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Date:
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GEN 008 – ENHANCEMENT SUBJECT

P1 EXAM

On January 1, 2022, an entity issued 9% bonds in the face amount of P5,000,000 which mature
on January 1, 2032. The bonds were issued for P4,695,000 to yield 10%. Interest is payable
annually on December 31. The entity used the interest method of amortizing bond discount.

1. What amount should be reported as interest expense for 2022?

a. 469,500
b. 500,000
c. 450,000
d. 422,500

2. What is the carrying amount of the bonds payable on December 31, 2022?
a. 4,695,000
b. 4,704,750
c. 4,714,500
d. 5,000,000

On January 1, 2022, an entity issued 10-year bonds with face amount of P5,000,000 for
P5,775,000. The entity paid bond issue cost of P100,000 on same date. The stated interest rate
on the bonds is 10% payable annually every December 31. The bonds have an 8% yield per
annum after considering the bond issue cost. The entity used the effective interest method of
amortizing bond premium.
3. What is the interest expense for 2023?
a. 454,000
b. 458,960
c. 500,000
d. 450,320
4. What is the carrying amount of the bonds payable on December 31, 2023?
a. 5,695,960
b. 5,737,000
c. 5,629,000
d. 5,579,320

On January 1,2022, an entity reported 10% bonds payable with carrying amount of P5,700,000.
The bonds had a face amount of P6,000,000 and were issued to yield 12%. The interest method
of amortization is used. Interest was paid on June 30 and December 31 of each year.
On July 1, 2022, the entity retired bonds payable with face amount of P2,000,000 at 102. The
interest payment on June 30, 2022 was made as scheduled.

5. What amount should be recorded as loss on the early extinguishment of the bonds payable?
a. 140,000
b. 126,000
c. 112,000
d. 154,000

6. What is a carrying amount of the remaining bonds payable on December 31, 2022?
a. 3,800,000
b. 3,828,000
c. 3,857,680
d. 3,798,620

7. What amount should be reported as interest expense for 2022?

a. 457,680
b. 571,680
c. 684,000
d. 456,000

On January 1, 2022, an entity reported a P7,200,000 note payable to a bank. The note is dated
October 1, 2021, bears interest at 15% and is payable in three equal annual principal payments
of P2,400,000. On this date, the bank’s prime rate was 12%. The first annual payment for
interest and principal was made on October 1, 2022.
8. On December 31, 2022, what amount should be reported as accrued interest payable?
a. 540,000
b. 180,000
c. 396,000
d. 144,000

9. What amount should be reported as interest expense for 2022?

a. 720,000
b. 726,000
c. 990,000
d. 810,000

On December 31, 2022, an entity had a P4,500,000 note payable due July 31, 2023. The entity
planned to refinance the note by issuing long-term bonds. Because the entity temporarily had
excess cash, it prepaid P1,500,000 of the note on January 15, 2023. In February 2023, the entity
completed a P8,000,000 bond offering. On March 31, 2023, the entity issued the 2022 financial
statements.
10. What amount of the note payable should be included in current liability on December 31,
2022?
a. 4,500,000
b. 3,000,000
c 1,500,000
d. 0
An entity provided the following information for the current year:
Current service cost 500,000
Past service cost during the year 300,000
Interest cost on PBO – 10% discount rate 600,000
Interest income on plan assets 350,000
Settlement payment of benefit obligation in advance 1,200,000
Present value of benefit obligation settled in advance 950,000
Actual return on plan assets 850,000
Actuarial loss due to remeasurement of PBO due to change in actuarial assumptions 200,000
Contribution to the plan 1,500,000
Benefits paid retirees 1,000,000

11. What amount should be reported as employee benefit expense for the current year?
a. 1,300,000
b. 1,050,000
c. 2,000,000
d. 1,100,000

12. What is the projected benefit obligation at year-end?

a. 5,650,000
b. 5,400,000
c. 5,250,000
d. 6,600,000
13. What is the fair value of plan assets at year-end?
a. 3,650,000
b. 3,900,000
c. 4,850,000
d. 4,650,000

An entity provided the following information on December 31, 2022:

Accounts payable 2,000,000
Accrued expenses 800,000
Bonds payable 2,500,000
Premium on bonds payable 300,000
Deferred tax liability 500,000
Income tax payable 1,100,000
Cash dividend payable 600,000
Share dividend payable 400,000
Note payable – due March 1, 2023 1,500,000

14.What amount should be reported as total current liabilities?

a. 6,000,000
b. 6,400,000
c. 4,500,000
d. 6,500,000

An entity reported the following liability balances on December 31, 2022:

10% note payable issued on October 1, 2021, maturing October 1, 2023 2,000,000
12% note payable issued on March 1, 2021 maturing on March 1, 2023 4,000,000
Under the loan agreement, on December 31, 2022 the entity had an existing right to defer
settlement of the 10% note payable for at least twelve months after December 31, 2022. On
March 1, 2023, the entire P4,000,000 balance of the 12% note payable was refinanced through
issuance a long-term obligation payable lump sum. The 2022 financial statements were issued
on March 31, 2023.

15. What amount of the notes payable should be classified as current on December 31, 2022?
a. 6,000,000
b. 4,000,000
c. 2,000,000
d. 0

An entity reported the following data for the current year:

Net sales 9,500,000
Cost of goods sold 4,000,000
Selling expenses 1,000,000
Administrative expenses 1,200,000
Interest expense 700,000
Gain from expropriation of land 500,000
Income tax 800,000
Income from discontinued operation 600,000
Unrealized gain on equity investment at FVOCI 900,000
Unrealized loss on debt investment at FVOCI 200,000
Unrealized loss on forward contract designated as a cash flow hedge 400,000
Actuarial loss on defined benefit plan due to actuarial assumptions 300,000
Foreign translation gain 100,000
Loss on credit risk of financial liability designated at FVPL 700,000
Revaluation surplus during the current year 2,500,000
16. What net amount should be recognized in other comprehensive income?
a. 1,900,000
b. 3,100,000
c. 2,600,000
d. 2,800,000

17. What amount should be reported as comprehensive income?

a. 4,800,000
b. 1,000,000
c. 2,900,000
d. 2,300,000

On January 1, 2020, an entity purchased for P5,000,000 a machine with useful life of ten years
and residual value of P200,000. The machine was depreciated by the double declining balance
method and the carrying amount of the machine was P3,200,000 on December 31, 2021. The
entity changed to the straight line method on January 1, 2022 and the residual value did not
change.

18.What is the carrying amount of the asset on December 31, 2022?

a. 2,825,000
b. 2,175,000
c. 2,625,000
d. 3,200,000

An entity purchased an equipment for P8,000,000 on January 1, 2022. The equipment had a
useful life of 5 years with no residual value. On December 31, 2022, the entity classified the
equipment as held for sale. On such date, the fair value less cost of disposal of the equipment
was P4,500,000.
On December 31, 2023, 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, 2023, the fair value less cost of disposal of the equipment was
P3,900,000.
19. What amount of impairment loss should be recognized in 2022?
a. 3,500,000
b. 1,600,000
c. 1,900,000
d. 0

20. What amount should be included in profit or loss in 2023 as a result of the reclassification?
a. 600,000 gain
b. 600,000 loss
c. 300,000 gain
d. 300,000 loss

21. Financial statements are a structured representation of the financial position and financial
performance of an entity. The main objective of financial statements is

a. to provide information about the financial position, financial performance and cash
flows of an entity that is useful to a wide range of users in making economic decisions.
b. to show the results of the management’s stewardship of the resources entrusted to it.
c. to provide information about the products of the entity, its achievements during the
year, and its plans for the following year(s).
d. to provide information essential in making buy or sell decisions

22.Financial statements are a structured representation of the financial position and financial
performance of an entity. The objective of general purpose financial statements is to provide
information about an entity’s (choose the incorrect statement)
 a. financial position c. cash flows
b. financial performance d. valuation

23.During the year, an accountant omitted centavos in the amounts recognized in the journals.
Such omissions were considered individually immaterial and were treated as a normal company
practice. However, it was found out as of year-end that the sum of the centavos omitted, when
totaled, is material. The omission is

a. considered immaterial, hence, requires no adjustment

b. considered material, hence, requires no adjustment
c. considered immaterial but no adjustment is necessary
d. considered material, hence, requires an adjustment

24.When an entity’s balance sheet date changes and the annual financial statements are
presented for a period longer or shorter than one year, an entity shall disclose, in addition to
the period covered by the financial statements:

I. the reason for using a longer or shorter period

II. the fact that comparative amounts for the income statement, statement of changes in
equity, cash flow statement and related notes are not entirely comparable
III. the amounts charged to the beginning balance of the retained earnings, net of tax
IV. pro-forma financial statements, as a supplemental information in the notes
a. I, II b. I, III c. I, III, IV d. I, II, III, IV

25.A newly acquired plant asset is to be depreciated over its useful life. The rationale for this
process is the

a. Economic entity assumption. c. Materiality assumption.

b. Monetary unit assumption. d. Going concern assumption.

26.Which of the following statements is incorrect regarding offsetting of assets and liabilities in
the statement of financial position?
a. Assets and liabilities in the statement of financial position may be offset in general.
b. Offsetting does not give rise to gain or loss recognition, which distinguishes it from the
derecognition of an instrument
c. An entity shall not offset assets and liabilities or income and expenses, unless required
or permitted by a PFRS.
d. Financial assets and financial liabilities shall be offset if the entity has both the legal right
of offset and the intention of settling the asset and liabilities at a net basis.

27. PAS 1 requires an entity to present a statement of financial position as at the beginning of
the preceding period in a complete set of financial statements in all of the following
instances, except

a. when the entity applies an accounting policy retrospectively

b. when the entity makes a retrospective restatement
c. when the entity reclassifies items in the financial statements
d. when the entity makes a change in accounting estimate

28. As of year-end, an entity had unsettled income taxes to the government. Such liability is
charged to the “Income taxes payable” account and is expected to be settled within
twelve months after the reporting date. In the statement of financial position prepared as
of year-end, the liability for the taxes is normally shown as

a. a separate line item in the current liabilities section

b. included in “Trade and other payables” in the current liability section
c. a separate line item in the noncurrent liabilities section
d. a separate line item in the current assets section

29. An asset shall be classified as current when it satisfies any of the following criteria, except

a. it is expected to be realized in, or is intended for sale or consumption in, the entity’s
normal operating cycle
b. it is held primarily for the purpose of being traded
c. it is expected to be realized within twelve months after the balance sheet date
d. it is cash or a cash equivalent that is restricted

30. A liability shall be classified as current when it satisfies any of the following criteria,
except
a. it is expected to be settled in the entity’s normal operating cycle
b. it is held primarily for the purpose of being traded
c. it is due to be settled within twelve months after the balance sheet date
d. the entity has an unconditional right to defer settlement of the liability for at least
twelve months after the balance sheet date.

31. Deferred tax assets and liabilities shall be classified on the balance sheet as
a. Current c. Partly current and partly noncurrent
b. Noncurrent d. Part of equity

32. The operating cycle of an enterprise

a. is the time between the acquisition of materials entering into a process and their
realization in cash or an instrument that is readily convertible into cash.
b. causes the distinction between current and noncurrent items to depend on whether
they will affect cash within one year.
c. is the period of time normally elapsed from the time the enterprise expends cash to the
time it converts trade receivables back into cash.
d. Is a period of one year

33.The current assets section of a balance sheet should never include

a. a receivable from a customer not collectible for over one year.
b. the premium paid on short-term bond investment.
c. goodwill arising from the purchase of a going business not expected to be disposed of
within 12 months from end of reporting period.
d. customers' accounts with credit balances

34.Which of the following statements is incorrect?

a. Comprehensive income includes all revenues, expenses, gains, losses, and prior period
adjustments.
b. PAS 1 requires an entity to disclose income tax relating to each component of other
comprehensive income.
c. The presentation of disclosures on dividends in the statement of profit or loss and other
comprehensive income is not permitted.
d. An entity may present components of other comprehensive income gross of tax or net of
tax on the face of the statement of profit or loss and other comprehensive income.

35.Which of the following items is not classified as “other comprehensive income”?

a. Extraordinary gains from extinguishment of debt
b. Foreign currency translation adjustments
c. Minimum pension liability equity adjustment for a defined-benefit pension plan
d. Unrealized gains for the year on FVOCI investments