
NSF checks 150,000
Monthly loan payment deducted directly by bank from entity’s account including
P50,000 in interest 500,000
Deposits outstanding totaled P400,000 and all checks written by the entity were processed by the bank
except for those totaling P500,000. In addition, a check for P200,000 was incorrectly recorded by the
entity as a P300,000 disbursement. The bank correctly processed the check during May.

I. The cash balance per ledger on May 31 is P4,100,000.

II. The adjusted cash in bank balance on May 31 is P3,500,000.

A. All statements are true.

B. All statements are false.
C. Only statement I is true.
D. Only statement II is true.

9. An entity provided the following information on December 31:

Credit memo for November recorded in December 600,000
Credit memo for December not yet recorded 800,000
Deposit in transit – December 31 1,500,000
Erroneous bank charge in December corrected by bank in December 200,000
Erroneous receipt by the entity in December not corrected until next year 100,000
Total book receipts for December 8,500,000
Total bank credits in December 8,000,000
What amount should the entity report as deposit in transit on November 30?

A. 700,000
B. 600,000
C. 500,000
D. 900,000

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10. An entity provided the following information for October and November:
Checks and charges recorded by bank in November, including a November service
charge of P5,000 and NSF customer check of P20,000 550,000
Service charge made by bank in October and recorded by depositor in November 10,000
Total credits to cash in all journals during November 620,000
Customer NSF check returned in October and redeposited in November but no entry
made by depositor in either October or November 40,000
Outstanding checks on October 31 that cleared in November 230,000
What amount should the entity report as outstanding checks on November 30?
A. 275,000
B. 300,000
C. 315,000
D. 290,000
11. The entity had the following account balances on December 31, 2025:
Petty cash fund 50,000
Philippine Bank – current account 4,000,000
Manila Bank – current account (overdraft) (1,200,000)
Security Bank – value added tax account 200,000
Metrobank – payroll account 400,000
Cash on hand 500,000
Asia Bank – savings account for plant addition in 2026 1,500,000
Treasury bills 1,000,000
Treasury bonds 700,000
The petty cash fund included unreplenished December 2025 petty cash expense vouchers P5,000 and
employee IOU[] P5,000. The cash on hand included a P100,000 customer check payable to the entity dated
January 15, 2026. Check of P400,000 drawn against Philippine Bank current account dated and recorded
on December 31, 2025 was mailed to creditor on January 15, 2026.
I. The entity shall report cash and cash equivalents at P7,140,000.
II. Cash set aside for the payment of bonds payable due on within twelve months from the end of the
reporting period is included in unrestricted cash under current assets.
A. All statements are true.
B. All statements are false.
C. Only statements I is true.
D. Only statement II is true.
12. On April 1, 2025, an entity established a petty cash fund of P50,000. On April 30, 2025, the petty cash
fund was examined and found to have receipts and documents for miscellaneous expenses amounting to
P46,000. In addition, there was cash amounting to P6,000. The fund was replenished on April 30, 2025.
I. The entry to replenish the petty cash fund will include a credit to cash short / over of P2,000.
II. The petty cash fund should be reported at P6,000 on April 30, 2025.
A. All statements are true.
B. All statements are false.
C. Only statements I is true.
D. Only statement II is true.
13. An entity factored P7,500,000 accounts receivable to a finance entity at the end of current year. Control
was surrendered. The factor accepted the accounts receivable subject to recourse for nonpayment. The
fair value of the recourse obligation was P200,000. The factor assessed a fee of 2% and retained a
holdback of 4% of the accounts receivable. In addition, the factor charged 12% interest computed on a
weighted average basis of 60 days. Which of the following statements is true?
A. The initial loss on factoring is P297,945.
B. The cash receipt from the factoring is P6,902,055.
C. When an entity factored accounts receivable without recourse with bank, the transaction is best
described as sale of accounts receivable with risk of uncollectible accounts retained by the entity.
D. Factoring of accounts receivable does not involve derecognition of such receivable.
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14. From inception of operations, an entity carried no allowance for doubtful accounts. Uncollectible
accounts were expensed as written off and recoveries were credited to income as collected. During 2025,
a policy was established to maintain an allowance for doubtful accounts based on historical bad debt
loss percentage applied to year-end accounts receivable. The historical bad debt loss percentage is to be
recomputed each year based on all available past years up to a maximum of five years.
Year Credit sales Writeoffs Recoveries
2021 1,500,000 15,000 0
2022 2,250,000 38,000 2,700
2023 2,950,000 52,000 2,500
2024 3,300,000 65,000 4,800
2025 4,000,000 83,000 5,000
The entity reported accounts receivable of P1,250,000 on December 31, 2024 and P2,000,000 on
December 31, 2025.
I. The allowance for doubtful accounts should be reported at P20,000 on December 31, 2024.
II. The allowance for doubtful accounts should be reported at P34,000 on December 31, 2025.
III. The doubtful accounts expense should be reported at P78,000 for 2025.
A. Statements I, II and III are true.
B. Only statements I and II are true
C. Only statement II is true
D. All statements are false.

15. An entity revealed inventory on December 31, 2025 at P3,250,000 based on a physical count priced at
cost and before any necessary adjustment for the following:
t
• Merchandise costing P300,000 shipped FOB shipping point from a vendor on December 31, 2025
was received on January 5, 2026.
t
• Merchandise costing P380,000 shipped to a customer FOB destination on December 28, 2025 arrived
at the customer location on January 6, 2026.
• Merchandise costingT P120,000 was being held on consignment by a consignee of the entity.
What amount should be reported as inventory on December 31, 2025?
A. 3,650,000
B. 3,630,000
C. 4,050,000
D. 3,550,000

16. During the current year, an entity reported sales P15,000,000, sales discount P1,000,000, purchases
P9,300,000 and purchase discount P400,000.
Units Unit cost Total cost
Beginning inventory 20,000 60 1,200,000
Purchases – first quarter 30,000 65 1,950,000
Purchases – second quarter 40,000 70 2,800,000
Purchases – third quarter 50,000 75 3,750,000
Purchases – fourth quarter 10,000 80 800,000
The accounting policy is to report inventory at LCNRV. Cost is determined under FIFO. At year-end,
the replacement cost of inventory was P70 and the net realizable value was P72 per unit. The actual sale
price is P150 and the normal profit margin is P10 per unit.
I. The lower of cost or net realizable value should be applied per inventory category.
II. The FIFO cost of the ending inventory should be reported at P3,800,000
III. The cost of goods sold should be reported at P6,500,000 for the year.
# a
pinh equo
1 , 200

A. All statements are true # 150 units

, 000

B. All statements are not true sol

-00000 d ounits 10)
8 . 900

C. Only statements I and II are true COGS

End
600
4 , 508 000

D. Only statements II and III are true * where

,

4that : 10000 X80

=
800 ,
000

3rd Qto : 40000 x 75 =

300
000 ,

3
3, 800 008 ,

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17. An entity started operations on January 1, 2025 and adopted the weighted average method:
2025 2026 2027
Sales 3,000,000 4,000,000 4,800,000
Cost at goods sold 1,500,000 2,000,000 2,400,000
Gross income 1,500,000 2,000,000 2,400,000
Expenses 800,000 900,000 1,000,000
Net income 700,000 1,100,000 1,400,000
The entity provided the following comparative inventory amount:
Weighted average FIFO
December 31, 2025 270,000 420,000
December 31, 2026 300,000 500,000
December 31, 2027 380,000 650,000
Which of the following statements is false?
A. The net income under FIFO should be reported at P850,000 for 2025.
B. The net income under FIFO should be reported at P1,300,000 for 2026.
C. The net income under FIFO should be reported at P1,470,000 for 2027.
D. A change in inventory valuation method is a change in accounting policy

18. At year-end, an entity reported that a fire caused severe damage to the entire inventory. Based on recent
history, the entity had a gross profit rate of 25%. The entity provided the following information for the
current year:
Inventory January 1 500,000
Purchases 4,000,000
Purchases returns 200,000
Sales 5,600,000
Sales returns 400,000
Sales allowances 100,000

I.
II.
YIfIf the entity’s gross profit rate is 25% based on sales, the amount of fire loss is P400,000.
the entity’s gross profit rate is 25% based on cost, the amount of fire loss is P140,000.

A. All statements are true.

B. All statements are false.
C. Only statements I is true.
D. Only statement II is true.

19. An entity used the retail inventory method to estimate inventory at year-end.
Cost Retail
Beginning inventory 720,000 1,000,000
Purchases 4,580,000 7,100,000
Net markups 700,000
Net markdowns 500,000
Sales 6,800,000
Estimated normal shoplifting losses 100,000
Abnormal spoilage 500,000 800,000
I. Under conservative approach, the estimated cost of ending inventory is P360,000.
II. Under average cost approach, the estimated cost of ending inventory is P384,000.
A. All statements are true.
B. All statements are false.
C. Only statement I is true.
D. Only statement II is true.

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20. An entity is engaged in raising dairy livestock. The entity provided the following information during
current year:
Carrying amount on January 1 7,500,000
Increase due to purchases 3,000,000
Gain arising from change in fair value less cost of disposal attributable to price change 600,000
Gain arising from change in fair value less cost of disposal attributable to physical change 900,000
Decrease due to sales 1,275,000
Decrease in fair value due to harvest 300,000
Which of the following statements are false?
A. Biological assets are measured at fair value less cost of disposal.
B. The biological asset be reported at P10,425,000 at end of the current year.
C. Under IFRS, bearer plants shall be classified as biological assets.&

D. Under IFRS bearer animals shall be classified as biological assets.

21. An entity insured the life of its president for P6,000,000. The entity is the beneficiary of the ordinary
insurance policy. The premium is P400,000. The policy is dated January 1, 2021. The cash surrender
values on December 31, 2024 and 2025 are P120,000 and P160,000, respectively. The entity follows the
calendar year as its fiscal year. The president died on October 1, 2025 and the policy was collected on
December 31, 2025. No premium was refunded on the insurance settlement. What is the gain on life
insurance settlement?
A. 5,620,000 C. 5,740,000
B. 5,780,000 D. 5,580,000
22. On January 1, 2025 an entity purchased nontrading equity securities designated irrevocably at fair value
through other comprehensive income. Cost includes broker’s commission on the purchase which is 10%
of the purchase price. On December 31, 2025, the cost and market value were:
Cost Market
Security One 2,200,000 2,400,000
Security Two 3,300,000 3,500,000
Security Three 5,500,000 6,000,000
On December 31, 2026, the entity sold Security One for P2,500,000 and on such date the total market
value of Security Two and Three is P11,000,000.
I. The unrealized gain in other comprehensive income for the year 2025 is P1,900,000.

*II.
III.
The net credit adjustment to retained earnings because of selling Security One is P100,000.
The unrealized gain in other comprehensive for the year 2026 is P2,200,000.
A. All statements are true.
B. All statements are false.
C. Only two statements are true.
D. Only one statement is true.
23. On December 31, 2025, an entity, a real estate company, has an existing building used for administrative
purposes and land that is be sold in the ordinary course of business. The building has a carrying amount
of P50,000,000 and the land has a cost of P2,500,000. On December 31, 2025, the entity decided to
change the use of both building and land. The existing building shall be rented out under an operating
lease. The administrative staff will be relocated to a new building that was acquired by the entity. The
land will be held for capital appreciation. Both assets shall be carried at fair value. On December 31,
2025, the fair values of the building and land were P65,000,000 and P4,500,000 respectively.
Statement I: The building and land shall be reclassified to investment property.
Statement II The entity shall recognize P15,000,000 as revaluation surplus on December 31, 2025.
Statement III: The entity shall recognize P2,000,000 in profit or loss on December 31, 2025.
A. All statements are true.
B. Only statement I is true.
C. Statements II and III are true.
D. Only statement II is true.

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24. An entity acquired 40% of another entity’s shares on January 1, 2025 for P15,000,000. The investee’s
assets and liabilities at that date were:
Carrying amount Fair value
Cash 1,000,000 1,000,000
Accounts receivable 4,000,000 4,000,000
Inventory – FIFO 8,000,000 9,000,000
Land 5,500,000 7,000,000
Plant and equipment – net 14,000,000 22,000,000
Liabilities 7,000,000 7,000,000
The plant and equipment have a 10-year remaining useful life. The inventory was all sold in 2025. The
investee sold the land in 2026 for P8,000,000 and reported a gain of P2,500,000. The investee reported
net income of P3,000,000 for 2025 and P5,000,000 for 2026. The investee paid P1,000,000 cash
dividend on December 31, 2025 and P2,000,000 on December 31, 2026.
I. The investment income for the year 2025 is P480,000.
II. The investment income for the year 2026 is P1,080,000.
III. The carrying amount of the investment on December 31, 2026 is P15,360,000.
A. All statements are true.
B. All statements are false.
C. Only two statements are true.
D. Only one statement is true.
25. On January 1, 2025, an entity purchased P5,000,000 face amount of another entity’s 8% bonds for
P4,562,000. The bonds were purchased to yield 10% interest. The bonds mature on January 1, 2030 and
pay interest annually on December 31. The business model for managing the bonds is to collect
contractual cash flows composed of interest and principal. On December 31, 2025, the bonds were
quoted at 105.
I. The interest income should be reported at P456,200 for 2025.
II. The carrying amount of the bond investment is P4,618,200 on December 31, 2025.
III. If the entity elected the fair value option on January 1, 2025, the interest income for the year 2025
is P400,000.
A. All statements are true.
B. All statements are false.
C. Only statements I and II are true.
D. Only statement I is true.
26. An entity commenced construction of a building on March 1, 2025. The construction was completed on
September 1, 2025. The cost of the building P30,000,000 was paid in full to the contractor on March 1,
2025. The entity had outstanding during 2025 P16,000,000 note payable bearing interest at 10% and
P20,000,000 note payable bearing interest at 5.5%. None of the borrowings were specified for the
construction of the building.
I. The capitalizable borrowing cost should be reported at P1,125,000.
II. The interest expense should be reported at P1,575,000 for 2025.
A. Statements I and II are true. C. Only statement I is true.
B. Statements I and II are not true. D. Only statement II is true.
27. On January 1, 2025, an entity purchased a large quantity of personal computers. The cost of these
computers was P6,000,000. On the date of purchase, the management estimated that the computers would
last approximately 4 years and would have a residual value of P600,000. The entity used the double
declining balance method. During January 2026, the management realized that technological
advancements had made the computers virtually obsolete and that they would have to be replaced. The
residual value did not change. Management proposed changing the remaining useful life of the computers
to 2 years. What amount of depreciation should the entity recognize in 2026?

A. 3,000,000 C. 1,500,000
B. 2,400,000 D. 1,200,000

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-

28. An entity incurred the following expenditures related to land and building.
Cash paid for land and dilapidated building 2,500,000

To
Removal of old building to make room for construction of new building 50,000
Payments to tenants for vacating old building 150,000
Architect fee for new building 200,000
Building permit for new construction 300,000
Fee for title search 50,000 Th
Survey before construction of new building 200,000
Excavation before new construction 100,000
New building constructed 6,000,000 JB
Driveway and walk to new building from street as part of building plan 170,000
Assessment by city government for drainage project 250,000 L
Temporary quarters for construction crew 180,000
Temporary building to house tools and materials
Cost of changes during construction to make new building more energy efficient
600,000
50,000
Je
Cost of windows broken by vandals 25,000 exp
I. The cost of the land is P3,000,000.
II. The cost of the building is P7,800,000.
A. All statements are true.
B. All statements are false.
C. Only statement I is true.
D. Only statement II is true.
29. An entity spent P12,000,000 during the current year developing a new software package. Of this amount,
P4,000,000 was spent before it was at the application development stage and the package was only to be
used internally. The package was completed during the year and expected to have a four-year useful life.
The entity has a policy of taking a full year amortization in the first year. After the development stage,
an amount of P50,000 was spent on training employees to use the program. What total amount should
the entity report as an expense for the current year?
A. 6,012,500
B. 6,050,000 RD)
C. 1,600,000 training 50
D. 2,000,000 6050M

30. An entity placed a coupon redeemable for a premium in each package of cereal sold. Each premium cost
P20 and five coupons must be presented by a customer to receive a premium. The entity estimated that
only 60% of the coupons issued would be redeemable. For the year ended December 31, 2025, the
following information is available: 140 0x60% ,

= -19200X20 =
3
0 400
Packages of cereal sold 160,000
-

Premium purchased 12,000

Coupons redeemed 40,000
I. The premium expense for the year 2025 is P384,000.
II. The estimated premium liability on December 31, 2025 is P224,000.
A. All statements are true.
B. All statements are false.
C. Only statement I is true.
D. Only statement II is true.

*31. On January 1, 2025, an entity issued 20-year bonds of P5,000,000 for P5,426,000 to yield 10%. Interest
is payable annually on December 31 at 11%. On June 30, 2026, the entity retired 2,000 bonds with P1,000
face amount per bond at 96 plus accrued interest. The accounting period is the calendar year. Which of
the following statements is false?
A. Interest expense for the year 2025 is P542,600.
~
B. Interest expense for the year 2026 is P433,488.
C. The gain on retirement of bonds in 2026 is P135,812.
D. The carrying amount of the remaining bonds on December 31, 2026 is P3,246,276.
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Date (11%) Interest paid (10%) Interest expense Amortization Carrying amount
1/1/2025 (2,000/5,000 x 5,426,000) 2,170,400
12/31/2025 220,000 217,040 2,960 2,167,440
6/30/2026 110,000 108,372 1,628 2,165,812

1/1/2025 (3,000/5,000 x 5,426,000) 3,255,600

12/31/2025 330,000 325,560 4,440 3,251,160
12/31/2026 330,000 325,116 4,884 3,246,276
32. An entity started business in 2025 and sold printers with a three-year warranty. The warranty cost is
estimated as a percent of sales 3% in the first year of warranty, 5% in the second year of warranty and
10% in the second year of warranty. The entity was able to sell 7,500 units in 2025 and 10,000 units in
2026 at P4,000 per unit. The entity incurred actual warranty cost of P800,000 in 2025 and P2,400,000 in
2026. Sales and repairs occurred evenly throughout the year. The entity tested the accuracy of the
warranty liability on December 31, 2026.
I. The adjusted warranty liability on December 31, 2026 is P9,675,000.
II. The adjusted warranty expense for the year 2026 is P7,200,000.
A. All statements are true.
B. All statements are false.
C. Only statement I is true.
D. Only statement II is true.
January 1, 2025 sales
First contract year 2025 ( 3% x 15,000,000) 450,000
Second contract year 2026 ( 5% x 15,000,000) 750,000
Third contract year 2027 (10% x 15,000,000) 1,500,000
July 1, 2025 sales
First contract year July 1, 2025 to June 30, 2026 450,000
Second contract year July 1, 2026 to June 30, 2027 750,000
Third contract year July 1, 2027 to June 30, 2028 1,500,000
Total warranty expense for 2025 5,400,000

2025 sales still under warranty on December 31, 2026

Third contract year January 1, 2025 sales - 2027 1,500,000
Second contract year July 1, 2025 sales - January 1, 2027 to June 30, 2027 (750,000 x ½) 375,000
Third contract year July 1, 2025 sales - July 1, 2027 to June 30, 2028 1,500,000
2025 sales still under warranty on December 31, 2026 3,375,000
January 1, 2026 sales
First contract year 2026 ( 3% x 20,000,000) 600,000
Second contract year 2027 ( 5% x 20,000,000) 1,000,000
Third contract year 2028 (10% x 20,000,000) 2,000,000
July 1, 2026 sales
First contract year July 1, 2026 to June 30, 2027 600,000
Second contract year July 1, 2027 to June 30, 2028 1,000,000
Third contract year July 1, 2028 to June 30, 2029 2,000,000
Total warranty expense for 2026 7,200,000
2026 sales still under on December 31, 2025
Second contract year January 1, 2026 sales – 2027 1,000,000
Third contract year January 1, 2026 sales – 2028 2,000,000
First contract year July 1, 2026 sales - January 1, 2027 to June 30, 2027 (600,000 x ½) 300,000
Second contract year July 1, 2026 sales - July 1, 2027 to June 30, 2028 1,000,000
Third contract year July 1, 2026 sales - July 1, 2028 to June 30, 2029 2,000,000
2026 sales still under warranty on December 31, 2026 6,300,000

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33. On January 1, 2025, an entity leased equipment for administrative purposes. The lease required the entity
to make five annual payments of P2,000,000 beginning December 31, 2025. The entity also incurred
initial direct cost of P500,000. At the end of the lease term, December 31, 2029, the entity had a residual
value guarantee of the equipment at P1,000,000. The interest rate implicit in the lease is 10% and present
value factors at 10% for 5 periods are 4.17 for an annuity due, 3.79 for an ordinary annuity and 0.62 for
present value of 1. Which of the following statements is false?
A. The initial cost of the right of use asset is P8,700,000.
B. The lease liability on December 31, 2025 is P7,020,000.
C. The interest expense for the year 2025 is P820,000.
D. The depreciation of the right of use asset for the year 2025 is P1,740,000.
34. An entity is a dealer in equipment. At the beginning of current year, an equipment was leased to another
entity under a sales type lease with the following provisions:
Annual rental payable at the end of each year 1,500,000
Lease term and useful life of machinery 5 years
Cost of equipment 4,000,000
Unguaranteed residual value 500,000
Implicit interest rate 10%
PV of an ordinary annuity of 1 for 5 periods at 10% 3.79
PV of 1 for 5 periods at 10% 0.62
The equipment will revert to the lessor at the end of lease term. The perpetual inventory system is used.
The lessor incurred initial direct cost of P200,000 in finalizing the lease agreement.
I. The gross investment in the lease is P8,000,000.
II. The net investment in the lease is P5,685,000.
J True
III. The entity shall recognize sales of P5,685,000. 5 995 000>
-

, ,

IV. The entity shall recognize gross profit of P1,485,000. 1 795, 000 >
-

A. All statements are true.

B. Only three statements are true.
C. Only two statements are true.
D. Only one statement is true.
35. On January 1, 2025, an entity purchased a new machine for P6,000,000 for the purpose of leasing it. The
machine had an estimated 10-year life. On April 1, 2025, the entity leased the machine to a lessee for
three years at a monthly rental of P400,000. The lessee paid the rental for one year of P4,800,000 on
April 1, 2025 and additionally paid P900,000 to the entity as a lease bonus to obtain the three-year lease.
On April 1, 2025, the entity paid P300,000 to a broker as a finder fee. What is the net rental income of
the lessor for 2025? Rental 14 8 m 9/127
. x . UM
7

A. 3,150,000 Inc lease

.
(900/3x1/12)
bonus 225K

Amortization of Initial Direct (75K]

B. 4,350,000 9/12
200k = 3 x

C. 3,200,000 Depreciation of Machine

GM : 10
(400k)

D. 4,400,000 150 , 008

3.

36. At the beginning of current year, an entity sold a building with remaining life of 20 years and
immediately leased it back for 5 years.
Sale price 6,500,000
Fair value of building 5,000,000
Carrying amount of building 4,500,000
Annual rental payable at the end of each year 800,000
Implicit interest rate 14%
Present value of an ordinary annuity of 1 at 14% for five periods 3.43

I. The cost of the right of use asset is P1,119,600.

II. The gain on the right transferred is P375,600.
A. All statements are true. C. Only statement I is true.
B. All statements are false. D. Only statement II is true.

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 12

37. An entity reported the following information after the first year of operations:
Income before income tax 5,400,000
Income tax expense
Current 1,250,000
Deferred 100,000 1,350,000
Net income 4,050,000
The entity used the straight-line method of depreciation for financial reporting purposes and accelerated
depreciation for tax purposes. The amount charged to depreciation expense per book was P1,600,000.
No other differences existed between book income and taxable income except for the depreciation. The
tax rate is 25%. What amount was deducted for depreciation in the tax return?
A. 1,700,000
B. 1,500,000
C. 1,200,000
D. 2,000,000
38. An entity provided the following information relative to its defined benefit plan for the current year:
Projected benefit obligation – January 1 4,500,000
Fair value of plan assets- January 1 4,000,000
Current service cost 1,700,000
Past service cost due to amendment of the plan 300,000
Benefits paid to retirees 1,000,000
Contribution to the plan 1,200,000
Actual return on plan assets 600,000
Actuarial gain due to remeasurement of projected benefit obligation 200,000
Discount rate 10%
I. The projected benefit obligation should be reported at P5,750,000 on December 31.
II. The fair value of plan assets should be reported at P4,800,000 on December 31.
A. All statements are true. C. Only statement I is true.
B. All statements are false. D. Only statement II is true.
39. An entity transferred real state to the creditor pursuant to a debt restructuring in full settlement of a
liability.
Carrying amount of liability liquidated 3,000,000
Carrying amount of real estate transferred 2,000,000
Fair value of real estate transferred 1,800,000
Under IFRS, what amount should be recognized as gain or loss on extinguishment of debt?
A. 1,200,000 gain C. 1,000,000 gain
B. 1,200,000 loss D. 1,000,000 loss
40. An entity reported the following shareholders’ equity on January 1, 2025:
Share capital, P50 par, 110,000 shares 5,500,000
Share premium 2,000,000
Retained earnings 5,000,000
Treasury shares at cost, 10,000 shares 1,500,000
On March 1, 2025, the entity issued 5,000 shares at P60 per share. On April 15, 2025, the entity sold all
treasury shares at P165 per share. On June 30, 2025, the entity declared and issued a 10% share dividend
when the market value per share was P150. On December 31, 2025, the entity paid a cash dividend of
P20 per share. The net income for 2025 was P6,000,000.
I. The entity shall report total share premium of P3,350,000 on December 31, 2025.
II. The entity shall report retained earnings of P6,745,000 on December 31, 2025.
A. All statements are true.
B. All statements are false.
C. Only statement I is true.
D. Only statement II is true.
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 13

41. An entity provided the following shareholders’ equity at year-end:

2025 2024
10% cumulative preference share capital, P50 par 2,000,000 2,000,000
Ordinary shares, P10 2,500,000 2,000,000
Share premium 1,500,000 1,300,000
Retained earnings 4,800,000 4,200,000
Net income for the year 1,800,000
On July 1, 2025, 50,000 ordinary shares were issued. The preference dividends were paid in 2024 but
not declared during 2025. What is the book value per ordinary share for 2025?
A. 34.40
B. 35.20
C. 38.22
D. 39.11
42. On January 1, 2025, the entity had 100,000 ordinary shares outstanding. The shareholders’ equity was
affected by the following transactions during 2025
February 1 30,000 ordinary shares were sold in the market.
July 1 Issued P1,000,000, 5-year, 10% bonds at face amount. Each P1,000 bond
is convertible into 50 ordinary shares.
July 1 35,000 ordinary shares were sold.
October 1 A 10% bonus issue was declared and distributed.
December 31 Net income for 2025 was P3,500,000. The income tax rate is 25%.
Statement I: The basic earnings per share should be reported at P21.94.
Statement II: The diluted earnings per share should be reported at P18.92

A. All statements are true.

B. All statements are false.
C. Only statement I is true.
D. Only statement II is true.
January 1 (100,000 x 1.10 x 12/12) 110,000
February 1 ( 30,000 x 1.10 x 11/12) 30,250
July 1 ( 35,000 x 1.10 x 6/12) 19,250
Average shares – Basic EPS 159,500

Average shares – Basic EPS 159,500

July 1- convertible bonds (50,000 x 1.10 x 6/12) 27,500
Average shares – Diluted EPS 187,000
43. Immediately prior to the quasi-reorganization, an entity reported the following shareholders’ equity:
Share capital, P100 par, 500,000 shares 50,000,000
Share premium 5,000,000
Retained earnings (deficit) (8,000,000)
The shareholders approved the quasi-reorganization to be accomplished by reduction in inventory
P2,000,000, reduction in property, plant and equipment P4,000,000, writeoff of goodwill P1,000,000 and
appropriate adjustment to the capital structure against share premium first and any remaining deficit
against the share capital account. What is the reduction in the share capital account to implement the
quasi-reorganization?
A. 10,000,000
B. 15,000,000
C. 20,000,000
D. 3,000,000

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 14

44. An entity provided the following data:

December 31, 2024 December 31, 2025
Accounts receivable 840,000 780,000
Inventory 1,500,000 1,400,000
Accounts payable 950,000 980,000
Total sales were P12,000,000 for 2025 and P11,000,000 for 2024. Cash sales were 20% of total sales
each year. Cost of goods sold was P8,400,000 for 2025. Variable general and administrative expenses
for 2025 were P1,200,000. The variable expenses have varied in proportion to sales. Variable expenses
have been paid 50% in the year incurred and 50% the following year. Fixed expenses, including P350,000
depreciation and P50,000 bad debt expense, totaled P1,000,000 each year. Eighty percent of fixed
expenses involving cash were paid in the year incurred and 20% the following year. Each year there was
a P50,000 bad debt estimate and a P50,000 writeoff. 12 00 N ,
- ,

I. The total collections from customers amounted P12,060,000 during 2025. False
II. The purchases amounted to P8,300,000 during 2025.
III. The total disbursements for purchases amounted to P8,270,00 during 2025.
IV. The total disbursements for fixed and variable expenses amounted to P1,750,000.
J True

A. All statements are true.

B. Only three statements are true.
C. Two statements are false
D. All statements are false

45. An entity provided the following data for the current year:
Gain on sale of equipment Op 100,000
Proceeds from sale of equipment Inv
200,000
Purchase of bond investment with face amount of P2,000,000 Inv-
1,800,000
Amortization of bond discount of bond investment 150,000
Dividend declared
oclose4,500,000
Dividend paid F -

4,000,000
Proceeds from sale of treasury shares costing P650,000 Ft
750,000
Statement I: The entity shall report net cash flow used in financing activities at P3,250,000.
Statement II The entity shall report net cash flows used in investing activities atGP1,800,000.
#1 600 000
A. All statements are true.
,
,

B. All statements are false.

C. Only statement I is true.
D. Only statement II is true.

46. On January 1, 2022, SME acquired a trademark of a line herbal products for P450,000. The SME expects
to continue marketing the products using the trademark indefinitely. An analysis provides evidence that
the line of trademark products may generate net cash inflows for an indefinite period. An estimate of the
useful life of the trademark is not possible. A competitor developed a technological breakthrough in 2025
expected to result in a product that will reverse the demand for SME’s patented product line. At
December 31, 2025, the recoverable amount of the trademark was P80,000. It is expected that the demand
for SME’s product line will remain until December 31, 2027, when the competitor launches the new
product. The SME intended to continue manufacturing the patented products until December 31, 2027.

I. There is no amortization for the year 2022.

II. The amortization for the year 2025 is P105,000.
III. The impairment loss for the year 2025 is P130,000.

A. All statements are true.

B. All statements are false.
C. Only statements II and III are true.
D. Only statement II is true.

END

7437