REY OCAMPO ONLINE

FAR DIANOSTIC EXAM

Suggested answers/solutions

Question No. 1 - D
See uploaded material from PWC on the Accounting Implications of the Effects of Coronavirus

Question No. 2 - C
CPD Law

Question No. 3 - C
Enhancing qualitative characterisctics (TVUC) make useful information 'more useful'.
Letter A and B are fundamental qualitative characterics (they make information useful).

Question No. 4 - C
Original journal entry:
Rent expense (P1,800/9 x 12) 2,400
Cash 2,400

Question No. 5 - D
PAS 8, paragraph 30.

Question No. 6 - D
PAS 1, paragraph 10(f).

Question No. 7 - D
PAS 1, paragraph 54.

Question No. 8 - D
Choice D is an adjusting vent. See PAS 10, paragraph 9(c).

Question No. 9 - D
PAS 1, paragraph 104.

Question No. 10 - A
PAS 24, paragraph 9(b)(iv).

Question No. 11 - D
PFRS 9, paragraph 5.7.7.

Question No. 12 - C
Letter A - Credit risk
Letter B - Market risk
Letter C - Lquidity risk

Question No. 13 - D
PAS 32, paragraph 11.

Question No. 14 - A
IFRIC 2, paragraph 7.

Question No. 15 - C
Question No. 16 - A
Question No. 17 - D
Intrinsic value method is used if other valuation techniques are not available.

Question No. 18 - B
PFRS 8, paragraph 6.

Question No. 19 - B
Cash on hand and in bank (P56,000 + P5,000) 61,000
Petty cash (P1,000 - P400) 600
Notes receivable (P75,000 - P25,000) 50,000
Accounts receivable (P110,000 + P10,000) 120,000
Merchandise inventory (P148,000 - P18,000) 130,000
Prepaid expenses 9,000
Accounts payable with debit balance 5,000
Total current assets 375,600

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Question No. 20 - C
Bank overdraft 5,000
Accounts receivable with credit balance 10,000
Accounts payable (P60,000 + P5,000) 65,000
Notes payable - current 100,000
Accrued expenses 8,000
Total current liabilities 188,000

Question No. 21 - A
Share of OCI of associates (P20,000 - P15,000) 5,000
Exchange difference gain on foreign operation up to date of sale 7,000
Reclassification adjustment for translation of foreign operation (21,000)
Increase in asset revaluation surplus 45,000
Total other comprehensive income 36,000

Question No. 22 - C
Net income before taxes 400,000
Depreciation 200,000
Loss on sale of building 100,000
Decrease in interest payable (P50,000 - P100,000) (50,000)
Income taxes paid (100,000)
Increase in accounts receivable (P850,000 - P500,000) (350,000)
Decrease in inventory (P400,000 - P500,000) 100,000
Increase in accounts payable (P500,000 - P200,000) 300,000
Cash provided by operating activities 600,000

Question No. 23 - A
Question No. 24 - B
Checking account, net of overdraft (P925,000 - P17,000) 908,000
Certified check from customer 9,800
Currency and coins in a petty cash fund 800
Total cash 918,600
Treatment of items excluded:
Certificate of deposit - Cash equivalent
Cash held in a bond sinking fund - Noncurrent investment
Postdated check from customer - Accounts receivable
NSF check received from customer - Accounts receivable
Cash advance to subsidiary - Noncurrent investment
Postage stamps on hand - Supplies
Utility deposit paid to electric company - Other noncurrent asset
Unreplenished vouchers - Expenses

Question No. 25 - C
Adjusted cash book balance 2,060
Deposits in transit (1,500)
Outstanding checks 2,800
Balance per bank statement 3,360

Question No. 26 - C
Allowance for doubtful accounts, 12/31/19 60,000
Doubtful accounts expense (P2,420,000 x .03) 72,600
Allowance for doubtful accounts, 12/31/20 (75,000)
Accounts receivable written off - 2020 57,600
Accounts receivable written off - 2019
Allowance for doubtful accounts, 12/31/18 56,000
Doubtful accounts expense (P3,120,000 x .03) 93,600
Allowance for doubtful accounts, 12/31/19 (60,000) 89,600
Increase (decrease) (32,000)

Question No. 27 - A
Loan Stage Amount PV of ECF Credit loss Probability Allowance
1 3 600,000 360,000 240,000 100% 240,000
2 1 500,000 450,000 50,000 2% 1,000
3 2 400,000 320,000 80,000 5% 4,000
4 1 300,000 270,000 30,000 2% 600
5 2 200,000 160,000 40,000 5% 2,000
6 3 100,000 60,000 40,000 100% 40,000
287,600

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Question No. 28 - C
PFRS 9, paragraph 3.2.6 c

Question No. 29 - D
Amount in P/L - Interest income (See amortization schedule) 84,121
Amount in OCI - FV adjustment gain(loss)
Fair value, 12/31/20 1,017,610
CA before FV adjustment (see schedule) 1,035,631 (18,021)
Amount in SFP - Fair value 1,017,610

Partial amortization schedule:

Date NI (10%) EI (8%*) Prem. Amort. A.C.
1/1/20 1,051,510
12/31/20 100,000 84,121 15,879 1,035,631
NI (P1,000,000 x .1)
EI (P1,051,510 x .08)
Premium amortization (NI - EI)
* Computation of effective interest rate
PVF at 8%,
Cash flows 3 periods AC, 1/1/20
Principal 1,000,000 0.7938 793,800
Interest 100,000 2.5771 257,710
1,051,510

Computation of fair value as of 12/31/20

PVF at 9%,
Cash flows 2 periods FV, 12/31/20
Principal 1,000,000 0.8417 841,700
Interest 100,000 1.7591 175,910
1,017,610

Question No. 30 - D
FVTPL:
Dividend income (P12,500 x .2) 2,500
FV adjustment [10,000 x (P6.50 - P6.00)] 5,000 7,500
FVTOCI (Dividend income) 2,500
Associate - SOPA (P3,000 x 7 x .2) 4,200

Question No. 31 - D
Total profit 8,000,000
PS dividend (P10M x .1) (1,000,000)
Profit to OS 7,000,000
x Equity in OS 0.30
SOPA - Investment income on OS 2,100,000
Dividend income – Investment income on PS (P1.5M x .5) 750,000
Total investment income in P/L 2,850,000

Question No. 32 - A
Policy amount 8,000,000
Unexpired prem.-not refunded (P200T x 3/12) (50,000)
CSV, 10/1/20
Balance, 1/1 60,000
Increase up to 10/1 (P20T x 9/12) 15,000 (75,000)
Gain on life insurance settlement 7,875,000

Question No. 33 - D
PFRS 9, paragraph 4.3.2.

Question No. 34 - B
Item X Item Y
Cost of materials 200,000 400,000
Costs of conversion 100,000 200,000
Total cost 300,000 600,000
NRV of finished goods (ESP - ECTS) 310,000 595,000
NRV of materials (Replacement cost) 180,000 370,000
Loss on write-down of materials to NRV
(Cost of materials - NRV of materials) - 30,000

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Materials and other supplies held for use in the production of inventories are not written down below cost
if the finished products in which they will be incorporated are expected to be sold at or above cost.
When a decline in the price of materials indicates that the cost of the finished products exceeds NRV,
the materials are written down to NRV. In such circumstances, the replacement cost of the materials
may be the best available measure of their NRV. (PAS 2 par. 32)

Question No. 35 - D
Warehouse inventory, 1/1 (P200,000 x .9) 180,000
Purchases, net (P100,000+P4,000-P6,000) 98,000
TGAS 278,000
Transferred to showrooms (8,000)
COS (P320,000 x .7) (224,000)
Inventory flashflood loss 46,000

Question No. 36 - A
Carrying amount, January 1 2,500,000
Purchases 1,000,000
Gain - price change 200,000
Gain - physical change 300,000
Sales (400,000)
Harvest (100,000)
Carrying amount, December 31 3,500,000

Question No. 37 - D
New engine (5,000 hrs. x P4,760) 23,800,000
Outer casings (P510M/25) 20,400,000
Other components [(P85M+P102M)/5] 37,400,000
Total depreciation 81,600,000

Question No. 38 - D
FV model - FV adjustment loss (P45M - P42M) 3,000,000
Cost model (see below) 2,500,000
Difference in expenses 500,000
Depreciation (P50M/25) 2,000,000
Impairment (P40M - P39.5M)) 500,000
Total expenses in 2020 P/L 2,500,000
CA, 12/31/20 (P50M x 20/25) 40,000,000
FV-COD 38,500,000
VIU 39,500,000
RA 39,500,000

Question No. 39 - D
Carrying amount 800,000
Recoverable amount
Scenario 1: (P30T/.05 x .8) 480,000
Scenario 1: (P60T/.05 x .2) 240,000 720,000
Impairment loss 80,000

Question No. 40 - C Million

Conducting topographical, geological, geochemical and geophysical studies 30
Determining volume and grade of deposits 10
Exploratory drilling 50
Examining and testing extraction methods and metallurgical or treatment processes 5
Researching and analyzing an area’s historic exploration data 12
Surveying transportation and infrastructure requirements, and conducting market and finance 3 studies
Trenching and sampling 90
Exploration and evaluation assets 200

Question No. 41 - C
Fair value, 12/31/20 19,000,000
Carrying amount, 12/31/20 (P16M*7/8) 14,000,000
Revaluation increase 5,000,000
Reversal of impairment loss in P/L:
CA,12/31/20-without impairment (P25M x 7/10) 17,500,000
CA, 12/31/20-with impairment 14,000,000 3,500,000
Revaluation increase in OCI 1,500,000

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Question No. 42 - A
Revaluation decrease on Asset 2 (P40,000 - P30,000) 10,000
Impairment losses in accordance with PFRS 5 32,000
Total expense in P/L 42,000
Revaluation increase (decrease) computation:
Asset 1 Asset 2
Fair value 450,000 260,000
CA before classification as HFS (400,000) (300,000)
Revaluation increase (decrease) 50,000 (40,000)
Impairment loss computation:
Asset 1 Asset 2
CA after revaluation (fair value) 450,000 260,000
Fair value less costs to sell (430,000) (248,000)
Impairment loss in P/L 20,000 12,000

Question No. 43 - D
Depreciation:
As deferred income (P3,000,000/6) 500,000
As asset deduction [(P3M - P1.8M)/6] 200,000
Income from government grant:
As deferred income (P1,800,000/6) 300,000
As asset deduction -

Question No. 44 - C
Unadjusted inventory 947,800
c) Sold FOB Destination [(P18,500 - P1,000)/1.4] 12,500
d) Purchased FOB S.P. (P48,000 + P3,000) 51,000
e) Goods out on consign. [(P36,400/1.4) + P2,000] 28,000
Adjusted inventory 1,039,300

Question No. 45 - B
Fair value of asset given up (P420,000 + P90,000) 510,000
Carrying amount of asset given up (450,000)
Gain on exchange 60,000

Question No. 46 - C
Cost 520,000
Accumulated dep., 1/1/20 (P500T x 12/15) (400,000)
Carrying amount, 1/1/20 120,000
Residual value (20,000)
Remaining depreciable amount 220,000
Divide by remaining life 2
Depreciation - 2020 110,000

Question No. 47 - A
Land held for undetermined future use 5,000,000
Vacant building to be leased out under an operating lease 20,000,000
Hotel owned for which ecurity services are provided 50,000,000
Total 75,000,000

Question No. 48 - C
Unadjusted accounts payable 5,000,000
Purchased FOB Destination, received 12/24/20 400,000
Purchased FOB S.P., shipped 12/28/20 650,000
Adjusted accounts payable 6,050,000

Question No. 49 - A
CA, 7/1/19 69,000
Discount amortization, 7/1/19 - 6/30/20 (P69,000 x .1) 6,900
Repayment (12,934)
CA, 6/30/20 62,966
Discount amortization, 7/1-12/31/20 (P62,966 x .1 x 6/12) 3,148
CA, 12/31/20 66,114

Question No. 50 - D
PFRS 9, paragraph B5.4.6.

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Question No. 51 - C
PVF at 5.5%,
Cash flows 10 periods AC, 1/1/20
Principal 10,000,000 0.5854 5,854,000
Interest 500,000 7.5376 3,768,800
CA, 1/1/20 9,622,800
PVF at 4%,
Cash flows 10 periods FV, 1/1/20
Principal 10,000,000 0.6756 6,756,000
Interest 500,000 8.1109 4,055,450
Fair value (Retirement price), 1/1/20 10,811,450
Gain (loss) on bond retirement (1,188,650)

Question No. 52 - C in millions

Construction costs 110.000
PV of decommissioning liab. (P80M x .1420) 11.360
Total cost of plant 121.360
Accumulated dep., 12/31/19 (P121.36M x 10/40) (30.340)
CA before change in decom. liab. 91.020
Decrease in decom. liability (8.000)
CA of plant, 12/31/19 83.020
Depreciation - 2020 (P83.02M/30) 2.767

Question No. 53 - A
Balance, 12/31/19 250,000
Retirement of PS (2,500)
Acquisition of TS -
Share split -
Re-issuance of TS 4,000
Profit -
Balance, 12/31/20 251,500

Retirement of PS
Share capital - PS (5,000 x P10) 50,000
Share premium - PS (P50,000 x 5/100) 2,500
Retained earnings 2,500
Cash (5,000 x P11) 55,000
Re-issuance of TS
Cash (2,000 x P8) 16,000
Treasury shares [2,000 x (P12/2)] 12,000
Share premium - TS 4,000

Question No. 54 - D
Retained earnings, 1/1/20 112,500
Prior period error (10,500)
Cash and share dividends (60,000)
Net income (P58,500 - P6,000 - P2,500) 50,000
Retained earnings, 12/31/20 92,000

Question No. 55 - C
Preference share capital 15,000,000
Ordinary share capital 20,000,000
Subscribed ordinary share capital (P6M + P4M) 10,000,000
Treasury shares-ordinary (4,000,000)
Share premium 3,000,000
Retained earnings 20,000,000
Total equity 64,000,000
Total equity 64,000,000
Less preference SHE:
Liquidation value (150,000 x P110) 16,500,000
Dividends (P15M x .1 x 3) 4,500,000 21,000,000
Ordinary SHE 43,000,000
/ Outstanding ordinary shares
Issued 200,000
Subscribed (P10M/P100) 100,000
Treasury (50,000) 250,000
Book value per share - Ordinary 172

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Question No. 56 - B
Profit to OS WA O/S OS EPS
Basic 1,020,000 600,000 1.70
Exercise of options - 10,000 -
1,020,000 610,000 1.67
Conversion of bonds 96,000 80,000 1.20
1,116,000 690,000 1.62
Conversion of PS 180,000 90,000 2.00
1,296,000 780,000 1.66

Profit 1,200,000
PS dividends (P3,000,000 x .06) (180,000)
Profit to OS 1,020,000
/WA outstanding OS (P6,000,000/10) 600,000
Basic EPS 1.70

Question No. 57 - B
Cumulative exp., Year 2
Equity (P7,600 x 2/3) 5,067
Liability (1,000 x P55 x 2/3) 36,667 41,734
Less cumulative exp., Year 1
Equity (P7,600 x 1/3) 2,533
Liability (1,000 x P52 x 1/3) 17,333 19,866
Expense - Year 2 21,868

Computation of equity component:

FV share alternative (1,200 x P48) 57,600
FV of cash alternative (1,000 x P50) (50,000)
Equity component 7,600

Question No. 58 - B
Weighted average accumulated expenditures 5,400,000
Specific borrowing (3,600,000)
General borrowing 1,800,000
Capitalization rate (P1,152,000/P10,200,000) 11.29%
Capitalizable borrowing cost - general 203,220
Capitalizable borrowing cost - specific (P3,600,000 x 10%) 360,000
Total 563,220

Question No. 59 - C
Annual depreciation [(P158,400 + P1,250)/5] 31,930

Question No. 60 - A
Accounting profit 18,500
Reversal of accounting items:
Depreciation - motor vehicle 4,500
Depreciation - equipment 20,000
Rent revenue (16,000)
Royalty revenue (exempt from taxation) (5,000)
Doubtful debts expense 2,300
Entertainment expense (non-deductible) 1,500
Gain on sale of equip. (P19,000 - P18,000) (1,000)
Annual leave expense 5,000
Tax items:
Depreciation - motor vehicle -
Depreciation - equipment (15,000)
Rent revenue collected (P16,000 + P2,400 - P2,800) 15,600
Royalty revenue (exempt from taxation) -
Bad debts written off (P2,500 + P2,300 - P3,000) (1,800)
Entertainment expense (non-deductible) -
Loss on sale of equip. - tax [P19,000 - (P30,000 x .7)] (2,000)
Annual leave paid (P5,000 + P6,000 - P4,500) (6,500)
Taxable profit 20,100
Tax rate 30%
Current tax expense 6,030

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Comparison of carrying amount of asssets/liabilities and tax base
Carrying
amount Tax base Difference Remarks
Receivables 12,000 15,000 3,000 Deductible
Rent receivable 2,800 - 2,800 Taxable
Motor vehicle 2,250 - 2,250 Taxable
Equipment 40,000 55,000 15,000 Deductible
Provision for annual leave 4,500 - 4,500 Deductible
Tax base of Receivables - (P12,000 + P3,000)
Tax base of equipment - [P100000-(P100000*0.15*3)]

Question No. 61 - C
Effect on tax
Ending Beginning Inc(Dec) expense
Deferred tax liability 1,515 2,745 (1,230) Credit
Deferred tax asset 6,750 5,550 1,200 Credit
Journal entry:
Deferred tax liability 1,230
Deferred tax asset 1,200
Income tax expense 2,430

Question No. 62 - C
12/31/19 12/31/20
Fair value of plan assets 10,000,000 12,000,000
Defined benefit obligation (8,000,000) (9,000,000)
Surplus (deficit) 2,000,000 3,000,000
Asset ceiling (1,600,000) (2,000,000)
Effect of asset ceiling 400,000 1,000,000

Effect of asset ceiling, 12/31/20 1,000,000

Effect of asset ceiling, 12/31/19 (400,000)
Total change 600,000
Amount included in net interest (P400,000 x .1) (40,000)
Amount in OCI - 2020 560,000

Question No. 63 - A
Current service cost 3,000,000
Gain on settlement (500,000)
Net interest expense [(P10M - P9M) x .06] 60,000
Net amount in P/L 2,560,000

Question No. 64 - B
Provision for additional rent to 6/30/20 [(P12.4M -P10M) x 5% x 1/2] 60,000
Less provision for additional rent to 3/31/20 [(P12.8M -P10M) x 5% x 1/4] 35,000
Additional rent for second quarter 25,000
Fixed quarterly rent 100,000
Total rent expense for the second quarter 125,000

Annualized sales as of 6/30/20 [(P3.2M + P3M) x 2] 12,400,000

Annualized sales as of 3/31/20 (P3.2M x 4) 12,800,000

If a lease provides for contingent payments based on the lessee achieving a certain level of annual sales,
an obligation can arise in the interim periods of the financial year before the required annual level
of sales has been achieved, if that required level of sales is expected to be achieved and the entity,
therefore, has no realistic alternative but to make the future lease payment.

Question No. 65 - B
Royalties received 5,000,000
Royalties receivable, 12/31 1,500,000
Royalties receivable, 1/1 (500,000)
Unearned royalties, 1/1 200,000
Unearned royalties, 12/31 (600,000)
Royalty income 5,600,000

Question No. 66 - A
Royalty expense 375,000
Prepaid royalties, 1/1 (60,000)
Prepaid royalties, 12/31 50,000
Royalties payable, 12/31 (90,000)
Royalties payable, 1/1 75,000
Royalties paid 350,000
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Question No. 67 - A
2018
Transaction costs (2,000)
FV adjustment (P204,000 - P200,000) 4,000 2,000
2019
Dividend income (P40,000 x .3) 12,000
FV adjustment (P210,000 - P204,000) 6,000 18,000
2020
FV adjustment (P180,000 - P210,000) (30,000)
NOTE: Since Entity A does not use equity method and the shares have published price quotations,
the investment should be measured at FVTPL.

Question No. 68 - D
For SMEs, research and development costs must be recognised as expenses.
As a consequence, internally generated intangible assets are not recognized

Question No. 69 - D
Letter A, B and C - not applicable to SMEs.

Question No. 70 - A
Cash 500,000
Accounts receivable 3,000,000
Inventories (at market value) 5,000,000
Investment in shares (at cost) 900,000
Property, plant and equipment 8,000,000
Total assets 17,400,000

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