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School of Accountancy & Management

Accounting for Special Transaction

Final Examination
1. Asset contributions by partners to a partnership business are initially measured at
a. fair amount.
b. carrying value.
c. fair value.
d. fair lady.

2. Red and White formed a partnership in 2003. The partnership agreement provides for annual salary
allowances of ₱55,000 for Red and ₱45,000 for White. The partners share profits equally and losses
in a 60/40 ratio. The partnership had earnings of ₱80,000 for 2003 before any allowance to partners.
What amount of these earnings should be credited to each partner’s capital account?
Red White
a. 40,000 40,000
b. 43,000 37,000
c. 44,000 36,000
d. 45,000 35,000

3. Partners A, B and C are capitalist partners while Partner D is an industrial partner. During the
period, the partnership incurred loss of ₱100,000. If the partnership agreement does not stipulate
how profits and losses are to be distributed, how much is the share of Partner D in the loss?
a. 25,000
b. 20,000
c. one-fourth less minimum wage
d. 0

4. A and B formed a partnership on March 1, 20x1. The partnership agreement stipulates the
following:
 Annual salary allowance of ₱100,000 for A.
 Interest of 10% on the weighted average capital balance of B.
 The partners share profits and losses on a 60:40 ratio.

During the period the partnership earned profit of ₱200,000.

The movements in B’s capital account are as follows:

B, Capital
160,000 March 1 initial investment
July 31 Sept. 30 additional
60,000 80,000
withdrawal investment
Dec. 31 additional
20,000
investment
end. 200,000

How much is the interest on B’s weighted average capital?

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a. 12,833
b. 13,443
c. 11,323
d. 14,516

5. It is the change in the relation of the partners caused by any partner being disassociated from the
business.
a. Formation
b. Operations
c. Dissolution
d. Liquidation

The next two items are based on the following information:

The following condensed balance sheet is presented for the partnership of Alfa and Beda, who share
profits and losses in the ratio of 60:40, respectively:
Cash 45,000
Other assets 625,000
Beda, loan 30,000
700,000

Accounts payable 120,000

Alfa, capital 348,000
Beda, capital 232,000
700,000

6. The assets and liabilities are fairly valued. Alfa and Beda decide to admit Capp as a new partner
with 20% interest. No goodwill or bonus is to be recorded. What amount should Capp contribute in
cash or other assets?
a. 110,000
b. 116,000
c. 140,000
d. 145,000

7. Instead of admitting a new partner, Alfa and Beda decide to liquidate the partnership. If the other
assets are sold for ₱500,000, what amount of the available cash should be distributed to Alfa?
a. 255,000
b. 273,000
c. 327,000
d. 348,000

8. A and B decided to liquidate their partnership. The partnership’s records show the following
information:
Cash 20,000
Non-cash assets 80,000
Total assets 100,000

Liabilities 15,000
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Loan payable to Partner

10,000
A
Loan payable to Partner B 17,000
A, capital (80%) 36,000
B, capital (20%) 22,000
Total liabilities and equity 100,000

All the non-cash assets were sold for ₱50,000. Selling costs of ₱5,000 were incurred on the sale. How
much did B receive in the cash distribution to the partners?
a. 18,000
b. 22,000
c. 32,000
d. 48,000

9. ABC Co. is undergoing liquidation. Information before the start of the liquidation process is as
follows:
Cash 10,000 Accounts payable 80,000
Accounts
80,000 Payable to B 20,000
receivable
Receivable from A 10,000 A, Capital (50%) 250,000
Inventory 180,000 B, Capital (30%) 150,000
Equipment, net 320,000 C, Capital (20%) 100,000
Total 600,000 Total Liab. & Equity 600,000

If a cash priority program is used, which of the following partners has the most priority and how much
is the total payment to that partner before everyone else share in the remaining cash based on the
profit-sharing ratio?
a. A, 26,000
b. B, 26,000
c. B, 20,000
d. C, 6,000

10. After incurring losses resulting from very unprofitable operation, the Alphabets Partnership
decided to liquidate when the partners’ capital balances were:

A, capital (40%) 80,000

B, capital (40%) 130,000
C, capital (20%) 96,000

The non-cash assets were sold in installment. Available cash were distributed to partners in every sale
of non-cash assets. After the second sale of non-cash assets, the partners received the same amount of
cash in the distribution. And from the third sale of non-cash assets, cash available for distribution
amounts to ₱28,000, and non-cash assets has a book value of ₱12,500. Using cash priority program,
what amount did C receive in the third installment of cash?
a. 11,600
b. 8,000
c. 5,600
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d. 0

11. Which of the following is not considered an unsecured liability with priority?
a. Administrative expenses relating to liquidation
b. Unpaid employee salaries and other benefits
c. Liability with collateral security
d. Taxes and assessments

12. The primary difference between a balance sheet and an accounting statement of affairs is that
a. a balance sheet reflects book values, while a statement of affairs emphasizes realization values.
b. assets are arranged in a different sequence.
c. liabilities are arranged in a different sequence.
d. owners’ equity is not considered in the statement of affairs.

13. An arrangement of which two or more parties have joint control.

a. joint operation
b. joint venture
c. joint arrangement
d. elbow joint

14. According to PFRS 11, it is a separately identifiable financial structure, including separate legal
entities or entities recognized by statute, regardless of whether those entities have a legal
personality.
a. separate vehicle
b. special purpose entity
c. special purpose vehicle
d. public utility vehicle

15. Read Co. and Learn Co. are national distributors of textbooks. Read and Learn enters into a contract
to acquire a warehouse in a particular region. Each party will use the warehouse to store its own
inventories. The parties agree to share in the costs of acquiring and maintaining the warehouse. The
arrangement between Read and Learn is most likely a
a. joint operation
b. jointly controlled asset
c. joint venture
d. none of these

16. A party to a joint venture that has joint control of that joint venture.
a. joint venturist
b. joint operationer
c. joint arrangementor
d. joint venturer

17. At contract inception, PFRS 15 requires an entity to determine how the performance obligations
identified in the contract will be satisfied. According to PFRS 15, how does an entity satisfy a
performance obligation in a long-term construction contract?
a. over time
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b. at a point in time
c. any time
d. either a or b

18. Which of the following statements is correct?

a. Long-term construction contracts are unique from other contracts with customers. Therefore,
PFRS 15 excludes from its scope the accounting for long-term construction contracts.
b. Long-term construction contracts are unique from other contracts with customers. Therefore,
PFRS 15 requires an entity to recognize revenue from long-term construction contracts using
either the percentage of completion method or the zero-profit method.
c. PFRS 15 does not provide a special distinction between long-term construction contracts from
other types of contracts with customers. Therefore, an entity shall apply the same principles in
accounting for long-term construction contracts as those applied to other types of contracts with
customers.
d. PFRS 15 does not exclude long-term construction contracts from its scope. However, because of
the unique nature of long-term construction contracts, PFRS 15 requires an entity to recognize
revenue from a long-term construction contract that is expected to be completed within 3 years
or more using the percentage of completion method. For those that are expected to be
completed within a shorter period, revenue shall be recognized when construction is complete.

Use the following information for the next two questions:

PARAMOUR Co. was contracted by LOVER, Inc. for the construction of a flyover in 20x1. The contract
price is ₱10M. Information on costs is as follows:
20x1 20x2
Total costs incurred to date 1,600,000 6,000,000
Estimated costs to complete 6,400,000 1,500,000

19. How much revenue is recognized in 20x2?

a. 8M
b. 6M
c. 4M
d. 0

20. What is the percentage of the progress completed in 20x2?

a. 80%
b. 60%
c. 40%
d. 16%

21. VALEDICTION Construction Co. entered into a ₱80M fixed price contract for the construction of a
private road for FAREWELL SPEECH, Inc. The performance obligation on the contract is satisfied
over time. VALEDICTION measures its progress on the contract using the “cost-to-cost” method.
The estimated total contract cost is ₱40M. The following were the actual costs incurred by
VALEDICTION during the first year of the construction:

Costs of negotiating the contract (charged immediately as expense) 400,000

Costs of materials used in construction 12,000,000
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Costs of materials purchased but not yet used in construction 2,000,000

Site labor costs 4,000,000
Site supervision costs 800,000
Depreciation of equipment used in construction 480,000
Depreciation of idle construction equipment 240,000
Costs of moving plant, equipment and materials to and from the contract site 160,000
Costs of hiring plant and equipment 560,000
Advance payments to subcontractors (subcontracted work is not yet started) 80,000

What is the percentage of completion of the contract as of the end of the first year?
a. 42%
b. 45%
c. 46%
d. 50%

22. On Oct. 1, 20x1, ABC Co. enters into a construction contract with a customer. The performance
obligation in the contract will be satisfied over time. ABC Co. uses the “cost-to-cost” method in
measuring its progress. The estimated total contract cost is ₱10M. In 20x1, ABC Co. incurred a total
cost of ₱6M, which includes ₱2M advance payment to a subcontractor (the subcontracted work is
not yet started) and ₱200,000 cost of materials not yet installed. ABC Co. does not regard the cost of
the unused materials as significant in relation to the expected total contract costs. Moreover, ABC
Co. retains control over the unused materials because it can use them in a contract with another
customer. The contract price is ₱20M. How much is the revenue recognized in 20x1?
a. 7,600,000
b. 12,000,000
c. 8,200,000
d. 11,600,000

23. On January 1, 20x1, ABC Co. enters into a contract with a customer for the construction of a
building. The contract price is ₱1,000,000. The following are the transactions during 20x1:
 At contract inception, the customer makes an advance payment of ₱100,000 as facilitation fee.
 ABC Co. incurs total contract costs of ₱300,000 during the period.
 The estimated costs to complete as of year-end amounts to ₱500,000.
 ABC Co. collects the billing, net of 10% retention by the customer to be used to rectify any
unsatisfactory work determined at the completion of the contract.

How much is the gross profit earned from the contract in 20x1?
a. 75,000
b. 82,000
c. 375,000
d. 482,000

Use the following information for the next three questions:

In 20x1, ABC Co. enters into a construction contract with a customer. The contract price is ₱10,000,000.
Information on the contract follows:
20x1 20x2 20x3
Costs incurred to date 2,400,000 4,500,000 6,000,000
Estimated costs to complete 3,600,000 1,500,000 -
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24. At contract inception, ABC Co. assesses its performance obligations in the contract and concludes
that it has a single performance obligation that is satisfied over time. ABC Co. determines that the
measure of progress that best depicts its performance on the contract is “cost-to-cost” method. How
much is the revenue recognized in 20x1?
a. 4,200,000
b. 4,000,000
c. 2,800,000
d. 0

25. At contract inception, ABC Co. assesses its performance obligations in the contract and concludes
that it has a single performance obligation that is satisfied over time. However, ABC Co. determines
that the outcome of the performance obligation cannot be reasonably measured but expects to
recover the contract costs incurred. How much is the gross profit recognized in 20x3?
a. 5,500,000
b. 1,500,000
c. 4,000,000
d. 0

26. At contract inception, ABC Co. assesses its performance obligations in the contract and concludes
that it has a single performance obligation. In its determination of the satisfaction of the
performance obligation, ABC Co. identifies that, during the construction period, ABC Co. retains
control over the asset created in the contract. This precludes the customer from simultaneously
receiving and consuming the benefits provided by ABC Co.’s performance as ABC Co. performs.
Moreover, the asset created in the contract has an alternative use to ABC Co. because, in case the
contract is cancelled, ABC Co. retains ownership over any asset created and can direct that asset for
another use without significant modification or cost. Accordingly, ABC Co. concludes that the
performance obligation is satisfied at a point in time. ABC Co. determines the point in time when
the performance obligation is satisfied using the principles in PFRS 15 and concludes that the
performance obligation is satisfied only when the construction is completed and the control over
the promised good is transferred to the customer. How much is the revenue recognized in 20x1?
a. 4,200,000
b. 4,000,000
c. 2,400,000
d. 0

27. You are an accountant. Your client, a franchisor, asked you for an advice regarding the recognition
of revenue from a franchise contract. Your advice to your client would most certainly be based on
which of the following standards?
a. FAS No. 45 (US GAAP)
b. PFRS 15
c. PAS 15
d. PFRS 18

28. If the promise to grant a license is distinct and that the license provides the customer the “ right to
access” the entity’s intellectual property, how is revenue recognized from the initial fee in the
contract?
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a. in full upon the signing of the contract

b. in full when the customer obtains and starts using the license
c. in full when the initial services to setup the contract are substantially performed
d. deferred and amortized over the license period

Use the following information for the next two questions:

On Jan. 1, 20x1, Pane Co. entered into a franchise agreement with Hero Co. The franchise contract gives
Hero Co. the right to use Pane’s trademark and proprietary processes for a period of 4 years. The
franchise requires payment of an upfront fee of ₱1,000,000, payable at contract inception, and 5%
monthly royalty based on sales. Aside from the granting of the license, the franchise agreement also
requires Pane Co. to undertake pre-opening activities to setup the contract and post-commencement
activities, such as research and development and marketing campaigns, to support the intellectual
property. Although the activities do not result in the direct transfer of a good or service to Hero Co. as
the activities occur, it is expected that Hero Co. will benefit from them. All the necessary preparations
were completed and Hero Co. started business operations on January 31, 20x1.

29. How should Pane Co. recognize revenue from the initial franchise fee?
a. in full on January 1, 20x1
b. in full on January 31, 20x1
c. deferred and amortized over 4 years starting Jan. 1, 20x1
d. deferred and amortized over 4 years starting Jan. 31, 20x1

30. How should Pane Co. recognize revenue from the continuing franchise fee?
a. Pane Co. shall estimate the variable consideration and amortize it as revenue in full on Jan. 1,
20x1.
b. Pane Co. shall estimate the variable consideration and amortize it as revenue over the license
period.
c. Pane Co. shall estimate the variable consideration, discount it to present value, subject it to
“Constraining estimates of variable consideration,” and amortize it to revenue over the license
period.
d. Pane Co. shall recognize revenue equal to 5% of the franchisee’s sales as the sales occur.

31. On December 31, 20x1, Entity A enters into a contract with Customer X to transfer a license for a
fixed fee of ₱100,000 payable as follows:
 20% payable upon signing of contract.
 80% due in four equal annual installments starting December 31, 20x2. The appropriate discount
rate is 12%.

The license provides Customer X rights over Entity A’s patented processes. Customer X continues to
operate using its trade name and has the discretion of developing a new product name for the products
it will produce using the patented processes. The license does not explicitly require Entity A to
undertake activities that will significantly affect the intellectual property to which Customer X has
rights. Neither does Customer X expect that Entity A will undertake such activities. Entity A grants the
license to Customer X on December 31, 20x1. How much revenue from the franchise contract will Entity
A recognize in 20x1?
a. 80,747
b. 21,187
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c. 20,000
d. 0

32. In accounting for sales on consignment, sales revenue and the related cost of goods sold should be
recognized by the
a. consignor when the goods are shipped to the consignee.
b. consignee when the goods are shipped to the third party.
c. consignor when notification is received that the consignee has sold the goods.
d. consignee when cash is received from the customer.

Use the following information for the next two questions:

Schindler Co. consigns 20 water heaters to Paralax Co. on January 1, 20x1. The unit cost per water
heater is ₱10,000. Schindler pays ₱3,000 in transporting the water heaters to Paralax. At month-end,
Paralax remits ₱232,000 for the sale of 16 water heaters, after deduction for the following:

20% commission based on selling price

Freight out ₱16,000
Installation costs ₱ 8,000

33. How much is the profit recognized by Schindler on the consignment arrangement?
a. 60,600
b. 66,000
c. 66,900
d. 69,600

34. How much is the total cost of the unsold water heaters?
a. 40,600
b. 44,600
c. 46,400
d. 46,000

Use the following information for the next two questions:

CR Manufacturing Co. consigned to CE Trading Corp. twelve (12) Sony colored TV sets which cost
₱9,000 each. Freight out was paid by the consignor in the amount of ₱600. CE Trading sold eight (8)
sets, rendered an account sales, and remitted the amount of ₱82,600 after deducting the following from
the selling price of the sets sold:

Commission on selling
price 12%
Selling expenses 1,200
Cost of antennae given free 1,400
Delivery and installation 2,800

35. The total selling price of the eight (8) sets sold by CE Trading Corp. is
a. 100,000
b. 88,000
c. 98,560
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d. 78,571.43

36. The net profit of CR Manufacturing Co. on the eight (8) sets sold by CE Trading Corp. is:
a. 40
b. 9,332.80
c. 10,200
d. 10,600

Use the following information for the next two questions:

Stainless Works Mfg. Co. consigned 5 dozens of stainless chairs to Urban Furniture Co. on April 1, 20x1.
Each chair cost ₱120 and the consignor paid ₱600 for the shipment to the consignee. On August 15,
20x1, 36 were already sold and the consignee rendered an account sales, and remitted the balance due
the consignor in the amount of ₱5,580 after deducting the following:

Commission at 15% of the selling price

Selling expenses ₱360
Delivery and installation 180

37. How much is Stainless Works Mfg. Co.’s profit on the consignment?
a. 660
b. 900
c. 1,000
d. 1,260

38. The cost of the inventory on consignment in the hands of Urban Furniture Co. is
a. 2,880
b. 3,120
c. 3,480
d. 4,320

Use the following for the next two questions:

On January 1, 20x1, Pete Electrical Shop received from Marion Trading 300 pieces of bread toasters.
Pete was to sell these on consignment at 50% above original cost, for a 15% commission on the selling
price. After selling 200 pieces, Pete had the remaining unsold units repaired for some electrical defects
for which he spent ₱2,000. Marion subsequently increased the selling price of the remaining units to
₱330 per unit. On January 31, 20x1, Pete remitted ₱64,980 to Marion after deducting the 15%
commission, ₱850 for delivery expenses of sold units, and ₱2,000 for the repair of 100 units. The
consigned goods cost Marion Trading ₱200 per unit, and ₱900 had been paid to ship them to Pete
Electrical Shop. All expenses in connection with the consignment were reimbursable to the consignee.

39. The consignment profit on the units sold was

a. 12,200
b. 12,880
c. 13,000
d. None of these

40. The value of inventory on consignment was

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a. 8,120
b. 8,800
c. 8,920
d. None of these

41. In September 20x1, DEF Co. consigned 3,200 books costing ₱60 and retailing for ₱100 each to GHI
Co., debiting Accounts Receivable and crediting Sales for the retail sales price. Freight cost of ₱3,200
was debited to Freight Expenses by the consignor. On September 30, 20x1, DEF Co. received from
GHI Co. the amount of ₱142,020 in full settlement of the balance due, and Accounts Receivable was
credited for this amount. The consignor deducted a commission of ₱20 for each book sold, a total of
₱180 for delivery expenses and a total of ₱200 for advertising expense. How many books were
actually sold by GHI. Co.?
a. 1,424
b. 1,780
c. 2,064
d. 3,200

42. Leaf Co. began operations on January 1, 20x1. Leaf uses the “installment sales method” of
accounting. Data for 20x1 are as follows:

Installment accounts receivable, Dec. 31, 20x1 500,000

Installment sales 900,000
Cost ratio 60%

How much is the realized gross profit in 20x1?

a. 148,000
b. 152,000
c. 160,000
d. 162,000

43. BUCOLIC RURAL Co. uses the “installment sales method.” Information on BUCOLIC’s
transactions during 20x1 and 20x2 is shown below:
20x1 20x2
Installment sales 2,000,000 2,400,000
Cost of sales 1,200,000 1,320,000
Gross profit 800,000 1,080,000
Cash collections from:
20x1 sales 800,000 400,000
20x2 sales 960,000

How much is the total realized gross profit in 20x2?

a. 160,000
b. 432,000
c. 592,000
d. 642,000
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44. Banana Co. began operations on January 2, 20x1. Banana uses the “installment sales method” of
accounting. Banana’s records on December 31, 20x1 show the following information:

Installment accounts receivable, Dec. 31, 20x1 800,000

Deferred gross profit, before year-end adjustment 560,000
Gross profit on sales 40%

How much is the realized gross profit in 20x1?

a. 240,000
b. 248,000
c. 256,000
d. 260,000

Use the following information for the next three questions:

Bell Co. uses the “installment sales method.” In 20x1, Bell Co. sells an inventory costing ₱450,000 for an
installment sale price of ₱600,000. Bell makes the following collections:
20x1 ₱400,000
20x2 ₱150,000
20x3 ₱ 50,000

45. How much are the realized gross profits in 20x1, 20x2 and 20x3, respectively?
20x1 20x2 20x3
a. 89,000 29,200 8,600
b. 92,000 37,500 10,500
c. 100,000 26,800 12,500
d. 100,000 37,500 12,500

46. How much are the balances of installment accounts receivable at the end of 20x1, 20x2 and 20x3,
respectively?
20x1 20x2 20x3
a. 200,000 42,000 10,000
b. 200,000 50,000 0
c. 180,000 50,000 10,000
d. 180,000 30,000 0

47. How much is the deferred gross profit at the end of 20x1, 20x2 and 20x3, respectively?
20x1 20x2 20x3
a. 48,000 12,500 6,000
b. 50,000 10,000 0
c. 40,000 10,000 2,000
d. 50,000 12,500 0

48. Garden Co. uses the installment sales method. Garden Co. sells a good costing ₱10,000 for an
installment sale price of ₱16,000. Garden Co. accepts old merchandise as down payment and gives
the customer a trade-in value of ₱4,000 for this merchandise. The fair value of the old merchandise
is ₱4,000. Subsequent cash collections during the period amount to ₱6,000. How much is the
realized gross profit recognized in the year of sale?
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a. 3,750
b. 5,966
c. 6,333
d. 6,667

49. ABASE HUMILIATE Co. is currently preparing its combined financial statements for the year
ended December 31, 20x1. As of this date, the “Investment in branch” account has a balance of
₱380,000 while the “Home office” account has a balance of ₱528,000. The following information has
been gathered:
(a) The home office allocated unpaid utilities expenses amounting to ₱40,000 to the branch which the
branch did not record in full. Instead, the branch sent a wrong adjusting memo to the home office
reducing the charge by ₱10,000 and setting up a liability for the remaining amount.
(b) The home office erroneously credited the branch for a return of shipment of merchandise worth
₱100,000. The branch did not make any return of merchandise.
(c) The branch mistakenly received a copy of the home office correcting entry for item (b) above dated
January 3, 20x2 and entered a credit in favor of the home office on December 31, 20x1.
(d) The branch mistakenly sent the home office a debit memo amounting to ₱12,000 for an apparent
remittance of collections which did not happen. The home office did not record the debit memo.

How much is the net adjustment to the “Investment in branch” account? increase (decrease)
a. 100,000
b. 48,000
c. (48,000)
d. (52,000)

Use the following information for the next eleven questions:

The following information was taken from the records of a branch:
Sales by branch 2,800,000
Beginning inventory -
Billings to branch by home office 2,500,000
Operating expenses 400,000
Ending inventory at billed price 1,000,000

The following information was taken from the records of the home office:
Branch current account 2,600,000
Shipments to branch 2,000,000
Allowance for markup - Unadjusted 500,000

50. What is the billing rate based on cost?

a. 20%
b. 25%
c. 120%
d. 125%

51. What is markup percentage based on cost?

a. 20%
b. 25%
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c. 120%
d. 125%

52. How much is the sales of branch to be included in the combined financial statements?
a. 2,800,000
b. 2,240,000
c. 2,333,333
d. 0

53. How much is the realized markup of the branch?

a. 300,000
b. 240,000
c. 380,000
d. 270,000

54. How much is the cost of goods sold of the branch to be included in the combined financial
statements?
a. 1,500,000
b. 1,800,000
c. 1,200,000
d. 900,000

55. How much is the ending inventory of the branch to be included in the combined financial
statements?
a. 1,000,000
b. 8333,333
c. 1,250,000
d. 800,000

56. How much is the unrealized markup in ending inventory?

a. 200,000
b. 166,667
c. 230,000
d. 266,667

57. How much is the ending balance of the “allowance for markup” account before combining the
financial statements?
a. 200,000
b. 166,667
c. 230,000
d. 266,667

58. How much is the individual profit of the branch?

a. 880,000
b. 900,000
c. 920,000
d. 1,020,000
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59. How much is the true profit of the branch?

a. 1,200,000
b. 1,400,000
c. 1,250,000
d. 1,266,667

60. How much is the adjusted balance of the branch current account immediately prior to combining
the financial statements?
a. 3,800,000
b. 3,400,000
c. 3,500,000
d. 3,666,667

61. The home office transfers inventory worth ₱600,000 to Branch #1. Freight paid by the home office is
₱40,000. Later on, the home office instructs Branch #1 to transfer the merchandise to Branch #2.
Branch #1 pays freight of ₱12,000. If the merchandise had been shipped directly from the home
office to Branch #2, the freight cost would have been ₱56,000. The entries to record the transactions
described includes
a. a credit to savings on freight of ₱4,000 in the books of Branch #1.
b. a credit to savings on freight of ₱4,000 in the books of Branch #2.
c. a credit to savings on freight of ₱4,000 in the books of the home office.
d. none of these

62. Which of the following is a characteristic of an insurance contract?

a. transfer of insignificant insurance risk from the policyholder to the issuer
b. the policyholder pays the issuer in exchange for the transfer of financial risk
c. the issuer indemnifies the policyholder for losses when the insured event occurs
d. transfer of significant insurance risk from the issuer to the policyholder

Use the following information for the next two questions:

Mr. X obtains life insurance from Entity A (an insurance company). Entity A cedes 40% of the insurance
risk in the insurance contract with Mr. X to Entity B, another insurance company.

63. The contract between Entity A and Entity B is a

a. direct insurance contract.
b. indirect insurance contract.
c. reinsurance contract.
d. retrocession.

64. The 40% insurance risk transferred to Entity B is called the

a. cession.
b. retention limit.
c. net retention.
d. session road.
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65. The legal principle that precludes you from obtaining fire insurance on your neighbor’s house with
you as the beneficiary is
a. Principle of Proximate Cause.
b. Principle of Utmost Good Faith.
c. Principle of Insurable Interest.
d. Principle of Subrogation.

66. Which of the following is not one of the groupings of insurance contracts under PFRS 17?
a. those that are onerous at initial recognition
b. those that, at initial recognition, have no significant possibility of becoming onerous in
subsequent periods
c. those that are not onerous at initial recognition but can become onerous in subsequent periods
d. those that pay premiums at initial recognition which are to be measured using the simplified
approach

67. According to PFRS 17, insurance service result is recognized in

a. profit or loss.
b. other comprehensive income.
c. a or b
d. partly a and partly b

Use the following information for the next two questions:

Entity A obtains life insurance for its key employee from Entity B (an insurance company). Entity B
cedes the insurance contract with Entity A to Entity C, another insurance company.

68. The contract between Entity A and Entity B is

a. direct insurance contract
b. indirect insurance contract
c. reinsurance contract
d. retrocession

69. How should Entity B account for the insurance contract with Entity C?
a. using the general model
b. using the premium allocation approach
c. using the modified version of the general model applicable for onerous insurance contracts
d. using a modified version of (a) or (b) applicable to reinsurance contracts held

70. Under the general model of PFRS 17, a group of insurance contracts is initially measured at
a. the fulfillment cash flows.
b. the contractual service margin.
c. a or b, as an accounting policy choice
d. sum of a and b

71. According to PFRS 17, insurance finance income or expenses are

a. recognized in profit or loss.
b. disaggregated into amounts recognized in profit or loss and in other comprehensive income.
c. a or b
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d. recognized directly in equity.

Use the following information for the next six questions:

Rainy August Afternoon Co. (RAA) enters into a service concession arrangement whereby RAA
undertakes to build a public infrastructure, operate that infrastructure over a specified period, and
thereafter transfer it to the government (the grantor). In addition, RAA is obligated to recondition the
infrastructure a year before it is handed over to the government. This is regardless of the
infrastructure’s condition and level of usage. In return, the government promises to pay RAA a fixed
amount of cash plus interest in each year during the operation period.

72. What standard should RAA apply in recognizing and measuring the revenue from the contract?
a. IFRIC 15
b. PFRS 12
c. PFRS 9
d. PFRS 15

73. How many performance obligations are there in the contract?

a. one
b. two
c. three
d. four

74. The revenue recognized in Year 3 is equal to

a. the collection during that year.
b. the fair value of the consideration received in that year.
c. the transaction price allocated to the performance obligation(s) satisfied during that year.
d. This is preposterous! How can I know? There are no monetary amounts given in the problem.

75. How should RAA account for the resurfacing services in the contract?
a. as a separate performance obligation that is accounted for under PFRS 15
b. as a provision that is accounted for under PAS 37
c. partly a and partly b
d. not accounted for

76. During the construction period, RAA recognizes an asset that is reported in the financial statements
as
a. contract asset.
b. receivable (a financial asset).
c. intangible asset.
d. property, plant and equipment.

77. After the construction period, RAA accounts for the asset recognized on the contract using
a. PFRS 15.
b. PAS 16.
c. PFRS 9.
d. PAS 38.
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78. Entity A, a Philippine company, was sub-contracted to landfill a construction site by a contractor, a
Chinese construction company. The contract states a fixed price for various landfilling activities that
will take place in different stages of the construction during the first two to three years. In
measuring and recognizing the revenue from the contract, Entity A will most likely refer to which
of the following standards?
a. PAS 11
b. PFRS 15
c. PAS 18
d. US GAAP
e. Chinese GAAP

79. You are the accountant of Mang Jolly, a fast-growing fast-food restaurant. During the year, Mang
Jolly granted Mr. A, an unrelated party, rights to operate a Mang Jolly restaurant in a specified
location. The grant of rights includes the use of Mang Jolly’s trade mark, trade processes, menu,
and concept. Mr. A paid an upfront fee for the grant of rights and agreed to make additional
payments equal to 5% of its sales from the restaurant. To account for the arrangement, which of the
following standards is most likely to be relevant to you?
a. PAS 11
b. PFRS 11
c. PFRS 15
d. US GAAP

80. You are an auditor. During the current audit season, you were engaged to perform an external
audit for Entity X, an insurance company. When making an audit program, which of the following
standards is most likely to be relevant to you?
a. PAS 4
b. PFRS 11
c. PFRS 17
d. US GAAP

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