CPA REVIEW SCHOOL OF THE PHILIPPINES

MANILA

ADVANCED FINANCIAL ACCOUNTING AND REPORTING Sunday, April 23, 2017

Final Pre-board Examination 8:00 a.m. to 11:00 a.m.

1. In preparing the schedule of safe payments, it is assumed that:

a. All non-cash assets are considered worthless
b. Unpaid liabilities will be entitled by the partners own personal property
c. All partners are solvent
d. No liquidation expenses will be settled

A and B are partners sharing profits and losses in the ratio of 1:2 respectively. On August 1, 2020,
they decided to form the ABC Corp. by transferring assets and liabilities from the partnership to the
Corporation in exchange of its stocks. The following in the post-closing trial balance of the partnership.
DR CR
Cash 45,000
Accounts Receivable 60,000
Inventory 90,000
Fixed assets 174,000
Liabilities 60,000
A, Capital 94,800
B, Capital 214,200
369,000 369,000

It was agreed that adjustments be made to the following assets to be transferred to the corporation:
Accounts Receivable 40,000
Inventory 68,000
Fixed Assets 180,600

The corporation was authorized to issue P100 par preference shares and P10 par ordinary shares. A and
B agreed to receive for their equity in the partnership, 720 shares of the ordinary shares each, plus even
multiples of 10 shares of preference share for the remaining interest.

2. What is the total number of shares of preference and ordinary share issued by the corporation to
exchange of the assets and liabilities of the partnership respectively?
a. 2,540 and 1,500 shares
b. 2,642 and 1,550 shares
c. 2,592 and 1,440 shares
d. 2,642 and 1,440 shares

3. Which of the following procedures is not necessary steps affecting a dissolution of the partnership?
a. Revaluing partnership assets
b. Recognizing undistributed profit or loss share of partner at dissolution date
c. Closing of partnership books
d. Revising partners’ equity
 Page 2

The following are the capital account balances and profit and loss ration of the partners in ABC
Company
Capital P&L
ratio
A 120,000 25%
B 160,000 50%
C 400,000 25%

On January 2, 2020, D is admitted to the partnership under the following agreement:

 D is to share 1/3 in the profits and losses while the other partners continue to participate in profits
and loss ratio in their original ratio.
 D is to pay B, P48,000 for a ¼ interest of the latter’s capital in the partnership net assets and is to
invest P280,000 cash in the partnership
 The total capital after D’s admission is to be P1,040,000 o which, D’s capital account is to show
P300,000.

4. What is the capital account of the partners after D’s admission?

A B C
a. 147,000 166,000 427,000
b. 145,000 170,000 425,000
c. 138,366 156,744 418,336
d. 145,000 166,000 427,000

5. Paul is an industrial partner. Besides his service, he also contributed capital to the partnership.
There is no agreement as to distribution of profits or losses. The shares of Paul in the profit is:
a. to be determined by the remaining partners
b. such share as may be just and equitable under the circumstance
c. pro-rata to his contribution
d. combination of b and c

A, B and C are partners with average capital balances during 2017 of P472,500; P238,650 and
P162,350; respectively. The partners receive 10% interest on their average capital balances; after
deducting salaries of P122,325 to A and P82,625 to C, the residual profit or loss is divided equally.
In 2017, the partnership had net loss of P125,624 before interest and salaries to partner.

6. What amount should A and C capital change respectively?

a. 40,844 decrease and 31,237 decrease
b. 30, 267 increase and 40,448 decrease
c. 29,476 increase and 17,536 increase
d. 28,358 increase and 32,458 increase
 Page 3

A balance sheet for the partnership of Net, Elena and Tin who share profits in the ration of 2:1:1, shows
the following balances just before the liquidation:
Cash 48,000
Other assets 238,000
Liabilities 80,000
Net, capital 88,000
Elena, capital 62,000
Tin, capital 56,000

On the first installment of the liquidation, certain assets are sold for P128,000. Liquidation expenses
of P4,000 are paid and additional liquidation expenses are anticipated. Liabilities are paid amounting to
P21,600 and sufficient cash is retained to insure the payment to creditors before making payment to
partners. On the first payment to partners, Net receives P25,000.

7. What is the total cash payment to partners in the first installment?

a. P100,000
b. P80,000
c. P50,000
d. P40,000

8. In case of general partnership liquidation, which of the following credits shall be settled first by the
liquidating partner?
a. Those owing for partner’s capital contribution
b. Those owing to third person
c. Those owing for the share in partnership profits
d. Those owing to partners for their advances to partnership

9. Which of the following transactions will not affect the total equity of a partnership?
a. Recognition of impairment loss in case of admission of a new partner by investment
b. Withdrawal by a partner
c. Admission of a new partner by purchase of existing partner’s interest below its book value
d. Retirement of an existing partner with payment of above the book value of such interest

10. A partner was admitted in an existing partnership through investment of cash equivalent to ¼ of the
new capitalization. If the capital balance of the old partners increases, what is the most valid reason
under Philippine GAAP?
a. Asset revaluation of existing partnership’s assets
b. Impairment loss of existing partnership’s assets
c. Recognition of goodwill of existing partnership
d. Receipt of bonus from the new partner
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The following data are provided by Worldwide Corporation which is undergoing liquidation process:
I. Total liabilities amounts to P692,000, 35% is fully secured by assets amounting to P270,000
with fair market value of P250,000; 40% is partially secured by assets amounting to P300,000
with realizable value of P225,000 and the remaining balance is unsecured.
II. Total assets amounted to P890,000 and has a total fair market value P69,500
III. Unpaid income taxes amounts to P35,000. Additional salaries payable and administrative
expenses totaled P28,000.
IV. Deficit amounts to P79,000

11. Which of the following statements is correct?

a. Assets available to all unsecured creditors with and without priority is P227,800
b. The amount paid to partially secured creditors is P225,000
c. The estate deficit amount to P60,000
d. The amount paid to all secured creditors is P695,000

ABC filed a petition for insolvency. The liquidation of the corporation is entrusted to Rian, receiver.
The following information were gathered:
Book Value Realizable Value
Assets 6,000,000 5,000,000
Total 6,000,000 5,000,000
Liabilities
Unsecured Liabilities without priority 400,000 400,000
Fully secured creditors 2,400,000 2,400,000
Partially secured creditors 800,000 800,000
Unsecured liabilities without priority 2,800,000 2,800,000
Total 6,400,000 6,400,000

Unrecorded items:
Dividends Receivable 100,000
Interest Payable 40,000
Estimated administrative expenses 200,000

12. What is the estate equity deficit in the opening journal entry made by the Rian in its book?
a. 1,400,000
b. ( 400,000)
c. 1,260,000
d. (1,400,000)
13. What is the estimated deficiency to unsecured creditors without priority in the statement of affairs?
a. (1,540,000)
b. ( 540,000)
c. ( 400,000)
d. (1,400,000)
14. At the end of corporate liquidation, the common stockholders were not able to receive liquidating
dividends while the preference shareholders were able to receive the liquidation value of their
shares. Given this data, which of the following corporate creditor were not able to fully recover
their claims?
a. Partially secured creditors
b. Unsecured creditors without priority
c. Both A and B
d. Neither A nor B
 Page 5

On December 31, 2014 entity A acquired 30 per cent of the ordinary shares that carry voting rights of
entity Z for P100,000,000. In acquiring those shares entity, A incurred transaction costs of P1,000,000.
Entity A has entered into a contractual arrangement with another party (entity C) that owns 25 per cent
of the ordinary shares of entity Z, whereby entitles A and C jointly control entity Z. Entity A uses the
cost model under IFRS for SMEs to account for its investment in jointly controlled entities. A
published price quotation does not exist for entity Z.
In January 2015, entity Z declared and paid a dividend of P20,000,000 out of profits earned in
2014. No further dividends were paid in 2015, 2016 or 2017.
At December 31, 2014, 2015 and 2016, management assessed the fair values of its investment in entity
Z as P102,000,000, P110,000,000 and P90,000,000 respectively. Costs to sell are estimated at
P4,000,000 throughout.

15. What is the measure of Entity A’s investment in entity Z on December 31, 2014, 2015 and 2016,
respectively?
a. P101,000, P101,000, P90,000
b. P98,000, P106,000, P86,000
c. P98,000, P101,000, P86,000
d. P102,000, P110,000, P90,000

16. Using the same facts above. However, a published price quotation exists for entity Z. What is the
measure of Entity A’s investment in entity Z on December 31, 2014, 2015 and 2016 respectively?
a. P95,000, P95,000, P86,000
b. P98,000, P106,000, P86,000
c. P98,000, P101,000, P86,000
d. P102,000, P110,000, P90,000

Assume that two parties, A and B, structure a joint arrangement in an incorporated entity (entity C) in
which each party has a 50 per cent ownership interest. The purpose of the arrangement is to
manufacture materials required by the parties both for their own, individual manufacturing processes,
or re-sold to third parties. The arrangement ensures that the parties operate the facility that produces
the materials to the quantity and quality specifications of the parties. The legal form of entity C (an
incorporated entity) through which the activities are conducted initially indicates that the assets and
liabilities held in entity C are the assets and liabilities of entity C. The contractual arrangement
between the parties does not specify that the parties have rights to the assets or obligations for the
liabilities of entity C.
However, the parties also consider the following aspects of the arrangement:
• The parties agreed to purchase all the output produced by entity C in a ratio of 50:50. Entity C cannot
sell any of the output to third parties, unless this is approved by the two parties to the arrangement.
Because the purpose of the arrangement is to provide the parties with output they require, such sales to
third parties are expected to be uncommon and not material.
• The price of the output sold to the parties is set by both parties at a level that is designed to cover the
costs of production and administrative expenses incurred by entity C. On the basis of this
operating model, the arrangement is intended to operate at a break-even level. In other words, the
parties, not entity C, assumes demand, inventory, and credit risks as one-half of the produced are
subsequently re-sold by A and B to third parties. The incorporated entity has the following financial
information for 2016:
Debit Credit
Cash 60,000,000 Accounts Payable 360,000,000
Inventory 420,000,000 Employee-Benefit Plan Obligation 150,000,000
PPE 300,000,000 Equity, beg 210,000,000
Expenses 120,000,000 Revenue 180,000,000
 Page 6

17. How should A and B classify and present the arrangement in their own financial statements under
IFRS 11?
a. Joint Venture, using other equity, cost or fair value method
b. Joint Venture, with investment in JV of P135,000,000 using equity method
c. Joint Operation, A and B will recognize their share of the assets, liabilities, revenue and
expenses of Entity C per line item
d. Joint Operation, but since Entity C is a separate vehicle, an Investment in JV of P135,000,000
is presented in the financial statements of A and B
Electricity companies A and B (involved in electricity sales but not distribution) jointly establish a
power generation entity (company C) to build and operate a CCGT power plant. Companies A and B
each have a 50% ownership interest in company C, which is structured as a corporation. The
incorporation enables the separation of company C from companies A and B and, as a consequence,
the assets and liabilities held in company C are the assets and liabilities of company C. The contractual
arrangement between the parties does not specify that the parties have rights to the assets or obligations
for the liabilities of company C.
However, the parties also enter into an off-take agreement requiring the following:
 Companies A and B agree to purchase all the power generated by company C in a ratio of 50:50.
Company C cannot sell any of the output to third parties, unless this is approved by companies A
and B. Because the purpose of the arrangement is to provide companies A and B with power they
require, such sales to third parties are expected to be uncommon and not material.
 The price of the power sold to companies A and B is set forth in the off-take agreement at a level
that is designed to cover the costs of production and administrative expenses incurred by company
C. The arrangement is intended to operate a break-even level.
18. Given the relevant data, what is the proper classification of this joint arrangement?
a. It is classified as joint venture because the arrangement is established through a separate
vehicle, an incorporated entity Company C.
b. It is classified as joint venture because the incorporation enables the separation of company C
from companies A and B and, as a consequence, the assets and liabilities held in company C
are the assets and liabilities of company C.
c. It is classified as joint operation because the off-take agreement reflects the exclusive
dependence of company C upon companies A and B for the generation of cash flows and the
rights of Company A and B to all of the economic benefits of the assets of company C.
d. It is classified as joint operation because IFRS 11 provides that in case of doubt, a joint
arrangement shall be classified as joint operations instead of joint venture.

GROWTH Sales Corporation, sells on Installment basis and accounts for it using the installment
method. Some information related to its operation are summarized below:
2014 2015 2016
Cost of Sales P370,500 P855,360 P568,890
Gross Profit on sales 35% 34% 37%

January 1, 2016 December 31, 2016

Installment Receivable – 2014 P 72,060
Installment Receivable – 2015 1,033,380 P 208,320
Installment Receivable – 2016 327,270

During 2016, the company repossessed an inventory which had been sold in 2015. GROWTH values the
repossessed goods at market value. The resale price of the repossessed merchandise amounted to P5,100
after incurring reconditioning costs of P1,000 and the loss on repossession was P256.
19. What is the total realized profit for the year 2016?
a. P511,010
b. P516,517
c. P518,762
d. P513,254
 Page 7

The following data pertains to installment sales of INNOVATE’ store: Down Payment is 30%; Cost
of installment sales: 2014: P2,725,000; 2015: P3,925,000; 2016: P4,840,000. Mark-up on cost is
40%. Collections after down payment are: 45% during the year of sale; 35% during the year after
sale; 20% on the third year.

20. What is the amount of deferred gross profit at December 31, 2015 to be presented in the Statement
of Financial Position?
a. P757,050
b. P659,400
c. P431,750
d. P604,450

On July 1, 2015, Dream Builders obtained a contract to construct a building. The building was estimated
to be built at a total cost of P7,000,000 and is scheduled for completion on October 2017. The contract
contains a penalty clause to the effect that the other party was to deduct P14,000 from the contract price
for each week of delay. Completion was delayed for five weeks. Below are data pertaining to the
construction period.
2015 2016 2017
Cost incurred for the year P700,000 P2,576,000 P434,000
Estimated cost to complete 2,800,000 364,000
Progress billings for the year 560,000 6,090,000 1,680,000

21. Using the percentage of completion method, what is the realized gross profit (loss) for the year
2017?
a. P329,000
b. P(49,000)
c. P336,000
d. P(14,000)

On January 1, 2016, Karl, Inc. signed an agreement authorizing Mr. de Castro to operate as a
franchisee for an initial franchise fee of P5,000,000. Of this amount, P2,000,000 was received upon
signing of the agreement and the balance evidenced by a 16% promissory note which is due in three
annual installments of P1,000,000 each beginning December 31, 2016. Mr. de Castro started franchise
operations on September 1, 2016 after Karl rendered initial services required at a total cast of
P1,500,000. The first installment was collected on due date. The collectability of the note is not
reasonably assured.
22. How much net income is to be recognized on December 31, 2016?
a. P2,100,000
b. P2,580,000
c. P600,000
d. P1,080,000

On January 2, 2017, Magnolia Ice Cream signed an agreement authorizing Trisha to operate as
franchisee for an initial fee P500,000 received upon signing of the agreement. Trisha
commenced operations on August 1, 2017, at which date all of the initial services required of Magnolia
Ice Cream had been performed at a cost of P120,000. The franchise agreement further provides that
Jesse must pay a 10% monthly continuing franchising fee. Sales reported from August 1 to December
31, 2017 amounts to P400,000.

23. What is the net income related with franchise fee to be reported by Magnolia Ice Cream in 2017?
a. P380,000
b. P500,000
c. P420,000
d. P540,000
 Page 8

Juanita Company uses installment method of accounting and has the following data at year end:
Gross margin on cost 66 2/3%
Unrealized gross profit P192,000
Cash collections including down payments 360,000

24. What was the amount of sale on installment basis?

a. 648,000
b. 840,000
c. 480,000
d. 552,000

In 2016, ETC Builders agreed to construct a commercial building at a price of P7,500,000. ETC uses
the percentage of completion method. The information relating to the costs and billings for the contract
were as follows:
2016 2017 2018
Cost incurred to date 2,100,000 4,500,000 5,887,500
Estimated costs to complete 3,900,000 1,500,000 0
Progress billings to date 1,125,000 3,000,000 7,500,000
Collection to date 900,000 2,400,000 7,050,000

25. How much is the construction in progress net of progress billings as of December 31, 2017?
a. 1,500,000
b. 2,625,000
c. 4,125,000
d. 5,887,500

26. Using the same given, but assuming there is no dependable estimate available for the future cost,
how much is the construction in progress, net of progress billings as of December 31, 2017?
a. 1,500,000
b. 2,625,000
c. 4,125,000
d. 5,887,500

27. When the outcome of the construction contract can be estimated reliably, which of the following
accounting treatment is proper?
a. The construction revenue shall be recognized only to the extent of contract costs incurred that
is probable will be recoverable.
b. The construction costs shall be deferred without reference to the stage of completion of the
contract activity at the end of the reporting period.
c. When it is probable that total contract costs will exceed total contract revenue, the expected
loss shall be recognized as an expense immediately without reference to the stage of completion
of the contract activity at the end of the reporting period.
d. The balance construction in progress account will be equal to cumulative construction revenue
recognized even if it is probable that total contract costs will exceed total contract revenue.
 Page 9

28. Under IFRS 15, an entity shall recognize revenue when (or as) the entity satisfies a performance
obligation by transferring a promised good or service (i.e. an asset) to a customer. In which of the
following instances shall an entity recognize revenue through satisfaction of performance
obligation at a point in time?
a. The customer simultaneously receives and consumes the benefits provided by the entity’s
performance as the entity performs.
b. The entity’s performance creates or enhances an asset that the customer controls as the asset is
created or enhanced.
c. The entity’s performance does not create an asset with an alternative use to the entity and the
entity has an enforceable right to payment for performance completed to date.
d. The entity has transferred the legal title, control and physical possession of the asset at a
specific date.

Selected information from the trial balances for the home office and the branch of Psalm Company
at December 31, 2017 is provided. These trial balances cover the period from December 1 to
December 31, 2017. The branch acquires some of the merchandise from the home office (the
branch is billed at 20% above the cost of the home office) and some of it from outsiders.
Differences in the shipments accounts result entirely from the home office policy of billing the
branch at 20% above the cost.

Home Office Branch

Sales P60,000 P30,000
Shipments to branch 8,000 0
Shipments to branch – loading/Unrealized profit in Branch Inventory 3,600 0
Purchases (outsiders) 35,000 5,500
Shipments from home office 0 9,600
Merchandise inventory, December 1, 2017 20,000 15,000
Expenses 14,000 6,000

Additional information:
Merchandise inventory, December 31, 2017:
Home office P20,000
Branch (outsiders, P1,600) 10,000

29. How much is the beginning inventory of the branch acquired from the home office?
a. P12,000
b. P10,000
c. P15,000
d. P12,500

30. How much is the overvaluation of cost of good sold of the branch?
a. P1,933
b. P2,200
c. P2,000
d. P2,500
 Page 10

The following transactions were incurred for the year by the RCF Company:
 Transfer of P13,000 merchandise to an agency to establish a working fund.
 Receipt of sales orders from the agency, P130,000
 Collection of agency accounts by the home office, P91,000
 Home office disbursements representing agency expense, P11,700
 Replenishment of the agency working fund upon receipt of expense vouchers for P5,850.
 Cost of good sold identified with the agency sales, P93,600

31. How much is the net income traceable to the agency?

a. 5,850
b. 18,850
c. 36,400
d. (72,150)

On December 31, 2017, the home office of Trisha Supply Company recorded a shipment of
merchandise to its Glenda Forth branch as follows:
Glenda Forth branch 30,000
Shipments to Glenda Forth branch 25,000
Unrealize profit in Glenda Forth branch inventory 4,000
Cash (for freight charges) 1,000

The Glenda Forth branch sells 40% of the merchandise to outside entities during the rest of December
31, 2017. The books of the home office and Trisha branches are closed on December 31 of each year.
On January 5, 2018, the Glenda Forth branch transfers half of the original shipments to the Sandy
branch, and the Glenda Forth branch pays P500 on the shipment.

32. At what amounts should the 60% of the merchandise remaining unsold at December 31, 2017 be
included in (1) the inventory of the Glenda Forth branch at December 31, 2017, and (2) the
published balance sheet of Trisha Office Supply Company at December 31, 2017.
a. P15,000; P17,400
b. P17,400; P15,000
c. P15,600; P18,000
d. P18,000; P15,600

33. Which of the following transactions will increase the normal balance of home office account in the
separate statement of financial position of the branch?
a. Collection by the home office of branch’s receivable
b. Debit memo received from the home office
c. Credit memo issued by the home office
d. Payment by the branch of home office’s loans payable
 Page 11

On December 31, 2017, PBB Corporation enters into a business combination by acquiring all the assets
and assuming all the liabilities of SUV Corporation in which the latter will be dissolved. PBB’s
considerations consist of the following:
 Cash payment of P1,977,500
 60,000 unissued shares of its P100 ordinary shares with a market value of P101 per share.
 6% P2,000,000 bonds payable.
 A contingent payment of P1,500,000 cash on December 31, 2019 if the cash flows from
operations during the 2-year period 2017-2019 exceed P2,500,000 per year. PBB estimates that
there is a 40% chance of probability that the P1,500,000 will be required.
In addition, PBB paid the following at the time of the merger:
 Finder’s fee P110,000
 Diligent audit fee prior to business combination 75,000
 SEC registration cost 125,000
 Cost of printing and issuing stock certificates 25,000
 General and Administrative salaries attributable to the merger 75,000

Statements of financial position for the two companies as of December 31, 2017 before the merger
follow:
PBB CORPORATION SUV CORPORATION
Book Value Fair Value Book Value Fair Value

Cash P 2,950,000 P2,950,000 P 720,000 P 720,000

Receivables 1,200,000 1,200,000 900,000 900,000
Inventories 2,400,000 2,500,000 1,500,000 1,750,000
Land 3,000,000 3,200,000 3,000,000 3,100,000
Building, net 12,000,000 10,000,000 5,500,000 4,500,000
Equipment, net 2,000,000 2,000,000 900,000 950,000
Goodwill 750,000 750,000 50,000 -
In Process Research & Dev’t - - - 500,000
TOTAL P24,300,000 P12,570,000

Accounts Payable P3,600,000 3,750,000 P1,120,000 P1,200,000

Accrued Expenses 1,500,000 1,100,000 880,000 900,000
Share Capital, P100 par 10,000,000 5,000,000
Share Premium 4,200,000 2,500,000
Retained Earnings 5,000,000 3,070,000
TOTAL P24,300,000 P12,570,000

34. What is the amount of goodwill to be recognized on the acquisition date?

a. P317,500
b. P1,067,500
c. P617,500
d. P1,217,500

35. What is the amount of total assets immediately after the merger?
a. P34,332,500
b. P34,650,000
c. P34,687,500
d. P34,650,000
 Page 12

36. What is the amount of total liabilities immediately after the merger?
a. P9,537,500
b. P10,990,000
c. P9,800,000
d. P9,787,500

37. What are the amounts of (1) share premium and (2) retained earnings immediately after the
merger?
a. P4,110,000; P4,740,000
b. P4,740,000; P4,110,000
c. P4,050,000; P4,650,000
d. P4,650,000; P4,050,000

38. Assume that on July 31, 2018 and on July 31, 2019, because of the improved information about
facts and circumstances that existed at the date of acquisition date, the amount of contingent
consideration was increased by P750,000 and P500,000, respectively, what is the revised amount
of goodwill (bargain price) that would have to be recognized on July 31, 2018 and July 31, 2019,
respectively?
a. P1,067,500; P1,067,500
b. P1,067,500; P1,567,500
c. P1,817,500; P1,817,500
d. P1,817,500; P1,567,500

PDF Company owns an 80% interest in SMB Corporation, PDF’s investment in SMB Corporation is
carried on cost basis was equal to book value of SMB’s stockholder’s equity. During 2017, SMB
Corp. sold merchandise to PDF Co. for P500,000 at a gross profit of P100,000. At December 31, 2017,
half of this merchandise included in PDF’s inventory. Meanwhile, included in SMB’s beginning
inventory was P200,000 merchandise from inter-company sales which was made at 20% profit. PDF
and SMB declared dividends P300,000 and P250,000 respectively and paid 90% of the declared
amount in 2017.
Separate income statements for PDF and SMB for the year ended, 2017 are summarized as follows:
PDF CO. SMB CORP.
Sales P1,500,000 P2,000,000
Cost of Sales (800,000) (1,200,000)
Operating Expenses (300,000) ( 420,000)
Dividend Revenue 200,000 140,000
Net Income P 600,000 P 520,000

39. What is the gross profit on the 2017 consolidated statement of comprehensive income?
a. P1,100,000
b. P1,490,000
c. P1,590,000
d. P1,210,000

40. What is the net income attributable to the controlling income?

a. P916,000
b. P810,000
c. P910,000
d. P816,000
 Page 13

PSY Corporation owns 90% of the outstanding common shares of SVG Company. On January 2, 2016,
office equipment that had a carrying value to SVG Company P480,000 and has a remaining life of 10
years was sold to PSY Corporation for P400,000. On the other hand, last August 31, 2017, PSY
Corporation sold a second hand delivery van to SVG Company at a gain of P30,000 (remaining life- 5
years).
Included in the January 1, 2017 inventory of PSY Company was merchandise inventory worth P65,000
while SVG Company had P80,000 on its December 31, 2017. These inventories came from
inter-company sales and purchases. PSY Corporation included a mark-up of 25% on cost while SVG
Company charged a 30% mark-up on sales.
Each of the two companies has net incomes in 2016 and 2017 as follows:
2016 2017
PSY Corporation P 1,200,000 P 1,500,000
SVG Company 900,000 1,000,000

41. What is the amount of the consolidated net income attributable to controlling interest in 2016?
a. P2,073,900
b. P2,061,300
c. P2,041,350
d. P2,057,250

42. What the amount of the consolidated net income attributable to controlling interest in 2017?
a. P2,366,350
b. P2,369,500
c. P2,398,350
d. P2,377,600

PVP Corp. owns 80% of SRF Corp.’s ordinary shares. On June 1, 2016, PVP sold to SRF for P
450,000 delivery equipment with a carrying amount of P 300,000. SRF is to depreciate the acquired
equipment over a five- year life by the straight-line method. On the other hand, on September 30,
2017, PVP purchased slightly used computers from SRF for P85,000 (with carrying value of P100,000
and remaining life of 3 years). On December 31, 2018, SRP was able to sell the above delivery
equipment to a non-affiliated company for P350,000.

43. What are the net adjustments to compute 2017 consolidated income before income tax would be an
increase (decrease)?
a. P146,250
b. P127,500
c. P(132,500)
d. P43,750

44. What are the net adjustments to compute 2018 consolidated income before income tax would be an
increase (decrease)?
a. P50,000
b. P97,500
c. P25,000
d. P(50,000)
 Page 14

45. In a business combination achieved in stages, if the acquisition date fair value of the net of the
acquisition-date amounts of the identifiable assets acquired and the liabilities of the acquire is
higher than the aggregate of the (1) acquisition date fair value of the consideration transferred by
the acquirer; (2) amount of noncontrolling interest measured at fair value of proportionate share;
and (3) acquisition date fair value of acquirer’s previously held equity interest in the acquire, the
difference shall be accounted for by the acquirer in the consolidated statement of financial position
as
a. Goodwill
b. Gain on bargain purchase
c. Expense as incurred
d. Deduction directly to retained earnings

46. In the separate financial statement of the parent company which of the following statements
concerning the different accounting treatment for investment in subsidiary is correct?
a. Under equity method, cash or property dividend received shall be recognized as dividend
income by the parent.
b. Under cost method, the transaction cost directly attributable to acquisition of the investment
shall be expensed as incurred.
c. Under fair value model, the parent company shall recognize share in net income from the
subsidiary.
d. Regardless of the method, the investment in subsidiary account shall be presented as noncurrent
asset in the parent’s separate statement of financial position.

47. In the consolidated statement of comprehensive income to be prepared by the parent corporation,
which of the following items will affect both consolidated net income attributable to parent and
non-controlling interest in net income?
a. Amortization of difference between fair value and book value of liability of subsidiary.
b. Recognition of gain on bargain purchase arising from business combination.
c. Realization of unrealized gain or (loss) from sale of parent company to subsidiary company.
d. Impairment loss on goodwill recognized when the noncontrolling interest is measured at
proportionate share of fair value of net assets of subsidiary.

48. On December 1, 2017, Pinoy Inc. exported on account Filipino products to an American company
at a price of $1,000,000 collectible on January 31, 2018. Pinoy Inc. operates in the Philippine
territory wherein the functional currency is Philippine Peso. The said exposed item is presented in
the December 31, 2017 statement of financial position of Pinoy Inc. at P40,000.
For the years ended December 31, 2017 and 2018, Pinoy, Inc. recognized foreign currency
gain/(loss) of (P4,000) and P2,000, respectively, in connection with the foreign currency
denominated export transaction.
In the statement of comprehensive income of Pinoy Inc. for the year ended December 31, 2017,
how much shall sales shall be presented as a result of this foreign currency denominated export
transaction?
a. P44,000
b. P36,000
c. P38,000
d. P42,000
 Page 15

On December 1, 2019, Tagalog Inc. anticipated the purchase of inventory from an American company
at a price of $2,000 which will probably occur on March 1, 2020 in order to hedge the foreign
currency risk related to this forecasted transaction, Tagalog purchased a 90-day call option from BDO
to buy $2,000 at a strike price of P10 by paying option premium of P500

The following direct exchange rates are provided:

12/1/2019 12/31/2019 3/1/2020
Buying spot rate P11 P14 P13
Selling spot rate P10 P13 P12
Fair value of call option ? P6,200 ?

The anticipated purchase occurred on March 1, 2020. For the year ended December 31, 2010, Tagalog
Inc. sold 20% of the imported inventory to third person.

49. What is the net effect on profit or loss in relation to the hedging instrument foreign currency gain
or loss for the year ended December 31, 2020?
a. (P2,200) net loss
b. P200 net loss
c. P800 net gain
d. P600 net gain

On October 3, 2020, Noypi Inc. entered into forward contract with BPI Bank for the speculation to buy
$100 to be delivered on January 30, 2021. The following direct exchange rates were provided:
October 3, 2020 December 31, 2020 January 30, 2021
Spot-buying P40 P43 P41
Spot-selling P42 P44 P44
Forward-buying 120 days P41 P40 P42
Forward-selling 120 days P43 P45 P42
Forward-buying 90 days P42 P44 P45
Forward-selling 90 days P45 P41 P44
Forward-buying 60 days P46 P40 P42
Forward-selling 60 days P43 P42 P41
Forward-buying 30 days P42 P41 P45
Forward-selling 30 days P41 P40 P42

50. What is the net foreign currency gain or (loss) to be recognized by Noypi Inc. for the years ended
December 31, 2020 and December 31, 2021, respectively?
a. P200 and (P100)
b. (P300) and P400
c. P300 and (P200)
d. (P200) and P300
 Page 16

BPI US Inc. is operating within US territory wherein the functional currency US $. However, the
presentation currency of the said bank Philippine Peso. The following financial position data for the
year 2020 are provided:
Total assets on 12/31/2020 $1,000 Net income for year 2020 $300
Total liabilities on 12/31/2020 200 Dividends declared on 12/1/2020 100
Ordinary shares on 12/31/2020 300
Share premium on 12/31/2020 100
Retained earnings on 1/1/2020 200

The following additional data are provided:

 All ordinary shares are issued on January 1, 2015.
 The translated amount of retained earnings at Philippine Peso on December 31, 2019 is P8,000
 The following direct exchange rates are determined:

o 1/1/2015 P45
o 12/31/2019 42
o 12/1/2020 41
o 12/31/2020 43
o Average rate for year 2020 44

51. What is the translation gain or (loss) to be recognized by BPI US in its Statement of
Comprehensive Income for the year ended December 31, 2020?
a. P100 gain
b. (P700) loss
c. (P600) loss
d. P800 gain

52. In presenting foreign currency denominated transactions to the functional currency of the entity,
which of the following statements is correct?
a. Monetary items shall be initially recognized and measured at the exchange rate prevailing at the
end of the reporting period.
b. Foreign currency gain or loss arising from the translation of the foreign currency denominated
items to functional currency shall be presented in other comprehensive income with
reclassification adjustment to profit or loss if realized.
c. When nonmonetary items are translated from foreign currency to functional currency in the
financial statements, foreign currency gain or loss will be recognized.
d. Foreign currency denominated income statement accounts shall be translated using the
exchange rate at the date of the transaction.

53. Which of the following statements concerning the different types of hedging transactions is
incorrect?
a. In hedging transactions designated as cash flow hedge, unrealized holding gain or loss on
hedged item will be recognized in other comprehensive income with reclassification adjustment
to profit or loss if realized.
b. In hedging transaction designated as fair value hedge, unrealized holding gain or loss on
hedged item will be recognized in profit or loss.
c. In hedging transaction which is undesignated, unrealized holding gain or loss on hedging
instrument will be recognized in profit or loss.
d. In hedging transaction designated as hedge of net investment in foreign operation, unrealized
holding gain or loss on hedging instrument which is considered effective portion will be
recognized in other comprehensive income with reclassification adjustment to profit or loss if
realized.
 Page 17

54. In translating the financial statements of an entity from its functional currency to its different
presentation currency, which of the following statements is incorrect?
a. Income and expense accounts shall be translated at exchange rates at the dates of the
transactions.
b. Resulting exchange gain or loss arising from translation shall be recognized in profit or loss.
c. Equity accounts other than retained earning shall be translated using exchange rates at the
dates of the transaction.
d. Assets and liabilities, whether nonmonetary or a nonmonetary, shall be translated at the closing
rate of the statement of financial position.

55. When the results and financial position of an entity whose functional currency is the currency of a
hyperinflationary economy, what is the rate to be used when translating income and expense
accounts into a different presentation currency?
a. At the closing rate at the date of the most recent statement of financial position
b. At the exchange rates at the dates of the transactions
c. At the average rate during the year
d. At the exchange rate at the beginning of the year

56. In June 2017, Ralph Hospital purchased medicines from Winner Pharmaceutical Co. at a cost of
P5000. However, Winner notified Ralph that the invoice was being cancelled, and the medicines
were being donated to Ralph. Ralph should record this donation of medicines as
a. A memorandum entry only
b. Other operating revenue of P5,000
c. A P5,000 credit to operating expenses
d. A P5,000 credit to non-operating expenses

57. This registry shall be maintained by NGAs to monitor appropriations and allotments charged
thereto. It shall show the original, supplemental and final budget for the year and all allotments
received charged against the corresponding appropriation.
a. Registries of Revenue and Other Receipt (RROR)
b. Registry of Appropriations and Allotments (RAPAL)
c. Registries of Budget, Utilization and Disbursements (RBUD)
d. Registries of Allotments, Obligations and Disbursements (RAOD)

58. Which of the following shall be properly classified as unrestricted net asset in the statement of
financial position of the nonprofit educational institution?
a. Fund whose principal is required to be invested indefinitely
b. Fund designated by the board for construction of building
c. Fund which is restricted by the donor to be non-expandable for until 2020
d. Fund which is held in trust by the institution for the benefit of the different school organization

59. Which of the following transactions by a national government agency will require journal entry to
its accounting book?
a. Receipt of appropriation from the department of budget and management
b. Receipt of allotment from the department of budget and management
c. Receipt of notice of cash allocation from the department of budget and management
d. Entering into a contract with a supplier for the acquisition of office supplies
 Page 18

The following data were extracted in the first department of a three step process to complete the
company’s product and opted use the FIFO method in accounting the process: Beginning inventory
units were 8,000 (25% to complete). Ending inventory units were 5,000 (15% to complete). Units
started were 20,000. Normal lost units were 2,000 and abnormal lost units were 1,000. Materials were
added when the conversion process was 80% complete. Beginning inventory cost: Conversion
P38,000. Costs during the year were the following: Direct materials P375,000 and Conversion
P569,800. Units were inspected when the conversion process was 70%.

60. What is cost of transferred-out goods to the next department?

a. 730,000
b. 769,200
c. 780,124
d. 758,948

61. What is the ending inventory cost?

a. 194,000
b. 204,252
c. 213,076
d. 233,200

62. What is the period cost?

a. 19,600
b. 34,600
c. 43,000
d. 30,100

The following data were ascertained during the year:

January 1 December 31
Work-in-process 130,000 352,000
Finished goods 89,000 231,250

Raw materials used was P504,950 and the direct labor rate was P15. Actual overhead was P156,500 of
which P76,550 was indirect labor and the rest were indirect materials. Budgeted overhead cost and
direct labor hours was P250,000 and 31,250 respectively. At the end of the year, the overhead control
account has a debit balance of P18,500. It was the company’s policy to consider any difference from
the actual and applied overhead less than P50,000 immaterial.

63. What is the prime cost during the year?

a. 833,075
b. 973,700
c. 753,125
d. 683,750

64. What is the cost of goods manufactured at the end of the year?
a. 786,075
b. 599,750
c. 871,700
d. 706,125
 Page 19

The company has two main products, Alpha and Beta. Charlie on the other hand was a by-product of
Beta. Alpha and Beta came from the same raw material. Charlie was manufactured from the residue of
the joint process. The cost before separation was P375,000. The company opted to use the NRV
(approximated) in accounting its joint costs and the NRV of product Charlie was a reduction from the
cost where it came from. The following data were ascertained during the year:

Alpha Beta Charlie

Units produced 25,000 14,425 1,200
Units sold 23,000 12,000 1,200
Cost after separation P16,200 P49,300 P3,500
Selling price per unit P15 P20 P5

65. What is the gross profit of product Alpha?

a. 105,300
b. 124,476
c. 61,765
d. 49,560

Parmigiani Fleurier Company has two (2) products Tonda and Kalpa. For the first month of business,
150 tondas and 550 kalpas were produced. Total overhead costs is P105,000. The following were given
by their accountant in preparation if they will adapt Activity-Based Costing in their company:

Budgeted Budgeted
Activity Cost Driver Overhead Cost
Volume
Materials Handling No. of requisitions 2,000 P60,000
Machine setups No. of setups 550 P24,750
Quality Control No. of inspections 750 P20,250

The actual cost driver volumes used to produce the 2 products for the month are as follows:

Activity Tonda Kalpa

No. of requisitions 900 1,100
No. of setups 215 335
No. of inspections 325 425

66. What is the overhead cost of Tonda?

a. 45,450
b. 47,250
c. 41,045
d. 45,500
 Page 20

ABC Co. extracted the following data in their accounting system. Their manager wanted their resident
cost accountant to compute some variances. It shows that the company purchased 4,850 pieces of
material at a cost of P169,750. The number of units that is produced during the year is 2,250 and only
4,750 pieces of material are used. The company requires 3 pieces of material for a single product.
Budgeted overhead for the year is P570,000. Overhead is applied based on machine hours. Expected
machine hours are 120,000. The company’s required cost for a piece of material is P38.
67. What is the material price per variance?
a. 14,250 F
b. 14,550 F
c. 14,250 U
d. 14,550 U

68. What amount should be debited in the work-in-process account?

a. 184,300
b. 166,250
c. 256,500
d. 236,250

69. Which of the following is the valid reason for the presence of debit in purchase variance in the
journal entry for standard costing?
a. The actual rate of factory workers is higher than the standard rate.
b. The actual direct material used is higher than the standard direct material.
c. The standard price of direct material is lower than the actual price of direct material.
d. The standard direct labor hour is lower than the actual direct labor hour.

70. SUPLEX Inc. enters into an arrangement under which it will build and operate a toll bridge.
Company B is entitled to charge users for driving over the toll bridge for the period from the
completion of construction until 1 million cars have driven across the bridge, at which point the
concession arrangement will end. SUPLEX Inc. incurred a total cost of P1B for the construction of
the toll bridge. How shall SUPLEX Inc. account for its infrastructure asset?
a. It shall be classified and treated as financial asset.
b. It shall be bifurcated into intangible asset and financial asset.
c. It shall be classified and treated as intangible asset to be amortized using straight line method of
presumed life of 10 years.
d. It shall be classified and treated as intangible asset to be amortized on the basis of usage or unit
method of 1 million cars.

END