DIFFICULT

1. The Fitness Health Spa charges a non refundable annual membership fee of P !""" for
its ser#ices. For this fee! each member recei#es a fitness e#aluation $#alue P 1!""" %! a
monthl& maga'ine $annual #alue P ()"%! and ) hours use of the e*uipment each +ee,
$annual #alue P -!"""% . .ach of the three elements of the annual membership can be
purchased separatel&. The initial direct costs to obtain the membership are P1!)"". The
direct cost of the fitness e#aluation is P /""! and the monthl& direct costs to pro#ide the
other ser#ices are estimated to be P 1/" per person. 0 membership +as sold to a customer
on 0pril 1! )""1.
The total fees earned b& the compan& on this membership for the &ear ended December
(1! )""1 is2
a. P !""" c. P 3!/""
b. P 3!"" d. P 3!-/"
). 4n 5anuar& 1! )""1! 6oc,ets Corporation issued a P ( million 7 con#ertible bonds at
par. The bonds are redeemable at a premium of 1"7 on December (1! )"1) or it ma& be
con#erted into ordinar& shares on the basis of /" shares for each P 1!""" bond at the
option of the holder. The interest rate of the e*ui#alent bond +ithout the con#ersion rights
+ould ha#e been 1"7. The issuance of con#ertible bonds on 5anuar& 1! )""1 increased
the entit&8s e*uit& b& $6ound9off present #alue factors to four decimal places%
a. P 1-/! /1: b. P (:"! 31: c. P -(!": d. P "
(. Detroit Corp. sells e*uipment +ith a carr&ing amount P 1/"!""" to Pistons Corp. for
P1-"!""" +hen the e*uipments fair #alue is P 1""!""" and then enters into a cancelable
operating lease agreement to use the e*uipment for t+o &ears. In the current &ear! ho+
much profit +ould Detroit Corp. record on the sale of the e*uipment.
a. P )"!""" b. P -"!""" c. P /"!""" d. ;il
3. Ca#aliers Corporation made an accounting profit before ta< of P 3"!""" for the &ear
ended 5une )""1. Included in the accounting profit +ere the follo+ing items of re#enue
and e<penses.
Donations to political parties $ non deductible% P /!"""
Depreciation = machiner& $ )"7% 1/!"""
0nnual lea#e e<pense /!""
6ent re#enue 1)!"""
For the ta< purposes the follo+ing applied2
0nnual lea#e paid P !/""
6ent recei#e 1"!"""
Depreciation rate for machiner& )/7
Income ta< rate (/7
Calculate the current ta< liabilit& for the &ear ended (" 5une )""1
a. P 1(!3)( b. P 1/!-/" c. P 13!""" d. P 1/!"/"
/. 0n entit& grants to an emplo&ee the right to choose either 1!""" phantom shares! ie a
right to a cash pa&ment e*ual to the #alue of 1!""" shares or 1!)"" shares. The grant is
conditional upon the completion of three &ears ser#ice.
0t grant date! the entit&8s share price is P /" per share. 0t the end of &ears 1 and )! the
share price is P /) and P // respecti#el&. The entit& estimates that the grant date fair
#alue of the share alternati#e is P 3: per share.
Computer for the amount to be recogni'e as compensation e<pense in &ear ).
a. P )1!:- b. P 1/!-/" c. P 13!""" d. P1/!"/"
. 0 director of an entit& recei#es a retirement benefit of 1"7 of his final salar& per
annum for his contractual period of ( &ears. The director does not contribute to the
scheme. His anticipated salar& o#er the three &ears is >ear 1 P1""!"""! >ear ) P1)"!"""
and >ear ( P133!""". 0ssume a discount rate of /7. The pension liabilit& at the end of
the second &ear is
a. P )1!/)" c. P )-!3)1
b. P ))! /"" d. P )!--/
-. ?agic Compan& had the follo+ing capital during the )"": and )""12
Preference share capital! P 1"" par! 1"7 cumulati#e! 1""!""" shares P 1"!"""!"""
4rdinar& share capital! P 1"" par! 3""!""" shares 3"!"""!"""
?agic reported profit of P :!"""!""" for the &ear ended December (1! )""1. ?agic paid
no preference share di#idends during )"": and paid P 1!/""!""" preference share
di#idends during )""1. 4n 5anuar& (1! )"1"! prior to the date that financial statements
are authori'ed for issue! ?agic distributed 1"7 ordinar& share di#idend.
In its )""1 income statement! +hat amount should ?agic report as basic earnings per
share@
a. P 1-./" b. P1.)/ c. P 1/.11 d. P 13.--
:. Aictoria Compan& had purchased e*uipment for P 1"!"""!""" on 5anuar& 1! )""-. The
e*uipment had a / &ear life and a residual #alue of 1!"""!""". Aictoria Compan&
depreciated the e*uipment using the straight line method. 4n December (1! )""1!
Aictoria *uestioned the reco#erabilit& of the carr&ing amount of this e*uipment. 4n
December (1! )""1 the undiscounted e<pected net future cash flo+s related to the
continued use and e#entual disposal of the e*uipment totaled P 3!:""!""". The
e*uipment8s fair #alue on December (1! )""1 is P 3!"""!""" +hile the discounted cash
flo+s related to the e*uipment is P 3!)""!""". 0fter an& loss on impairment has been
recogni'ed! +hat is the carr&ing amount of the e*uipment.@
a. P 3!)""!""" c. P 3!""!"""
b. P 3!"""!""" d. P 3!:""!"""
1. 4n 5anuar& 1! )""1 ?aBor Compan& purchased a uranium mine for P :""!""". 4n that
date! ?aBor estimated that the mine contained 1!""" tons of ore. 0t the end of the
producti#e &ears of the mine! ?aBor Compan& +ill be re*uired to spend P 3!)""!""" to
clean up the mine site. The appropriate discount rate is :7! and it is estimated that it +ill
ta,e appro<imatel& 13 &ears to mine all of the ore. ?aBor uses the producti#e output
method of depreciation. During )""1! ?aBor e<tracted 1"" tons of ore from the mine.
Compute the amount of depreciation for )""1.
a. P 113!3": c. P ))(!"""
b. P :"!""" d. P /""!"""
1". Citimart Inc. +as granted a parcel of land b& a local go#ernment authorit&. The
condition attached to this grant +as that Citimart Inc. should clean up this land and la&
roads b& emplo&ing laborers from the #illage in +hich the land is located. The entire
operation +ill ta,e three &ears and is estimated to cost P 1"" million. This amount +ill be
spent in this +a&2 P )" million each in the first and second &ears and P " million in the
third &ear. The fair #alue of this land is currentl& P 1)" million. Ho+ much should be
recogni'e as income from go#ernment grant at the end of the first &ear@
a. P )"!"""!""" c. P 3"!"""!"""
b. P )3!"""!""" d. P "
11. S.0S4;8S I;C ac*uired an asset that had a cost of P 1("!""". The asset is being
depreciated o#er a / &ear period using the sum of the &ear8s digit method. It has a sal#age
#alue estimated at P 1"!""". The lossCgain if the asset is sold for P (:!""" at the end of
the third &ear is
a. P 3!""" gain c. P :!""" loss
b. P )"!""" loss d. P 1)!""" loss
1). The .#ita Compan& uses cash basis accounting for their records. During )""1! .#ita
collected P /""!""" from its customers! made pa&ment of P )""!""" to its suppliers for
in#entor&! and paid P 13"!""" for operating costs. .#ita +ants to prepare accrual basis
statements. In gathering information for the accrual bass financial statements! .#ita
disco#ered the follo+ing2
e.Customers o+ed .#ita P/"!""" at the beginning of )""1 and P(/!""" at the end of
)""1.
f. .#ita o+ed suppliers P )"!""" at the beginning of )""1 and P )-!""" at the end of
)""1.
g. .#ita8s beginning in#entor& +as P 3)!""" and its ending in#entor& +as P33!""".
h. .#ita had prepaid e<penses of P /!""" at the beginning of )""1 and P -!3"" at the end
of )""1.
i. .#ita had accrued e<penses of P1)!""" at the beginning of )""1 and P 11!""" at the
end of )""1.
B. Depreciation for )""1 +as P/1!""".
Determine the accrual basis net income of .#ita Compan& for the &ear ended December
(1! )""1
a. P :3!3"" c. P 11!3""
b. P -1!"" d. P 1:!3""
CLINCHER
1. Smart Compan& has P (!"""!""" note recei#able from sale of plant bearing interest at
1)7 per annum. The note is dated 5une 1! )"":. The note is pa&able in ( annual
installments of P 1!"""!""" plus interest on the unpaid balance e#er& 5une 1. The initial
principal and interest pa&ment +as made on 5une 1! )""1.
The interest income for )""1 is
a. P (""!""" c. P )1"!"""
b. P )1"!""" d. P 13"!"""
). 4n December 1! )""1! ?one& Co. ga#e Home Co . a P )""!""" 117 loan. ?one& paid
proceeds of P 113!""" after the deduction of a P !""" non refundable loan origination
fee. Principal and interest are due in " monthl& present #alue of P )""!""" and 1).37 at
a present #alue of P 113!""". Dhat amount of income from this loan should ?one&
report in its )""1 income statement@
a. P " c. P )!""/
b. P 1!:(( d. P -!:((
(. Included in the sales re#enue of Imbiah Compan& for the &ear )""1 is an amount of P(
million relating to sales made under a special promotion in December )""1. Theses
goods +ere sold +ith an accompan&ing #oucher e*ual to the selling price. Fi#e &ears
after the sale! these #ouchers +ill be e<changed for goods of the customer8s choice. The
profit margin on these goods is e<pected to be ("7 of the selling price and mar,et
research estimates that /"7 of the #ouchers +ill be redeemed. The present #alue $ at
December (1! )""1% of P1 at the time the #ouchers +ill be e<changed can be ta,en as
".". The pro#ision for #oucher scheme as of December (1! )""1 is
a. P 1!"/"!""" c. P 1""!"""
b. P 1)!("" d. P ("!"""
3. 0 court case decided on )1 December )""1 a+arded damages against P&lon. The Budge
announced that the amount of damages +ill be set at a future date! e<pected to be in
?arch )"1". P&lon has recei#ed ad#ice from its la+&ers that the amount of the damages
could be an&thing bet+een P )"!""" and P -!"""!""". 0s of December (1! )""1! ho+
much should be recogni'ed in the balance sheet regarding this court case@
a. P )"!""" c. P (!/1"!"""
b. P -!"""!""" d. P "
/. 4n 5une 1! )""1! Pol Corp. sold merchandise +ith a list price of P /!""" to Pot on
account. Pol allo+ed trade discounts of ("7 and )"7. Credit terms +ere )C1/! nC3" and
the sale +as made F4E shipping point. Pol prepaid P )""of deli#er& cost for Pot as an
accommodation. 4n 5une )/! )""1! Pol recei#ed from Pot a remittance in full pa&ment
amounting to
a. )!-33 c. P )!133
b. )! 13" d. P (!"""
Suggested 0ns+ers
Difficult
1. b
). a
(. d
3. a
/. a
. c
-. c
:. a
1. c
1". b
11. a
1). a
Clincher
1. b
). c
(. d
3. d
/. d