PPL- CUP – PRTC

Easy Round

1. Aaron Company sells subscription to a specialized directory that is published semi annually and
shipped to subscribers on April 15 and October 15. Subscriptions received after March 31 and
September 30 cutoff dates are held for the next publication. Cash from subscriber is receive 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 P 1,500,000
Cash receipts from subscribers P 7,200,000

In its December 31 2009 balance sheet, Aaron should report deferred revenues from subscription of

a. P 1,800,000 c. P 3,600,000
b. P 3,300,000 d. P 5,400,000

2. At January 1, a sole proprietorship’s asset totaled P210,000, and its liabilities amounted to P
120,000. During the year, owner investments amounted to P 72,000, And owners withdrawal totaled
P75,000. At year end, assets totaled P 270,000 and liabilities amounted to P 171,000. The amount of
net income for the year was

a. P 0 c. 9,000
b. P6,000 d. 12,000

3. The following pertains to Bull Company’s biological assets:

Price of the asset in the market P 5,000

Estimated commission to brokers and dealers 500
Estimated transport cost and other cost necessary to get
asset to the market 300
Selling price in a binding contract to sell P 5,200

The entity’s biological assets should be valued at

a. P 4,700 b.4,400 c. 4,500 d. 4,200

4. Buyer Co. regularly buys shirts from Vendor Company and is allowed trade discounts of 20% and
10% from the last price. Buyer purchased shirts from Vendor on May 27, 2009 and received an invoice
with a list price of P 100,000 and payment terms 2/10, n/30. If buyer uses the net method of
recording purchases, the journal entry to record the payment of June 8, 2009 will include
a. A debit to Accounts payable P 72,000
b. A debit on purchase discount lost of P 1,400
c. A credit to purchase discount of P 1,400
d. A credit to Cash of P 70,560

5. White Airlines sold a used jet aircraft to brown company for P 800,000 accepting a five year 6%
note for the entire amount. Browns incremental borrowing rate was 14%. The annual payment of
principal and interest on note was to be P189,930. The aircraft could have been sold at an established
cash price of P 651,460. The present value of an ordinary annuity of P1 at 8% for five periods is 3.99.
The aircraft should be capitalized on Browns book at

a. P 949,650 c. P 757,820
b. P 800,000 d. P 651,460

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 a share exchange and valued at P
35 million. The fair value of Yang’s net asset was P15 million (excluding any item referred to below)

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Yang owns a patent for an established successful drug that has a remaining life of 8 years. A firms of
specialist advisors, Tantsahan, has estimated the current value of this patent to be P 10 million;
however, the company is awaiting for outcome of clinical trials where the drug has been tested to
treat a different illness. If trials were successful, the value of the drug is then estimated to be 15
million. Also included in the company’s balance sheet is P 2 million for medical research that has been
conducted on behalf of a client.

Compute the amount of goodwill for this acquisition.

a. P 8,000,000 c. P 3,000,000
b. P 5,000,000 d. P 20,000,000

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 P 5,000 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 P 42,000. The cost of the
factory equipment purchased on December 30, 2005 was

a. P 325,000 c. P 335,000
b. P 293,750 d. P 330,000

8. On December 28, 2009, Hornets Company commits itself to purchase a financial asset to be
classified as held to maturity for P 1,000,000 its fair value on commitment (trade) date. This security
has a fair value of P 1,002,000 and P 1,005,000 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. P 1,000,000 b. P 1,005,000 c. P 1,002,000 d. P 0

9. On July 2009, Jenny Ltd leases a machine with a fair value of P 109,445 to Rose Ltd for five years
at annual rental (in advance) of P 25,000 and Rose Ltd guarantees in full estimated residual value of P
15,000 on return of the asset. What would be the intestest 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, P
1,200,000; Deferred tax liabilities, P 3,000,000. Effective from the first day of 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 P 600,000 c. DR P 450,000
b. CR P 600,000 d. CR P 450,000

11. On December 31, 2009, Entity X acquired an investment for P100,000 plus a purchase commission
of P 2,000. The investment is classified as available for sale. On December 31, 2009, quoted market
price of the investment is P 100,000. If the investment were sold, a commission of P 3,000 would be
paid. On December 31, 2009, the entity should recognize unrealized loss directly in equity of

a. P 2,000 c. P 5,000
b. P 3,000 d. P 0

12. As of June 30, 2009, the bank statement of Ang Po Trading had an ending balance of P 373,612.
The following data were assembled in the course of reconciling the bank balance:

• The bank erroneously credited Ang Po Trading for P 2,150 on June 22.

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• During the month, the bank charged back NSF checks amounting to P 2,340 of which P 800
had been redeposited by the 25th of June.
• Collection for June 30 totaling P 10, 330 was deposited the following month.
• Checks outstanding as of June 30 were P 30,205
• Notes collected by the bank for Ang Po Trading were P 8,150 and the corresponding bank
charges were P 50.

The adjusted bank balance on June 30, 2009 is

a. P 351, 587 c. P 353 927
b. P 358, 147 d. P 359 687

Suggested Answers:

1. a
2. d
3. d
4. b
5. d
6. a
7. c
8. a
9. b
10. d
11. a
12. a

Average Round

1. The physical inventory of Pangasinan Company on December 31, 2009 showed merchandise with a
cost of P 4,000,000 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
subsidiary.
b. A special machine, fabricated to order for a customer costing P 400,000 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 P 80,000 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 P 120,000 which was shipped by Pangasinan f.o.b shipping point to a customer
on December 29, 2009
e. Merchandise costing P 50,000 shipped by a vendor F.O.B shipping point on December 28, 2009 and
receive by Pangasinan on January 10, 2010.

The corrected balance of Pangasinan’s inventory should be

a. P 4,530,000 c. P 4,480,000
b. P 4,130,000 d. P 4,690,000

2. On January 2004, Entity A issued a 10 percent convertible debenture with a face value of P
1,000,000 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 non convertible debt with a ten year term bearing a coupon interest rate of
11 percent.

On January 1 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

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days). The market price of Entity A’s ordinary shares on the date the terms are amended is P 40 per
share.

Compute the amount to be recognize in profit or loss as a result of the amendment of the terms

a. P 400,000 c. P 50,000
b. P 200,000 d. P 0

3. Cookie Company is negotiating a loan with Excel Bank. Cookie needs P 3,600,000. 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 200,000
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. P 4,000,000 c. P 3,600,000
b. P 3,800,000 d. P 3,400,000

4. On January 1, 2009, the lending company made a P 200,000 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 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 will be delayed until the end the 5 year loan term.
In addition, the amount of principal repayment will be dropped from P 200,000 to P 100,000. The
prevailing interest rate for similar type of the loan as of December 31, 2009 is 10%.

The loan impairment loss to be recognize in 2009 profit or loss is

a. P 67,700 c. P 77,492
b. P 73,506 d. P 0

5. Windom Corp. on January 1, 2007 granted share options for 100,000 share of its P10 par value
ordinary shares to its key employees. The market price of the ordinary share on that date was P 23
per share and the option price was P 20. The Black Scholes option pricing model determines total
compensation expense to be P 600,000. The options are exercisable beginning January 1, 2010
provided those key employees are still in Windom’s 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.

a. P 100,000 c. P 150,000
b. P 200,000 d. P 700,000

6. An entity prepares quarterly interim financial reports in accordance with PAS 34. The entity sells
electrical goods, and normally 5% of customer claims 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 income statement?

a. P 3,000,000 c. P 2,250,000
b. P 4,000,000 d. P 5,000,000

7. An entity has granted share option to its employees. The total expense to the vesting date of
December 31, 2010, has been calculated as P 8 million. The entity has decided to settle the award
early, on December 31, 2009. The expense charge in the income statement since the grant date of

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January 1, 2007, had been year to December 31, 2007, 2 million, and year to December 31, 2008,
2.1 million. The expense that would have been charge in the year to December 31, 2009 was P 2.2
million. What would be the expense charged in the income statement for the year December 31,
2009?

a. P 2.2 million c. P 3.9 million

b. P 8.0 million d. P 2.0 million

8. An entity has spent P 600,000 in developing a new product. These cost meet the definition of an
intangible asset under PAS 38 and have been recognize 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 P 50,000. The tax base of intangible asset at year end is

a. P 600,000 c. P 50,000
b. P 550,000 d. P 0

9. House Publishers offered a contest in which the winner would receive P 1 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 P 1 million, payable in P 50,000 installments every January 2. Also on December 31,
2009 House purchased an annuity for P 418,000 to provide the P 950,000 prize monies remaining
after the first P 50,000 installment which was paid on January 2, 2010. In its 2009 income
statements, what should House report as contest prize expense?

a. P 0 c. P 468, 250
b. P 418, 250 d. P 1,000,000

10. Atkins bought five identical plots of development land for P 2 million in 2007. On January 2009
Atkins sold three of the plots of land to an investment company, Landbank, for a total of 2.4 million.
This price was based on 75% of the fair market value of 3.2 million as determined by an independent
surveyor at the date of sale. The terms of the sale contained 2 clauses:

• . Atkins can re purchased the plots of land for the full fair value of 3.2 million (the value
determined 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 3.2 million. You may assume that Landbank seeks a return o its investment of 10% per
annum.

If Atkins recorded the legal form of the transaction instead of its substance, the profit for 2009 will be
overstated by
a. P 1,440,000 c. P 640, 000
b. P 1,200,000 d. P 400, 000

11. Quitino, 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, P 5,000,000.
• A vacant building owned by Quirino, Inc. and to be leased out under an operating lease, P 20,
000, 000.
• Property held by a subsidiary of Quirino, Inc., a real estate firm, in the ordinary course of its
business, P 30, 000, 000.
• Property held by Quirino, Inc. for use in production, P 1, 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 P 50,000,000.
• A building owned by Quirino, Inc being leased out to Status Inc, a subsidiary of Quirino Inc., P
20,000,000.

How much will be reported as investment properties in Quirino, Inc. and its subsidiaries consolidated
financial statements?

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a. P 75,000,000 c. P 95,000,000
b. P 25,000,000 d. P 45,000,000

12. Roxy Company had the following information relating to its account receivble:

Accounts receivable at 12/31/2008 P 1,300,000

Credit sales for 2009 5,400,000
Collection 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 re established) 25,000
Estimated uncollectible receivables
per aging of receivables at
12/31/2009 165,000

On December 31, 2009 the amortized cost of accounts receivables is

a. P 1,825,000 c. P 1,635,000
b. P 1,800,000 d. P 1,600,000

Suggested Answers:

1. b
2. a
3. a
4. a
5. b
6. b
7. c
8. d
9c
10. a
11. a
12. d

DIFFICULT

1. The Fitness Health Spa charges a non refundable annual membership fee of P 6,000 for its services.
For this fee, each member receives a fitness evaluation (value P 1,000 ), a monthly magazine (annual
value P 320), and 2 hours use of the equipment each week (annual value P 7,000) . 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 P 500, and the monthly direct
costs to provide the other services are estimated to be P 150 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. P 6,000 c. P 4,500
b. P 4,600 d. P 4,750

2. On January 1, 2009, Rockets Corporation issued a P 3 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 P 1,000 bond at the option of the holder. The
interest rate of the equivalent bond without the conversion rights would have been 10%. The issuance
of convertible bonds on January 1, 2009 increased the entity’s equity by (Round-off present value
factors to four decimal places)

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a. P 175, 518 b. P 380, 418 c. P 73,068 d. P 0

3. Detroit Corp. sells equipment with a carrying amount P 150,000 to Pistons Corp. for P170,000 when
the equipments fair value is P 100,000 and then enters into a cancelable 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. P 20,000 b. P 70,000 c. P 50,000 d. Nil

4. Cavaliers Corporation made an accounting profit before tax of P 40,000 for the year ended June
2009. Included in the accounting profit were the following items of revenue and expenses.
Donations to political parties ( non deductible) P 5,000
Depreciation – machinery ( 20%) 15,000
Annual leave expense 5,600
Rent revenue 12,000
For the tax purposes the following applied:
Annual leave paid P 6,500
Rent receive 10,000
Depreciation rate for machinery 25%
Income tax rate 35%

Calculate the current tax liability for the year ended 30 June 2009
a. P 13,423 b. P 15,750 c. P 14,000 d. P 15,050

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 entity’s share price is P 50 per share. At the end of years 1 and 2, the share price is
P 52 and P 55 respectively. The entity estimates that the grant date fair value of the share alternative
is P 48 per share.

Computer for the amount to be recognize as compensation expense in year 2.

a. P 21,867 b. P 15,750 c. P 14,000 d. P15,050

6. A director of an entity receives a retirement benefit of 10% of his final salary per annum for his
contractual period of 3 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. P 29,520 c. P 27,429
b. P 22, 500 d. P 26,775

7. Magic Company had the following capital during the 2008 and 2009:

Preference share capital, P 100 par, 10% cumulative, 100,000 shares P 10,000,000
Ordinary share capital, P 100 par, 400,000 shares 40,000,000

Magic reported profit of P 8,000,000 for the year ended December 31, 2009. Magic paid no preference
share dividends during 2008 and paid P 1,500,000 preference share dividends during 2009. On
January 31, 2010, prior to the date that 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. P 17.50 b. P16.25 c. P 15.91 d. P 14.77

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8. Victoria Company had purchased equipment for P 10,000,000 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 P 4,800,000. The
equipment’s fair value on December 31, 2009 is P 4,000,000 while the discounted cash flows related
to the equipment is P 4,200,000. After any loss on impairment has been recognized, what is the
carrying amount of the equipment.?

a. P 4,200,000 c. P 4,600,000
b. P 4,000,000 d. P 4,800,000

9. On January 1, 2009 Major Company purchased a uranium mine for P 800,000. 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 P 4,200,000 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 depreciation for 2009.

a. P 114,408 c. P 223,000
b. P 80,000 d. P 500,000

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 P 100 million. This amount will be spent in this way: P 20 million each in the first and second
years and P 60 million in the third year. The fair value of this land is currently P 120 million. How
much should be recognize as income from government grant at the end of the first year?

a. P 20,000,000 c. P 40,000,000
b. P 24,000,000 d. P 0

11. SEASON’S INC acquired an asset that had a cost of P 130,000. The asset is being depreciated over
a 5 year period using the sum of the year’s digit method. It has a salvage value estimated at P
10,000. The loss/gain if the asset is sold for P 38,000 at the end of the third year is
a. P 4,000 gain c. P 68,000 loss
b. P 20,000 loss d. P 92,000 loss

12. The Evita Company uses cash basis accounting for their records. During 2009, Evita collected P
500,000 from its customers, made payment of P 200,000 to its suppliers for inventory, and paid P
140,000 for operating costs. Evita wants to prepare accrual basis statements. In gathering information
for the accrual bass financial statements, Evita discovered the following:

e.Customers owed Evita P50,000 at the beginning of 2009 and P35,000 at the end of 2009.
f. Evita owed suppliers P 20,000 at the beginning of 2009 and P 27,000 at the end of 2009.
g. Evita’s beginning inventory was P 42,000 and its ending inventory was P44,000.
h. Evita had prepaid expenses of P 5,000 at the beginning of 2009 and P 7,400 at the end of 2009.
i. Evita had accrued expenses of P12,000 at the beginning of 2009 and P 19,000 at the end of 2009.
j. Depreciation for 2009 was P51,000.

Determine the accrual basis net income of Evita Company for the year ended December 31, 2009

a. P 84,400 c. P 91,400
b. P 79,600 d. P 98,400

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CLINCHER

1. Smart Company has P 3,000,000 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 P 1,000,000
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. P 300,000 c. P 210,000
b. P 290,000 d. P 140,000

2. On December 1, 2009, Money Co. gave Home Co . a P 200,000 11% loan. Money paid proceeds of
P 194,000 after the deduction of a P 6,000 non refundable loan origination fee. Principal and interest
are due in 60 monthly present value of P 200,000 and 12.4% at a present value of P 194,000. What
amount of income from this loan should Money report in its 2009 income statement?

a. P 0 c. P 2,005
b. P 1,833 d. P 7,833

3. 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. Theses 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 customer’s 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. P 1,050,000 c. P 900,000
b. P 692,300 d. P 630,000

4. A court case decided on 21 December 2009 awarded damages against Pylon. The judge 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 P 20,000
and P 7,000,000. As of December 31, 2009, how much should be recognized in the balance sheet
regarding this court case?

a. P 20,000 c. P 3,510,000
b. P 7,000,000 d. P 0

5. On June 9, 2009, Pol Corp. sold merchandise with a list price of P 5,000 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 P 200of delivery cost for Pot as an accommodation. On June 25, 2009, Pol
received from Pot a remittance in full payment amounting to
a. 2,744 c. P 2,944
b. 2, 940 d. P 3,000

Suggested Answers 11. a

Difficult 12. a
1. b
2. a Clincher
3. d 1. b
4. a 2. c
5. a 3. d
6. c 4. d
7. c 5. d
8. a
9. c
10. b

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