University of Cebu - Main

College of Business and Accountancy

Advanced Financial Accounting

Midterm

Name: Date:

INSTRUCTION: Write the letter of your answer before each number.

1. Under IFRS 3, what is the treatment to the excess of the aggregate of (1) the consideration
transferred measured in accordance with this IFRS, which generally requires acquisition-date
fair value; (2) the amount of any noncontrolling interest in the acquiree measured in accordance
with IFRS 3; and (3) in a business combination achieved in stages, the acquisition-date fair
value of the acquirer’s previously held equity interest in the acquiree over the fair value of the
net of the acquisition-date amounts of the identifiable assets acquired and the liabilities
assumed?
A. Credit to retained earnings
B. Gain on bargain purchase to be presented as part of profit or loss
C. Loss on bargain purchase to be presented as part of other comprehensive income
D. Goodwill from business combination to be classified as non-current asset not subject to
amortization

For questions 2-4.

Entity A acquired the net assets of Entity B by issuing 10,000 of its ordinary shares with par
value of P10 and bonds payable with face value of P500,000. The bonds are classified as
financial liability at amortized cost. At the time of acquisition, the ordinary shares are publicly
quoted at P20 per share. On the other hand, the bonds payable are trading at 110. Entity A paid
P10,000 stock issuance costs and P20,000 bond issue costs. Entity A also paid P40,000
acquisition related costs and P30,000 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 P1,000,000 P 500,000
Noncurrent assets 2,000,000 1,000,000
Current liabilities 200,000 400,000
Noncurrent liabilities 300,000 500,000
Ordinary shares 500,000 200,000
Share premium 1,200,000 300,000
Retained earnings 800,000 100,000

At the time of acquisition, the current assets of Entity A have fair value of P1,200,000 while the
noncurrent assets of Entity B have fair value of P1,300,000. On the same date, the current
liabilities of Entity B have fair value of P600,000 while the noncurrent liabilities of Entity A have
fair value of P500,000.

2.What is the goodwill or (gain on bargain purchase) arising from business combination?
A. (P150,000) C.P50,000
B. (P70,000) D.P120,000

3.What is Entity A’s total equity after the business combination?

A.P2,010,000 C.P2,249,000
B.P2,490,000 D.P2,620,000

4. The A Company acquired the B Company, a foreign subsidiary, on September 10. 2021 The
fair value of the assets of B was the same as their carrying amount except for land where the
fair value was $50,000 greater than carrying amount. This fair value adjustment has not been
recognized in the separate financial statements of B. Consolidated financial statements are
prepared at year-end December 31, 2021 requiring translation of all foreign operations’ results
into the presentation currency of pesos. The following rates of exchange have been identified:
September 10, 2021 $1.62: P1
December 31, 2021 $1.56: P1
Average rate for the year ended December 31, 2021 $1.60: P1
Average rate for the period from September 10 to December 31, 2021 $1.58: P1
What fair value adjustment is required to the carrying amount of land in the consolidated
statement of financial position?
A.P30,864 C.P31,646
B.P31,250 D.P32,051

5. Under IAS 21, adjustments arising from translating functional currency into presentation
currency shall be presented in
A. Profit or loss
B. Retained earnings
C. Other comprehensive income with reclassification adjustment
D. Other comprehensive income without reclassification adjustment

6. In the absence of partnership agreement to the contrary, what is the obligation of the partners
as regards to capital contribution?
A. They shall contribute equally.
B. They shall contribute based on their loss agreement.
C. They shall contribute based on their profit agreement.
D. They shall contribute based on their withdrawal agreement.

7. Under PFRS 15, how shall revenue from contracts with customers such as revenue from
initial franchise fee be recognized by the franchisor?
A. Upon receipt of the initial franchise fee by the franchisor.
B. Upon signing of the franchise agreement.
C. When the franchisor satisfies the performance obligation under the franchise agreement.
D. Applying the legality over the substance of the transaction

8. It is a costing system that values manufactured products with the actual material costs, actual
direct labor costs and manufacturing overhead based on a predetermined manufacturing
overhead rate.
A .Actual costing system C. Normal costing system
B. Budgeted costing system D. Standard costing system

9. The following information pertains to Sigma Company for September:

Direct material Direct labor Overhead
Job # 323 P3,200 P4,500 ?
Job # 325 ? 5,000 ?
Job # 401 5,670 ? P5,550

Sigma Company applies overhead for Job #323 at 140% of direct labor cost and at 150% of
direct labor cost for Jobs #325 and #401. The total cost of Jobs #323 and #325 is identical.
Assume that Jobs #325 and #401 are incomplete at the end of September. What is the balance
in Work in Process Inventory at that time?
A.18,920 C.28,920
B.22,620 D.30,120

10. Under IFRS 15, where a contract with a customer has multiple performance obligations,
what will be the accounting treatment to the transaction price?
A. The transaction price shall be allocated equally to the different performance obligations.
B. The transaction price shall be recognized as revenue to the most important performance
obligation.
C. The transaction price shall be recognized as revenue only at the end of completion of all
performance obligations.
D. The transaction price shall be allocated to the different performance obligations by reference
to their relative standalone selling prices.

11. IAS 27 defines them as financial statements presented by a parent corporation, an investor
with a joint control of, or significant influence over, an investee, in which the investments are
accounted for at a cost method or in accordance with IFRS 9.
A. Combined financial statements C. Group financial statements
B. Consolidated financial statements D. Separate financial statements
12. Which of the following 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’s operation?
A. Overstatement of cost of goods sold reported by the branch for the goods coming from the
home office.
B. Overstatement of goods in the beginning inventory of the branch for the goods coming from
the home office.
C. Understatement of cost of goods sold reported by the branch for the goods coming from the
outside supplier.
D. Understatement of goods in the beginning inventory of the branch for the goods coming from
the outside supplier.

13. On January 1, 2021, an entity started the construction of a building at a fixed contract price
of P1,000,000. On the same date, the customer paid a mobilization fee equal to 5% of contract
price that will be deductible from the first billing. On 2018, the entity billed its customer
equivalent to 30% of the contract price. On 2022, the entity billed again its customer amounting
to 20% of the contract price. On 2023, the entity billed again its customer amounting to 40% of
the contract price. The remaining billing was made at the year of completion of the project. The
entity made collection from the customer at the end of year 2021, 2022 and 2023, in the amount
of P120,000,
P450,000 and P180,000, respectively. The outcome of construction contract cannot be
estimated reliably. The entity provided the following data concerning the direct costs related to
the said project:
Year 2021 Year 2022 Year 2023
Cumulative costs incurred as
of the end of the year P360,000 P800,000 P870,000
Remaining estimated costs to complete at the
end of the year P840,000 P250,000 P50,000
What is the excess of construction in progress over progress billings (progress billings over
construction in progress) on December 31, 2023?
A.(P80,000) C.P20,000
B.(P30,000) D.P50,000

14. When will the average process costing method produce the same cost of goods
manufactured as the first in first out process costing method?
A. When there is no beginning work in process inventory.
B. When materials are added 100% at the end of the process.
C. When materials are added 100% at the beginning of the process.
D. When the beginning work in process inventory and ending work in process inventory are
equal.

15. This method of service department costs allocation is also called sequential method that
allocates the costs of some service departments to other service departments, but once a
service department’s costs have been allocated, no subsequent costs are allocated back to it.
A. Bottom-top method C. Reciprocal method
B. Direct method D. Step-down method

16. Under Standard Costing System, if the actual direct labor hours is more than the standard
direct labor hours, the journal entry to record the incurring of direct labor cost will result to
A. Credit to labor efficiency variance C. Debit to labor efficiency variance
B. Credit to labor rate variance D. Debit to labor rate variance

17. Under IFRS 15, which of the following costs can be capitalized as an asset for being
incremental cost of obtaining a contract with customer?
A. Salaries of the legal counsel of the entity.
B. Advertising cost to create goodwill for the company.
C. Research and development costs to create a good name for the company
D. Costs that the entity would not have incurred if the contract had not been successfully
obtained such as success fees’ paid to agents

For question 18-21.

An entity set up a branch in a province. The entity and its branch provided the following data on
the second year of branch’s operation:
Home Office Branch
Sales revenue to outside customer P1,000,000 P500,000
Beginning inventory 50,000 30,000
Purchases from outside supplier 400,000 100,000
Shipment to branch 200,000
Shipment from home office 250,000
Ending inventory 80,000 50,000
Operating expenses 150,000 40,000
The following additional data are provided:
 The home office to branch’s mark-up based on cost last year is 80% of this year’s mark-
up on cost.
 1/5 of the beginning inventory of the branch came from outside supplier.
 24% of the ending inventory of the branch came from the last year’s shipment from the
home office while 50% of the ending inventory of the branch came from current year’s
shipment from the home office.

18.What is the net income reported by the branch in its separate income statement for the
current year?
A.P95,000 C.P124,000
B.P114,000 D.P130,000

19.What is the ending inventory to be reported by the entity in its combined external statement
of financial position?
A.P115,000 C.P128,000
B.P123,000 D.P130,000

20.What is the overstatement in the cost of goods sold reported by the branch in its separate
income statement for the
current year?
A.P47,000 C. P52,000
B.P50,000 D. P54,000

21.What is the net income to be reported by the entity in its external combined income
statement for the current year?
A.P810,000 C.P857,000
B.P853,000 D.P864,00018.

22. Hydro Company opened a sales agency in Surigao. Pertinent information regarding the
sales agency transactions are found below:
Sales 1,959,000
Collections, net of 4% discount 1,451,520
Expenses paid from the agency working fund 190,500
Expenses allocated by the home office 89,550
Agency samples:
Cost 102,000
Inventory, end 10,800
Hydro’s gross profit rate is 30% on net sales. The receivable is estimated to be 97% collectible.
What is the net income of Surigao sales agency?
A.154,761 C.193,806
B.184,896 D.216,450

23. A, B and C decided to form ABC Partnership. It was agreed that A will contribute an
equipment with assessed value of P100,000 with historical cost of P800,000 and accumulated
depreciation of P600,000. B will contribute a land and building with book value of P1,200,000
and fair market value of P1,500,000. The land and building is subject to a mortgage payable
amounting to P300,000 to be assumed by the partnership. The partners agreed that B will have
60% capital interest in the partnership. They agreed that C will contribute sufficient cash to the
partnership. A day after the partnership formation, the equipment was sold for P 300,000. What
is the total agreed capitalization of the ABC Partnership?
A.P1,500,000 C.P2,500,000
B.P2,000,000 D.P3,000,000

An entity set up a branch in Makati. The branch has been in operation already for two years.
The home office and branch accounts are in balance at the beginning of the current year. The
home office account has a balance of P250,000 at the end of the current year. At the end of the
current year, the accountant discovered the following transactions:
 Makati branch returned an inventory shipped by the home office at cost. Such inventory
costing P20,000 is still in transit at the end of the current year.
 Inventory costing P10,000 intended for Manila branch was actually received by Makati
branch.
 Inventory costing P30,000 intended for Makati branch was actually received by Marikina
branch.
 Manila branch collected P40,000 receivables of Makati branch without notifying the
home office.
 Marikina branch paid P50,000 payables of Manila branch without notifying the home
office.
 Makati branch collected P60,000 receivables of Home Office without notifying the home
office.
 The home office collected the P70,000 receivables of Marikina branch without notifying
the said branch.
 Manila branch sent a P10,000 debit memo to home office which is debited twice by the
home office in the amount of P20,000
The home office sent a P20,000 credit memo to Makati branch which is credited by the said
branch in the amount of P10,000. The P20,000 net income of the branch was erroneously
credited by the home office to branch account at P30,000.

24.What is the adjusted balance of the home office account at the end of the current year?
A.P220,000 C.P240,000
B.P230,000 D.P260,000

25.What is the unadjusted balance of branch account at the end of the current year?
A.P170,000 C. P210,000
B.P190,000 D. P240,00

26. Bly Company uses the weighted-average method in its process costing system. During
March, Bly Company’s Department Y costs per equivalent unit were as follows:
Materials P1
Conversion 3
Transferred-in 5
There were 4,000 units (40% complete with respect to conversion cost and 0% complete with
respect to materials cost) in Work in Process on March 31. The total costs assigned to the
March 31, Work in Process Inventory should be
A.24,800 C.28,800
B.27,200 D.36,000

27. A company has a cycle of 3 days, uses a Raw and In Process Account (RIP) and charges
all conversion costs to cost of goods sold. At the end of each month, all inventories are counted,
their conversion costs components are estimated, and inventory account balances are 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.
Beg. Bal. of RIP account, including P1,000 conversion cost P5,000
Beg. Bal. of finished goods accounting including P6,000 conversion cost 10,000
Raw materials received on credit 400,000
Direct labor cost P300,000; Factory overhead applied P500,000 800,000
Ending RIP inventory per physical count, including P7,000 conversion cost 20,000
Ending finished goods inventory per physical count, including P4,000 conversion cost 6,000
What is the amount of direct materials backflushed from finished goods to cost of goods sold?
A.P389,000 C.P395,000
B.P393,000 D.P400,000

28. Under IFRS 15, what shall be presented by the entity in its statement of financial position in
relation to its contract with a customer where the entity has performed by transferring a good or
service to the customer and the customer has not yet paid the related consideration and the
entity’s right to consideration is conditional on something other than the passage of time , for
example future performance of the entity?
A. Contract asset C. Contract liability
B. Contract equity D. Contract receivable
For questions 29-33.
On January 1, 2021, Entity A acquired 90% of outstanding ordinary shares of Entity B at a price
of P900,000. Entity A paid P20,000 costs related to acquisition of shares. At the acquisition date,
the net assets of Entity B is reported at P950,000. All the assets of Entity B are properly valued
except for a machinery which is undervalued by P150,000. The machinery has a remaining
useful life of 5 years. For the year ended December 31, 2021, Entity B reported net income of
P200,000 and declared dividends in the amount of P30,000. Based on the data given by the
qualified appraiser, the fair value of Investment in Entity B on December 31, 2021 is P1,000,000
while the cost to sell is 5%. Entity A voluntarily prepares its separate financial statements.

29. If Entity A elects cost method to account its Investment in Entity B in its separate financial
statements, what is the book value of the Investment in Entity B on December 31, 2021?
A.P900,000 C.P950,0000
B.P920,000 D.P1,000,000

30. What is the net effect in profit or loss for year 2021 if Entity A elects cost method to account
its Investment in Entity B in its separate financial statements?
A.P7,000 net profit C.P107,000 net profit
B.P27,000 net profit D.P180,000 net profit

31. If Entity A elects fair value model at profit or loss to account its Investment in Entity B in its
separate financial statements, what is the book value of the Investment in Entity B on December
31, 2021?
A.P900,000 C.P950,0000
B.P920,000 D.P1,000,000

32. If Entity A elects equity method to account its Investment in Entity B in its separate financial
statements, what is the book value of the Investment in Entity B on December 31, 2021?
A.P920,000 C.P1,000,000
B.P950,000 D.P1,116,000

33. What is the net effect in profit or loss for year 2021 if Entity A elects equity method to
account its Investment in Entity B in its separate financial statements?
A.P27,000 net profit C.P57,000 net profit
B.P107,000 net profit D.P180,000 net profit

On January 1, 2021, A, B and C formed ABC Partnership with original capital contribution of
P300,000, P500,000 and P200,000. A is appointed as managing partner. During 2021, A, B and
C made additional investments of P500,000, P200,000 and P300,000, respectively. At the end
of 2018, A, B and C made drawings of P200,000, P100,000 and P400,000, respectively. At the
end of 2021, the capital balance of C is reported at P320,000. The profit or loss agreement of
the partners is provided below:
 10% interest on original capital contribution of the partners.
 Quarterly salary of P40,000 and P10,000 for A and B, respectively.
 Bonus to A equivalent to 20% of Net Income after interest and salary to all partners
 Remainder is to be distributed equally among the partners.

34. What is C’s share in the partnership profit for the year ended December 31, 2021?
A.P120,000 C.P220,000
B.P180,000 D.P320,000

35. What is the bonus given to A as managing partner for the year ended December 31, 2021?
A.P60,000 C.P120,000
B.P100,000 D.P150,000

36. IFRS 3 and IFRS 10 require which types of financial statements to be presented by a parent
corporation?
A. Consolidated financial statements
B. Separate financial statements and combined financial statements
C. Separate financial statements and consolidated financial statements
D. Separate financial statements, combined financial statements and consolidated financial
statements
For question 37-38.
On January 1, 2021, an entity accepted a long-term construction project for an initial contract
price of P1,000,000 to be completed on June 30, 2023. On January 1, 2022, the contract price
was increased to P1,500,000 by reason of change in the design of the project. The project was
completed on December 31, 2023 which resulted to penalty amounting to P200,000. The entity
provided the following data concerning the direct costs related to the said project:
Year 2021 Year 2022 Year 2023
Costs during the year P440,000 P680,000 P130,000
Remaining estimated costs to
complete at the end of the year P660,000 P280,000 --
The outcome of the construction contract can be estimated reliably.

37.What is the balance of construction in progress on December 31, 2022?

A.P900,000 C.P1,120,000
B.P1,020,000 D.P1,200,000

38.What is the realized gross profit (gross loss) to be recognized by the entity for the year
ended December 31, 2023?
A.(P120,000) C.P50,000
B.(P30,000) D.P170,000

39. When the parent corporation accounts its investment in subsidiary using fair value model in
its separate financial statements, which income accounts may be recognized?
A. Impairment loss
B. Share in net income of subsidiary
C. Dividend income and gain/loss on changes in fair value
D. All of the above

40. On October 1, 2020, Acme Fuel Co. sold 100,000 gallons of heating oil to Karn Co. at P3
per gallon. Fifty-thousand gallons were delivered on December 15, 2020, and the remaining
50,000 gallons were delivered on January 15, 2021. Payment terms were 50% due on October
1, 2020, 25% due on first delivery, and the remaining 25% due on second delivery. What
amount of revenue should Acme recognize from this sale during 2021?
A.P75,000 C. P225,000
B.P150,000 D. P300,000

For question 41-42.

On January 1, 2021, an entity granted a franchise agreement to a franchisee. The contract
provides that the franchisee shall pay an initial franchise fee of P500,000 and on-going payment
of royalties equivalent to 8% of the sales of the franchisee. On January 1, 2021, the franchisee
paid downpayment of P200,000 and issued a 3-year non-interest bearing note for the balance
payable in three equal annual installments starting December 31, 2021. The note has present
value of P240,183 with effective interest rate of 12%. As of June 30, 2021, the entity completed
the performance obligation of the franchise at a cost of P352,146. Aside from that, the entity
incurred indirect cost of P22,009. The franchisee started operation on July 1, 2021 and reported
sales revenue amounting to P50,000 for the year ended December 31, 2021. The franchisee
paid the first installment on its due date.

41.If the collection of the note receivable is reasonably assured, what is the gross profit to be
recognized by the entity for the year ended December 31, 2021 in relation to the initial franchise
fee?
A.P22,009 C.P66,028
B.P44,014 D.P88,037

42.If the collection of the note receivable is reasonably assured, what is the net income to be
reported by the entity for the year ended December 31, 2021?
A.P70,028 C.P94,850
B.P92,037 D.P98,85

43. Under IAS 11, which of the following costs shall form part of contract costs of long-term
construction contract?
A. selling costs such as broker’s commission
B. general administration costs for which reimbursement is not specified in the contract
C. research and development costs for which reimbursement is not specified in the contract
D. construction overheads including costs such as the preparation and processing of
construction personnel payroll

44. Jackie Company uses the average method and adds materials at the start of the production
in the Forming Department.
Data related to materials used in October 2021 are as follows:
Units
Work in process, October 1 2,150
Started in October 10,850
Completed and transferred out 10,000
Abnormal lost units 25
Work in process, October 31, 2021 2,975
Cost data:
Materials in beginning WIP inventory 60,000
Cost of materials added during month 304,000
Using these data, what is the entry to record the costs related to the units of abnormal loss
(ignore labor and overhead transferred in costs):
A. Loss from abnormal spoilage 700
Work in process – Forming Department 700
B. Manufacturing overhead control 700
Work in process – Forming Department 700
C. Loss from Abnormal Spoilage 850
Work in process – Forming Department 850
D. Manufacturing Overhead Control 850
Work in process – Forming Department 850

45. Marian Rivera Corporation has provided the following data from its activity-based costing
systems:
Activity Cost Pool Total Cost Total Activity
Assembly P613,250 55,000 machine hours
Processing orders 46,170 1,500 orders
Inspection 146,110 1,900 inspection hours
Data concerning one of the company’s products, Product W58B, appear below:
Selling price per unit P113.70
Direct materials cost per unit P 48.14
Direct labor cost per unit P 11.62
Annual unit production and sales 360
Annual machine hours 1,040
Annual orders 60
Annual inspection hours 30
According to the activity-based costing system, the product margin for product W58B is
A.P3,668.60 C.P5,975.60
B.P5,515.40 D.P19,418.40

46. KITA MO Corp. produces joint products A and B from a process that also yield a by-product
007. The by-product requires additional processing before it can be sold. The cost assigned to
the by-product is its market value less additional costs incurred after split off (NRV method).
Information concerning a batch produced in January at a joint cost of P40,000 is as follows:
Product Units produced Market value Costs after split off
A 800 P44,000 4,500
B 700 32,000 3,500
007 500 4,000 1,000
How much of the joint cost should be allocated to the joint products?
A.35,000 C.37,000
B.36,000 D.39,000
47. On December 31, 2021, ABC Partnership’s Statement of Financial Positions shows that A,
B and C have capital balances of P500,000, P300,000 and P200,000 with profit or loss ratio of
1:3:6. On January 1, 2022, C retired from the partnership and received P350,000. At the time of
C’s retirement, an asset of the partnership is undervalued. What is the capital balance of A after
the retirement of C?
A.P462,500 C. P537,500
B.P525,000 D. P562,500

48. It is a product costing system generally used in just-in-time inventory environment. This
costing system delays the costing process until the production of goods is completed by
eliminating the detailed tracking of cost throughout the production system and preparing journal
entries only at trigger points.
A. Backflush costing C. Standard costing
B. Normal costing D. Traditional costing

49. If the net realizable value of the by-product of a joint production process is significant, how
shall it be accounted for?
A. The net realizable value of the by-product shall be recorded as other income.
B. The net realizable value of the by-product shall be recorded as deduction from the net sales
of the main product.
C. The net realizable value of the by-product shall be recorded as deduction from the cost of
sales of the main product.
D. The net realizable value of the by-product shall be recorded as deduction from the total joint
manufacturing cost thereby reducing the cost of the main products also known as replacement
cost method.

50. THE ONE AND ONLY Company manufactures smoke detectors and has developed the
following flexible budget for its overhead costs. Manufacturing overhead at THE ONE AND
ONLY is applied to production on the basis of standard direct labor hours:
Direct labor hours 56,000 70,000 84,000
Detectors produced 40,000 50,000 60,000
Variable overhead cost P252,000 P315,000 P378,000
Fixed overhead cost P672,000 P672,000 P672,000
THE ONE AND ONLY was expecting to produce 40,000 detectors last year. The actual results
for the year were as follows:
Number of detectors produced 43,200
Direct labor hours incurred 62,640
Variable overhead cost P278,748
Fixed overhead cost P714,000
What was THE ONE AND ONLY’s variable spending variance?
A.P3,132 favorable C.P13,608 unfavorable.
B.P9,720 unfavorable. D.P115,884 favorable

51. On July 15, 2021, Ortiz & Co. signed a contract to provide EverFresh Bakery with an
ingredient-weighing system for a price of P90,000. The system included finely tuned scales that
fit into EverFresh’s automated assembly line, Ortiz’s proprietary software modified to allow the
weighing system to function in EverFresh’s automated system, and a one-year contract to
calibrate the equipment and software on an as-needed basis. (Ortiz competes with other
vendors who offer ongoing calibration contracts for Ortiz’s systems.) If Ortiz was to provide
these goods and services separately, it would charge P60,000 for the scales, P10,000 for the
software, and P30,000 for the calibration contract. Ortiz delivered and installed the equipment
and software on August 1, 2021, and the calibration service commenced on that date. Assume
that the scales, software and calibration service are viewed as one performance obligation. How
much revenue will Ortiz recognize in 2021 for this contract?
A.P0 C. P63,000
B.P37,500 D. P90,000

52. Which of the following items affect consolidated net income attributable to parent’s
stockholders only but not the non-controlling interest in net income?
A. Stock issuance costs
B .Gain on bargain purchase
C .Impairment loss of goodwill computed when NCI is measured initially at fair value
D. Amortization of difference between book value and fair value of identifiable assets and
liabilities of subsidiary

53. On December 1, 2021, JJJ Co. sent 10 units of plasma television sets on consignment
which cost P200,000 to CCC Co, JJJ’s dealer in Davao. JJJ paid freight and insurance of
P10,000 for the consigned goods. CCC Co. is entitled to reimbursement of expenses related to
the consigned goods and 5% commission on sales. By the end of 2021, 4 units were sold, 1
was returned and 5 remained with CCC Co. The returned unit was shipped back to JJJ for
P1,000 which CCC Co. paid. How much cost of goods sold should JJJ recognize for 2021.
A. 100,000
B. 85,000
C. 86,000
D. 105,000

For question 54-55.

On January 1, 2020, Entity A acquires 80% of outstanding ordinary shares of Entity B at a gain
on bargain purchase of P180,000. The following intercompany transactions occurred for
between the two entities: On January 1, 2020, Entity B sold a land to Entity A with a cost of
P1,000,000 at a selling price of P1,100,000. The land was eventually sold by Entity A to third
person during 2020.
On January 1, 2020, Entity A sold a white machinery to Entity B with a cost of P200,000 and
accumulated depreciation of P40,000 at a selling price of P180,000. The machinery is already 4
years old at the date of sale. The residual value of white machinery is immaterial.
On July 1, 2021, Entity B sold a black machinery to Entity A at with a cost of P270,000 and
accumulated depreciation of P180,000 at a selling price of P60,000. The machinery is already 6
years old at the date of sale. The residual value of black machinery is immaterial. For the year
ended December 31, 2021, Entity A reported net income of P800,000 while Entity B reported
net
income of P500,000 and distributed dividends of P150,000. Entity A accounted for its inventory
in Entity B using cost method in its separate financial statements.

54. What is the consolidated depreciation expense of machinery for the year ended December
31, 2021?
A.P40,000 C.P55,000
B.P42,333 D.P61,667

55. What is the consolidated net income attributable to parent’s shareholders for the year ended
December 31, 2021?
A.P1,398,750 C. P1,518,750
B.P1,418,750 D. P1,538,75

56. IAS 21 defines it as the currency other than the functional currency of the entity.
A. Foreign currency C. Legal tender
B. Functional currency D. Presentation currency

57. Wilson Links Products sells a product that involves two separate performance obligations:
the Swing Right golf club weight and the Swing Coach teaching software. Swing Right has a
stand-alone selling price of P150. Wilson sells both the Swing Right and the Swing Coach as a
package deal for P200. The Swing Coach software is not sold separately. Wilson is aware that
other vendors charge P100 for similar software, and Wilson’s prices are generally 10% lower
than what is charged by those vendors. Wilson estimates that it incurs approximately P65 of
cost per copy of the software, and usually charges 50% above cost on similar products.
Estimate the stand-alone selling price of the software using the adjusted market assessment
A.P50 C. P90
B.P80 D. P97.5

58. On November 1, 2021, an entity acquired on account goods from a foreign supplier at a cost
of $1,000. The accounts payable are paid on January 30, 2022. On December 1, 2021, an entity
sold on account the said goods to a foreign customer at a selling price of $1,500. The accounts
receivable are collected on February 28, 2022. The entity is operating in Philippine economy
wherein the functional currency is the Philippine Peso. The following direct exchange rates are
provided:
11/1/2021 12/1/2021 12/31/2021 1/30/2022 2/28/2022
Buying spot rate P40 P39 P45 P43 P42
Selling spot rate P42 P40 P47 P46 P45

What is the net foreign currency gain or (loss) for the year ended December 31, 2021?
A.P3,000 C.P5,000
B.P4,000 D.P6,000

59. Under IAS 39, unrealized holding gain or loss arising from changes in fair value of
derivatives designated as fair value hedge shall be recognized in
A. Profit or loss
B. Retained earnings
C. Other comprehensive income with reclassification adjustment
D. Other comprehensive income without reclassification adjustment

60. PFRS 15 provides that initial franchise fee shall be recognized as revenue over time
(percentage of completion method) if any one of the following criteria provided below is met.
Which of the following indicator shows that the initial franchise fee shall be recognized as
revenue at a point in time instead over time?
A. When the franchisee simultaneously receives and consumes the benefits provided by the
franchisor’s performance as the franchisor performs.
B. When the franchisor’s performance creates or enhances an asset that the franchisee controls
as the asset is created or enhanced.
C. When the franchisor’s performance does not create an asset with alternative use to the
franchisor and the franchisor has an enforceable right to payment for performance completed to
date.
D. When the franchisee has legal title to the franchise

61. On January 1, 2021, an entity granted a franchise to a franchisee. The franchise agreement
requires the franchisee to pay a nonrefundable upfront fee in the amount of P400,000 and on-
going payment of royalties equivalent to 5% of the sales of the franchisee. The franchisee paid
the nonrefundable upfront fee on January 1, 2021. In relation to the nonrefundable upfront fee,
the franchise agreement requires the entity to render the following performance obligations:
 To construct the franchisee’s stall with stand-alone selling price of P200,000.
 To deliver 10,000 units of raw materials to the franchisee with stand-alone selling price
of P250,000.
 To allow the franchisee to use the entity tradename for a period of 10 years starting
January 1, 2021 with stand-alone selling price of P50,000.
On June 30, 2021, the entity completed the construction of the franchisee’s stall. As of
December 31, 2021, the entity was able to deliver 3,000 units of raw materials to the franchisee.
For the year ended December 31, 2021, the franchisee reported sales revenue amounting to
P100,000. The entity determines that the performance obligations are separate and distinct from
one another What is the amount of revenue to be recognized in relation to the use of entity’s
tradename for the year ended December 31, 2021?
A.P4,000 C.P10,000
B.P5,000 D.P50,000

62. On December 1, S company entered into a firm commitment to acquire a machinery from
United Arab Emirates Company. Delivery and passage of title would be on January 31, 2022 at
the price of 37,800 dirhams, accounted for as fair value hedge. On the same date, to hedge
against unfavorable changes in the exchange rate. S entered into a 60-day forward contract
with a bank for 37,800 dirhams. Exchange rate were as follows:
Spot Rate Forward Rate
Dec. 01, 2021 P96.50 P94.30
Dec. 31, 2021 97.25 96.50
Jan 31, 2022 99.70 99.70
What is the foreign exchange gain (loss) on the hedging instrument on December 31, 2021?
A.(83,160) C.28,350
B.(28,350) D.83,160
63. Under IAS 21, items of assets and liabilities at functional currency shall be translated into
presentation currency at
A. Average rate C. Historical rate
B. Closing rate D. Opening rate

64. Which of the following will not result to dissolution of a general partnership?
A. Death of a partner
B. Insolvency of a partner
C. Retirement of a partner
D. Assignment of a partner’s interest to a third person

For question 65-66.

On January 2, 2020, Domus Corporation purchased 80% of the outstanding shares of Caritate
Company for a consideration of P19,000,000. Including in the price paid is control premium in
the amount of P500,000. The acquisition-related cost amount to P45,000. At that date, Caritate
had P16,000,000 of ordinary shares outstanding and retained earnings of P6,400,000.
Caritate’s equipment with a remaining life of 5 years had a book value of P9,000,000 and a fair
value of P10,520,000. Caritate’s remaining assets had book values equal to their fair values. All
intangibles except goodwill are expected to have remaining lives of 8 years. The income and
dividend figures for both Domus and Caritate are as follows:
Net income of Domus in 2020 is P3,600,000; 2021 is P4,400,000.
Net income of Caritate in 2020 is P1,360,000; 2021 is P2,040,000.
Dividends declared by Domus in 2020 is P880,000; 2021 is P1,560,000.
Dividends declared by Caritate in 2020 is P280,000; 2021 is P520,000.
Domus’ retained earnings at the date ofacquisition was P13,800,00

65. What is the non-controlling interest in net income in 2020?

A.211,200 C.272,000
B.238,400 D.347,200

66. What is the consolidated retained earnings attributable to controlling interest in 2021?
A.20,929,600 C.21,089,600
B.20,953,600 D.21,332,800

For question 67-69

On December 31, 2020, the Statement of Financial Position of ABC Partnership with profit or
loss ratio of 5:3:2 is presented as follows:
Cash P1,600,000 Total Liabilities P2,000,000
Noncash asset 1,400,000 A, Capital 100,000
B, Capital 500,000
C, Capital 400,000
On January 1, 2021, the partners decided to liquidate the partnership in installment. All partners
are legally declared to be personally insolvent.
As of January 31, 2021, the following transactions occurred:
 Noncash assets with a book value P1,000,000 were sold at a gain of P100,000.
 Liquidation expenses for the month of January amounting to P50,000 were paid.
 It is estimated that liquidation expenses amounting to P150,000 will be incurred for the
month of February, 2021.
 20% of the liabilities to third persons were settled.
 Available cash were distributed to the partners.
As of February 28, 2021, the following transactions occurred:
 Remaining noncash assets were sold at a loss of P100,000.
 The final liquidation expenses for the month of February amounted to P100,000.
 The remaining liabilities to third persons were settled at a compromise amount of
P1,500,000.
Remaining cash were finally distributed to the partners.

67. What is the amount of cash received by partner C on January 31, 2021?
A.P240,000 C.P300,000
B.P260,000 D.P350,000

68. What is the share of B in the maximum possible loss on January 31, 2021?
A.P110,000 C.P165,000
B.P120,000 D.P275,000

69. What is the amount of total cash withheld on January 31, 2021?
A.P550,000 C.P1,700,000
B.P1,600,000 D.P1,750,000

70. Which of the following items will not affect the consolidated net income?
A. Stock issuance costs
B. Gain on bargain purchase
C. Indirect cost of business combination
D. Acquisition related costs of business combination