CPA REVIEW SCHOOL OF THE PHILIPPINES

ADVANCED FINANCIAL ACCOUNTING AND REPORTING GERMAN and VALIX

PREWEEK SELF-TEST No.2

Number 1
Which statement is not true about a partnership?
A. Any natural person who possesses the right to enter into a contract can become a partner.
B. All partners are co-owners of partnership property and co-owners of profits and losses of the
partnership.
C. A partnership may be formed to perform any legal business, trade or profession or other service.
D. Nonprofit organizations may form a partnership.

Number 2
Which statement is not a characteristic of a partnership?
A. A partnership has a juridical personality separate and distinct from each of the partners.
B. The formation of partnership requires formalities as in a corporation.
C. Any change in the agreement of the partners terminates the partnership contract.
D. Generally, each partner may be held personally liable for all the dents of the partnership and all of his
business and personal properties may be used for the settlement of partnership liabilities.

Number 3
Which statement is incorrect about the capital and drawing accounts of partners?
A. Normally, increases or decreases in capital that are interpreted as permanent capital changes are
recorded in the drawing account.
B. Withdrawals which are considered equivalent to salaries made by the partners in anticipation of profits
are recorded in the drawing account.
C. At the end of the accounting period, the debit and credit balances in the drawing accounts are closed
to the respective partner’s capital account.
D. The share of each partners in the profit or loss is recorded in the respective capital account.

Numbers 4 and 5
A, B and C decided to form ABC Partnership. It was agreed that A will contribute an equipment with
assessed value of P200,000 with historical cost of P1,600,000 and accumulated depreciation of P1,200,000.
A day after the partnership formation, the equipment was sold for P600,000.

B will contribute a land and building with carrying amount of P2,400,000 and fair value of P3,000,000.
The land and building are subject to a mortgage payable amounting to P600,000 to be assumed by the
partnership. The partners agreed that B will have 60% capital interest in the partnership. The partners also
agreed that C will contribute sufficient cash to the partnership.

4. What is the total agreed capitalization of the ABC Partnership?

A. 3,000,000
B. 4,000,000
C. 5,000,000
D. 6,000,000

5. What is the cash to be contributed by C in the ABC Partnership?

A. 1,000,000
B. 1,200,000
C. 1,400,000
D. 1,600,000
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Number 6

On January 1, 2023, A, B and C formed ABC Partnership with total agreed capitalization of P1,000,000.
The capital interest ratio of the ABC Partnership is 5:1:4 while the profit or loss ratio is 3:2:5, respectively
for A, B and C.

During 2023, A and B made additional investments of P200,000 and P500,000, respectively. At the end of
2023, B and C made drawings of P300,000 and P100,000, respectively. On December 31, 2023, the capital
balance of B is reported at P200,000.

What is the capital balance of C on December 31, 2023?

A. 150,000
B. 50,000
C. 200,000
D. 250,000

Number 7

On December 31, 2023, ABC Partnership’s Statement of Financial Position shows that A, B and C have
capital balances of P400,000, P300,000 and P100,000 with profit or loss ratio of 1:4:5. On January 1, 2024,
C retired from the partnership and received P80,000. At the time of C’s retirement, an asset of the
partnership is overvalued.

What is the capital balance of B after the retirement of C?

A. 284,000
B. 308,000
C. 316,000
D. 320,000

Number 8

On December 31, 2023, the Statement of Financial Position of ABC Partnership provided the following
data with profit or loss ratio of 1:6:3:

Current Assets 2,600,000 Total Liabilities 600,000

Noncurrent Assets 4,000,000 A, Capital 2,800,000
B, Capital 1,400,000
C, Capital 1,800,000

On January 1, 2024, D is admitted to the partnership by investing P2,000,000 to the partnership for 20%
capital interest.

If the all the assets of the existing partnership are properly valued, what is the capital balance of C
after the admission of D?
A. 1,920,000
B. 1,800,000
C. 1,680,000
D. 2,400,000
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Number 9

On December 31, 2023, the Statement of Financial Position of ABC Partnership with profit or loss ratio of
6:1:3 of partners A, B and C respectively, revealed the following data:

Cash 2,000,000 Other Liabilities 4,000,000

Receivable from A 1,000,000 Payable to B 2,000,000
Other noncash assets 4,000,000 Payable to C 200,000
A, Capital 1,400,000
B, Capital (1,300,000)
C, Capital 700,000

On January 1, 2024, the partners decided to liquidate the partnership. All partners are legally declared to
be personally insolvent. The other noncash assets were sold for P3,000,000. Liquidation expenses
amounting to P200,000 were incurred.

How much cash was received by B at the end of partnership liquidation?

A. 500,000
B. 300,000
C. 580,000
D. 540,000

Number 10

On December 31, 2023, the Statement of Financial Position of ABC Partnership with profit or loss ratio of
5:3:2 of respective partners A, B and C. showed the following information:

Cash 3,200,000 Total Liabilities 4,000,000

Noncash assets 2,800,000 A, Capital 200,000
B, Capital 1,000,000
C, Capital 800,000

On January 1, 2024, the partners decided to liquidate the partnership in installment. All partners are legally
declared to be personally insolvent.

As of January 31, 2024, the following transactions occurred:

• Noncash assets with a carrying amount P2,000,000 were sold at a gain of P200,000.
• Liquidation expenses for the month of January amounting to P100,000 were paid.
• It is estimated that liquidation expenses amounting to P300,000 will be incurred for the month of
February, 2024.
• 20% of the liabilities to third persons were settled.
• Available cash was distributed to the partners.

What is the amount of cash received by partner C on January 31, 2024?

A. 520,000
B. 480,000
C. 600,000
D. 700,000
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Number 11
Cebu Company is experiencing financial problems which resulted to ultimate bankruptcy. The statement
of financial position of the entity before liquidation is presented below:

Cash 100,000 Income tax payable 200,000

Inventory 300,000 Salaries payable 300,000
Land 200,000 Note payable 800,000
Mortgage payable 100,000
Accounts payable 400,000
Contributed capital 500,000
Deficit (1,700,000)

• The note payable is secured by the inventory with net realizable value of P250,000.
• The mortgage payable is secured by the land with fair value of P120,000.

What is the amount received by the employees at the end of corporate liquidation concerning their
salaries?
A. 100,000
B. 120,000
C. 72,000
D. 300,000

Number 12

AAA Company is bankrupt and has undergone corporate liquidation. Presented below is its statement of
financial position before the start of liquidation:

Cash 300,000 Accounts Payable 100,000

Machinery 500,000 Salaries Payable 200,000
Building 1,200,000 Income tax Payable 300,000
Loan Payable 400,000
Mortgage payable 500,000
Contributed capital 800,000
Deficit (300,000)

• Liquidation expenses amounting to P600,000 were paid.

• The loan payable is secured by the machinery with fair value of P300,000.
• The mortgage payable is secured by the building with fair value of P1,380,000.

What is the amount of net free assets available at the end of liquidation?
A. 80,000
B. 40,000
C. 120,000
D. 200,000

Number 13
In every corporation liquidation, which type of credit will not share from the free assets of the corporation?
A. Unsecured claims with priority
B. Unsecured claims without priority
C. Fully secured claims
D. Partially secured claims
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Number 14

In accounting for corporate liquidation, which of the following statements is incorrect?

A. Fully secured creditors no longer share in the remaining free assets after payment of unsecured liabilities
without priority.
B. Assets used as security for partially secured liabilities are offsetted against their secured debts and can
no longer be used to pay unsecured liabilities.
C. Unsecured credits with priority such as liabilities to employees and taxes due to government can
always be fully recovered by the said creditors in every corporate liquidation.
D. The unsecured portion of the liabilities to partially secured creditors are added to unsecured credits
without priority in the computation of recovery percentage of the unsecured creditors without priority.

Number 15

Entity A and Entity B incorporated Entity C to manufacture a microchip to be used by the incorporating
entities as component for their final products of cellular phones and tablets.

The contractual agreement of the incorporating entities provided that the decisions on relevant activities of
Entity C will require the unanimous consent of both entities.

Entity A and Entity B have rights to the assets, and obligations for the liabilities, relating to the
arrangement. The ordinary shares of Entity C will be owned by Entity A and Entity B in the ratio of 60:40.
At the end of first operation of Entity C, the financial statements provided the following data:

Inventory 2,000,000 Accounts payable 4,000,000

Land 6,000,000 Note payable 2,000,000
Building 10,000,000 Loan payable 8,000,000
Share capital 2,000,000
Retained earnings 2,000,000
Sales revenue 10,000,000

The contractual agreement of Entity A and Entity B also provided for the following concerning the assets
and liabilities of Entity C:

• Entity A owns the land and incurs the loan payable of Entity C.

• Entity B owns the building and incurs the note payable of Entity C.

• The other assets and liabilities are owned or owed by Entity A and Entity B on the basis of their capital
interest in Entity C.

• The sales revenue of Entity C includes sales to Entity A and Entity B in the amount of P2,000,000 and
P4,000,000, respectively. As of the end of the first year, Entity A and Entity B were able to resell 30%
and 60% of the inventory coming from Entity C to third persons.

What is the amount of total assets to be reported by Entity A concerning its interest in Entity C?
A. 10,800,000
B. 6,000,000
C. 7,200,000
D. 10,000,000
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Number 16

On January 1, 2023, Entity A, a public entity, and Entity B, a public entity, incorporated Entity C which
has its fiscal and operational autonomy. The contractual agreement of the incorporating entities provided
that the decisions on relevant activities of Entity C will require the unanimous consent of both entities.
Entity A and Entity B will have rights to the net assets of Entity C.

Entity A and Entity B invested P1,000,000 and P1,500,000, respectively, equivalent to 40:60 capital interest
of Entity C. The financial statements of Entity C provided the following data for its two-year operation:

Net income (loss) Dividends declared

2023 200,000 100,000

2024 (2,000,000) -

What is the balance of Investment in Entity C to be reported by Entity A in its Statement of Financial
Position on December 31, 2024?
A. 1,080,000
B. 1,040,000
C. 240,000
D. 200,000

Number 17

Two entities established a joint arrangement in an incorporated entity. The assets and liabilities of the entity
shall be in the name of the incorporated entity. The activities of the arrangement shall be decided by its
own board of directors. The rights of the two parties are limited only to the net assets of the incorporated
entity. How should the two parties account for their investment?
A. Either joint venture or joint operation
B. Joint venture
C. Joint operation
D. Trading investment

Number 18

On January 1, 2023, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled entity
by investing P2,000,000 each in exchange for 50,000 ordinary shares each of Entity C. Entity A and Entity
B each incurred P250,000 transaction costs.
The contractual agreement of the incorporating entities provided that the decisions on relevant activities of
Entity C shall require the unanimous consent of both entities. Entity A and Entity B shall have rights to the
net assets of Entity C.
For the year ended December 31, 2023, Entity C reported net income of P1,000,000 and declared dividends
in the amount of P750,000.
On December 31, 2023, the ordinary shares of Entity C are quoted at P55. Entity A elected the fair value
model to account its investment in Entity C.

What amount should be reported as investment income by Entity A for 2023?

A. 875,000
B. 500,000
C. 1,125,000
D. 1,000,000
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Number 19
Under IFRS 15, in which of the following instances will the revenue from contracts with customers be
recognized at a point in time instead of over time?
A. When the customer simultaneously receives and consumes all of the benefits provided by the entity as
the entity performs.
B. When the entity’s performance creates or enhances an asset that the customer controls as the asset is
created.
C. When 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. When the entity has transferred physical possession and legal title to the asset to the customer.

Number 20
Under IFRS 15, which statement is true in contract of sale with a right of return?
A. The sales revenue is recognized at the amount of gross sales.
B. The refund liability is measured at the sale price of the expected sale return.
C. The recover asset and the reduction of cost of goods sold should be recorded at cost.
D. The sales revenue is not recognized.

Number 21

On January 1, 2022, BBB Company started the construction of a building at a fixed contract price of
P2,000,000. On January 1, 2023, the contract price increase by P1,500,000. The entity provided the
following data concerning the direct costs related to the said project:
2022 2023 2024
Cumulative costs incurred at year-end 720,000 1,600,000 1,740,000
Remaining estimated costs to complete at year-end 1,680,000 400,000 100,000
Under IFRS 15, what is the realized gross profit for the year ended December 31, 2023?
A. 1,200,000
B. 800,000
C. 1,600,000
D. 1.900,000

Number 22
On January 1, 2023, Entity A granted franchise right to franchisee for the operation of selling crispy french
fries. Entity A shall allow the franchisee the right to access its trade-name for a period of 10 years. The
franchisee is required to pay an upfront nonrefundable initial franchise fee of P40,000,000 and a continuing
franchisee fee of 10% of the annual sales. It is the obligation of Entity A to construct the franchise stall and
to deliver 10,000 units of materials to the franchisee.
The stand-alone selling price of the right to access Entity A’s trade-name was P800,000. The stand-alone
selling price of the construction of the stall was P600,000 and the stand-alone selling price for the delivery
of 10,000 units of materials was P200,000.
On October 1, 2023, Entity already finished the construction of the stall and on December 31, 2023, Entity
A only delivered 2,000 units of materials. The franchisee reported sales revenue on December 31, 2023 in
the amount of P8,000,000.

Under IFRS 15, what amount should be reported as total revenue from initial franchise fee?
A. 18,000,000
B. 18,800,000
C. 22,000,000
D. 22,800,000
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Number 23

On January 1, 2023, an entity granted a franchise to a franchisee. The contract provided that the franchisee
shall pay an initial franchise fee of P10,000,000 and on-going payment of royalties equivalent to 10% of
the sales of the franchisee. On January 1, 2023, the franchisee paid down payment of P4,000,000 and issued
a 3-year 12% interest bearing note for the balance payable in three equal annual installments starting
December 31, 2023.

On June 30, 2023, the entity completed the performance obligation of the franchise at a cost of P6,000,000.
Aside from that, the entity incurred indirect cost of P1,000,000. The franchisee started operation on July 1,
2023 and reported sales revenue amounting to P8,000,000 for the year ended December 31, 2023.

Under IFRS 15, what amount should be reported as net income for the year ended December 31,
2023?
A. 3,800,000
B. 4,800,000
C. 4,520,000
D. 5,520,000

Number 24

On December 31, 2023, Company B authorized an entity to operate as a franchisee for an initial franchise
fee of P6,800,000. An amount of P1,800,000 was received upon signing of the contract, and the balance is
to be paid by a noninterest-bearing note, due in five equal annual installments beginning December 31,
2024. The prevailing market rate is 12%. The present value of an ordinary annuity of 1 for 5 years at 12%
is 3.60. The down payment is nonrefundable and represents a fair measure of the services already
performed. However, with regards to the balance, substantial future services are still required.

What amount should be reported as deferred franchise revenue on December 31, 2023?
A. 3,600,000
B. 5,400,000
C. 1,800,000
D. 0

Number 25

On January 1, 2023, an entity granted a franchise to a franchisee. The contract provided that the franchisee
shall pay an initial franchise fee of P10,000,000 and on-going payment of royalties equivalent to 10% of
the sales of the franchisee. On January 1, 2023, the franchisee paid downpayment of P4,000,000 and issued
a 3-year noninterest bearing note for the balance payable in three equal annual installments starting
December 31, 2023. The note has present value of P4,800,000 with effective interest rate of 12%.

On June 30, 2023, the entity completed the performance obligation of the franchise at a cost of P7,000,000.
Aside from that, the entity incurred indirect cost of P600,000. The franchisee started operation on July 1,
2023 and reported sales revenue amounting to P12,000,000 for the year ended December 31, 2023. The
franchisee paid the first installment on its due date.

Under IFRS 15, what amount should be reported as net income by the franchisor for the year ended
December 31, 2023?
A. 2,976,000
B. 4,000,000
C. 8,800,000
D. 5,200,000
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Number 26
Continuing franchise fees should be recorded by the franchisor as
A. Deferred revenue and amortized over the term of the franchise.
B. Revenue when received.
C. Revenue using installment method.
D. Revenue when earned and receivable from the franchise.

Number 27
You Company had the following transactions during December:
Inventory shipped on consignment to See Company 4,000,000
Freight paid by You 200,000
Inventory received on consignment from Wer Company 3,000,000
Freight paid by Wer 100,000
No sales of consigned goods were made in December.

What amount should be reported as inventory on December 31?

A. 4,200,000
B. 4,000,000
C. 7,300,000
D. 7,000,000

Number 28
A consignor consigned 100 items to consignee and the items had a cost of P40,000 each. The freight from
consignor to consignee amounting to P600,000 was paid by the consignor. The sales price of each item was
P100,000. The consignee paid on behalf of the consignor selling expense P300,000 and cartage cost upon
receipt of the consigned goods P400,000. Under the consignment agreement, the consignee is entitled to a
15% commission. At the end of the year, the consignee sold 60 items to customers.

What amount should be reported as net income of the consignor from the consignment sales?
A. 6,000,000
B. 3,000,000
C. 1,800,000
D. 1,600,000

Number 29
On December 31, 2023, the Branch current account had a balance of P2,625,000. The home office account
had a balance of P2,000,000. The following errors were discovered:

• The home office shipped merchandise to the branch at cost of P750,000 and the merchandise was still
in transit as of December 31, 2023.
• The branch paid the accounts payable of the home office in the amount of P250,000 and the home office
recorded the payment as P25,000.
• The branch collected P350,000 from a home office customer but the home office was not notified of
the said transaction.

What is the adjusted balance of the reciprocal accounts?

A. 2,625,000
B. 2,975,000
C. 3,200,000
D. 2,750,000
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Number 30

The home office in Makati City ships and bills merchandise to its provincial branch at cost. The branch
carries its own accounts receivable and makes its own collections. The branch also pays its expenses. The
branch transactions for 2023 are reflected in the following information:

Home office account 450,000

Shipments from Home Office 625,000
Sales 550,000
Expenses 150,000
December 31, 2023 inventory 162,500

What amount should be reported as balance of the Investment in Branch account in the home office
book?
A. 537,500
B. 512,500
C. 387,500
D. 450,000

Number 31

Bacolod Company decided to open a branch in Iloilo. Shipments of merchandise to the branch totaled
P270,000 which included a 20% markup on cost. All accounting records are kept at the home office. The
branch submitted the following report summarizing the operations for the year ended December 31, 2023:

SalSales on account 1,2 600,000

SalSales on cash basis 250,000
Co Collections of accounts receivable 400,000
Ex Expenses paid 140,000
E Expenses unpaid 60,000
Pu Purchases from outside suppliers for cash 125,000
InvInventory on hand, December 31; 80% from home office 150,000
Re Remittance to home office 275,000

What amount should Bacolod Company report as Iloilo branch net income for 2023?
A. 430,000
B. 385,000
C. 490,000
D. 300,000

Number 32

Which is the best reason why the net income reported by the branch is less than the net income computed
by the home office concerning the branch operation?
A. Overstatement of goods in the beginning inventory of the branch for the goods coming from the home
office.
B. Understatement of goods in the beginning inventory of the branch for the goods coming from the outside
supplier.
C. Understatement of cost of goods sold reported by the branch for the goods coming from the outside
supplier.
D. Overstatement of cost of goods sold reported by the branch for the goods coming from the home office.
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Numbers 33 and 34

Entity A acquired the net assets of Entity B by issuing 10,000 ordinary shares with par value of P20 and
bonds payable with face amount of P1,000,000. The bonds are classified as financial liability at amortized
cost. At the time of acquisition, the ordinary shares are publicly quoted at P40 per share. On the other hand,
the bonds payable are trading at 110.

Entity A paid P20,000 share issuance costs and P40,000 bond issue costs. Entity A also paid P80,000
acquisition related costs and P60,000 indirect costs of business combination. Before the date of acquisition,
Entity A and Entity B reported the following data:

Entity A Entity B
Current assets 2,000,000 1,000,000
Noncurrent assets 4,000,000 2,000,000
Current liabilities 400,000 800,000
Noncurrent liabilities 600,000 1,000,000
Ordinary shares 1,000,000 400,000
Share premium 2,400,000 600,000
Retained earnings 1,600,000 200,000

At the time of acquisition, the current assets of Entity A have fair value of P2,400,000 while the noncurrent
assets of Entity B have fair value of P2,600,000. On the same date, the current liabilities of Entity B have
fair value of P1,200,000 and the noncurrent liabilities of Entity B have fair value of P1,000,000.

33. What amount should be reported as goodwill or gain on bargain purchase arising from business
combination?
A. 100,000 goodwill
B. 300,000 gain on bargain purchase
C. 240,000 goodwill
D. 140,000 gain on bargain purchase

34. What amount of total assets should be reported by Entity A after the business combination?
A. 9,040,000
B. 9,620,000
C. 9,500,000
D. 8,880,000

Number 35

Entity A acquired 80% of the outstanding ordinary shares of Entity B which enabled the former to obtain
control of the latter at an acquisition price of P2,000,000. Entity A paid P200,000 acquisition related costs
and P100,000 indirect costs of business combination.

At the date of acquisition, the net assets of Entity B are reported at P3,200,000. An asset of Entity B is
overvalued by P120,000 while one liability is undervalued by P80,000.

What amount should be reported as goodwill or gain on bargain purchase arising from business
combination?
A. 500,000 gain on bargain purchase
B. 300,000 gain on bargain purchase
C. 100,000 goodwill
D. 400,000 gain on bargain purchase
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Number 36
On January 1, 2023, an acquirer acquired the identifiable net assets of an acquiree. On this date, the
identifiable assets acquired and liabilities assumed have fair value of P8,000,000 and P5,000,000,
respectively. The acquirer incurred acquisition-related cost of legal fees P250,000, due diligence cost
P50,000, general and administrative costs of maintaining an internal acquisition P100,000.
As consideration, the acquirer transferred 9,500 of its own shares with par value and fair value per share of
P400 and P500, respectively, to the acquiree’s former owners. Costs of registering the shares amounted to
P175,000 of which P25,000 pertains to listing fees of previously issued shares.
What amount should be charged to profit or loss in relation to the acquisition?
A. 350,000
B. 425,000
C. 100,000
D. 300,000

Number 37
Acquisition costs incurred and related to a business combination should be
A. Allocated on a prorata basis to nonmonetary assets acquired.
B. Capitalized as part of goodwill and tested annually for impairment
C. Deferred and amortized over a reasonable period.
D. Expensed as incurred in the current period.

Number 38
Under IFRS 3, which reason would not contribute to the creation of negative goodwill?
A. Errors in measuring the fair value of the acquiree’s net identifiable assets or the cost of the business
combination.
B. A bargain purchase.
C. A requirement in IFRS to measure net assets acquired at a value other than fair value.
D. Making acquisitions at the top of a “bull” market for shares.

Numbers 39 and 40
On January 1, 2023, Entity A acquired 90% of outstanding ordinary shares of Entity B at a price of
P1,800,000. Entity A paid P40,000 costs related to acquisition of shares. At the acquisition date, the net
assets of Entity B were reported at P1,900,000. All the assets of Entity B are properly valued except for a
machinery which is undervalued by P300,000. The machinery has a remaining useful life of 5 years.
For the year ended December 31, 2023, Entity B reported net income of P400,000 and declared dividends
of P60,000. The fair value of Investment in Entity B on December 31, 2023 is P2,000,000 while the cost
of disposal is 5% of fair value. Entity A voluntarily prepared its separate financial statements.

39. What amount should be reported as investment income for 2023 if Entity A elected the cost
method to account its Investment in Entity B in its separate financial statements?
A. 14,000
B. 54,000
C. 360,000
D. 214,000

40. What amount should be reported as investment income for 2023 if Entity A elected the fair value
model to account its Investment in Entity B in its separate financial statements?
A. 14,000
B. 54,000
C. 360,000
D. 214,000
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Number 41
Investment in subsidiaries should be accounted for by the parent in its separate financial statements using
A. Cost method
B. Cost method or fair value model
C. Equity method
D. Cost method, fair value model or equity method

Numbers 42 and 43 (Consolidated Financial Statements)

On January 1, 2023, Entity A acquired 80% of outstanding ordinary shares of Entity B at a price of
P1,100,000. On the same date, the net assets of Entity B were reported at P1,250,000. On January 1, 2023,
Entity A reported retained earnings of P1,000,000 while Entity B reported retained earnings of P100,000.
All the assets and liabilities of Entity B are fairly valued except machinery which was undervalued by
P375,000 and inventory which was overvalued by P125,000. The said machinery had remaining useful life
of five years while 60% of the said inventory remained unsold at the end of 2023.
For the year ended December 31, 2023, Entity A reported net income of P2,000,000 and declared dividends
of P500,000 in the separate financial statements while Entity B reported net income of P750,000 and
declared dividends of P250,000 in the separate financial statements. Entity A accounted the investment in
Entity B using cost method in the separate financial statements.

42. What amount should be reported as noncontrolling interest in net assets on December 31, 2023?
A. 445,000
B. 300,000
C. 495,000
D. 395,000

43. What amount should be reported as consolidated net income attributable to parent shareholders
for the year ended December 31, 2023?
A. 2,480,000
B. 2,100,000
C. 1,800,000
D. 2,380,000

Numbers 44 and 45
On January 1, 2023, Entity A acquired 60% of outstanding ordinary shares of Entity B at a gain on bargain
purchase of P20,000. For the year ended December 31, 2024, Entity A and Entity B reported sales revenue
of P1,000,000 and P500,000 in their respective separate income statements. Entity A and Entity B reported
cost of goods sold of P600,000 and P350,000 in their respective separate income statements for 2024.
During 2023, Entity A sold inventory to Entity B at a selling price of P140,000 with gross profit rate of
40% based on cost. On the other hand, Entity B sold inventory to Entity A at a selling price of P200,000
with gross profit rate of 30% based on sales during 2024.
On December 31, 2023, 25% of the goods coming from Entity A remained in Entity B’s inventory but all
were eventually sold to third persons during 2024. As of December 31, 2024, 40% of the goods coming
from Entity B were eventually sold to third persons.
For the year ended December 31, 2024, Entity A reported net income of P250,000 while Entity B reported
net income of P100,000 and distributed dividends of P25,000. Entity A accounted for its investment in
Entity B using the cost method in its separate financial statements.
 Page 14

44. What amount should be reported as consolidated sales revenue for the year ended December 31,
2024?
A. 1,300,000
B. 1,160,000
C. 1,500,000
D. 1,360,000

45. What amount should be reported as consolidated net income attributable to parent shareholders
for the year ended December 31, 2024?
A. 383,400
B. 298,400
C. 303,400
D. 283,400

Number 46

Which of the following is not a valid condition that will exempt an entity from preparing consolidated
financial statements?

A. The parent entity is a wholly owned subsidiary of another entity or partially owned and the other owners
do not object to the nonconsolidation.
B. The parent entity’s debt or equity capital is not traded in the stock exchange.
C. The ultimate parent entity produces consolidated financial statements available for public use that
comply with IFRS.
D. The parent entity is in the process of filing financial statements with a securities commission for the
purpose of issuing any class of instruments in a public market.

Number 47

A subsidiary shall be excluded from consolidation when

A. The investor is a venture capital organization, mutual fund, unit trust or similar entity.
B. The business activities of the subsidiary are dissimilar from those of the other entities within the group.
C. The subsidiary is acquired with the intention to dispose of it within twelve months from date of
acquisition.
D. The subsidiary is operating under severe long-term restrictions that significantly impair its ability to
transfer funds to the parent.

Number 48

On December 1, 2022, Entity A imported goods at a price of $25,000 payable on March 1, 2023. In order
to hedge this foreign currency denominated importation. Entity A entered into a forward contract with a
bank to purchase $25,000. Entity A is operating in Philippine economy where the functional currency is
Philippine peso. The relevant direct exchange rates are:

December 1, 2022 December 31, 2022 March 1, 2023

Buying spot P53 P51 P51
Sli Selling spot 55 54 56
What amount should be reported as foreign currency gain or loss on the hedged item for 2022?
A. 25,000 gain
B. 10,000 loss
C. 25,000 loss
D. 10,000 gain
 Page 15
Number 49
An entity purchased inventory on November 30, 2022 for $20,000 payable March 1, 2023. On December
1, 2022, the entity entered into a forward contract to purchase $20,000 in 90 days to hedge the purchase
of inventory on November 30, 2022. The relevant exchange rates are:
Spot rate Forward rate
No November 30, 2022 P55 P57
December 1, 2022 56 58
De December 31, 2022 60 61
What amount of foreign currency transaction gain from the forward contract should be included in
net income for 2022?
A. 100,000
B. 80,000
C. 60,000
D. 0

Number 50
On November 1, 2022, an entity entered into a firm commitment for the exportation of goods at a price of
$40,000. Delivery will happen on January 31, 2023. In order to hedge this foreign currency denominated
firm commitment, the entity entered into a forward contract with a bank to sell $40,000. The entity is
operating in Philippine economy where the functional currency is Philippine peso. The entity elected to use
fair value hedge to account this hedge of firm commitment. The relevant direct exchange rates are:

November 1, 2022 December 31, 2022 January 31, 2023

Spot rate P53 P50 P54
90- 90-day forward rate 51 53 54
60- 60-day forward rate 55 52 51
30- 30-day forward rate 57 56 22

What amount should be reported as forward contract gain or loss for 2022?
A. 200,000 gain
B. 200,000 loss
C. 400,000 loss
D. 400,000 gain

Number 51
On November 1, 2022, an entity anticipated the purchase of equipment on January 31, 2023 at a price of
$30,000. In order to hedge this highly probable forecasted importation, the entity entered into a forward
contract with a bank to purchase $30,000. The entity is operating in Philippine economy where the
functional currency is Philippine peso. The relevant direct exchange rates are:
November 1, 2022 December 31, 2022 January 31, 2023
St Spot rate P55 P54 P53
90-90-day forward rate 52 51 53
60-60-day forward rate 56 55 50
30-30-day forward rate 58 54 50
What amount of unrealized holding gain or loss should be recognized as component of other comprehensive
income for the year ended December 31, 2022?
A. 60,000 gain
B. 60,000 loss
C. 90,000 loss
D. 90,000 gain
 Page 16

Numbers 52 and 53

Entity A owned majority of the outstanding ordinary shares of Entity B which is operating in United States
of America wherein the functional currency is the USA dollar. However, the presentation currency of Entity
B is the Philippine Peso because that is the presentation currency of Entity A. For the year ended December
31, 2023, Entity B presented its Statement of Financial Position in its functional currency of USA dollar:

Current assets $20,000 Current liabilities $20,000

Noncurrent assets 80,000 Noncurrent liabilities 40,000
Ordinary share capital 10,000
Preference share capital 16,000
______ Retained earnings 14,000
Total Assets $100,000 Total Liabilities and shareholders $100,000

• The ordinary shares are issued on January 1, 2022 while the preference shares are issued on July 1,
2022.
• Entity B reported $2,000 net income during 2023 and declared dividends of $1,000 on December 1,
2023.
• The translated amount of retained earnings on December 31, 2022 was P6,000,000.

The relevant direct exchange rates are:

January 1, 2022 P50 December 1, 2023 P51

July 1, 2022 52 December 31, 2023 55
December 31, 2022 53 Average rate 2023 54

52. What amount of net assets in US dollars should be reported on December 31, 2022?
A. 39,000
B. 40,000
C. 38,000
D. 43,000

53. What amount should be reported as translated retained earnings balance on December 31,
2023?
A. 6,000,000
B. 6,057,000
C. 6,108,000
D. 6,159,000

Number 54

An entity has subsidiary that operates in a hyperinflationary economy. The subsidiary’s financial statements
are measured in terms of local currency which is the zloty. The parent is located in USA and prepares
statements in dollars. Under IAS 29, which procedure is correct in terms of consolidation of the
subsidiary’s financial statements?
A. The subsidiary’s financial statements should be retranslated to USA dollars.
B. The subsidiary’s financial statements should be restated in accordance with IAS 29 and retranslated to
USA dollars.
C. The subsidiary’s financial statements should be remeasured in USA dollars and restated in accordance
with IAS 29.
D. The subsidiary’s financial statements should be deconsolidated.
 Page 17

Number 55

A nonprofit organization provided the following transactions during the first year of operations:

• The nonprofit organization received P2,000,000 from a donor who stipulated that it shall be invested
indefinitely and the dividend from such investment shall be used for research project of the
organization. Dividend amounting to P200,000 was received from the investment during the year.

• The nonprofit organization received P500,000 from a donor who stipulated that it shall be used for the
acquisition of computer equipment. No computer equipment was acquired during the year.

• The nonprofit organization received P750,000 from a donor who stipulated that it shall be used based
on the discretion of the Board of Trustees of the nonprofit organization. The nonprofit organization
used P250,000 for the acquisition of a service car with a useful of 5 years. The remaining P500,000 was
designated by the Board of Trustees for future fundraising projects.

What amount should be reported as net cash flows from financing activities by the nonprofit
organization for the year?
A. 2,700,000
B. 2,250,000
C. 3,700,000
D. 3,450,000

Number 56

A voluntary health and welfare organization received a contribution from a donor in the current year. The
donor did not specify any use restriction but specified that the donation should be used next year. The
governing board of the organization spent the contribution in the next year for fund raising expense. The
organization should report the contribution in the current year in the
A. Statement of financial position as deferred revenue
B. Statement of activities as unrestricted revenue
C. Statement of financial position as an increase in fund balance
D. Statement of activities as temporarily restricted

Number 57

On December 31, 2022, the Department of Finance billed its lessee on one of its buildings in the amount
of P1,000,000. On January 31, 2023, the Department of Finance collected all of the accounts receivable.
On February 28, 2023, the Department of Finance remitted the entire collected amount to the Bureau of
Treasury. What is the journal entry to record the remittance by the Department of Finance to the Bureau of
Treasury?
A. Debit – Accounts Receivable P1,000,000 and Credit – Rent Income P1,000,000
B. Debit – Accounts Receivable P1,000,000 and Credit – Retained Earnings P1,000,000
C. Debit – Cash Collecting Officers P1,000,000 and Credit – Accounts Receivable P1,000,000
D. Debit – Cash – Treasury/Agency Deposit, Regular – P1,000,000 and
Credit Cash – Collecting Officer – P1,000,000
 Page 18

Number 58

Department of Health (DOH) received Notice of Cash Allocation in the amount of P2,000,000 from
Department of Budget and Management. DOH made a total cash disbursements in the amount of
P1,900,000. What is the journal entry to recognize reversion of unused Notice of Cash Allocation by DOH
in its books?
A. Debit Subsidy Income from National Government P100,000 and credit Cash-MDS, Regular P100,000.
B. Debit Retained Earnings of DFA P100,000 and credit Cash-MDS, Regular P100,000.
C. Debit Expenses of DFA P100,000 and credit Cash-MDS, Regular P100,000.
D. Debit Investment of DFA P100,000 and credit Cash-MDS, Regular P100,000.

Number 59

Underapplied factory overhead results when

A. A plant is operated at less than normal capacity
B. Factory overhead costs incurred are greater than costs charged to production
C. Factory overhead costs are less than the cost charged to production
D. Factory overhead costs are unreasonably low

Number 60

An entity employed normal costing for its production. The entity provided following data during the current
year:
Net purchases of raw materials during the year 250,000
Total labor costs during the year 400,000
Depreciation of factory assets during the year 50,000
Utilities on the factory during the year 150,000
Beginning Ending
Raw materials inventory 100,000 150,000
Work in process inventory 250,000 100,000
Finished goods inventory 300,000 150,000

• The entity used a single account for its direct material and indirect materials. Indirect material used was
one-fourth of the total direct material used.
• The indirect labor cost was 1/8 of the total labor costs.
• The overhead application rate was 80% of direct labor costs.
• Any over or under application of overhead was considered material.

What amount should be reported as total manufacturing cost during the current year?
A. 780,000
B. 750,000
C. 820,000
D. 870,000

Number 61

In a job order cost system, the use of indirect materials is recorded usually as an increase in
A. Work in process control
B. Factory overhead applied
C. Stores control
D. Factory overhead control
 Page 19

Number 62

An entity employed the process costing regarding its production cycle. Conversion costs are added
uniformly during the production process while direct materials are added 10% at the start of production
process, 50% at the middle of the production process and the remainder at the end of production process.
The production data of the entity during the year are:

Beginning Work in Process Inventory 20,000 units (30% incomplete as to conversion costs)
Units started during the year 60,000 units
Ending Work in Process Inventory 10,000 units (75% incomplete as to conversion costs)

• There was no spoilage during the period.

• The costs of beginning inventory consisted of P412,000 costs of direct materials and P430,000
conversion costs.
• The total manufacturing costs consisted of P1,008,000 costs of direct materials and P585,000
conversion costs.

What amount should be reported as cost per unit of conversion cost under FIFO process costing?
A. 16
B. 18
C. 10
D. 14

Number 63

An entity employed the process costing regarding its production cycle. Conversion costs are added
uniformly during the production process while direct materials are added 20% at the start of production
process, 45% at the middle of the production process and the remainder at the end of production process.
Normal spoilage is 10% of units started during the year. The entity is conducting inspection when the
production process is at 45% of conversion cost. The entity provided the following production data during
the year:

Beginning Work in Process Inventory 20,000 units (40% incomplete as to conversion costs)
Units started during the year 80,000 units
Ending Work in Process Inventory 10,000 units (80% complete as to conversion costs)
Units completed during the period 76,000 units

What is the equivalent unit of production for conversion cost under average process costing?
A. 90,300
B. 89,300
C. 86,500
D. 92,300

Number 64

In the computation of manufacturing cost per equivalent unit, the weighted average method of process
costing considers
A. Current costs only
B. Current costs plus cost of ending work in process inventory
C. Current costs plus cost of beginning work in process inventory
D. Current costs less cost of beginning work in process inventory
 Page 20

Number 65

An entity had a cycle of 3 days, used a Raw and In Process Account (RIP) and charged all conversion costs
to cost of goods sold. At the end of each month, all inventories were counted, conversion costs components
were estimated and inventory account balances were adjusted. Raw material cost is backflushed from Raw
and in Process (RIP) Account to finished goods. The following information is provided for the month of
June:

Beginning Balance of RIP account, including P2,000 conversion cost 10,000

Beginning Balance of finished goods account including P12,000 conversion cost 20,000
Raw materials received on credit 800,000
Direct labor cost 600,000
Factory overhead applied 1,000,000
Ending RIP inventory per physical count, including P14,000 conversion cost 40,000
Ending finished goods inventory per physical count, including P8,000 conversion cost 12,000

What is the amount of direct materials backflushed from RIP to finished goods?
A. 782,000
B. 808,000
C. 774,000
D. 790,000

Number 66

An entity employed the activity-based costing. The following data are provided:

Activity-Based Costing

Activity center Cost driver Amount of activity Center cost

Material handling Kilos handled 100,000 kg. 400,000
Painting Units painted 50,000 units 600,000
Assembly Machine hours 10,000 hours 1,000,000

Traditional Costing
Traditional Labor hours 100,000 hours 2,000,000

Job 1 contained 3,000 units, weighed 10,000 kilos and used 300 machine hours. The direct labor hours on
the job totaled 7,000 hours.

What amount should be reported as applied overhead under Activity Based Costing?
A. 106,000
B. 112,000
C. 90,000
D. 86,000
 Page 21
Numbers 67 and 68

An entity is conducting a joint production at a total cost of P3,000,000. The joint production resulted to the
following inventories:
Product A Product B By-product
Units produced 20,000 units 10,000 units 5,000 units
Selling price at split off P150 P200 P25
Product A and Product B are considered main products. The entity considered its by-product as material.
The by-product required additional processing cost per unit of P4.00 and its cost of disposal is P1.00 per
unit.

67. What amount should be reported as cost of the by-product?

A. 125,000
B. 105,000
C. 120,000
D. 100,000

68. What amount should be allocated as joint cost of Product B if the entity employed relative sales
value method?
A. 1,800,000
B. 1,200,000
C. 1,160,000
D. 1,740,000

Number 69

When translating the financial statements of an entity from its functional currency to its selected
presentation currency
A. Exchange difference arising from translation will be recognized in other comprehensive income
B. Asset and liability accounts will be translated using the closing rate
C. Share capital and share premium accounts will be translated using the historical rates
D. All of the choices are applicable.

Number 70

Which of the following is TRUE when using the temporal method of remeasuring the financial statements
of an entity?
A. Non-monetary assets are always remeasured using the historical rates
B. Monetary liabilities are always remeasured using the closing rates
C. All equity accounts are remeasured the same way as the current rate method
D. Exchange difference arising from translation will be recognized in other comprehensive income

Number 71

On December 31, 2023, Parent acquired P250,000 par value of the outstanding P1,000,000 bonds of its
subsidiary, Subsidiary, in the market for P200,000. On that date, Subsidiary had a P100,000 premium on
its total bond liability.
Which one of the following is the amount of premium or discount on Parent's investment in
Subsidiary's bonds?
A. 250,000 premium
B. 100,000 premium
C. 50,000 premium
D. 50,000 discount
 Page 22

Number 72

Subsidiary, Inc. is a wholly owned subsidiary of Parent Inc. On June 1, 2023, Parent declared and paid a
P1 per share cash dividend to stockholders record on May 15, 2023. On May 1, 2023, Subsidiary bought
10,000 shares of Parent's common, stock for P700,000 on the open market when the book value per share
was P30.
What amount of gain should Parent report from this transaction in its consolidated income statement
for the year ended December 31, 2023?
A. 0
B. 390,000
C. 400,000
D. 410,000

Number 73

Entity A owns all of the common stock of Entity B Company and 80% of the common stock of Entity C
Company. Entity B owns the remaining 20% interest in Entity C’s common stock, for which it paid P8,000,
and which it carries at cost, because there is no ready market for Entity C’s stock. The condensed statements
of financial position. for Entity B and Entity C as of December 31, 2023, were:
Entity B Entity C
Assets 300,000 120,000
Liabilities 100,000 60,000
Common stock 50,000 40,000
Retained Earnings 150,000 20,000
Total 300,000 120,000

What amount should be reported as total owners’ equity in a combined statement of financial
position for Entity B and Entity C of December 31, 2023?
A. 260,000
B. 252,000
C. 212,000
D. 200,000

Number 74

Entity A owns 60% of the voting common stock of Entity B and 40% of the voting common stock of Entity
C. Entity A wishes to gain control of Entity C by having Entity B buy shares of Entity C's voting stock.
Which one of the following minimum levels of ownership of Entity C must Entity B additionally need
to obtain in order for Entity A to have controlling interest of Entity C's voting stock?
A. 11%
B. 17%
C. 26%
D. 50+%
 Page 23

Number 75

On December 31, 2023, Entity A Co. acquired Entity B, Inc. Before the acquisition, a product lawsuit
seeking P10 million in damages was filed against Entity B. As of the acquisition date, Entity A believed
that it was probable that a liability existed and that the fair value of the liability was P5 million.
What amount should Entity A record as a liability as of December 31, 2023?
A. 0
B. 5,000,000
C. 7,500,000
D. 10,000,000

Number 76

Entity A Corp. was organized to consolidate Entity B Company and Entity C Company in a business
combination. Entity A issued 25,000 shares of its newly authorized P10 par value common stock in
exchange for all of the outstanding common stock of Entity B and Entity C. At the time of the consolidation,
the fair value of Entity B's and Entity C's assets and liabilities are equal to their book values. The
shareholders' equity accounts of Entity B and Entity C on the date of the consolidation were:
Entity B Entity C Total
Common stock, at par 100,000 200,000 300,000
Additional paid-in capital 50,000 75,000 125,000
Retained earnings 22,500 47,500 70,000
Total 172,500 322,500 495,000
Which of the following is the amount of goodwill Entity A would recognize upon issuing its common
stock to effect the consolidation?
A. 0
B. 50,000
C. 195,000
D. 245,000

Number 77

On June 19, Entity A, a U.S. company, sold and delivered merchandise on a 30-day account to Entity B, a
German corporation, for 200,000 euros. On July 19, Entity B paid Entity A in full. Relevant currency
exchange rates were:
June 19 July 19
Spot rate $.988 $.995
30-day forward rate .990 1,000
What amount should Entity A record on June 19 as an accounts receivable for its sale to Cologne?
A. 197,600
B. 198,000
C. 199,000
D. 200,000
 Page 24

Number 78

Gordon Ltd., a 100% owned British subsidiary of a U.S. parent company, reports its financial statement in
local currency, the British pound. A local newspaper published the following U.S. exchange rates to the
British pound at year end:
Current rate $1.50
Historical rate (acquisition) 1.70
Average rate 1.55
Inventory (FIFO) 1.60
Which currency rate should Gordon use to convert its income statement to U.S. dollars at year
end?
A. 1.50
B. 1.55
C. 1.60
D. 1.70

END

ANSWERS

1. D 16. C 31. A 46. D 61. D 76. A

2. B 17. B 32. D 47. C 62. C 77. A
3. A 18. A 33. A 48. A 63. A 78. B
4. B 19. D 34. C 49. B 64. C
5. A 20. B 35. D 50. B 65. A
6. B 21. C 36. B 51. A 66. A
7. A 22. A 37. D 52. A 67. D
8. A 23. C 38. D 53. B 68. C
9. A 24. A 39. B 54. B 69. D
10. B 25. A 40. D 55. A 70. B
11. B 26. D 41. D 56. D 71. D
12. A 27. A 42. D 57. D 72. A
13. C 28. C 43. A 58. A 73. B
14. C 29. D 44. A 59. B 74. A
15. C 30. C 45. D 60. A 75. B