CPA REVIEW SCHOOL OF THE PHILIPPINES

MANILA

PRACTICAL ACCOUNTING II PREWEEK LECTURE

GUERRERO/ GERMAN/ SIY/ DE JESUS/ LIM/ FERRERBatch75

Problem 1. On January 2011 a parent entity, applying PFRS for SME, (whose functional currency is CU)
made a FCU20,000 loan to a foreign subsidiary (whose functional currency is FCU). The parent has
informed the subsidiary that it will not demand repayment and the subsidiary do not expect to repay the
loan. The amortized cost of the loan at each reporting date is FCU20,000.

The exchange rates are as follows:

 1 January 2011: CU1 = FCU 2
 31 December 2011: CU1 = FCU 2.1

In preparing the consolidated financial statements, what is the entry for the consolidation adjustment
related to the exchange difference?

A. NO Entry

B. Dr. Profit or Loss – exchange difference CU 476

Cr. Long term receivable CU 476

C. Dr. Long term payable CU 2,000

Cr. Other comprehensive income CU 2,000

D. Dr. Other comprehensive income CU 476

Cr. Profit or Loss – exchange difference CU 476

Problem 2. On 1 December 20X1 an SME entity purchases raw materials costing FCU10,000 on credit. At
the entity’s year-end, 31 December 20X1, the raw materials have not yet been used and are not impaired.
The SME entity pays the supplier on 15 January 20X2. The SME entity has a functional currency of CU.

Exchange rates are as follows:

 1 December 20X1 : FCU1 = CU2
 31 December 20X1 : FCU1 = CU2.3
 15 January 20X2 : FCU1 = CU1.8

On 1 December 20X1 the entity recognizes the following journal entry

Debit Inventory CU20,000

 Credit Trade Payables CU20,000

What are the correct journal entries on 31 December 20X1 for the transaction?

A. No adjustment on 31 December 20X1 so both the trade payable and the raw materials continue to
be recorded at CU20,000

B. Debit Inventory CU3,000

Credit Profit or Loss (exchange difference) CU3,000

Debit Profit or Loss (exchange difference) CU3,000

Credit Trade Payable CU3,000

On 31 December, both the trade payable and the raw materials are measured at CU23,000. There
is no effect on profit or loss as the two exchange differences offset each other.

C. On 31 December 20X1:
No Adjustment for inventory.

Debit Profit or loss (exchange difference) CU3,000

Credit Trade Payable CU3,000

On 31 December, the trade payable is measured at CU23,000 and the inventory is measured at
CU20,000. There is an exchange loss of CU3,000 on the trade payable.

D. Debit Inventory FCU3,000

Credit Profit or loss (exchange difference) FCU3,000

No Adjustment for trade payable.

On 31 December, the trade payable is measured at FCU20,000 and the inventory is measured at
FCU23,000. There is an exchange gain of CU3,000 on the inventory.

Problem 3 and 4. On January 1, 2010 an entity purchased a tract of vacant land that is suite overseas for
Baht90,000. The entity classified the land as an investment property. The fair value of the land at December
31, 2010 is Baht100,000.

The entity’s functional currency is the Php (peso)

Spot currency exchange rates:
January 1, 2010: 1 Baht = P2
Weighted average exchange rate in 20X0: 1 Baht = P2.04
December 31, 2010: 1 Baht = P2.1
What is the carrying amount of the investment property at December 31, 2010 and what amount/s would
be presented in profit or loss of the year ended December 31, 2010?

A. Carrying amount of investment property = P210,000. Profit for the year includes P30,000 increase
in the fair value of investment property.

B. Carrying amount of investment property = P210,000. Profit for the year includes P20,400 increase
in the fair value of investment propert and P9,600 foreign exchange gain.

C. Carrying amount of investment property = P180,000. Profit for the year includes no amount in
respect of the investment property.

D. Carrying amount of investment property = P189,000. Profit for the year include P9,600 foreign
exchange gain.

Assuming the entity cannot, without undue cost or effort, determine the fair value of its investment property
reliably on an ongoing basis. What is the carrying amount of the investment property at December 31, 2010
and what amount/s would be presented in profit or loss for the year ended December 31, 2010?

A. Carrying amount of investment property = P210,000. Profit for the year includes P30,000 increase in
the fair value of investment property.

B. Carrying amount of investment property = P210,000. Profit for the year includes P20,400 increase in
the fair value of investment property and P9,600 foreign exchange gain.

C. Carrying amount of the investment property = P180,000. Profit for the year includes no amount in
respect of the investment property.

D. Carrying amount of investment property = P189,000. Profit for the year includes P9,000 foreign
exchange gain.

Problem 5. On December 31, 2012 a foreign subsidiary in Hongkong submitted the following balance
sheet stated in foreign currency:
Total Assets $500,000
Total Liabilities 100,000
Common Stock 250,000
Retained Earnings 150,000

The exchange rate are:

Current rate P 3.40
Historical rate 3.10
Weighted average 3.00
Assuming the functional currency of the subsidiary is not the currency of the hyperinflationary economy
was used and the retained earnings of the subsidiary on December 31, 2012 translated to Peso is P 460,000.
What amount of cumulative translation adjustment is to be reported in the consolidated balance sheet on
December 31, 2012?
A. 25,000 B. 10,000 C. 50,000 D. 125,000

Problem 6. M Company sol merchandise for 111,200 rupees to a customer in India on November 02, 2012.
Collection in India rupees was due on January 31, 2013. Dec. 31, 2012 to hedge this foreign currency
exposure, M Company enterd into a futures contract to sell 111,200 rupeed to a bank for delivery on January
31, 2013. Exchange rates for rupees on different dates are as follows:

Nov.2 Dec. 31 Jan. 31

Strike price P 81.8 P 81.8 P 81.8
Bid spot rate 81.9 80.7 80.1
Offer spot rate 81.7 80.5 80.3
30-day futures 82.3 80.4 83.9
60-day futures 81.8 80.3 82.6
90-day futures 80.6 81.6 83.4
120-day futures 80.1 81.4 82.8

What was the net impact in M Company’s income in 2012 as a result of this hedging activity?
A. P22,240 gain B. P111,200 loss C. P33,360 gain D. P133,440 loss

Problem 7. On Nov. 1, 2012, Cars took delivery from US firm of inventory costing US100,000. Payments
is due on January 30, 2013. Concurrently, Cars paid P900 cash to acquire a 90 day call option for
US100,000.

Nov. 1, 2012 Dec. 31, 2012 Jan. 30, 2013

Spot rate 1.2 1.22 1.23
Strike price 1.2 ? ?
FV of call option ? 2,200 ?

What is the net FOREX gain (loss) to be recognized by Cars on Dec. 31, 2012 should be:
A. 700 net loss C. 1,300 net loss
B. 1,300 net gain D. 2,000 net gain

Problem 8. On Nov. 2, 2012, NICO entered into firm commitment with Japanese firm to acquire an
equipment, delivery and passage of title on March 31, 2013 at a price of 4, 375 yen. On the same date, to
hedge against unfavourable changes in exchange rate of the yen. NICO entered into a 150 day forward
contract with BPI for 4,375 yen. The relevant exchange rate were as follows:

11/2/12 12/31/12 3/31/13

Spot rate 37 38 35
Forward rate 40 33 35

How much is the amount debited to the equipment account on the date of:
A. 200,000 ; 11/2/12 C. 185,000 ; 11/2/12
B. 200,000 ; 2/31/12 D. 175,000 ; 3/31/13

Problem 9. On November 1, Naga Company entered into a firm commitment to acquire a machinery.
Delivery and passage of title would be on February 20, 2013 at the price of $12,000 Singapore dollars. On
the same date, to hedge against unfavourable changes in the exchange rate, S entered into a 120-day forward
contract with China bank for $12,000 Singapore dollars. Exchange rate were as follows:

Spot Rate Forward Rate

Nov. 01, 2012 P 36.25 P 34.30
Dec. 31,2012 37.40 36.70
Feb. 28, 2013 39.50 39.50

How much is the forex gain or loss recognized by the S company on the firm commitment on December
31, 2012?

A. P 13,800 gain
B. P 28,800 loss
C. P 13,800 loss
D. P 28,800 gain

Problem 10. On October 2, 2013, KD Inc. ordered a custom built delivery truck from a Japanese firm. The
purchase order is non-cancellable. The purchase price is 1 million yen with delivery and payment to be
made on March 31, 2014. On October 2, 2013, KD Inc. entered into a forward contract to buy 1 million yen
on March 31, 2014 for P0.57. On March 31, 2014, the customer build delivery truck was delivered.

10/02/13 12/31/13 3/31/14

Spot rate P 0.50 P 0.56 P 0.57
Forward rate 0.53 0. 58 P 0. 57

As a fair hedge, the December 31, 2013 profit and loss of statement forex gain or loss on the hedging
instrument amounted to?
 A. P 50,000 loss B. P 50,000 gain C. P 60,000 loss D. P 60,000 gain

As cash flow hedge, the December 31, 2013 profit and loss statement forex gain or loss on the hedging
instrument amounted to?

A. P 50,000 P/L gain B. P 50,000 OCI gain C. P 60,000 loss D. P 60,000 P/L gain

Problem 11. Clippers Company operate a branch operation in a foreign country. Although this branch
deals in foreign currency (FC), the peso is viewed as its functional currency. Thus, a remeasurement is
necessary to produce financial information for external reporting purposes. The branch began the year with
100,000 FCs in cash and no other assets or liabilities. However, the branch immediately used 60,000 FCs
to acquire equipment. On May 1, it purchased inventory costing 30,000 FCs for cash and it sold on July 1
for 50,000 FCs cash. The branch transferred 10,000 FCs to the parent on October 1 and recorded
depreciation on the equipment of 6,000 FCs for the year. Currency exchange rates for 1 FC follows:

January 1 ............... ....................... P 0.16 = 1 FC

May 1 .. P 0.18
July 1 ... P 0.20
October 1 P 0.21
December 1 P 0.22
Average for the year P 0.19

What is the forex re-measurement gain or loss to be recognized in the combined income statement?

A. P 2,100 B. P 2,400 C. P 2,700 D. P 3,000

Problem 12. The statement of financial position of Entity A and Entity B immediately before the
business combination are (in thousands)
Entity A Entity B
Current assets P500 P700
Non-current assets 1,300 3,000
Total Assets 1,800 3,700

Current Liabilities P300 P600

Non-current liabilities 400 1,100
Total Liabilities 700 1,700

Equity
Retained earnings 800 1,400
 Issued equity
100,000 ordinary shares 300
60,000 ordinary shares 600
Total shareholders’ equity 1,100 2,000
Total liabilities and Equity 1,800 3,700

On September 30, 2011, Entity A issues 2.5 shares in exchange for each ordinary share of Entity B. All of
Entity B’s shareholders exchange their shares in Entity B. Therefore, Entity A issues 150 ordinary shares
in exchange for all 60 ordinary shares of Entity B. The fair value of each ordinary shares of Entity B at
September 30, 2011 is P40. The quoted market price of Entity A’s ordinary shares at the date is P16. The
fair values of Entity A’s identifiable assets and liabilities at September 30, 2011 are the same as their
carrying amounts, except that the fair value of Entity A’s non-current assets at September 30, 2011 is
P1,500,000. Entity A is the legal parent and accounting acquire. While Entity B is the legal subsidiary and
accounting acquirer. What is the amount of goodwill to be reported in the consolidated financial statements?

A. 200,000 B. 300,000 C. 400,000 D. 500,000

Problem 13. Michael Company is a retailer and Jordan Company, its 100%-owned subsidiary, is a
manufacturer. Michael purchases all of its inventories from Jordan. On January 1, 2010, Michael’s
inventory was P450,000. For the year ended December 31, 2010, its purchases were P2,250,000 and its cost
of sales was P2,497,500. Jordan’s sales to Michael reflect an 80% mark-up on cost. Michael then resells
the goods to outsiders at 150% mark-up on cost. At what amount should the inter-company inventory
purchased from Jordan be reported in the Separate (Parent Company) Financial Statement?

A. 202,500 B. 162, 000 C. 501,000 D. 112, 500

Problem 14. Entity P has a 90% controlling interest in Entity S. On December 31, 2010, the carrying value
of Entity S’s net assets in Entity P’s consolidated financial statements is P450,000 and the carrying amount
attributable to the non-controlling interests in Entity S is 45,000. On January 1, 2011, Entity P sells 80% of
the share in Entity S to a third party for cash proceeds of P540,000. As a result of the sale, Entity P loses
control of Entity S but retains a 10% non-controlling interest in Entity S. Fair value of the retained interest
on that date is P54,000.

Determine the gain or loss on disposal (deconsolidation)

A. P144,000 gain C. P189,000 gain
B. P144,000 loss D. P189,000 loss
Problem 15. On July 1, 2011 the Venus Company acquired the net assets of Cupid Company for a
consideration transferred of P16,000,000. At the acquisition date, the carrying amount of Cupid’s net assets
was P10,000,000.

At the acquisition date, a provisional fair value of P12,000,000 was attributed to the net assets. An additional
valuation received on May 31, 2012 increased this provisional fair value to P13,000,000 and on July 30,
2012 this fair value was finalized at P14,000,000.

What amount should Venus present for goodwill in its statement of financial position at December 31,
2012?

A. P6,000,000 C P4,000,000
B. P3,000,000 D. P2,000,000

Problem 16 and 17. Atlas Corporation acquired an 80% interest in Rogets Company on January 1, 2012
for P1,225,000. On this date the capital stock and retained earnings of the two companies were as follows:
Atlas Rogets
Capital Stock P3,150,000 P875,000
Retained Earnings 1,400,000 175,000

The assets and liabilities of Rogets were stated at their fair values when Atlas acquired its 80% interest and
the proportionate share in net identifiable assets was used to initially measure the non-controlling interest.
Atlas uses the cost method to account for its investment in Rogets.

Net income and dividends for 2012 for the affiliated companies were:

Atlas Rogets
Net Income P525,000 P157,500
Dividends declared 315,000 87,500
Dividends payable December 31, 2012 157,500 43,750

End of the year evaluation indicates P12,000 impairment in goodwill.

16. The consolidated dividends payable at December 31, 2010:

A. P201, 250 B. P166,250 D. P157,500 D. P0

17. The consolidated retained earnings at December 31, 2012:

A. P2,041,400
B. P1,969,000
C. P1,656,400
D. P1,654,000
Problem 18. The net assets of CS Company have a book value of P600,000 and a fair market value of
P840,000. Among the undervalued assets are the machinery which have a book value of P400,000 and a
fair value of P450,000. DY Company issues stock with a par value of P500,000 and a market value of
P1,200,000 for the net assets of CS Company. Shortly after the stock issue, CS merges with DY
Company. At what amount should CS’s machinery be recorded on DY Company’s books.

A. P400,000 B. P500,000 C. P600,000 D. P450,000

Problem 19. PP Corp owns 80% of SS Inc.’s common stock. During 2013, PP sold SS P250,000 of
inventory on the same terms as sales made to third parties. SS sold all of the inventory purchased from PP
in 2013. The following information pertains to SS and PP’s sales for 2013:
PP SS
Sales P 1,000,000 P 700,000
Cost of Sales 400,000 350,000
P 600,000 P 350,000

What amount should PP report as Cost of Sales in its 2013 consolidated income statement?
A. P 750,000 B. P 680,000 C. P500,000 D. P 430,000

Problem 20. The Company holds an 85% interest in the H Company. At the current year end M holds
inventory purchased from H for P330,000 at cost plus 10%. The group’s consolidated statement of financial
postion has been drafted without any adjustments in relation to this holding of inventory. What adjustments
should be made to the draft consolidated statement of financial position figure for non-controlling interest
and retained earnings?
Non-controlling interest Retained Earnings
A. No change Reduce by P30,000
B. No change Reduce by P33,000
C. Reduce by P 4,500 Reduce by P25,500
D. Reduce by P 4,950 Reduce by P28,050

Problem 21. The S Company owns 95% of the G Company. On the last day of the accounting period G
sold to S a non-current asset for P230,000. The asset originally cost P480,000 and at the end of the reporting
period its carrying amount in G’s books was P175,000. The group’s consolidated statement of financial
position has been drafted without any adjustments in relation to this non-current asset. What adjustments
should be made to the consolidated statement of financial position figures for non-current assets and
retained earnings?
 Non-current assets Retained Earnings
A. Increase by P 250,000 Increase by P237,500
B. Reduce by P 55,000 Reduce by P55,000
C. Reduce by P 55,000 Reduce by P52,250
D. Increase by P 250,000 Increase by P 250,000

Problem 22. A Philippine entity acquired 60% of the share capital of a foreign entity on June 30, 2011.
The fair value of the net assets of the foreign entity at the date was $4.5 million. This value was $1.2 million
higher than the carrying amount of the net assets of the foreign entity. The excess was due to the increase
in value of non-depreciable land. The functional currency of the entity is the Php (Peso). The financial year-
end of the entity is December 31, 2011. The exchange rates at June 30, 2011, and December 31, 2011 were
$1 = 40 Php and $1 = 45 Php, respectively. What figure for the fair value adjustment should be included in
the consolidated financial statements for the year ended December 31, 2011?

A. P202.5 million B. P54.0 million C. P121.5 million D. P32,4 million

Problem 23. P Corp., an SME, buys 100% of S Co. from Mr. X. P pays 100 M upfront and agrees to pay
Mr. X another 60 M if the patents for which S Co. has applied are granted. Both P Corp. and Mr X think
there’s a ‘better than even’ chance of the patents being granted. FV od S’s identifiable assets is 80 M.

How much goodwill is recognized at acquisition date?

A. 20 M B. 60 M C. 35 M D. 80 M

Same given, except that both P Corp. and Mr X thinks there’s a ‘less than even’ chance of the patents being
granted. How much goodwill is recognized at acquisition date?

A. 20 M B. 60 M C. 35 M D. 80 M

Problem 24. Jeremy Lin, Inc. established a branch in Antipolo to distribute part of the goods purchased by
the home office. The home office prices inventory shipped to the branch at 25% above cost. The following
account balances were taken from the ledger maintained by the home office ad the branch.

Jeremy Lin, Inc. Antipolo Branch

Sales P336,000 P144, 000 (20% still uncollected)
Beginning Inventory 69,000 38, 400 (1/3 fromHQ)
Purchases 222,000 40, 000 (30% unpaid)
Shipments to branch 66,000
Shipments to HO 82, 500
Operating Expenses 68,000 11, 200 (4/5 unpaid)
Ending Inventory 48,000 21, 600 (10% from outsiders)

Calculate the combined net income for the home office and the branch:

A. P84, 500 B. P83, 172 C. P96, 972 D. P99, 672

Problem 25. On December 31, 2012, the home office of Tony Company recorded a shipment of
merchandise to its Calamba branch as follows:

Calamba branch 30,000

Shipment to Calamba Branch 25,000
Unrealized profit in branch inventory 4,000
Cash (for freight charges) 1,000

The Calamba branch sells 40% of the merchandise to outside entities during the rest of December, 2012.
The books of the home office and Calamba branch are closed on December 31 of each year. At what
amounts should the 60% of the merchandise remaining unsold at December 31, 2012 should be included in
the published statement of financial position of Tony Company at December 31, 2012?

A. 15,600 B. 15,000 C. 18,000 D. 18,600

Problem 26. AMV Idol Co. operates a branch in Mrikina City. On Dec. 31, 2011, Marikina branch account
in the HO books showed a debit balance of 522, 760. The interoffice accounts were in agreement at the
beginning of the year. For purposes of reconciling the interoffice accounts, the following facts were given:
A. Shipments to Marikina at cost of 92, 810 were in transit as of year-and. Marikina recorded the said
transfer on Jan. 2, 2012
B. On Oct. 31, 2011, the home office paid rent of Marikina amounting to 58, 860 for the next 9 months.
Home office recorded the said transaction using the asset method. Branch was not notified of the said
rent transaction.
C. The branch writes off uncollectible accounts of 12, 122. The allowance for doubtful accounts is
maintained on the books of home office. Home office is not yet notified about the write-off
D. Home office collected AR from Marikina’s customers amounting to 91, 680, net of 4% discount. The
HO treated the said transaction as if it was a collection from its own customers. Marikina was not yet
notified of the collection.
It is the policy of the home office to bill its branches at 20% above cost.
What is the unadjusted balance of the HO-current of Batangas branch on Dec. 31, 2011?
a. 502, 110 c. 386, 186
b. 462, 770 d. 444, 208
Problem 27. The Chubby Branch of Slim Company submitted the following trial balance as of December
31, 2013, after its first year of operations.
Debit Credit
Cash P10, 400
Accounts receivable 63, 200
Shipments from HO 168, 000
Expenses 10, 800
Sales P134, 400
HO Current 118, 000
Total 252, 400 252, 400

Merchandise inventory end is P50, 400. Shipments to the branch are billed at 140% of cost. What is the
true net income of the Branch during 2013?

A. P6, 000 B. 33, 600 C. 39, 600 D. 54, 000

Problem 28. The SYMANUEVO Co.’s home office bills Rizal branch at 20% above cost during 2009 and
125% of cost during 2010. In 2010, goods billed at 355, 600 were shipped to the branch. Also, during the
year, the branch returned 119, 050 worth of defective merchandise to the home office. The account
unrealized intra-company inventory profit has a balance of 18, 240 at the end of last year. The branch started
to acquire merchandise from outsiders during the year in the amount of 54, 000 and returned defective
merchandise to the vendor amounting to 19, 570. How much is the cost of goods available for sale, at cost?
A. 314, 870 C. 311, 222
B. 189, 308 D. 300, 420

Problem 29. Joint arrangement activities for A, B and C having proved to be unprofitable, the parties
agree to dissolve the joint operation. Accounts with the arrangement and joint operators on the books of
A, the managing operator, are as follows just before dissolution and liquidation:

Debit Credit
Joint Operation Cash P84, 000
Joint Operation 45, 500
B, Capital P101, 500
C, Capital 45, 500
The balance of joint operation assets on hand is sold by A for P24, 500. A is allowed special
compensation of P2,100 for winding up the venture; remaining profits or loss is distributed equally. B ad
C received in final settlement:

A. None C. B, P73, 500 ; C, P24, 500

B. B, P93,800 ; C, P37, 800 D. B, 110, 850 ; C, P54, 950

Problem 30. On January 1, 2013, Lebron, Bosh and Dwayne (the joint operators) jointly buy a helicopter
for P30 million cash. The joint arrangement includes the following terms:
a. The parties are the joint owners of the helicopter
b. The helicopter is at the disposal of eash party for 70 days each year
c. The parties may decide to use the helicopter or lease it to a third party
d. The maintenance and disposal of the helicopter require the unanimous consent of the parties
e. The contractual arrangement is for the expected lif 920 years) of the helicopter and can be change
only if all parties agree. The residual value of the helicopter is nil.
f. Revenues and expenses are to be shared equally among the joint operators.

In 2013, the parties paid P300,000 to meet the costs of maintaining the helicopter. In 2013, each party also
incurred costs of running the helicopter when they made use of the helicopter (e.g. Lebron incurred costs
of P200, 000 on pilot fees, aviation fuel and landing costs). In 2013, the parties earned rental income of
P2.5 million by renting the helicopter to others.

What is the book value of the helicopter in the books of Lebron on December 31, 2013?

A. P28.5 M B. P19 M C. P21 M D. P9.5 m

Problem 31. On January 1, 2011 entities A and B each acquired 30 per cent of the ordinary shares that
carry voting rights at a general meeting of shareholders of entity Z for P300,000. (9) Entities A and B
immediately agreed to share control over entity Z.

For the year ended Dec. 31, 2011 entity Z recognized a profit of P400,000. On Dec. 30, 2011 entity Z
declared and paid a dividend of P150,000 for the year 20X1. At Dec. 31, 2011 the fair value of each
venturers’ investment in entity Z is P425, 000. However, there is no published price quotation for entity Z.

On Dec. 31, 2011 entity A sells goods for P60, 000 to entity Z. At Dec. 31, 2011 the goods purchased from
entity A were in entity Z’s inventories (ie they had not been sold by entity Z.) Entity A sells goods at a 50
per cent mark-up on cost. Entities A and B account for jointly controlled entities using the equity method.

The amount of investment to be recognized by entity A should be:

 A. 375, 000 C. 425, 000
B. 369, 000 D. 300, 000

Problem 32. On December 31, 2009 entity A, an SME, acquired 30% of the ordinary shares that carry
voting rights of entity Z for P100,000. In acquiring those shares entity A incurred transaction costs of
P1,000.Entity A has entered into contractual arrangement with another party (entity C ) that owns 25% of
the ordinary shares of entity Z, whereby entities A and C jointly controlled entity Z. Entity A uses the cost
model to account for its investments in JCE. A fair valuation of the investments in entity Z determined
using reliable earnings multiple approach exists. In January 2010, entity Z declared and paid dividend of
P20,000 out of profits earned in 2009. No further dividends were paid in 2010, 2011 and 2012. At December
31, 2010, 2011 and 2012, management assessed the fair values of its investment in entity Z as P102,000,
P110,000 and P90,000, respectively. Costs to sell are estimated at P4, 000 throughout. Entity A measures
its investment in entity Z on December 31, 2011 at?

A. P 110,000 B. P 101, 000 C. P 106, 000 D. P 95, 000

Problem 33. On January 1, 2013 entities A and B (the venturers) form a joint venture (entity Y). Upon
incorporation of entity y, entities A and B each take up 50 per cent of the share capital of entity Y. In return
for their interests in entity Y, entities A and B each contribute P 100, 000 to entity Y. Entity A contributes
machine with a fair value of P 100,000 and a carrying amount of P 80, 000. Entity B’s contribution is P
100, 000 in cash. The machine contributes by entity A has an estimated useful life of 10 years with no
residual value.

Entity Y’s profit for the year ended December 31, 2013 is P30, 000 (after deducting depreciation expense
of P10, 000 on the machine contributed by entity A.) Entity A accounts for the investment using the equity
method. What is the carrying amount of investment of entity A on December 31, 2013?

A. P 90, 000 B. P121, 000 C. P105, 000 D. P106, 000

Problem 34. An insurance contract can contain both deposit and insurance elements. An example might be
a reinsurance contract where the cedent receives a repayment of the premiums at a future time if there are
no claims under the contract. Effectively this constitutes a loan by the cedent that will be repaid in the
future. IFRS 4 requires that

A. Each payment by the cedent is accounted for as a loan advance and as a payment for insurance
cover.
B. The insurance premium is accounted for as a revenue item in the statement of income
C. The premium is accounted for under PAS 18
 D. The premium paid is treated purely as a loan and it is accounted for under PAS 39

Problem 35. A U.S. company’s foreign subsidiary had the following amounts in stickles (_) in 2012:

Cost of goods sold 6, 000, 000

Ending inventory 300, 000
Beginning inventory 120, 000

The average exchange rate during 2012 was (_) 1 = $ .96. The beginning inventory was acquired when
the exchange rate was (_) 1 = $.90. The exchange rate at December 31, 2012 was (_) 1 = $.84. Assuming
that the foreign country had a hyper-inflationary economy, at what amount should the foreign subsidiary’s
cost of goods sold have been reflected in the 2012 U.S. dollar income statement?

A. 5, 806, 800 B. 5, 040, 000 C. 5, 760, 000 D. 5,

824, 800

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