National Federation of Junior Philippine Institute of Accountants

In cooperation with

Isla Lipana & Co. and CRC-ACE

National mock board examination 2014

PRACTICAL ACCOUNTING 1

Instruction: On the answer sheet provided, Shade the letter representing the best answer for each of

the following questions. Necessary computations should be made on separate sheets of paper. Avoid

making erasures. The scanning machine may invalidate your answer.

1. On July 31, 2013 New Inc. purchased for P75,000,000 a tract of land on which a decrepit office building was located. The intention of New Inc. is to demolish the office building (with a remaining useful life of 5 years) and replace it with a new building. New will not use the office building prior to the demolition. The following data were collected concerning the property:

Fair Value

7/31/13 Land P 60,000,000

Office Building 20,000,000 The new building that will be constructed in late 2014 will be classified as owner-occupied property and that New uses the cost model of accounting i ts Property, plant and equipment. What is the amount of depreciation expense recognized for fiscal year ended June 30, 2014 in relation to the above transaction?

a. P -0- b. P 4,000,000 c. P 3,750,000 d. P 3,437,500

Less Outstanding checks 457 Cash per l edger, December 31, 2010 P 8,425

2. In preparing reconciliation, the adjusted cash and cash equivalents should be

a. P7,965 b. P4,833 c. P 5,933 d. P6,393

3. The cash shortage (if any) is

a. P105 b. P360 c.P555 d. P 0

4. Flu Company provided you with the following information in relation to its post-retirement benefit plan; current service cost P100,000; expected return on plan assets P40,000; actual return on plan assets P45,000. Pension expense for the period assuming further that Flu Company was classified as an SME

a. 0 b. 100,000 c. 55,000 d. 60,000 Use the following information for the next five items

UA Company was organized in January 1, 2012. Sel ected balances as of December 31, 2015 were as follows:

Land (revalued on December 31, 2014) 1,000,000 Factory building (constructed December 31, 2012) 500,000 Investment property (purchased on January 1, 2012) 800,000 Inventory 600,000 Note receivable (received January 1, 2015 200,000

The general price index had moved on December 31 of each year as follows: December 31, 2012 – 140; December 31, 2013 – 190; December 31, 2014 – 240; December 31, 2015 – 280

5. The restated amount for the factory building is

a. 500,000 b. 1,000,000 c. 1,400,000 d. 583,333

February 15-16, 2014

6. The restated amount for l and is

a. 1,000,000 b. 2,000,000 c. 1,166,667 d. 1,473,684

7. The restated amount for the investment property is

a. 800,000 b. 1,600,000 c. 933,333 d. 1,179,000

8. The restated amount for inventory is

a. 646,154 b. 1,200,000 c. 700,000 d. 790,588

9. The fraction to be used in restating notes receivable

a. 280/280 b. 280/140 c. 280/240 d. 280/260 e.

10. ABC Company has 100,000 ordinary shares in issue. It also has 50,000 convertible bonds (face value of each bond is P1) in issue, which may be converted into ordinary shares on the basis of one share for every five bonds. The interest coupon on the bond is 8%, and the tax rate in force is 25%. It has also issued share options with respect to 12,000 shares, which are exercisable at a price of P40. The average fair value of ABC Company’s shares during the year was P60. The convertible bonds and options were outstanding since the beginning of the year. Basic earnings per share for the year are calculated to be P3.97.

What is the number of shares used to compute for diluted earnings per share for ABC Company?

a. P 114,000 b. P100,000 c. P122,000 d. Not applicable

11. On March 31, 2012, Almost Paradise Co. leased a new machine from Lucky Corporation. The following data relate to the lease transaction at the inception of the lease:

Lease term 6 years Quarterly rental payabl e Php120,000 Estimated life of machine 6.5 years Implicit interest rate 12% Fair value of the machine Php2,134,800 Estimated residual value Php0 Negotiation costs paid by lessee Php52,400

(Round off present value factor to four decimal places.) The lease has no renewal option and the possession of the machine reverts to Lucky Corporation when the lease terminates. Almost Paradise Co. applies the sum -of-the-years digits method in depreciating its property and equipment. What is the carrying amount of the machine on December 31, 2012?

a. P1,732,217 b. P1,824,078 c. P1,489,043 d. P1,637,947 Use the following information for the next two items On January 1, 2010 Glen Company started construction of its own warehouse. Glen Company specifically borrowed P1,000,000 to finance the construction of the warehouse. Interest incurred during the construction amounted to P120,000 while the income derived from its temporary investment amounted to P30,000. Total construction cost was P1,400,000. The warehouse expected useful life was 10 years with no expected residual value. Glen Company depreciates similar assets using the straight-line method On January 1, 2012 Glen Company adopted the revalued model. The sound value of the warehouse was P1,510,000.

12. The depreciation expense in 2010, assuming that Glen Company for reporting purposes was considered an SME a. P140,000 b. P149,000 c. P152,000 d. P240,000

13. The revaluation surplus recognized on January 1, 2012, assuming that Glen Company for reporting purposes was

classified as an SME a. P -0- b. P390,000 c. P318,000 d. P294,000

14. Entity A’s plan provides a pension of 3% of final salary for each year of service. The benefits become vested after 5 years

of service. On January 1, 2013 of the year for which statements are being prepared, Entity A improved the pension to 4% of final salary for each year of service retroactive to each employee’s starting date with the company. At the date of the improvement, the present value of the additional benefits for service up to January 1, 2013 (the date of the plan change) is as follows:

Employees with more than 5 years’ service at the date of the plan change P200,000

Employees with less than 5 years’ service at the date of the plan

change (average period until vesting: 2 years) P100,000

In accordance with PAS 19 Employee Benefi ts (Revised), how should Entity A account for this in its 2013 profit or loss? a. Additional expense of P300,000 related to both fully vested benefi ts and unvested benefits

b. Additional expense of P200,000 related to fully vested benefits at the date of the plan change

c. Additional expense of P250,000, P200,000 related to fully vested benefits at the date of the plan change and P50,000

related to the 2013 portion of the unvested benefits (recognized on a straight line basis over the average vesting

period)

d. No effect to 2013 profit or loss

15. The historical comprehensive income statement of Reese Company for 2011

Sales 2,500,000 Less: Cost of sales Inventory, January 1 175,000 Add: Purchases 1,250,000 Less: Inventory, December 31 250,000 1,175,000 Gross profit 1,325,000 Less: Operating expenses, other than depreciation 1,000,000 Depreciation expense 1,000,000 Net loss 675,000

Sales were earned, purchases other than ending inventory were made and operating expenses other than depreciation expense were incurred evenly throughout the year.

Ending inventory was acquired during the last week of December 2011 Depreciable assets were acquired on January 1, 2008

General price indices were:

January 1, 2008 125 January 1, 2011 140 December 31, 2011 360

If Reese Company was operating in a hyperinfl ationary economy, the amount to be reported as net income (loss) is

a. 2,720,000 b. 2,412,000 c. 972,000 d. 675,000 16. The balance of inventory after adjusting for hyperinflation

a. 1,500,000 b. 1,350,000 c. 1,687,500 d. 1,215,000

17. The balance of property, plant and equipment after adjusting for hyperinfl ation

a. 900,000 b. 1,125,000 c. 500,000 d. 450,000

18. The balance of non-current liabilities after adjusting for hyperinflation

a. 250,000 b. 312,500 c. 500,000 d. 1,000,000

19. The balance of the share capital after adjusting for hyperinflation

a. 600,000 b. 200,000 c. 750,000 d. 400,000

20. The balance of retained earnings after adjusting for hyperinflation

a. 1,375,000 b. 1,175,000 c. 1,470,000 d. 1,305,000 21. On December 31, 2012 Margaux Company had monetary assets of P3,000,000 and monetary liabilities of P1,200,000.

The index number on January 1, 2012 was 125; December 31, 2012 was 225 Purchasing power gain/loss in 2012

a. 3,240,000 gain b. 3,240,000 loss c. 1,800,000 loss d. 1,800,000 gain Use the following information for the next four items On November 20, 2012 Sunshine Company received an inquiry from Moonlight Company asking if i t was interested to lease its construction equipment. The carrying amount of the construction equipment was P12,400,000 which approximates its fair value at this time. Because of the offer Sunshine Company is contemplating on l easing the equipment for 6 years the equipment’s useful life and would like to have a 9% return rate over the term of the l ease. Initial direct costs for this contract was computed at P80,000. At the end of the lease term, Sunshine Company estimates the residual value of the equipment to be P200,000. On November 26, 2012 Moonlight Company sent a proposal in which it agrees with the conditions initially conveyed by Sunshine Company. Moonlight Company suggested that the commencement date be on January 1, 2013 and that the annual rentals be schedul ed every December 31, starting on December 31, 2013. Furthermore Moonlight Company communicated that it will only guarantee 70% of the residual value computed by Sunshine Company.

On December 8, 2012, the lease agreement between Sunshine Company and Moonlight Company was signed. (Round PV factors to 3 decimal places)

22. The annual rentals to be received by Sunshine Company is

a. 2,535,083 b. 2,745,555 c. 2,755,417 d. 2,763,388

23. Interest income in 2014 to be recognized by Sunshine Company is a. 976,300 b. 977,188 c. 975,583 d. 996,130

24. The lease liability reported by Moonlight Company December 31, 2014 is

a. 9,605,292 b. 9,026,181 c. 8,926,902 d. 6,889,090

25. Depreciation expense for 2013 is a. 2,040,704 b. 2,050,707 c. 2,060,124 d. 2,074,037

Use the following information for the next two items At the end of January2013, the city government provided Hesington Company a zero interest P30,000,000 3 -year loan used by the Company in acquiring a building on the same date. The prevailing market rate of interest for this type of loan is 8%. The government imposes that the building must be used for social housing for ten years. The Company estimated that there is reasonable assurance that i t will meet the terms of the grant. The Company will classify the building as owner occupied property after the socialized housing project. The Company opted to use the cost model of accounting the building with a 15 -year life from the date of acquisition. (Round PV factors to 4 decimal places)

26. Applying provisions of PAS 20 – Accounting for Government Grants and Disclosures of Government Assistance, what is the amount recognized as income from the grant as of December 31, 2013?

a. P618,600 b. P 567,050 c. P 1,746,360 d. P 1,905,120

27. Applying provisions of PAS 20 – Accounting for Government Grants and Disclosures of Government Assistance, what is the net effect of the above transactions and events to the Company’s profi t or loss for calendar year ended December 31, 2016?

a. (P 2,000,000) b. (P2,134,846) c. (P 3,438,930) d. (P3,589,815) Use the following information for the next three items Yin-Yang Company is involved in the exploration for and extraction of mineral resources. The Company’s accounting policy for recognition purpose for these types of activities is the “successful effort” method. On January 1, 2010 Yin -Yang Company acquired two quarrying rights. A schedule of the expenditures made with respect to the quarrying sites is provided as follows:

Site O Site X Quarrying rights 2,300,000 1,000,000 Topographical studies 1,200,000 200,000 Exploratory drilling 1,100,000 300,000 Trenching and sampling 1,600,000 400,000 Development costs (road construction to access site) 1,400,000 100,000 Depreciation of drilling rigs used for exploration 300,000 120,000

At the end of 2010 Yin-Yang Company had decided to continue exploration and extraction activities in site O (technicall y and commercial viable). Unfortunately, further exploratory and development plans on site X would be abandoned (not technically feasible and viable) On January 1, 2011 Yin-Yang started extracting the mineral reserves from site O. It was expected that a total of 10,000,000 tons of mineral ore would be extracted from the site and it would be totally extracted within 8 years. Yin-Yang Company acquired an extraction equipment for P600,000. The equipment which Yin-Yang Company intends to use in another mining site was estimated to have a useful life of 12 years with salvage value of P5,000. Fixed installations were likewise completed at the start of 2011. The total cost incurred was P800,000. The installations expected useful life is 10 years with no expected salvage value. Yin-Yang Company uses the straight-line method as its depreciation policy for its long-lived assets. Total tons extracted in 2011 and 2012 were 1,200,000 and 1,600,000 respectively.

28. The exploration and evaluation assets to be reported in the 2010 statement of financial position is a. 6,500,000 b. 7,900,000 c. 8,520,000 d. 8,620,000

29. Depletion for 2011

a. 780,000 b. 948,000 c. 876,000 d. 1,044,000

30. Depreciation for 2011 a. 145,583 b. 129,583 c. 167,400 d. 174,375

31. On November 1, 2013, Bronze Company bought 2,400 ordinary shares of Purpl e Corporation at P90 per share. The shares

represent less than 5% ownership in Purpl e Corporation and are intended to be traded in the near term; hence, designated as investments at fair value through profit or loss. In celebration of the Valentine’s day, Purple Corporation issued a 20% bonus issue on February 14, 2014 as a gift for its shareholders. On March 15, 2014, Bronze Company sold 2,000 shares of Purple Corporation ordinary shares at P80 per share. The market value per share of Purple ordinary share is P93 on December 31, 2013 and P81 on December 31, 2014. What is the carrying amount per share of the Purple Corporation ordinary share after receipt of the bonus issue?

a. P 90.00 b. P75.00 c. P81.00 d. P 77.50

32. On 1 January 2011, Company L issues a fixed rate cumulative perpetual instrument with a face value of Php10 million at par. Dividends on the instrument are cumulative but discretionary and therefore it is ini tially classified as equity. O n 1 January 2012, L adds a new clause to the instrument so that if L is subject to a change of control, L will be required to redeem the instrument at an amount equal to the face value plus any accumul ated unpaid dividends. This results in a reclassification of the instrument from equity to liability. The fair value of the instrument on 1 January 2012 is Php12 million.How should the reclassification be accounted for?

a. The financial liability should be recorded at the original issuance amount of Php 10 million.

b. The financial liability should be at Php 12 million, with difference of Php 2 million recognized directly in profit or loss.

c. The financial liability should be at Php 12 million, with difference of Php 2 million recognized directly in equity.

d. The Company shall record a financial liability of Php 2 million.

33. Jessica Pearson Inc. is a wholesaler of office supplies. The activity for Model V calculators during August is shown below:

Date Balance/Transaction Units Cost

Aug. 1 Inventory 2,000 P36.00

7 Purchase 3,000 37.20

12 Sales 3,600

21 Purchase 4,800 38.00

22 Sales 3,800

29 Purchase 1,600 38.60

If Jessica Pearson Inc. uses perpetual inventory records and that said records are kept in units only, the ending inventory o f Model V calculators using average method at August 31, is reported as

a. P150,080 b. P152,264 c. P150,160 d. P146,400

34. Candice Company reported net income of P34,000 for the year ended December 31, 2013 which included depreciation expense of P8,400 and a gain on sale of equipment of P1,700. The equipment had an historical cost of P40,000 and accumulated depreciation of P24,000. Each of the following accounts increased during 2013 (Assume that the increases in the following accounts are due to cash transactions only.):

Patent P9,800 Prepaid rent* 4,500 Available for sale investment 8,000 Bonds payable 5,000 *To be consumed wi thin 12 months from the balance sheet date

What amount should be reported as net cash provided (used) by investing activities for the year ended December 31, 2013? a. (P 100) b. (P1,800) c. (P17,800) d. P 16,000

Use the following information for the next two items On October 1, 2011, DJ Company acquired land and building for a total consideration of P1,000,000. The fair value of the land and building were P800,000 and P400,000 respectively. Immediately after acquisition, the building was demolished at a cost of P20,000 of which P5,000 was recovered as salvage proceeds. Leveling and grading costs of P115,000, as well as excavation costs of P110,000 were incurred during the last quarter of 2011. On January 1, 2012, DJ Company borrowed P4,000,000 at 10% from JL Financing for its building construction. Construction started immediately and was completed at December 31, 2012. Income from the temporary placement of the construction loan amounted to P30,000. The following expenditures for the building construction were as follows:

January 1, 2012 P 2,500,000 April 1, 2012 2,000,000 July 1, 2012 1,000,000 October 1, 2012 600,000 December 31, 2012 200,000 Total 6,300,000

DJ Company’s other borrowing aside from the construction loan was a 9%, P6,500,000 3-year loan maturing on December 31, 2014. The building was to be depreciated using the sum-of-the-years’ digits method. Expected useful life and salvage value was 10 years and P55,000 respectively. At the beginning of 2018, DJ Company decided to change its depreciation method to the straight-line method. There were no changes in the expected life or on the estimated salvage value of the building.

35. The initial cost capitalized to the land account was

a. 796,666 b. 930,000 c. 1,130,000 d. 1,250,000

36. Depreciation expense reported in the 2018 income statement is

a. 371,850 b. 382,850 c. 363,850 d. 394,850 Use the following information for the next two items Knoll Corporation, a client, requests that you compute the appropriate balance of i ts estimated liability for product warranty account for a statement as of June 30, 2011.

Knoll Corporation manufactures television components and sells them with a 6 -month warranty under which defective

components will be replaced without charge. On December 31, 2010, Estimated Liability for Product warranty had a balance

of P620,000. By June 30, 2011, this balance had been reduced to P120,400 by debits for estimated net cost of components

returned that had been sold in 2010.

The corporation started out in 2011 expecting 7% of the peso volume of sales to be returned. However, due to the

introduction of new models during the year, this estimated percentage of returns was increase to 10% on May 1. It is

assumed that no components sold during a given month are returned in that month. Each component is stamped with a date

at time of sale so that the warranty may be properly administered. The following table of percentages indicates the l ikely

pattern of sales returns during the 6-month period of the warranty, starting with the month following the sale of

components.

Month Following Sale

Percentage of Total Returns Expected

First 30% Second 20 Third 20 Fourth through sixth – 10% each month 30 100%

Gross sales of components were as follows for the first six months of 2011:

The corporation’s warranty also covers the payment of freight cost on defective components returned and on the new

components sent out as replacements. This freight cost runs approximately 5% of the sales price of the components

returned. The manufacturing cost of the components is roughly 70% of the sal es price, and the salvage value of the r eturned

components averages 10% of their sales price. Returned components on hand at December 31, 2010, were thus valued in

inventory at 10% of their original sales price.

37. Required Estimated Liability for Product Warranty balance at June 30, 2011

a. P301,353 b. P421,753 c. P120,400 d. P77,847

38. Required adjustment to liability account a. P301,353 debit b. P301,353 credit c. P421,753 debit d. P421,753 credit

Use the following information for the next two items

Jam Company prepared the following reconciliation of income per books with income per tax return for i ts first year of

operations the year ended December 31, 2012

Month Amount January P4,200,000 February 4,700,000 March 3,900,000 April 3,250,000 May 2,400,000 June 1,900,000

Book income before income taxes P 50,000 Add: Future deductible amounts _____________________ ______ _____________________ ______ ( 1 ) Less: Future taxable amounts _____________________ ______ _____________________ ______ ( 2 ) Taxable income _____

Jam Company acquired an equipment at a cost of P500,000 on January 1, 2012. Depreciation was recorded using the straight-line method with no expected residual value for an estimated useful life of 5 years.. For tax purposes, the doubl e-declining balance method was used.

Sales, cost of sales, operating expenses are recognized under the accrual method for both financial and tax reporting purposes, except for the following items:

Rent income is recognized for financial reporting is recognized under accrual, for tax purposes rent is recognized when collected. In 2012, Jam Company reported rent income of P140,000, while rent collected totaled to P90,000

Warranty costs are recognized for financial reporting purposes under the accrual method and provide an expense equal to 5% of selling price. For tax purposes, warranty costs are recognized when actual payment is made. Total warranty expenditures for 2012 was P320,000. At year end, Jam Company reported an estimated warranty obligation of P40,000.

Bad debts expense reported during the year for financial reporting was P65,000. For tax purposes, bad debts are

recognized as deductions only upon write-off which amounted to P30,000 during the year.

Current and future tax rates was 30%

39. The deferred tax liability reported in the December 31, 2012 statement of financial position is

a. 15,000 b. 22,500 c. 30,000 d. 45,000

40. The deferred tax asset reported in the December 31, 2012 statement of financial position is

a. 15,000 b. 22,500 c. 30,000 d. 45,000

Use the following information for the next two items

As a result of a recent acquisition, an entity plans to close a factory in ten months and, at that time, terminate the employment of all of the remaining employees at the factory. Because the entity needs the expertise of the employees at the factory to complete some contracts, it announces a plan of termination as follows. Each employee who stays and renders service until the closure of the factory will receive on the termination date a cash payment of P30,000. Employees leaving before closure of the factory will receive P10,000. There are 120 employees at the factory. At the time of announcing the plan, the entity expects 20 of them to leave before closure.

41. The entity will recognize a liability of how much for the termination benefits provided in accordance with the employee benefit plan at the earlier of when the pl an of termination is announced and when the entity recognizes the restructuring costs associated with the closure of the factory?

a. P -0- b. P 1,200,000 c. P3,200,000 d. P 2,000,000

42. The enti ty will recognize an expense of how much each month during the service period of ten months rel ated to short term employee benefits?

a. P -0- b. P320,000 c. P 200,000 d. P120,000

43. On July 1, 2011 DEF Corp. acquired 60,000 shares of the 200,000 shares outstanding of ZYX Inc. at P25 per share. The company incurred P2 transaction per share. The book value of ZYX Inc.’s net assets on this date amounted to P5M. The fair value of one of its identifiable intangible with a 5 year remaining life higher than book value by P50,000 while its Equipment having a remaining life of 8 years had a fair value P160,000 higher than book value. All other identifiable assets had fair value approximating their book values.

ZYX reported total net income in 2011 at P800,000 and distributed dividends at year end at P300,000. Fair value of shares on this date was at P30 per share while cost to sell is at P2 share. ZYX reported total comprehensive income in 2012 at P1,250,000 which is net of an foreign translation loss amounting to P150,000. It also distributed dividends at year end at P500,000. Fair value of shares on this date was at P34 per share while cost to sell remained P2 per share.

Assume that on January 1, 2013, DEF Corp. sold 24,000 ZYX shares P32/share. What is the net effect of this transaction in the company’s comprehensive income in calendar year (CY) 2013?

a. P 5,400 increase b. P 40,500 increase c. P 85,500 increase d. P 130,500 increase

44. ABC Company has 100,000 ordinary shares in issue. It also has 50,000 convertible bonds (face value of each bond is P1) in issue, which may be converted into ordinary shares on the basis of one share for every five bonds. The interest coupon on the bond is 8%, and the tax rate in force is 25%. It has also issued share options with respect to 12,000 shares, which are exercisable at a price of P40. The average fair value of ABC Company’s shares during the year was P60. The convertible bonds and options were outstanding since the beginning of the year. Basic earnings per share for the year are calculated to be P3.97.

What is the number of shares used to compute for diluted earnings per share for ABC Company?

e. P 114,000 f. P100,000 g. P122,000 h. Not applicable

45. On January 1, 2013, AJ Company purchased several pieces of inventory for P20,000. However, SC Company, the seller, agreed to wait for exactly two years before receiving payment. Then, on December 31, 2013, AJ Company sells all of this inventory to BY Corporation for P30,000. AJ Company agrees to wait for exactly three years to receive the P30,000 payment. A reasonable interest rate for these transactions is 8% although no separate cash interest is to be paid on ei ther the purchase or the sale.

For the audit of year ended December 31, 2013, the gross profit that AJ Company should recognize is

a. P10,000 b. P7,938 c. P6,668 d. P3,815 Use the following information for the next two items On January 1, 2011 JLO Company acquired a trademark for P500,000. The trademark has an indefinite useful life. The net recoverable amount of the trademark on December 31, 2011 was 480,000.

46. The amount of expense included in JLO Company’s 2011 financial statement is a. P -0- b. P20,000 c. P25,000 d. P50,000

47. The amount of expense to be reported in JLO Company’s 2011 financial statements, assuming that JLO Company does not

have public accountability and applied the IFRS for SMEs for reporting purposes a. P -0- b. P20,000 c. P25,000 d. P50,000

48. A car rental company acquired vehicles for a total cost of P15,000,000 with the intention of holding them as rental cars for a limited period and then selling them. The car rental company, in the ordinary course of business, routinely sells vehicles acquired for car rental. The estimated life of the vehicles acquired was 8 years and after 6 years, the said vehicles will be available for sale. The proceeds from the sale of the vehicles was P10,000,000 which happened at the end of the 7th year. What is the amount of gain from the subsequent sal e of these vehicles recognized in the 7th year applying PAS 16?

a. P -0- b. P 6,250,000 c. P 8,125,000 d. P 10,000,000

49. Ian Co. is calculating earnings per share amounts for inclusion in the Ian's annual report to shareholders. Ian has obtained the following information from the controller's office as well as shareholder services:

Net income from January 1 to December 31 P125,000

Number of outstanding shares:

January 1 to March 31 15,000

April 1 to May 31 12,500

June 1 to December 31 17,000

In addition, Ian has issued 10,000 incentive stock options with an exercise price of P30 to its employees and a year-end market price of P25 per share. Ian Company's diluted earnings per share for the year ended December 31 is

a. 4.63 b. 4.85 c. 7.35 d. 7.94

50. A lessee is required to pay a refundable deposit of P100,000 to the lessor at the inception of an operating lease for which n o interest is receivable. The fixed lease term is 10 years. The market interest rate is 5% (i.e., that is the interest rate the lessor would have to pay if he borrowed P100,000 for a 10 year term from a third party). The date of inception is February 1, 2013. Assuming the annual lease payment is P60,000, determine the net amount recognized in l essee’s profit or loss as of December 31, 2014 applying PAS 17 – Leases and financial instruments standards. (Round PV factors to 4 decimal places)

a. P 52,7186 decrease b. P 55,725 decrease c. P 60,651 decrease d. P 63,861 decrease

--END OF EXAMINATION--