Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2)

VMBM, CPA

Biological Assets
Farmland Company has different kinds of farm animals on January 1, 2013. During several
acquisitions occurred related to these farm animals. A detailed summary of these transactions
is as follows:
Carrying amount on January 1, 2013:
15 Horses

( 1 year old )

10 Dairy cattle

( 2 years old)
(2.5 years
old)
( 3 years
old )

8 Carabaos
20 Hogs

Purchases on June 30, 2013:

4 Dairy cattle
( 1 year old )
( 6 months
6 Carabaos
old )

1,000,0
00
400,00
0
200,00
0
500,00
0

150,000
100,000

Fair value less cost of disposal on December 31, 2013:

1,350,0
15 Horses
( 1 year old )
00
580,00
10 Dairy cattle
( 2 years old ) 0
( 2.5 years
290,00
8 Carabaos
old )
0
600,00
20 Hogs
( 3 years old ) 0
200,00
4 Dairy cattle
( 1 year old )
0
( 6 months
140,00
6 Carabaos
old )
0
Fair value less cost of disposal on December 31, 2013:
( 2 years
1,200,0
15 Horses
old )
00
520,00
10 Dairy cattle
( 3 years old ) 0
( 3.5 years
250,00
8 Carabaos
old )
0
550,00
20 Hogs
( 4 years old ) 0
( 1.5 years
170,00
4 Dairy cattle
old )
0
110,00
6 Carabaos
( 1 year old )
0
There were no farm animals sold during the year and neither were there any newborns nor
deaths.
1. What is the carrying amount of the biological assets on December 31, 2013?
a. 3,160,000
b. 2,350,000
c. 2,800,000
d.
2,380,000
2. What is the gain from change in fair value attributable to price change?
a. 810,000
b. 450,000
c. 360,000
d. 700,000
3. What is the gain from change in fair value attributable to physical change?
a. 810,000
b. 450,000
c. 360,000
d. 700,000
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2)

VMBM, CPA

4. What is the gain from change in fair value due to growth and price fluctuation?
a. 810,000
b. 450,000
c. 360,000
d. 700,000
Investments
I. Financial Assets @ Fair Value
5. Lagoon Company had trading and non trading investments held throughout 2013 and
2014. The non trading investments are measured at fair value through other
comprehensive income. The investments had a cost of P3,000,000 for trading and
P3,000,000 for non-trading. The investments had the following fair value at year-end:
December 31, 2013
December 31, 2014
Trading
4,000,000
3,800,000
Nontrading
3,200,000
3,700,000
1. What amount of unrealized gain or loss should be reported in the income statement for
2014?
a. 200,000 gain
b. 200,000 loss
c. 300,000 gain d. 300,000
loss
2. What amount of unrealized gain or loss should be presented as component of other
comprehensive income on December 31, 2014?
a. 500,000 gain
b. 500,000 loss
c. 700,000 gain d. 700,000
loss
3. What amount of cumulative unrealized gain or loss should be reported as component of
other comprehensive income in the statement of changes in equity on December 31,
2014?
a. 500,000 gain
b. 500,000 loss
c. 700,000 gain d. 700,000
loss
6. On Jan 1, Jeff Company purchased nontrading equity securities
Purchase price
Transaction cost
Market -12/31/2014
Security A
1,000,000
100,000
1,200,000
Security B
2,000,000
200,000
1,400,000
Security C
4,000,000
400,000
4,100,000
On July 1 2015, the entity sold Security C for P4,900,000 incurring P100,000 in brokerage
commission and taxes.
1. What is the initial cost to be reported by Jeff Company on Jan 1?
a. 7,000,000
b. 6,300,000
c. 7,700,000
d. 700,000
2. What amount of gain on sale should be recognized in 2015 if the securities are
designated as measured at FVTOCI?
a. 900,000
b. 600,000
c. 800,000
d. 700,000
3. What amount of gain on sale should be recognized in 2015 if the securities are classified
as available for sale?
a. 700,000
b. 500,000
c. 600,000
d. 400,000
II. Investment in Equity Securities
7. Cecilia Company received dividends from ordinary share investments during the current
year as follows:
A stock dividend of 10,000 shares form A Company when the market price of
the share was P10
A cash dividend of P1,500,000 from B Company in which the entity owned a
15% interest.
A 5,000 shares of C Company in lieu of cash dividend of P20 per share. The
market price of the share was P150. The entity had 5,000 shares of C
company and owned 5% interest in C Company.
The entity received P600,000 liquidating dividend from D Company. The
entity owned a 10% interest in D Company
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2)

VMBM, CPA

The entity owned a 20% interest in E Company which declared and paid a
P4,000,000 cash dividend to shareholders on Dec 31.
On Dec 1, the entity received from F Company a dividend in kind of one share
of G Company for every 4F Company shares held. The entity had 100,000 F
Company shares which have a market price of P50 per share on Dec 1. The
market price of G Company share was P10.
What amount of dividend revenue should be reported for the current year?
a. 2,750,000
b. 3,900,000
c. 3,300,000
d. 3,100,000
8. Gerald Company owned 50,000 shares of another entity. These 50,000 shares were
originally purchased for P100 per share. On Oct 1 2014, the investee distributed 50,000
rights to the entity. The entity was entitled to buy one new share for P!40 and five of these
rights. On Oct 1 2014, each share had a market value of P150 and each right had market
value of P10. On Dec 31 214, the entity exercised all rights. The stock rights are accounted
for separately and measured initially at fair value. What total cost should be reported for
the new shares that are acquired by exercising the rights?
a. 1,400,000
b. 1,000,000
c. 1,650,000
d. 1,900,000
III. Investment in Associate
9. On July 1,2014 Mylove Company acquired 20% of the outstanding ordinary shares of
another entity for P5,000,000. The carrying amount of the acquired shares was
P4,000,000. The excess of cost over carrying amount was attributable to an identifiable
intangible asset which was undervalued on the investees statement of financial position
and which had a remaining useful life of 5 years. The investee reported net income of
P6,000,000 for 2014 and paid cash dividends of P1,000,000 on ordinary shares and issued
10% stock dividend on Dec 31 2014. What is the carrying amount of the investment in
associate on Dec 31 2014?
a. 5,900,000
b. 5,400,000
c. 5,300,000
d. 5,800,000
10.On Jan2 2014, Praise Company purchased 25,000 shares of Maze Companys 100,000
outstanding shares for P300 per share. The book value Maze Companys net asset is
P29,000,000. The book value of Maze factory equipment is P4,000,000 and its fair value is
P5,000,000. The factory equipment has a remaining useful life of 10 years. All throughout
the year 2014 the factory equipment was carried at carrying value.
On Dec 31 2014, Maze Company paid P2,000,000 cash dividends to its ordinary
shareholders. Maze reported net of tax income for the whole year in the amount of
P4,500,000.
On Jan 1 2015, Maze Company revalued its equipment. At the time of revaluation the
equipment has a carrying value of P3,600,000 and a fair value of P4,500,000. The
revaluation was made known to Praise Company.
For the year ended Dec 31, 2015, Maze Company reported a net of tax income of
P5,000,000 and paid a cash dividends of P2,800,000. Income tax rate is 32%.
What is the carrying value of the investment in Associate account of Praise Company as of
Dec 31 2015?
a. 8,641,000
b. 8,658,000
c. 8,811,000
d. 8,883,000
11.On Jan 1 2014, Happy Company acquired 40% of the ordinary shares of an associate. On
such date, assets and liabilities of the investee were recorded at fair value and the
acquisition showed that goodwill of P1,000,000 was acquired. The investee reported net
income of P8,000,000 for 2014.
In Dec 2014, the investee sold inventory costing P3,000,000 to Happy Company for
P5,000,000. The inventory remained unsold by Happy Company on Dec 31 2014.
On Jan 1 2014, the investee sold an equipment to Happy Company with carrying value of
P2,500,000 for P4,000,000. The remaining life of the equipment is 5 years.
a. 1,920,000
b. 1,800,000
c. 3,200,000
d. 2,400,000

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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2)

VMBM, CPA

12.Sad Company purchased 10% of Excited Companys 100,000 outstanding ordinary shares
on Jan 1 2013 for P5,000,000. On Dec 31 2013, Sad purchased an additional 20,000 shares
of Excited for P1,500,000. Excited had not issued any additional shares during 2013. The
investee reported earnings of P3,000,000 for 2013. The fair value of the 10% interest is
P900,000 on Dec 31 2013. What is the carrying amount of the investment on Dec 31
2013?
a. 2,300,000
b. 2,000,000
c. 2,900,000
d. 2,400,000
IV. Investment in Bonds
13.On July 1, 2014, Jude Company paid P1,198,000 for 10% bonds with a face amount of
P1,000,000 to be held to maturity. Interest is paid on June 30 and Dec 31. The bonds were
purchased to yield 8%. The entity used the effective interest method to recognize interest
income from this investment. What is the carrying amount of the bond investment on Dec
31 2014?
a. 1,207,900
b. 1,198,000
c. 1,195,920
d. 1,193,050
14.On Jan 1 2014, Isabel Company purchased bonds with face amount of P8,000,000 for
P7,679,000 to be held to maturity. The stated rate on the bonds is 10% but the bonds are
acquired to yield 12%. The bonds mature at the rate of P2,000,000 annually every Dec 31
and the interest is payable annually also every Dec 31. The entity used the effective
interest method of amortizing discount. What is the carrying amount of the bond
investment?
a. 5,800,480
b. 5,759,250
c. 7,759,250
d. 7,800,480
15.On Jan 1 2014, Kristine Company purchased bonds with face amount of P5,000,000 for
P5,500,000 including transaction cost of P100,000. The bonds provide an effective yield of
10%. The bonds are dated Jan 1 2014, mature on Jan 1 2019 and pay interest annually on
Dec 31 of each year. The bonds are quoted at 115 on Dec 31 2014. The entity has
irrevocably elected to use the fair value option.
1. What amount of gain from change in fair value should be reported for 2014?
a. 750,000
b. 250,000
c. 350,000
d. 0
2. What amount of interest income should be reported for 2014?
a. 600,000
b. 550,000
c. 660,000
d. 540,000
V. Investment Property and other Investments
16.Jessica Company and its subsidiaries provided the following properties owned by the group
Building under construction for use as
3,500,000
investment property
Equipment leased to an unrelated party
500,000
under an operating lease
Land leased to a subsidiary under an
1,500,000
operating lease
Building owned by subsidiary and for which
2,500,000
the subsidiary provides security and
maintenance services to the lessees
Property held by a subsidiary, a real estate
3,000,000
firm, in the ordinary course of business
Property held for use in production
4,000,000
Vacant building to be leased out under an
2,000,000
operating lease
Land held for undetermined future use
1,000,000
In the separate statement of financial position of the parent and its subsidiaries, what total
amount should be reported as investment property?
a. 9,000,000
b. 10,500,000
c. 11,000,000
d. 8,000,000
17.On Jan 1 2011, Arwin Company purchased P2,000,000 ordinary life policy on its president.
The entity reported the following data for 2014
Cash surrender value, Jan 1
50,000
Cash surrender value, Dec 31
60,000
Annual advance premium paid on Jan 1
100,000
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2)

VMBM, CPA

Dividend received on July 1

5,000

The entity is the beneficiary under the life insurance policy. What amount should be
reported as life insurance expense for 2014?
a. 100,000
b. 95,000
c. 85,000
d. 90,000
18.Jelline Company insured the life of its president for P2,000,000, the entity being the
beneficiary of an ordinary life insurance policy. The annual premium is P80,000 and the
policy is dated Jan 1 2011. The entity reported the following cash surrender value:
Dec 31 2013
15,000
Dec 31 2014
19,000
The president died on Oct 1 2014 and the policy is settled on Dec 31 2014. What amount
should be reported as gain on life insurance settlement for 2014?
a. 1,962,000
b. 2,000,000
c. 1,961,000
d. 1,981,000
Derivatives
19.On Jan 1 2014, Joseph Company received a four year P5,000,000 loan with interest
payments occurring at the end of each year and the principal to be repaid on Dec 31,
2017. The interest for 2014 is the prevailing market rate of 10% on Jan 1 2014, and the
market interest rate every Jan 1 resets the variable rate of interest for that year. The
underlying fixed interest rate is 10%. In conjunction with the loan, the entity entered into a
receive variable, pay fixed interest rate swap agreement as cash flow hedge. The
interest swap payment will be made on Dec 31 of each year. The market rate of interest is
6% on Jan 1 2015 and 8% on Jan 1 2016. The PV of an ordinary annuity of 1 at 6% for
three periods is 2.67 and the PV of an ordinary annuity of 1 at 8% for two periods is 1.78.
What is the derivative asset or liability on Dec 31 2015?
a. 178,000 asset b. 178,000 liability c. 334,000 asset

d. 334,000 liability

20.Mary Company operates a chain of seafood restaurants. On July 1 2014 the entity
determined that it will need to purchase 50,000 kilos of deluxe fish on July 1, 2015.
Because of the volatile fluctuation in the price of deluxe fish, on July 1 2014, the entity
negotiated a forward contract as a cash flow hedge with a reputable bank to purchase
50,000 kilos of deluxe fish on July 1 2015 at a strike price of P50 per kilo or P2,500,000.
This derivative forward contract provides that if the market price of deluxe fish on July 1
2015 is more that P50, the difference is paid by the bank to the entity. On the other hand,
if the market price on July 1 2015 is less than P%0, the entity will pay the difference to the
bank. The market price per kilo of the deluxe fish is P55 on Dec 31 2014 and P52 on July 1
2015. What is the derivative asset or liability on Dec 31 2014?
a. 100,000 asset b. 100,000 liability c. 250,000 asset
d. 250,000 liability
Property, Plant and Equipment
21.Ace Company had the following property acquisitions during the current year:
On Jan 1 2014, the entity purchased a machine for P2,000,000 in exchange for a
non interest bearing note requiring four payments of P500,000. The first payment
was made on Jan 1, 2014. The rate of interest for this note at date of issuance was
10%. The present value of an ordinary annuity of 1 at 10% is 3.17 for four periods.
The present value of an annuity of 1 in advance at 10% is 3.49 for four periods.
Exchanged an old machine costing P3,000,000 and 50% depreciated, for a used
machine and paid a cash difference of P500,000. The fair value of the old machine
was determined to be at P1,800,000.
Acquired a tract of land and building in exchange for 50,000 ordinary shares of P100
par value with a market value of P120 per share on the date of acquisition. The last
property tax bill indicated assessed value of P1,200,000 for the land and P2,800,000
for the building. However, the land has a fair value of P2,000,000 and the building
has a fair value of P3,500,000.
Received land from a major shareholder as an inducement to locate a plant in the
city. No payment was required but the entity paid P50,000 for legal expenses for
land transfer. The land is fairly valued at P1,000,000
Acquired a welding machine with an invoice price of P3,000,000 subject to a cash
discount of 10% which was not taken. The entity incurred cost of P50,000 in
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2)

VMBM, CPA

removing the old welding machine prior to the installation of the new one. Welding
supplies were acquired at a cost of P150,000
Entity purchased a machine for P500,00 down and four monthly installments of
P1,250,000. The cash price of the machine was P4,700,000

What is the total increase in property, plant and equipment?

a. 17,445,000
b. 18,245,000
c. 18,295,000
17,945,000

d.

22.Karlene Company and Erika Company are fuel oil distributors. To facilitate the delivery of
oil to customers, the two entities exchanged ownership of barrels of oil without physically
moving the oil. Karlene paid Erika P1,500,000 to compensate for a difference in the grade
of oil. It was reliably determined that the configuration of the cash flows of the asset
received does not differ from the configuration of the cash flows of the asset transferred.
On the date of exchange, the oil inventory of Karlene has a carrying amount of P5,000,000
and fair value of P7,000,000. The oil inventory of Erika Company has a carrying amount of
P6,000,000 and a fair value of P8,500,000. What amount should Karlene record as cost of
the oil inventory received in exchange?
a. 4,500,000
b. 6,500,000
c. 7,000,000
d. 8,500,000
Government Grant
23.On Jan 2 2011, Brand Company received a grant of P60,000,000 to compensate it for costs
it incurred in planting trees over a period of five years. Brand Company will incur such cost
in this manner:
Years
2011
2012
2013
2014
2015
COSTS
P2,000,000
P4,000,000
P6,000,000
P8,000,000
P10,000,000
What amount of income should Brand Company recognize at the end of the year 2014?
a. 8,000,000
b. 12,000,000
c. 16,000,000
d.
20,000,000
24.On Jan 2 2011, Wink Milk Corporation received a grant of P20,000,000 to build and run a
power plant in an economically backward area. The secondary condition attached to the
grant is that the entity should directly distribute the necessary needed power to the area
at a rate that is much lower than the prevailing power rate in other advance areas. The
power plant is to be depreciated using the straight line method over a period of 10 years.
The power plant was completed at the end of year 2011 at cost of P50,000,000 and
started producing and distributing power to the backward area at rate which is at par that
the prevailing rates in other advance areas.
On July 1 2013, the government demanded from Wink Milk Corporation the repayment of
the grant due to the non fulfillment of the conditions.
1. What is the carrying value of the power plant as of July 1 2013, assuming at the time of
initial recognition the grant was recognized as a deferred income?
a. 40,000,000
b. 42,500,000
c. 45,000,000
d.
50,000,000
2. What is the carrying value of the power plant as of July 1 2013 assuming at the time of
initial recognition the grant received was recognized as a reduction of the related asset?
a. 40,000,000
b. 42,500,000
c. 45,000,000
d.
50,000,000
Borrowing Cost
25.During 2013, Joshua Company constructed asset costing P5,000,000. The weighted
average expenditures totaled P3,000,000. To help pay for construction, P2,200,000 was
borrowed at 10% on Jan 1 2013, and funds not needed for construction were temporarily
invested in short term securities yielding P45,000 in interest revenue. Other than the
construction funds borrowed, the only other debt outstanding during the year was a
P2,500,000. 10-year, 9% note payable dated Jan 1 2010. What amount of interest should
be capitalized during 2013?
a. 300,000
b. 150,000
c. 247,000
d. 472,000
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2)

VMBM, CPA

26.David Company had loans outstanding during 2014 and 2015,

Specific construction loan
3,000,000
General loan
25,000,000
12%

10%

The entity began the self construction of a building on Jan 1 2014 and was completed on
Dec 31 2015. The following expenditures were made during 2014 and 2015:
Jan 1 2014
4,000,000
April 1 2014
5,000,000
Dec 1 2014
3,000,000
March 1 2015
6,000,000
1. What is the cost of the building to date December 31 2014?
a. 15,300,000
b. 12,900,000
c. 13,380,000
d.
12,880,000
2. What is the cost of the building on December 31 2015?
a. 18,000,000
b. 19,980,000
c. 20,988,000
20,100,000

d.

3. What is the cost of the building, assuming the building was completed on June 30 2015?
a. 18,000,000
b. 19,884,000
c. 20,868,000
d.
19,377,000
Land, Building, Machinery
27.Alex Company purchased a tract of land for P4,000,000 as a factory site. There was an old
office building which was demolished. The entity decided to construct a factory building
and incurred the following costs:
Cost of demolishing old office building
300,000
Proceeds from sale of salvaged materials
20,000
Legal fees for purchase contract and
150,000
recording ownership
Architect fee
950,000
Materials and supplies
3,000,000
Excavation
100,000
Legal cost of conveying land
10,000
New fence surrounding building
200,000
Title guarantee insurance
50,000
Payment of property taxes in arrears
100,000
Option paid for an alternative land acquired
30,000
Special assessment for city improvements
120,000
Plans and specifications
140,000
Paving of streets and sidewalks
30,000
Cash discounts on materials purchased, not
60,000
taken
Cost of trees, shrubs and other landscaping
250,000
Building permit
150,000
Survey before construction
50,000
Payment to tenants for vacating old building 15,000
Cost of grading, leveling and landfill
45,000
Driveways and walks to new building from
40,000
street(part of building plan)
Cost of open house party
40,000
1. What is the cost of the land?
a. 4,805,000
b. 4,655,000
c. 4,850,000
d.4,700,000
2. What is the cost of the building?
a. 4,320,000
b. 4,380,000

c. 4,370,000

d. 4,430,000

3. What is the cost of land improvement?

a. 690,000
b. 520,000

c. 480,000

d. 450,000

28.Sam Company acquired a machine and incurred the following costs:

Cash paid for machine, including VAT of P96,000
Page 7 of 11

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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2)

VMBM, CPA

Cost
Cost
Cost
Cost
Cost
Cost
Cost
Cost

of transporting machine
30,000
of installation
50,000
of testing machine
40,000
of safety rails and platform surrounding machine
60,000
of water device to keep machine cool
80,000
of adjustment to make it operate more efficiently
75,000
of repairing damage during installation
45,000
of repairing damage to machine caused when the machine was
Dropped during installation
50,000
Cost of spare parts to cover breakdowns
155,000
Estimated dismantling cost to be incurred as required by contract
65,000
Insurance cost for the current year
15,000
Cost of training personnel who will use the machine
25,000
What total amount should be capitalized as cost of machine?
a. 1,400,000
b. 1,296,000
c. 1,200,000

d. 1,210,000

29.Anne Company incurred the following expenditures:

Continuing, frequent, and low cost repairs
350,000
Painting partitions in a large room recently
50,000
divided into four sections
A broken gear on a machine was replaced
50,000
Renovation of a group of machine to secure
500,000
greater efficiency in production over their
remaining five year useful lives. The project
was completed on Dec 31
Replacement of old shingle roof with a
296,000
fireproof tile roof
Major improvements to the electrical wiring
300,000
system
Dust filters in the interior of the factory
800,000
were replaced. The new filters are expected
to reduce employee health hazards and
thus reduce wage and fringe benefit costs
Sealing of roof leaks in production area
80,000
How much should be charged to repairs and maintenance in 2014?
a. 2,426,000
b. 530,000
c. 826,000
d. 1,626,000
Depreciation
30.Shaw Company purchased a machine for P504,000 that was placed in service on March 1
2014. Additional costs incurred to bring the asset to its location and prepare for its
intended use were: shipping, P4,000 and installation and testing cost, P6,000. The
estimated useful life of the asset was 10 years and has an estimated salvage value of
P34,000. What amount of depreciation should be recognized for the year ended Dec 31
2014
a. 40,000
b. 42,000
c. 44,000
d. 48,000
31.On Jan 2 2012, Phosphorus Company acquired equipment to be used in its manufacturing
operations. The equipment has an estimated useful life of 10 years and an estimated
salvage value of P50,000. The depreciation applicable to this equipment was P240,000 for
2014 computed under the sum-of-years digit method. What was the acquisition cost of the
equipment?
a. 1,650,000
b. 1,700,000
c. 2,400,000
d. 2,450,000
32.Bataan Company purchased machinery that was installed and ready for use on Jan 2 2013
at a total cost of P9600,00. Salvage value was estimated at P160,000. The machinery will
be depreciated over five years using the double declining balance method. How much
should be recorded as depreciation on this machinery for the year 2014?
a. 100,000
b. 192,000
c. 230,400
d. 384,000
33.Faithful Company purchased an equipment on Jan 2 2012 for P3,000,000. The equipment
had an estimated useful life of 5 years. The companys policy is to depreciate the asset
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2)

VMBM, CPA

using the 200% declining balance in the first two years of the assets life and then switch
to the straight line method for the remaining useful life asset. What is the total
accumulated depreciation as of Dec 31, 2014?
a. 1,800,000
b. 2,280,000
c. 2,352,000
d. 2,520,000
Depletion
34.Mistress Company has the following information pertaining to its mining operations:
Estimated cost of restoring property after 400,000
mining is completed
Number of tons mined during the current 50,000 tons
year
Cost of land
6,000,000
Estimated number of tons of ore to be 400,000
mined
Sales value of land after mining
300,000
Development costs incurred
500,000
Number of tons sold during the current year 35,000 tons
Cost of production (excluding depletion)
P7.00
The company already recognized the estimated restoration cost immediately after the
resource property was acquired. How much would be the companys cost of goods sold?
a. 525,000
b. 603,700
c. 787,500
d. 822,500
35.In 2012, Hopeless Company paid P4,000,000 to purchase land containing a total estimated
160,000 tons of extractable mineral deposits. The estimated value of the property after
the mineral has been removed is P800,000. Extraction activities began in 2013 and by the
end of the year, 20,000 tons had been recovered and sold. In 2014, geological studies
indicated that total amount of mineral deposits had been underestimated by 60,000 tons.
During 2014, 30,000 tons were extracted, and 28,000 tons were sold. What is the
depletion rate per ton in 2014?
a. 12.73
b. 14.00
c. 15.56
d. 20.00
36.On July 1 2014, Trisha Company purchased the rights to a mine for P13,200,000, of which
P1,200,000 was allocable to the land. Estimated reserves were 1,500,000 tons. The entity
expects to extract and sell 25,000 tons per month. The entity purchased mining
equipment on July 1 2014 for P9,500,000. The mining equipment had a useful life of 8
years. However, after all the resource is removed, the equipment will be of no use and will
be sold for P500,000
1. What is the depletion for 2014?
a. 2,400,000
b. 1,200,000

c. 2,640,000

d. 1,320,000

2. What is the depreciation for 2014?

a. 1,800,000
b. 1,125,000

c. 900,000

d. 562,500

37.Rona Company provided the following balances on Dec 31 2014:

Wasting asset at cost
40,000,000
Accumulated depletion
15,000,000
Capital liquidated
5,000,000
Retained earnings
10,000,000
Depletion based on 100,000 units 3,000,000
extracted at P30 per unit
Inventory of resource deposit (20,000 2,000,000
units)
What is the maximum dividend that can be declared on Dec 31 2014?
a. 19,600,000
b. 25,000,000
c. 20,000,000
19,400,000

d.

Revaluation and Impairment

38.King Company acquired a building on Jan 1 2011 at a cost of P20,000,000. The building
had a useful life of 6 years and a residual value of P2,000,000. The building was revalued
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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2)

VMBM, CPA

on Jan 1 2014 and the revaluation revealed replacement cost of P30,000,000, residual
value of P4,000,000 and revised useful life of 8 years from date of acquisition. The income
tax rate is 30%. What is the revaluation surplus on Dec 31 2014?
a. 6,000,000
b. 3,360,000
c. 2,800,000
d. 4,200,000
39.On January 1 2014, Alma Company showed land with carrying amount of P10,000,000 and
building with cost of P60,000,000 and accumulated depreciation of P18,000,000. The land
and building were revalued on same date and revealed the fair value of land at
P15,000,000 and the building at P70,000,000. The original useful life is 20 years and
depreciation is computed on the straight line. The income tax rate is 30%. What is the
revaluation surplus on December 31 2014?
a. 33,000,000
b. 23,100,000
c. 21,450,000
d.
21,700,000
40.On Jan 1 2014, Roxanne Company purchased equipment with cost of P10,000,000, useful
life of 10 years and no residual value. The entity used the straight line depreciation. On
Dec 31 2014 and Dec 31 2015, the entity determined that impairment indicators are
present. There is no change in useful life or residual value. The following information is
available for impairment testing at each year end:
Fair value less
disposal
Value in use

cost

of

Dec 31 2014
8,100,000

Dec 31 2015
8,400,000

8,550,000

8,200,000

1. What is the impairment loss for 2014?

a. 900,000
b. 600,000

c. 450,000

d. 0

2. What is the gain on reversal of impairment for 2015?

a. 400,000
b. 800,000
c. 600,000

d. 0

3. What is the depreciation for 2016?

a. 1,000,000
b. 1,050,000

d. 950,000

c. 1,025,000

Intangible Assets
41.On Jan 1 2012, Echo Company purchased a patent from an original patentee for
P2,400,000. The remaining legal life of the patent is 15 years but the useful life is only 12
years. On Jan 1 2013, the entity paid P550,000 in successfully defending the patent in an
infringement suit filed against the entity. On Jan 1 2014, the entity acquired a competing
patent for P1,500,000. The competing patent has a remaining legal life of 15 years but it is
not to be used because it was intended to protect the original patent. What is the carrying
amount of the patent on Dec 31 2014?
a. 3,500,000
b. 3,600,000
c. 3,200,000
d. 3,150,000
42.On Jan 2 2009, Wind Company bought a trademark for P500,000. The remaining legal life
at the time of acquisition is 20 years. The company made a reasonable and reliable
estimate that this trademark will provide additional cash flows to the enterprise for an
indefinite period. During 2012, Wind Companys net cash flows related to the trademark
have been on a decreasing trend. As a result of this, the company decided to evaluate the
trademark for possible impairment. On Dec 31 2012, reliable estimate showed that the
present value of expected net cash inflows related to the trademark is P240,000. What
amount of impairment loss should the company recognize in 2012?
a. 0
b. 240,000
c. 260,000
d. 500,000
43.On Jan 1 2011, Fire Company signed a 12 year lease for a building. The entity has an
option to renew the lease for an additional 6 year period on or before Jan 1 2015. During
Jan 2014, the entity made substantial improvement to the building. The cost of the
improvement was P4,500,000 with an estimated useful life of 10 years. On Dec 31 2014,
the entity intended to exercise the renewal option. The entity has taken a full year
depreciation on this improvement. On Dec 31 2014, what is the carrying amount of the
leasehold improvement?
a. 4,500,000
b. 4,050,000
c. 4,200,000
d. 4,000,000

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Father Saturnino Urios University

Accountancy Program
AIR- Cluster 1 (Drill #2)

VMBM, CPA

44.Earth Company incurred the following costs during the year ended Dec 31 2012:
Quality
control
during
commercial 150,000
production including routine testing of
products
Laboratory research aimed at discovery of 180,000
new knowledge
Routine on-going efforts to refine, enrich 125,000
and improve upon the qualities of an
existing product
Design, construction, and testing of pre- 110,000
production prototypes and models
Trouble
shooting
in
connection
with 450,000
breakdowns during production
Modification for the formulation of a 405,000
chemical product
Compensation paid to research consultants
200,000
Research
and
development
costs 350,000
reimbursable under a contract to perform
research and development for Earth
Company
Seasonal or other periodic design changes 645,000
to existing products
How much research and development costs Earth Company incur in 2012?
a. 895,000
b. 1,245,000
c. 1,395,000
d. 1,520,000

End of Drill #2

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