ADVANCED FINANCIAL ACCOUNTING AND REPORTING

PART I (PROBLEM SOLVING)

Arranged and Compiled by Vhin

Partnership Formation

For Numbers 1 – 4

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.

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

a. P1,500,000
b. P2,000,000
c. P2,500,000
d. P3,000,000

2. What is the capital credit of A in the ABC Partnership after the formation?
a. P100,000
b. P200,000
c. P300,000
d. P400,000

3. What is the capital credit of B in the ABC Partnership after the formation?
a. P900,000
b. P1,500,000
c. P1,400,000
d. P1,200,000

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

a. P500,000
b. P600,000
c. P700,000
d. P800,000

Partnership Operation – Capital Account Transactions

For Numbers 5 – 7

On January 1, 2021, 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 2021, A and B made additional investments of P200,000 and P500,000, respectively. At the
end of 2021, B and C made drawings of P300,000 and P100,000, respectively.

On December 31, 2021, the capital balance of B is reported at P200,000.

5. What is the net income or net loss of ABC Partnership for the year ended December 31, 2021?
a. (P500,000)
b. (P1,000,000)
c. P800,000
d. P1,200,000
AFAR LMQ PART I (PROBLEM SOLVING)

6. What is the capital balance of A on December 31, 2021?

a. P450,000
b. P350,000
c. P550,000
d. P400,000

7. What is the capital balance of C on December 31, 2021?

a. P150,000
b. P50,000
c. P200,000
d. P250,000

Partnership Operation – Distribution of Profit or Loss

For Numbers 8 – 12

On January 1, 2018, 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 2018, 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 2018, 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.

8. What is C’s share in the partnership profit for the year ended December 31, 2018?
a. P120,000
b. P320,000
c. P180,000
d. P220,000

9. What is the partnership profit for the year ended December 31, 2018?
a. P900,000
b. P1,020,000
c. P1,050,000
d. P960,000

10. What is the bonus given to A as managing partner for the year ended December 31, 2018?
a. P120,000
b. P150,000
c. P60,000
d. P100,000

11. What is the capital balance of A on December 31, 2018?

a. P1,140,000
b. P1,110,000
c. P1,050,000
d. P1,200,000

12. What is the capital balance of B on December 31, 2018?

a. P850,000
b. P840,000
c. P890,000
d. P940,000
AFAR LMQ PART I (PROBLEM SOLVING)

Partnership Dissolution – Admission of New Partner by Purchase and Retirement of a Partner

On December 31, 2020, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of 1:6:3:
Current Assets P 1,000,000 Total Liabilities P600,000
Noncurrent Assets 2,000,000 A, Capital 900,000
B, Capital 800,000
C, Capital 700,000

On January 1, 2021, D is admitted to the partnership by purchasing 40% of the capital interest of
B at a price of P500,000.

13. What is the capital balance of B after the admission of D on January 1, 2021?
a. P540,000
b. P480,000
c. P420,000
d. P300,000

On December 31, 2018, 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, 2019, C retired from the partnership and received P350,000. At the time of C’s
retirement, an asset of the partnership is undervalued.

14. What is the capital balance of A after the retirement of C?

a. P462,500
b. P537,500
c. P562,500
d. P525,000

On December 31, 2020, 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, 2021, C retired from the partnership and received P80,000. At the time of C’s
retirement, the assets and liabilities of the partnership are properly valued.

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

a. P284,000
b. P308,000
c. P316,000
d. P320,000

Partnership Dissolution – Admission of New Partner by Investment

For numbers 16 – 17

On December 31, 2020, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of 1:6:3:
Current Assets P 1,300,000 Total Liabilities P 300,000
Noncurrent Assets 2,000,000 A, Capital 1,400,000
B, Capital 700,000
C, Capital 900,000
On January 1, 2021, D is admitted to the partnership by investing P1,000,000 to the partnership
for 20% capital interest.

16. 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. P960,000
b. P900,000
c. P840,000
d. P1,200,000
AFAR LMQ PART I (PROBLEM SOLVING)

17. If an existing asset of ABC partnership is not properly valued, what is the capital balance of
B after the admission of D?
a. P820,000
b. P1,300,000
c. P960,000
d. P780,000

For Numbers 18 – 21
On December 31, 2018, the Statement of Financial Position of ABC Partnership provided the
following data with profit or loss ratio of 5:1:4:
Current Assets P 1,500,000 Total Liabilities P 500,000
Noncurrent Assets 2,000,000 A, Capital 1,100,000
B, Capital 1,200,000
C, Capital 700,000

On January 1, 2019, D is admitted to the partnership by investing P500,000 to the partnership for
10% capital interest. The total agreed capitalization of the new partnership is P3,000,000.

18. What is the share of A in the asset impairment?

a. P120,000
b. P80,000
c. P150,000
d. P250,000

19. What is the amount of bonus given by D to the existing partners?

a. P200,000
b. P300,000
c. P100,000
d. P150,000

20. What is the capital balance of D after his admission to the partnership?
a. P500,000
b. P300,000
c. P350,000
d. P400,000

21. What is the capital balance of C after the admission of D to the partnership?
a. P580,000
b. P820,000
c. P500,000
d. P780,000

Partnership Liquidation – Lump Sum Liquidation

For Numbers 22 – 23

On December 31, 2019, the Statement of Financial Position of ABC Partnership with profit or loss
ratio of 6:1:3 is presented as follows:

Cash P1,000,000 Other Liabilities P2,000,000

Receivable from A 500,000 Payable to B 1,000,000
Other noncash assets 2,000,000 Payable to C 100,000
A, Capital 700,000
B, Capital (650,000)
C, Capital 350,000

On January 1, 2020, the partners decided to liquidate the partnership. All partners are legally
declared to be personally insolvent. The other noncash assets were sold for P1,500,000. Liquidation
expenses amounting to P100,000 were incurred.
AFAR LMQ PART I (PROBLEM SOLVING)

22. How much cash was received by B at the end of partnership liquidation?
a. P250,000
b. P150,000
c. P290,000
d. P270,000

23. How much cash was received by C at the end of partnership liquidation?
a. P270,000
b. P150,000
c. P350,000
d. P220,000

For Numbers 24 – 25

On December 31, 2019, the Statement of Financial Position of ABC Partnership with profit or loss
ratio of 1:4:5 is presented as follows:

Cash P1,200,000 Total Liabilities P1,500,000

Noncash asset 800,000 A, Capital 150,000
B, Capital 300,000
C, Capital 50,000

On January 1, 2020, the partners decided to liquidate the partnership. All partners are legally
declared to be personally insolvent. The other noncash assets were sold at a specific price.
Liquidation expenses amounting to P50,000 were incurred. At the end of liquidation, A received
P80,000.

24. What is the amount of cash received by B at the end of liquidation?

a. P40,000
b. P30,000
c. P10,000
d. P20,000

25. What is the net proceeds from the sale of noncash asset during partnership liquidation?
a. P450,000
b. P350,000
c. P400,000
d. P500,000

Partnership Liquidation – Installment Liquidation

For Numbers 26 – 29

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 ofJanuary 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.
AFAR LMQ PART I (PROBLEM SOLVING)

As ofFebruary 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.

26. What is the amount of cash received by partner C on January 31, 2021?
a. P260,000
b. P240,000
c. P300,000
d. P350,000

27. What is the share of B in the maximum possible loss on January 31, 2021?
a. P275,000
b. P110,000
c. P120,000
d. P165,000

28. What is the amount of total cash withheld on January 31, 2021?
a. P550,000
b. P1,600,000
c. P1,750,000
d. P1,700,000

29. What is the amount of cash received by A on February 28, 2021?

a. P75,000
b. P25,000
c. P50,000
d. None

Corporate Liquidation

For Numbers 30 – 33

An entity is experiencing financial problems which resulted to its ultimate bankruptcy. The
statement of financial position of the said entity before its liquidation is presented below:

Cash P100,000 Income tax payable P 200,000

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

The following additional data are provided:

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

30. What is the amount received by the holder of the notes payable at the end of corporate
liquidation?
a. P320,000
b. P300,000
c. P250,000
d. P260,000

31. What is the amount received by the holder of the mortgage payable at the end of corporate
liquidation?
a. P120,000
b. P200,000
c. P150,000
d. P100,000
AFAR LMQ PART I (PROBLEM SOLVING)

32. What is the amount received by the employees at the end of corporate liquidation concerning
their salaries?
a. P100,000
b. P120,000
c. P72,000
d. P300,000

33. What is the amount received by the national government concerning its income tax claim?
a. P200,000
b. P120,000
c. P48,000
d. None

Corporate Liquidation

For Numbers 34 – 37

A bankrupt entity has undergone corporate liquidation. Presented below is its statement of financial
position before the start of liquidation:

Cash P 300,000 Accounts Payable P 100,000

Machinery 500,000 Salaries Payable 200,000
Building 1,200,000 Income tax Payable 300,000
Loans Payable 400,000
Mortgage payable 500,000
Contributed capital 800,000
Deficit (300,000)
The following additional data are provided:
 Liquidation expenses amounting to P600,000 were paid.
 The loans payable is secured by the machinery which has fair value of P300,000.
 The mortgage payable is secured by the building.
 At the end of liquidation, the holder of loans payable received P340,000.

34. What is the recovery percentage of unsecured creditors without priority?

a. 15%
b. 85%
c. 60%
d. 40%

35. What is the amount received by the holder of accounts payable at the end of liquidation?
a. P85,000
b. P15,000
c. P40,000
d. P60,000

36. What is the amount of net free assets available at the end of liquidation?
a. P80,000
b. P40,000
c. P120,000
d. P200,000

37. What is the fair value or realizable value of building?

a. P880,000
b. P1,380,000
c. P1,300,000
d. P1,100,000
AFAR LMQ PART I (PROBLEM SOLVING)

IFRS 11: Joint Arrangement classified as Joint Operation

For Numbers 38 – 41

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 provides 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 capital stocks 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 P1,000,000 Accounts payable P2,000,000

Land 3,000,000 Notes payable 1,000,000
Building 5,000,000 Loans payable 4,000,000
Share capital 1,000,000
Retained earnings 1,000,000
Sales revenue 5,000,000

The contractual agreement of Entity A and Entity B also provides for the following concerning the
assets and liabilities of Entity C:
 Entity A owns the land and incurs the loans payable of Entity C.
 Entity B owns the building and incurs the notes payable of Entity C.
 The other assets and liabilities are owned or owed by Entity A and Entity 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
P1,000,000 and P2,000,000, respectively. As of the end of the first year, Entity A and Entity
B was able to resell 30% and 60% of the inventory coming from Entity C to third persons.

38. What is the amount of total assets to be reported by Entity A concerning its interest with
Entity C?
a. P5,400,000
b. P3,000,000
c. P3,600,000
d. P5,000,000

39. What is the amount of total liabilities to be reported by Entity B concerning its interest with
Entity C?
a. P1,800,000
b. P2,200,000
c. P2,800,000
d. P2,400,000

40. What is the amount of sales revenue to be reported by Entity A concerning its interest with
Entity C?
a. P2,300,000
b. P2,100,000
c. P3,000,000
d. P2,500,000

41. What is the amount of sales revenue to be reported by Entity B concerning its interest with
Entity C?
a. P2,000,000
b. P1,200,000
c. P1,600,000
d. P1,400,000
AFAR LMQ PART I (PROBLEM SOLVING)

IFRS 11: Joint Arrangement classified as Joint Venture (Equity Method)

For Numbers 42 – 45

On January 1, 2021, 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 provides 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 provide the following data for its three-year operation:

Year 2021 Year 2022 Year 2023

Net Income (Net Loss) P200,000 (P3,000,000) P5,000,000
Dividends declared P100,000 - P1,000,000

42. What is the balance of Investment in Entity C to be reported by Entity A in its Statement of
Financial Position on December 31, 2021?
a. P1,000,000
b. P1,040,000
c. P1,080,000
d. P1,200,000

43. What is the investment loss to be reported by Entity B concerning its interest in Entity C for
the year ended December 31, 2022?
a. P1,560,000
b. P1,800,000
c. P1,620,000
d. P1,500,000

44. What is the investment income to be reported by Entity A concerning its interest in Entity C
for the year ended December 31, 2023?
a. P2,000,000
b. P1,900,000
c. P1,920,000
d. P1,840,000

45. What is the balance of Investment in Entity C to be reported by Entity B in its Statement of
Financial Position on December 31, 2023?
a. P2,400,000
b. P3,000,000
c. P2,760,000
d. P2,160,000

Joint Venture – IFRS 11 (Intercompany Transaction)

For Numbers 46 – 49

On January 1, 2020, Entity A, a public entity and Entity B, a public entity incorporated Entity C by
investing P3,000,000 and P2,000,000 for capital interest ratio of 60:40.

The contractual agreement of the incorporating entities provides 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.

The financial statements of Entity C provide the following data for its two-year operation:

 Entity C reported net income (net loss) in the amount of P1,000,000 and (P500,000) for year
2020 and 2021, respectively, and declared dividends in the amount of P400,000 and
P100,000 for year 2020 and 2021, respectively.
AFAR LMQ PART I (PROBLEM SOLVING)

 During 2020, Entity C sold inventory to Entity A with gross profit of P50,000. 80% of those
inventories were resold by Entity A to third persons during 2020 and the remainders were
resold to third persons during 2021.
 On July 1, 2020, Entity C sold a machinery to Entity B at a loss of P20,000. At the time of
sale, the machinery has remaining useful life of 2 years.

46. What is the investment income to be reported by Entity A for the year ended December 31,
2020?
a. P603,000
b. P606,000
c. P594,000
d. P597,000

47. What is the balance of Investment in Entity C to be reported by Entity B on December 31,
2020?
a. P2,242,000
b. P2,241,000
c. P2,238,000
d. P2,248,000

48. What is the investment loss to be reported by Entity B for the year ended December 31,
2021?
a. (P200,000)
b. (P196,000)
c. (P204,000)
d. (P202,000)

49. What is the balance of Investment in Entity C to be reported by Entity A on December 31,
2021?
a. P3,000,000
b. P2,940,000
c. P3,020,000
d. P3,120,000

Joint Venture – IFRS for SMEs (Fair Value Model or Equity Method)

For Numbers 50 – 51
On January 1, 2020, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled
entity by investing P500,000 each in exchange for 10,000 ordinary shares each of Entity C. Entity A
and Entity B each incurred P20,000 transaction costs.

The contractual agreement of the incorporating entities provides 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.

For the year ended December 31, 2020, Entity C reported net income of P100,000 and declared
dividends in the amount of P30,000.

On December 31, 2020, the shares of stocks of Entity C are quoted at P56.

50. If Entity A elected fair value model to account its investment in Entity C, what is the net
effect in Entity A’s profit or loss for the year ended December 31, 2020?
a. P55,000 net profit
b. P60,000 net profit
c. P15,000 net profit
d. P40,000 net profit

51. If Entity B elected equity method to account its investment in Entity C, what is the book
value of Entity B’s Investment in Entity C on December 31, 2020?
a. P520,000
b. P540,000
c. P535,000
d. P555,000
AFAR LMQ PART I (PROBLEM SOLVING)

Joint Venture – IFRS for SMEs (Cost Method or Equity Method)

For Numbers 52 – 53
On January 1, 2018, Entity A and Entity B, both SMEs, incorporated Entity C, a jointly controlled
entity by investing P200,000 each in exchange for 20,000 ordinary shares each of Entity C. Entity A
and Entity B each incurred P10,000 transaction costs.

The contractual agreement of the incorporating entities provides 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.

For the year ended December 31, 2018, Entity C reported net income of P50,000 and declared
dividends in the amount of P10,000.

On December 31, 2018, the investment in Entity C has value in use of P215,000.

52. If Entity A elected cost method to account its Investment in Entity C, what is the book value
of Entity A’s Investment in Entity C on December 31, 2018?
a. P210,000
b. P215,000
c. P230,000
d. P200,000

53. If Entity B elected equity method to account its Investment in Entity C, what is the net effect
in Entity B’s profit or loss for the year ended December 31, 2018?
a. P25,000 net profit
b. P5,000 net profit
c. P10,000 net profit
d. P15,000 net profit

Revenue Recognition – Installment Sales (Installment Method)

For Numbers 54 – 57

On January 1, 2020, an entity sold a car to a customer at a price of P400,000 with a production
cost of P300,000. It is the entity’s policy to employ installment method to recognize gross profit from
installment sales.

At the time of sale, the entity received cash amounting to ¼ of the selling price and old car with
trade-in allowance of P50,000. The said old car has fair value of P150,000. The customer issued a
5-year note for the balance to be payable in equal annual installments every December 31 starting
year 2020. The note is interest bearing with 10% rate due on the remaining balance of the note.

The customer was able to pay the first annual installment and corresponding interest due. However,
after the payment of the second interest due, the customer defaulted on the second annual
installment which resulted to the repossession of the car sold with appraised of P110,000.

On December 31, 2021, the said repossessed car was resold at a selling price of P140,000 after
reconditioning it at a cost of P10,000.

54. What is the entity’s correct gross profit rate on installment sales based on sales?
a. 25%
b. 67%
c. 20%
d. 40%

55. What is the entity’s realized gross profit for the year ended December 31, 2020?
a. P50,000
b. P120,000
c. P108,000
d. P128,000
AFAR LMQ PART I (PROBLEM SOLVING)

56. What is the loss on repossession for the year ended December 31, 2021?
a. (P30,000)
b. (P20,000)
c. (P10,000)
d. (P40,000)

57. What is the gross profit on sale of repossessed car on December 31, 2021?
a. P30,000
b. P20,000
c. P10,000
d. P40,000

IFRS 15: Revenue Recognition – Franchise Fees

For Numbers 58 – 61

On January 1, 2020, 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, 2020.

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, 2020 with stand-alone selling price of P50,000.

On June 30, 2020, the entity completed the construction of the franchisee’s stall. As of December
31, 2020, the entity was able to deliver 3,000 units of raw materials to the franchisee. For the year
ended December 31, 2020, the franchisee reported sales revenue amounting to P100,000.

The entity determines that the performance obligations are separate and distinct from one another.

58. What is the amount of nonrefundable upfront fee to be allocated to the construction of the
franchisee’s stall?
a. P200,000
b. P160,000
c. P250,000
d. P120,000

59. What is the amount of revenue to be recognized in relation to the use of delivery of raw
materials for the year ended December 31, 2020?
a. P75,000
b. P200,000
c. P60,000
d. P100,000

60. What is the amount of revenue to be recognized in relation to the use of entity’s tradename
for the year ended December 31, 2020?
a. P5,000
b. P4,000
c. P50,000
d. P10,000

61. What is the total revenue to be recognized by the entity for the year ended December 31,
2020?
a. P229,000
b. P220,000
c. P285,000
d. P224,000
AFAR LMQ PART I (PROBLEM SOLVING)

Revenue Recognition – Net Income of Franchisor

For Numbers 62 – 65

On January 1, 2020, 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, 2020, 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, 2020. The note has present value of P240,183 with effective interest rate of 12%.

As of June 30, 2020, 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, 2020 and reported sales revenue amounting to P50,000
for the year ended December 31, 2020. The franchisee paid the first installment on its due date.

62. 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, 2020 in relation to the initial
franchise fee?
a. P66,028
b. P44,014
c. P22,009
d. P88,037

63. 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, 2020?
a. P98,850
b. P94,850
c. P70,028
d. P92,037

64. If the collection of the note receivable is not reasonably assured, what is the gross profit to
be recognized by the entity for the year ended December 31, 2020 in relation to the initial
franchise fee?
a. P60,028
b. P54,236
c. P56,009
d. P45,037

65. If the collection of the note receivable is not reasonably assured, what is the net income to be
reported by the entity for the year ended December 31, 2020?
a. P62,850
b. P64,150
c. P65,049
d. P61,037

IAS 11 and IFRS 15: Long-term Construction Contracts – Percentage of Completion Method

For Numbers 66 – 69
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 P660,000 P280,000 -
of the year

The outcome of the construction contract can be estimated reliably.

AFAR LMQ PART I (PROBLEM SOLVING)

66. What is the construction revenue to be recognized by the entity for the year ended December
31, 2021?
a. P340,000
b. P400,000
c. P440,000
d. P360,000

67. What is the realized gross profit (gross loss) to be recognized by the entity for the year ended
December 31, 2022?
a. P200,000
b. P80,000
c. P180,000
d. (P20,000)

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

a. P1,200,000
b. P900,000
c. P1,120,000
d. P1,020,000

69. What is the realized gross profit (gross loss) to be recognized by the entity for the year ended
December 31, 2023?
a. P50,000
b. (P30,000)
c. P170,000
d. (P120,000)

IAS 11 and IFRS 15: Long-term Construction Contracts – Cost Recovery Method

For Numbers 70 – 73

On January 1, 2018, 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 2019, the entity
billed again its customer amounting to 20% of the contract price. On 2020, 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 2018, 2019 and 2020, 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:

2018 2019 2020

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

70. What is the realized gross profit (loss) for the year ended December 31, 2019?
a. (P50,000)
b. (P200,000)
c. P150,000
d. None

71. What is the realized gross profit (loss) for the year ended December 31, 2020?
a. P80,000
b. P130,000
c. P50,000
d. None
AFAR LMQ PART I (PROBLEM SOLVING)

72. What is the excess of construction in progress over progress billings (progress billings over
construction in progress) on December 31, 2020?
a. (P30,000)
b. (P80,000)
c. P20,000
d. P50,000

73. What is the balance of accounts receivable on December 31, 2020?

a. P150,000
b. P100,000
c. P50,000
d. P120,000

Home Office, Branch and Agency Transactions

For Numbers 74 – 77

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.

74. What is the net income reported by the branch in its separate income statement for the
current year?
a. P130,000
b. P124,000
c. P95,000
d. P114,000

75. What is the ending inventory to be reported by the entity in its combined external statement
of financial position?
a. P128,000
b. P115,000
c. P130,000
d. P123,000

76. What is the overstatement in the cost of goods sold reported by the branch in its separate
income statement for the current year?
a. P54,000
b. P50,000
c. P52,000
d. P47,000

77. What is the net income to be reported by the entity in its external combined income
statement for the current year?
a. P810,000
b. P857,000
c. P853,000
d. P864,000
AFAR LMQ PART I (PROBLEM SOLVING)

Home Office and Branch Account Reconciliation

For Numbers 78 – 679

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:

I. 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.
II. Inventory costing P10,000 intended for Manila branch was actually received by Makati
branch.
III. Inventory costing P30,000 intended for Makati branch was actually received by Marikina
branch.
IV. Manila branch collected P40,000 receivables of Makati branch without notifying the home
office.
V. Marikina branch paid P50,000 payables of Manila branch without notifying the home
office.
VI. Makati branch collected P60,000 receivables of Home Office without notifying the home
office.
VII. The home office collected the P70,000 receivables of Marikina branch without notifying
the said branch.
VIII. 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.
IX. 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.
X. The P20,000 net income of the branch was erroneously credited by the home office to
branch account at P30,000.

78. What is the adjusted balance of the home office account at the end of the current year?
a. P260,000
b. P240,000
c. P220,000
d. P230,000

79. What is the unadjusted balance of branch account at the end of the current year?
a. P190,000
b. P210,000
c. P240,000
d. P170,000

IFRS 3: Business Combination – Acquisition of Net Assets

For Numbers 80 – 84

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.
AFAR LMQ PART I (PROBLEM SOLVING)

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.

80. What is the goodwill or (gain on bargain purchase) arising from business combination?
a. P50,000
b. (P150,000)
c. P120,000
d. (P70,000)

81. What is the amount that shall be expensed as incurred at the time of business combination?
a. P100,000
b. P70,000
c. P30,000
d. P50,000

82. What is Entity A’s total asset after the business combination?
a. P4,520,000
b. P4,810,000
c. P4,750,000
d. P4,440,000

83. What is Entity A’s total liability after the business combination?
a. P2,240,000
b. P2,510,000
c. P2,320,000
d. P2,130,000

84. What is Entity A’s total equity after the business combination?
a. P2,010,000
b. P2,490,000
c. P2,249,000
d. P2,620,000

IFRS 3: Business Combination – Acquisition of majority of ordinary shares of subsidiary

For Numbers 85 – 86

Entity A acquired 80,000 out of 100,000 outstanding ordinary shares of Entity B which enables the
former to obtain control of the latter at an acquisition price of P1,000,000. Entity A paid P100,000
acquisition related costs and P50,000 indirect costs of business combination.

At the date of acquisition, the net assets of Entity B are reported at P1,600,000. An asset of Entity
B is overvalued by P60,000 while one of its liability is undervalued by P40,000.

85. What is the initial measurement of noncontrolling interest in net assets in the consolidated
statement of financial position?
a. P320,000
b. P300,000
c. P250,000
d. P316,000
AFAR LMQ PART I (PROBLEM SOLVING)

86. What is the goodwill or (gain on bargain purchase) arising from business combination?
a. (P250,000)
b. (P150,000)
c. (P50,000)
d. (P200,000)

For Numbers 87 – 88

On January 1, 2020, Entity A acquires 30,000 out of 100,000 outstanding ordinary shares of Entity
B for P90,000. For the six months ended June 30, 2020, Entity B reported net income of P40,000.

On July 1, 2020, Entity A acquires additional 60,000 ordinary shares of Entity B at a price of
P240,000. Entity A paid P20,000 acquisition related costs and P10,000 indirect costs of business
combination.

The acquisition price of per share of the additional shares clearly reflects the fair value of the
existing interest of Entity A on Entity B. It is the policy of Entity A to initially measure the
noncontrolling interest in net assets of the acquiree at fair value. The fair value of the
noncontrolling interest in net assets of the acquire is appraised at P50,000.

At the acquisition date, the net assets of Entity B are reported at P400,000. An asset of Entity B is
overvalued by P50,000 while one of its liability is overvalued by P30,000.

87. What is the gain on remeasurement of existing Investment in Entity B as a result of step
acquisition?
a. P18,000
b. P30,000
c. P24,000
d. P12,000

88. What is the goodwill or (gain on bargain purchase) as a result of business combination?
a. P18,000
b. (P20,000)
c. P24,000
d. P30,000

IFRS 10: Consolidated Financial Statements

For Numbers 89 – 92

On January 1, 2020, Entity A acquired 70% of outstanding ordinary shares of Entity B at a price of
P210,000. On the same date, the net assets of Entity B is reported at P260,000. On January 1,
2020 Entity A reported retained earnings of P2,000,000 while Entity B reported retained earnings of
P200,000.

All the assets and liabilities of Entity B are fairly valued except machinery which is undervalued by
P80,000 and inventory which is overvalued by P10,000. The said machinery has remaining useful
life of four years while 40% of the said inventory remained unsold at the end of 2020.

For the year ended December 31, 2020, Entity A reported net income of P1,000,000 and declared
dividends of P200,000 in its separate financial statements while Entity B reported net income of
P150,000 and declared dividends of P20,000 in its separate financial statements.

Entity A accounted its investment in Entity B using cost method in its separate financial
statements.

89. What is the noncontrolling interest in net income for the year ended December 31, 2020?
a. P39,000
b. P40,800
c. P42,000
d. P40,200
AFAR LMQ PART I (PROBLEM SOLVING)

90. What is the noncontrolling interest in net assets on December 31, 2020?
a. P124,800
b. P130,200
c. P126,000
d. P133,800

91. What is the consolidated net income attributable to parent’s shareholders for the year ended
December 31, 2020?
a. P1,102,200
b. P1,162,200
c. P1,141,200
d. P1,095,200

92. What is the consolidated retained earnings on December 31, 2020?

a. P3,012,200
b. P2,991,200
c. P2,952,200
d. P2,945,200

IFRS 10: Consolidated Financial Statements (Intercompany sales)

For Numbers 93 – 96

On January 1, 2019, Entity A acquires 60% of outstanding ordinary shares of Entity B at a gain on
bargain purchase of P40,000. For the year ended December 31, 2020, Entity A and Entity B
reported sales revenue of P2,000,000 and P1,000,000 in their respective separate income
statements. At the same year, Entity A and Entity B reported cost of sales of P1,200,000 and
P700,000 in their respective separate income statements.

During 2019, Entity A sold inventory to Entity B at a selling price of P280,000 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
P400,000 with gross profit rate of 30% based on sales during 2020.

On December 31, 2019, ¼ of the goods coming from Entity A remained in Entity B’s inventory but
all were eventually sold to third persons during 2020. As of December 31, 2020, 2/5 of the goods
coming from Entity B were eventually sold to third persons.

For the year ended December 31, 2020, Entity A reported net income of P500,000 while Entity B
reported net income of P200,000 and distributed dividends of P50,000. Entity A accounted for its
inventory in Entity B using cost method in its separate financial statements.

93. What is the consolidated sales revenue for the year ended December 31, 2020?
a. P2,600,000
b. P2,320,000
c. P3,000,000
d. P2,720,000

94. What is the consolidated gross profit for the year ended December 31, 2020?
a. P1,120,000
b. P1,048,000
c. P1,028,000
d. P1,152,000

95. What is the noncontrolling interest in net income for the year ended December 31, 2020?
a. P88,000
b. P59,200
c. P51,200
d. P100,800
AFAR LMQ PART I (PROBLEM SOLVING)

96. What is the consolidated net income attributable to parent’s shareholders for the year ended
December 31, 2020?
a. P766,800
b. P596,800
c. P606,800
d. P626,800

IFRS 10: Consolidated Financial Statements (Intercompany gain or loss on disposal)

For Numbers 97 – 100

On January 1, 2019, 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, 2019, 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, 2019, 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, 2020, 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, 2020, 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.

97. What is the consolidated depreciation expense of machinery for the year ended December 31,
2020?
a. P40,000
b. P55,000
c. P61,667
d. P42,333

98. What is the consolidated book value of machinery on December 31, 2020?
a. P225,000
b. P215,000
c. P200,000
d. P210,000

99. What is the noncontrolling interest in net income for the year ended December 31, 2020?
a. P124,000
b. P105,000
c. P125,000
d. P104,000

100. What is the consolidated net income attributable to parent’s shareholders for the year
ended December 31, 2020?
a. P1,538,750
b. P1,518,750
c. P1,398,750
d. P1,418,750
AFAR LMQ PART I (PROBLEM SOLVING)

IAS 27: Separate Financial Statements (Cost Method or Fair Value Model or Equity Method)

For Numbers 101 – 106

On January 1, 2020, 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, 2020, 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, 2020 is P1,000,000 while the cost to sell is 5%.

Entity A voluntarily prepares its separate financial statements.

101. 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, 2020?
a. P900,000
b. P920,000
c. P1,000,000
d. P950,0000

102. What is the net effect in profit or loss for year 2020 if Entity A elects cost method to
account its Investment in Entity B in its separate financial statements?
a. P7,000 net profit
b. P27,000 net profit
c. P180,000 net profit
d. P107,000 net profit

103. 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, 2020?
a. P900,000
b. P920,000
c. P1,000,000
d. P950,0000

104. What is the net effect in profit or loss for year 2020 if Entity A elects fair value model
through profit or loss to account its Investment in Entity B in its separate financial
statements?
a. P7,000 net profit
b. P27,000 net profit
c. P180,000 net profit
d. P107,000 net profit

105. 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,
2020?
a. P1,116,000
b. P950,000
c. P1,000,000
d. P920,000

106. What is the net effect in profit or loss for year 2020 if Entity A elects equity method to
account its Investment in Entity B in its separate financial statements?
a. P57,000 net profit
b. P27,000 net profit
c. P180,000 net profit
d. P107,000 net profit
AFAR LMQ PART I (PROBLEM SOLVING)

Non-profit Organization – Statement of Financial Position

For Numbers 107 – 109

On the first year of operations of a non-profit organization, the following transactions occurred:

 The non-profit organization received P1,000,000 fund 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 P150,000 was received during
the year but only P50,000 was spent for the research project.
 The non-profit organization received P300,000 fund from a donor who stipulated that it shall
be used for the acquisition of service car. P100,000 of the fund was used for the acquisition
of a service car with useful life of 5 years. The car was acquired at the middle of the year.
 The non-profit organization received P500,000 fund who stipulated that it shall be used
based on the discretion of the Board of Trustees of the non-profit organization. P100,000 was
used by the organization for the acquisition of souvenir items which were sold by the non-
profit organization for P150,000. The remaining P400,000 was designated by the Board of
Trustees for future fundraising projects.

107. What is the amount of permanently restricted net assets at the end of the first year?
a. P1,100,000
b. P1,300,000
c. P1,200,000
d. P1,000,000

108. What is the amount of temporarily restricted net assets at the end of the year?
a. P100,000
b. P300,000
c. P200,000
d. P700,000

109. What is the amount of unrestricted net assets at the end of the year?
a. P640,000
b. P540,000
c. P590,000
d. P630,000

Non-profit Organization – Statement of Activities and Statement of Cash Flows

For Numbers 110 – 113

On January 1, 2020, a non-profit organization, received P1,000,000 cash donation from a donor
who stipulated that the amount should be invested indefinitely in revenue producing investment.
The deed of donation also provides that the dividend income shall be used for the acquisition of
computers of the non-profit organization.

On December 31, 2020, the non-profit organization received P100,000 cash as dividend income
from the investment of the fund.

On January 1, 2021, the non-profit organization acquired a computer at a cost of P20,000 with a
useful life of 5 years without residual value.

110. In the statement of activities of the statement the NPO for the year ended December 31,
2020, which of the following is the proper effect of the transactions?
a. Increase in temporarily restricted net assets by P100,000.
b. Increase in unrestricted net assets by P10,000,000.
c. Increase in unrestricted net assets by P16,000.
d. Decrease in temporarily restricted net assets by P20,000.
AFAR LMQ PART I (PROBLEM SOLVING)

111. In the statement of activities of the statement the NPO for the year ended December 31,
2021, which of the following is the proper effect of the transactions?
a. Increase in temporarily restricted net assets by P100,000.
b. Increase in unrestricted net assets by P1,000,000.
c. Increase in unrestricted net assets by P16,000.
d. Decrease in temporarily restricted net assets by P100,000.

112. How shall the cash flows be reported in NPO’s Statement of Cash Flows for the year ended
December 31, 2020?
a. Cash receipts from operating activities by P100,000.
b. Cash receipts from financing activities by P1,100,000.
c. Cash disbursements for investing activities by P50,000.
d. Cash disbursements for financing activities by P1,000,000

113. How shall the cash flows be reported in NPO’s Statement of Cash Flows for the year ended
December 31, 2021?
a. Cash receipts from operating activities by P100,000.
b. Cash receipts from financing activities by P1,100,000.
c. Cash disbursements for investing activities by P20,000.
d. Cash disbursements for investing activities by P100,000.

Government Accounting Manual

114. On December 31, 2020, the Department of Finance billed its lessee on one of its buildings
in the amount of P10,000. On January 31, 2017, the Department of Finance collected all of
the accounts receivable. On February 28, 2017, the Department of Finance remitted the
entire collected amount to the Bureau of Treasury. What is the journal entry to record the
remittance by to the Bureau of Treasury?
a. Debit – Accounts Receivable P10,000 and Credit – Rent Income P10,000
b. Debit – Accounts Receivable P10,000 and Credit – Retained Earnings P10,000
c. Debit – Cash Collecting Officers P10,000 and Credit – Accounts Receivable P10,000
d. Debit – Cash – Treasury/Agency Deposit, Regular – P10,000 and Credit Cash –
Collecting Officer – P10,000

115. On January 1, 2016, the Department of Public Works and Highways (DPWH) received a
P10,000,000 appropriation from the national government for the acquisition of construction
machinery. On February 1, 2016, DPWH received the allotment from the Department of
Budget and Management. On March 1, 2016, DPWH entered into a contract with CAT Inc. for
the acquisition of the machinery with a price of P8,000,000. On April 1, 2016, DPWH
received the Notice of Cash Allocation from Department of Budget and Management net of 1%
withholding tax for income tax of supplier and 5% withholding of Final Tax on VAT of
supplier. On May 1, 2016, CAT Inc. delivered the machinery to DPWH. On June 1, 2016,
DPWH paid the obligation to CAT Inc. On July 1, 2016, DPWH remitted the withheld income
tax and final VAT to BIR. What is the journal entry on March 1, 2016?
a. No entry but just posting to appropriate RAPAL
b. No entry but just posting to appropriate RAPAL and to RAOD
c. No entry but just posting of ORS (Obligation Request and Status) to appropriate RAOD
d. Debit Machinery P8,000,000 and credit Accounts Payable P8,000,000

116. Using the same data in number 115, what is the journal entry on April 1, 2016?
a. Debit Cash-MDS, Regularly P7,520,000 and Credit Subsidy Income from National
Government P7,520,000.
b. Debit Machinery P8,000,000 and Credit Accounts Payable P8,000,000
c. Debit Accounts Payable P8,000,000 and Credit Due to BIR P480,000 and Cash-MDS,
Regular P7,520,000.
d. Debit Due to BIR P480,000 and Credit Subsidy Income from National Government
P480,000.
AFAR LMQ PART I (PROBLEM SOLVING)

117. Department of Health (DOH) received Notice of Cash Allocation in the amount of P100,000
from Department of Budget and Management. DOH made a total cash disbursements in the
amount of P95,000. 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 P5,000 and credit Cash-MDS,
Regular P5,000.
b. Debit Retained Earnings of DFA P5,000 and credit Cash-MDS, Regular P5,000.
c. Debit Expenses of DFA P5,000 and credit Cash-MDS, Regular P5,000.
d. Debit Investment of DFA P5,000 and credit Cash-MDS, Regular P5,000.

118. The Bureau of Treasury received P20,000 cash remittance from Department of Agrarian
Reform (DAR) from its miscellaneous income. What is the journal entry of the Bureau of
Treasury in its accounting books to record the receipt of cash remittance from the income of
a national government agency?
a. Debit Cash in Bank, Local Bank or BSP P20,000 and Credit Cash-Treasury/Agency
Deposit, Regular P20,000.
b. Debit Cash in Bank, Local Bank or BSP P20,000 and Credit Miscellaneous Income of
DA P20,000.
c. Debit Cash in Bank, Local Bank or BSP P20,000 and Credit Savings of DA, Regular
P20,000.
d. Debit Cash in Bank, Local Bank or BSP P20,000 and Credit Cash-Collecting Officer,
DA P20,000.

IAS 21: Foreign Currency Transaction

For Numbers 119 – 124

On November 1, 2020, an entity acquired on account goods from a foreign supplier at a cost of
$1,000. The accounts payable are paid on January 30, 2021.

On December 1, 2020, 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, 2021.

The entity is operating in Philippine economy wherein the functional currency is the Philippine
Peso.

The following direct exchange rates are provided:

11/1/2020 12/1/2020 12/31/2020 1/30/2021 2/28/2021

Buying spot rate P40 P39 P45 P43 P42
Selling spot rate P42 P40 P47 P46 P45

119. What is the sales revenue to be reported by the entity for the year ended December 31,
2020?
a. P58,500
b. P60,000
c. P67,500
d. P72,000

120. What is the cost of sales to be reported by the entity for the year ended December 31,
2020?
a. P40,000
b. P42,000
c. P45,000
d. P47,000

121. What is the book value of account receivable on December 31, 2020?
a. P58,500
b. P60,000
c. P67,500
d. P72,000
AFAR LMQ PART I (PROBLEM SOLVING)

122. What is the book value of accounts payable on December 31, 2020?
a. P40,000
b. P42,000
c. P45,000
d. P47,000

123. What is the net foreign currency gain or (loss) for the year ended December 31, 2020?
a. P4,000
b. P5,000
c. P3,000
d. P6,000

124. What is the net foreign currency gain or (loss) for the year ended December 31, 2020?
a. (P3,500)
b. (P2,000)
c. (P1,500)
d. (P4,000)

IAS 21: Translation of Financial Statements in Functional Currency to Presentation Currency

For Numbers 125 – 127

Entity A owns majority of the outstanding ordinary shares of Entity B which is operating in United
States of America wherein the functional currency is the USA $. 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, 2020, Entity B presented its Statement of Financial Position in its functional
currency of USA $:

Current assets $10,000 Current liabilities $10,000

Noncurrent assets 40,000 Noncurrent liabilities 20,000
Total Assets $50,000 Ordinary share 5,000
Preference share 8,000
Retained earnings 7,000
Total Liab. and SHE $50,000

The following additional data are provided:

 The ordinary shares are issued on January 1, 2019 while the preference shares are issued on
July 1, 2020.
 B reported $1,000 net income during 2020 and distributed dividends in the amount of $200
on December 1, 2020.
 The translated retained earnings on December 31, 2019 is P300,000.

The following direct exchange rates are provided:

January 1, 2019 July 1, 2019 Dec. 31, 2019 Dec. 1, 2019 Dec. 31, 2020 2020 Average
P40 P42 P43 P41 P45 P44

125. What translation gain or loss to be presented in the other comprehensive income of
statement of comprehensive income for the year ended December 31, 2020?
a. P38,600
b. P39,200
c. P40,400
d. P41,800

126. What is the cumulative translation credit or (debit) to be presented in the other
comprehensive income of statement of financial position as of December 31, 2020?
a. P25,400
b. P28,200
c. P26,800
d. P24,600
AFAR LMQ PART I (PROBLEM SOLVING)

127. What is the cumulative translation credit or (debit) to be presented in the other
comprehensive income of statement of financial position as of December 31, 2020?
a. (P11,000)
b. (P13,600)
c. (P10,400)
d. (P17,200)

IAS 39: Undesignated Hedge of Foreign Currency Denominated Transaction and Fair Value
Hedge

For Numbers 128 – 129

On December 1, 2020, Entity A imported goods at a price of $1,000 payable on March 1, 2021. In
order to hedge this foreign currency denominated importation, Entity A entered into a forward
contract with a bank to purchase $1,000. Entity A is operating in Philippine economy where the
functional currency is Philippine peso. The following direct exchange rates are given:

December 1, 2020 December 31, 2020 March 1, 2021

Buying spot P43 P40 P41
Selling spot P45 P44 P49
90-day forward buying P41 P43 P44
90-day forward selling P42 P41 P43
60-day forward buying P45 P42 P41
60-day forward selling P46 P45 P40
30-day forward buying P47 P46 P42
30-day forward selling P48 P47 P43

128. What is the foreign currency gain or (loss) on the hedged item for the year ended December
31, 2020?
a. (P2,000)
b. P1,000
c. P3,000
d. P4,000

129. What is the foreign currency gain or (loss) on the hedging instrument for the year ended
December 31, 2021?
a. P4,000
b. (P2,000)
c. (P1,000)
d. P3,000

For Numbers 130 – 131

On November 1, 2020, Entity A entered into a firm commitment for the exportation of goods at a
price of $2,000. Delivery will happen on January 31, 2020. In order to hedge this foreign currency
denominated firm commitment, Entity A entered into a forward contract with a bank to sell $2,000.
Entity A is operating in Philippine economy where the functional currency is Philippine peso. Entity
A elects to use fair value hedge to account this hedge of firm commitment. The following direct
exchange rates are given:

November 1, 2020 December 31, 2020 January 30, 2021

Buying spot P43 P40 P44
Selling spot P45 P44 P49
90-day forward buying P41 P43 P44
90-day forward selling P42 P41 P43
60-day forward buying P45 P42 P41
60-day forward selling P46 P45 P40
30-day forward buying P47 P46 P42
30-day forward selling P48 P44 P43
AFAR LMQ PART I (PROBLEM SOLVING)

130. What is the book value of firm commitment asset or liability on December 31, 2020?
a. P4,000 liability
b. P10,000 liability
c. P2,000 liability
d. P6,000 liability

131. What is the foreign currency gain or (loss) on hedging instrument for the year ended
December 31, 2021?
a. P4,000
b. (P2,000)
c. (P6,000)
d. P8,000

IAS 39: Cash Flow Hedge using forward contract

For Numbers 132 – 135

On November 1, 2020, Entity anticipated the purchase of equipment on January 31, 2021 at a price
of $1,200. In order to hedge this highly probable forecasted importation, Entity A entered into a
forward contract with a bank to purchase $1,200. Entity A is operating in Philippine economy
where the functional currency is Philippine peso. The equipment has a useful life of 4 years. The
following direct exchange rates are given:

November 1, 2020 December 31, 2020 January 31, 2021

Buying spot P43 P40 P41
Selling spot P45 P44 P43
90-day forward buying P40 P43 P44
90-day forward selling P42 P41 P43
60-day forward buying P45 P42 P41
60-day forward selling P46 P45 P40
30-day forward buying P47 P43 P42
30-day forward selling P48 P44 P40

132. What is the unrealized holding gain or (loss) to be recognized in the other comprehensive
income of statement of comprehensive income for the year ended December 31, 2020?
a. P2,400
b. P1,200
c. (P3,600)
d. P4,800

133. What is the unrealized holding gain or (loss) to be recognized in the other comprehensive
income of statement of comprehensive income for the year ended December 31, 2021?
a. (P4,800)
b. (P1,200)
c. P3,600
d. P2,400

134. What is the cumulative credit or (debit) in the other comprehensive income of Statement of
Financial Position as of December 31, 2021?
a. P1,200
b. (P1,800)
c. P925
d. P900

135. What is the cost of equipment on January 31, 2021?

a. P48,000
b. P50,400
c. P49,200
d. P51,600
AFAR LMQ PART I (PROBLEM SOLVING)

Cash Flow Hedge using option contract

For Numbers 136 – 140

On November 1, 2020, Entity A anticipated the purchase of inventory on January 31, 2021 at a
price of $1,000. In order to hedge this highly probable forecasted importation, Entity A acquired a
call option from a bank giving it the right to purchase $1,000 at an option price of P40 by paying an
option premium of P300. Entity A is operating in Philippine economy where the functional currency
is Philippine peso. The following data are provided:

November 1, 2020 December 31, 2020 January 31, 2021

Buying spot rate P38 P39 P42
Selling spot rate P40 P44 P43
Fair value of call option ? P4,500 ?

Entity A imported the goods on the date anticipated. Afterwards, Entity A was able to resell 30% of
the goods imported during 2021.

136. What is the unrealized holding gain or (loss) to be recognized in the other comprehensive
income of statement of comprehensive income for the year ended December 31, 2020?
a. P4,000
b. P4,500
c. P4,300
d. P4,200

137. What is the unrealized holding gain or (loss) to be recognized in the profit or loss of
comprehensive income for the year ended December 31, 2020?
a. P300
b. P200
c. P500
d. P100

138. What is the unrealized holding gain or (loss) to be recognized in the other comprehensive
income of statement of comprehensive income for the year ended December 31, 2021?
a. (P3,000)
b. (P2,000)
c. (P1,000)
d. (P4,000)

139. What is the cumulative credit or (debit) in the other comprehensive income of Statement of
Financial Position as of December 31, 2021?
a. P4,000
b. P3,000
c. P1,000
d. P2,100

140. What is the net effect on profit or loss to be recognized by the entity in the statement of
comprehensive income for the year ended December 31, 2021?
a. (P500)
b. P900
c. P300
d. P400
AFAR LMQ PART I (PROBLEM SOLVING)

Standard Costing – Direct material variance and Direct labor variance

For Numbers 141 – 142

An entity recently set-up its standard costs for its direct materials. The entity sets the benchmark
at 3 units of direct materials per product at a standard price of P5 per unit of direct material.

During the year, the entity acquired 400 units of direct materials at a total cost of P2,400. The
entity also manufactured 100 products using 250 units of direct materials.

141. What is the direct material price variance?

a. P250 unfavorable
b. P300 favorable
c. P350 favorable
d. P400 unfavorable

142. What is the direct material usage variance?

a. P150 unfavorable
b. P300 unfavorable
c. P250 favorable
d. P350 favorable

For Numbers 143 – 144

An entity recently set-up its standard costs for its direct labor. The entity sets the benchmark at 2
direct labor hours per product at a standard rate of P100 per direct labor hour.

During the year, the entity manufactured 10 products using 30 direct labor hours at total direct
labor costs of P2,400.

143. What is the direct labor rate variance?

a. P600 favorable
b. P400 unfavorable
c. P200 favorable
d. P800 unfavorable

144. What is the direct labor efficiency variance?

a. P400 favorable
b. P1,000 unfavorable
c. P600 unfavorable
d. P200 favorable

Job Order Costing

An entity employs actual costing for its production. An entity provided the following data concerning
its production during the year:

Decrease in direct materials during the year P500,000

Labor cost during the year 400,000
Actual factory overhead during the year 300,000
Increase in work in process during the year 200,000
Decrease in finished goods during the year 100,000

145. What is the cost of goods manufactured during the year?

a. P1,200,000
b. P1,000,000
c. P1,400,000
d. P1,100,000
AFAR LMQ PART I (PROBLEM SOLVING)

For Numbers 146 – 149

An entity employs normal costing for its production. The following data are provided during the
year:

Net purchases of raw materials during the year P500,000

Total labor costs during the year 800,000
Depreciation of factory assets during the year 100,000
Utilities on the factory during the year 300,000

Beginning Ending
Raw materials inventory P200,000 P300,000
Work in process inventory 500,000 200,000
Finished goods inventory 600,000 300,000

Additional notes are provided:

 The entity uses a single account for its direct material and indirect materials. Direct material
used is three times the indirect material used.
 The indirect labor cost is 1/8 of the total labor costs.
 The overhead application rate is 80% of direct labor costs.
 Any over or under application of overhead is considered material.

146. What is the total manufacturing cost during the year?

a. P1,560,000
b. P1,500,000
c. P1,640,000
d. P1,740,000

147. What is the cost of goods manufactured during the year?

a. P2,040,000
b. P1,860,000
c. P1,940,000
d. P1,800,000

148. What is the over or under application of overhead?

a. P60,000 over application
b. P140,000 under application
c. P40,000 under application
d. P160,000 over application

149. What is the adjusted costs of goods sold during the year?
a. P2,200,000
b. P2,194,424
c. P2,183,220
d. P2,192,481

Joint Product and By-Product Costing

For Numbers 150 – 152

An entity is conducting a joint production at a total costs of P500,000. The joint production results
to the following inventories:

Alpha Tab Delta

Units produced 20,000 units 10,000 units 5,000 units
Selling price at split off P150 P200 P5

Alpha and Tab are considered main products while Delta is considered by-product. The entity
considers its by-product as material. The by-product requires additional processing cost per unit of
P0.80 and its cost to sell is P0.20 per unit.
AFAR LMQ PART I (PROBLEM SOLVING)

150. What is the value to be given to product Delta?

a. P25,000
b. P21,000
c. P24,000
d. P20,000

151. What is the joint cost allocated to product Alpha if the company employs physical method?
a. P333,333
b. P316,667
c. P317,333
d. P320,000

152. What is the joint cost allocated to product Tab if the company employs relative sales value
method?
a. P300,000
b. P200,000
c. P192,000
d. P288,000

Just-in-Time Inventory and Backflush Costing

An entity is employing backflush costing in connection with just-in-time production process. The
production data for the year is provided below:

 The entity acquired direct materials during the year at a cost of P100,000
 The entity reported direct labor cost of P200,000.
 The actual factory overhead incurred during the year amounted to P170,000.
 The standard factory overhead application rate is 75% of direct labor cost.
 The ending finished goods inventory is reported at P120,000.

153. What is the cost of goods sold to be reported by the entity under backflush costing?
a. P470,000
b. P350,000
c. P330,000
d. P300,000

For Numbers 156 – 156

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 P 5,000

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

154. What is the amount of conversion cost in units sold in June?

a. P802,000
b. P796,000
c. P794,000
d. P800,000

155. What is the amount of direct materials backflushed from RIP to finished goods?
a. P391,000
b. P404,000
c. P387,000
d. P395,000
AFAR LMQ PART I (PROBLEM SOLVING)

156. What is the amount of direct materials backflushed from finished goods to cost of goods
sold?
a. P395,000
b. P400,000
c. P393,000
d. P389,000

Activity Based Costing

For Numbers 157 – 158

An entity is choosing between traditional costing and 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. P200,000
Painting Units painted 50,000 units 300,000
Assembly Machine hours 10,000 hours 500,000

Traditional Costing
Traditional Labor hours 100,000 hours P1,000,000

Job 1 contains 3,000 units. It weights 10,000 kilos and uses 300 machine hours. The direct labor
hours on the job is 7,000 hours.
157. What is the applied overhead under traditional costing?
a. P70,000
b. P60,000
c. P80,000
d. P50,000

158. What is the applied overhead under Activity Based Costing?

a. P53,000
b. P56,000
c. P45,000
d. PP43,000

Process Costing without Spoilage

For Numbers 159 – 162

An entity is employing process costing regarding its production cycle.

Conversion costs are added uniformly at 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 is presented below:

Beginning Work in Process Inventory 10,000 units (30% incomplete as to conversion costs)
Units started during the year 30,000 units
Ending Work in Process Inventory 5,000 units (75% incomplete as to conversion costs)

Additional notes are provided:

 There is no spoilage during the period.
 The costs of beginning inventory consist of P103,000 costs of direct materials and P107,500
conversion costs.
 The total manufacturing costs consist of P252,000 costs of direct materials and P146,250.
AFAR LMQ PART I (PROBLEM SOLVING)

159. What is the cost per unit of direct material under average process costing?
a. P10
b. P9
c. P8
d. P7

160. What is the cost per unit of conversion cost under average process costing?
a. P P10
b. P9
c. P8
d. P7

161. What is the cost per unit of direct material under FIFO process costing?
a. P10
b. P9
c. P8
d. P7

162. What is the cost per unit of conversion cost under FIFO process costing?
a. P5
b. P9
c. P8
d. P7

Process Costing with Spoilage

For Numbers 163 – 167

An entity is employing process costing regarding its production cycle.

Conversion costs are added uniformly at 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.

The entity is conducting inspection when the production process is at 45% of conversion cost. The
production data of the entity during the year is presented below:

Beginning Work in Process Inventory 10,000 units (40% incomplete as to conversion costs)
Units started during the year 40,000 units
Ending Work in Process Inventory 5,000 units (80% complete as to conversion costs)
Units completed during the period 38,000 units

Additional notes are provided:

 Normal spoilage is 10% of units started during the year.

163. What is the abnormal spoilage in units during the year?

a. 7,000 units
b. 4,000 units
c. 3,000 units
d. 2,000 units

164. What is the equivalent unit of production for direct material under average process costing?
a. 42,650 units
b. 41,150 units
c. 38,250 units
d. 43,750 units

165. What is the equivalent unit of production for conversion cost under average process
costing?
a. 44,650 units
b. 45,150 units
c. 43,250 units
d. 46,150 units
AFAR LMQ PART I (PROBLEM SOLVING)

166. What is the equivalent unit of production for direct material under FIFO costing?
a. 35,150 units
b. 37,250 units
c. 36,650 units
d. 38,450 units

167. What is the equivalent unit of production for conversion cost under FIFO costing?
a. 39,150 units
b. 41,250 units
c. 37,450 units
d. 38,650 units
 Solution on AFAR (Problem Solving) PART I

1. Fair Market Value of Land and Building contributed by B P1,500,000

Less: Mortgage Payable to be assumed by ABC Partnership (300,000)
Capital Credit of B in ABC Partnership P1,200,000
Divided by B’s Capital Interest Ratio ÷ 60%
Total Agreed Capitalization of ABC Partnership (1) (B) P2,000,000

2. Capital Credit of A in ABC Partnership (Proceeds from sale of equipment) (2) (C) P 300,000

3. Fair Market Value of Land and Building contributed by B P1,500,000

Less: Mortgage Payable to be assumed by ABC Partnership (300,000)
Capital Credit of B in ABC Partnership (3) (D) P1,200,000

4. Total Agreed Capitalization of ABC Partnership P2,000,000

Less: Total Capital Credit of A and B (P300,000 + P1,200,000) 1,500,000
Cash to be contributed by C in ABC Partnership (4) (A) P 500,000

5. January 1, 2021 B’s Capital Balance (P1,000,000 x 10%) P 100,000

Add: B’s additional investment during 2021 500,000
Less: B’s drawings at the end of 2021 (300,000)
Less: B’s capital balance on December 31, 2021 (200,000)
B’s Share in Net Loss for the year ended December 31, 2021 (P 100,000)
Divided by B’s interest in profit or loss ÷ 20%
Net loss of ABC Partnership for the year ended December 31, 2021(5) (A) (P 500,000)

6. January 1, 2021 A’s Capital Balance (P1,000,000 x 50%) P 500,000

Add: A’s additional investment during 2021 200,000
Less: A’s Share in Net Loss during 2021 (P500,000 x 30%) (150,000)
December 31, 2021 Capital Balance of A (6) (C) P 550,000

7. January 1, 2021 C’s Capital Balance (P1,000,000 x 40%) P 400,000

Less: C’s Share in Net Loss during 2021 (P500,000 x 50%) (250,000)
Less: C’s drawings at the end of 2021 (100,000)
December 31, 2021 Capital Balance of C (7) (B) P 50,000

8. December 31, 2018 C’s Capital Balance P 320,000

Add: C’s drawings at the end of 2018 400,000
Less: C’s additional investment during 2018 (300,000)
Less: C’s capital balance on January 1, 2018 (200,000)
C’s share in partnership profit for the year ended December 31, 2018 (8) (D) P 220,000

9. C’s share in profit for the year 2018 P 220,000

Less: Interest on original capital contribution of C (200,000 x 10%) (20,000)
C’s share in the remaining profit after interest, salary and bonus P 200,000
Multiply by number of partners x 3
Remaining profit after interest, salary and bonus P 600,000
Divided by 80% ÷ 80%
Net profit after salary and interest but before bonus to managing partner P 750,000
Add: Total interest and salary (100,000 + 200,000) 300,000
Partnership profit for the year ended December 31, 2018 (9) (C) P1,050,000

10. Partnership profit for the year ended December 31, 2018 P1,050,000
Less: Total interest and salary (100,000 + 200,000) (300,000)
Net profit after salary and interest but before bonus to managing partner P 750,000
Multiply by Bonus percentage x 20%
Bonus to A as managing partner (10) (B) P 150,000
11 January 1, 2018 A’s capital balance P 300,000
Add: Additional investment of A during 2018 500,000
Less: Drawings of A during 2018 (200,000)
Add: A’s share in partnership profit during 2018 (30,000+160,000+150,000+200,000) 540,000
December 31, 2018 A’s capital balance (11) (A) P1,140,000

12 January 1, 2018 B’s capital balance P 500,000

Add: Additional investment of B during 2018 200,000
Less: Drawings of B during 2018 (100,000)
Add: B’s share in partnership profit during 2018 (50,000+40,000+200,000) 290,000
December 31, 2018 B’s capital balance (12) (C) P 890,000

13. Capital Balance of B before the admission of D P 800,000

Less: Capital to be transferred to D (P800,000 x 40%) ( 320,000)
Capital Balance of B after the admission of D (13) (B) P 480,000

14. Capital Balance of A before the retirement of C P 500,000

Add: Share of A in asset revaluation (P150,000/60%x10%) 25,000
Capital Balance of A after the retirement of C (14) (D) P 525,000

15. Capital Balance of B before the retirement of C P 300,000

Add: Share of B from Bonus given by C (P20,000 x 4/5) 16,000
Capital Balance of B after the retirement of C (15) (C) P 316,000

16. Capital Balance of C before the admission of D P 900,000

Add: Share of C in bonus given by D (P200,000 x 30%) 60,000
Capital Balance of C after the admission of D (16) (A) P 960,000

17. Capital Balance of B before the admission of D P 700,000

Add: Share of B in Asset Revaluation (P1,000,000 x 60%) 600,000
Capital Balance of B after the admission of D (17) (B) P1,300,000

18. Total contributed capital of all partners (P3,000,000 + P500,000) P3,500,000

Less: Total agreed capitalization of new partnership 3,000,000
Asset impairment to be shared by old partners only P 500,000

Share of A in asset impairment (P500,000 x 50%) (18) (D) P 250,000

19. Contributed capital by D to the new partnership P 500,000

Less: Capital credit to D in the new partnership (P3,000,000 x 10%) 300,000
Bonus given by D to the existing partners (19) (A) P 200,000

20. Capital credit of D to the new partnership (P3,000,000 x 10%) (20) (B) P 300,000

21. Capital Balance of C before the admission of D P 700,000

Less: C’s share in asset impairment (P500,000 x 40%) (200,000)
Add: C’s share in bonus given by D (P200,000 x 40%) 80,000
Capital Balance of C after the admission of D (21) (A) P 580,000

22. Capital Balance of B before liquidation (P 650,000)

Add: Payable to B 1,000,000
Capital Balance of B after the right of offset P 350,000
Less: Share of B in Total Loss on Liquidation ((500,000+100,000) x 10%) 60,000
Capital Balance of B after loss on liquidation but before absorption of A’s insolvency P 290,000
Less: Share of B in A’s debit capital balance (P160,000 x 1/4) (40,000)
Cash received by B at the end of partnership liquidation (22) (A) P 250,000
23. Capital Balance of C before liquidation P 350,000
Add: Payable to C 100,000
Capital Balance of C after the right of offset P 450,000
Less: Share of C in Total Loss on Liquidation ((500,000+100,000) x 30%) 180,000
Capital Balance of C after loss on liquidation but before absorption of A’s insolvency P 270,000
Less: Share of C in A’s debit capital balance (P160,000 x 3/4) (120,000)
Cash received by C at the end of partnership liquidation (23) (B) P 150,000

24. Capital Balance of B before liquidation P 300,000

Less: Share in presumed total loss in liquidation (P70,000/10% x 40%) 280,000
Cash received by B at the end of partnership liquidation (24) (D) P 20,000

25. Cash received by partners at the end of liquidation ((P80,000 (A) + P20,000 (B)) P 100,000
Add: Cash paid for liquidation expenses 50,000
Add: Cash paid for total liabilities 1,500,000
Less: Cash balance before the start of liquidation (1,200,000)
Net proceeds from the sale of noncash assets (25) (A) P 450,000

26. Capital Balance of C before liquidation P 400,000

Less: Share of C in Total Loss in Liquidation during January (P500,000* x 20%) (100,000)
Capital Balance of C after loss on liquidation but before absorption of A’s insolvency P 300,000
Less: Share of C in A’s debit balance (P150,000 x 2/5) (60,000)
Cash received by C at the end of partnership liquidation (26) (B) P 240,000

Cash balance before start of liquidation P1,600,000

Add: Net proceeds from sale of noncash asset during January (P1,000,000 + P100,000) 1,100,000
Less: Cash paid for liquidation expenses during January (50,000)
Less: Cash paid for liabilities to third person during January (P2,000,000 x 20%) (400,000)
Less: Cash withheld for unpaid liabilities to third person (P2,000,000 x 80%) (1,600,000)
Less: Cash withheld for estimated future liquidating expenses (150,000)
Cash available for distribution to partners P 500,000
Less: Total capital of all partners (100,000+500,000+400,000) (1,000,000)
Total loss on liquidation for the first month of installment P 500,000*

27. Estimated future liquidating expenses on January 31, 2021 P 150,000

Add: Book value of remaining noncash assets on January 31, 2021 400,000
Maximum possible loss on January 31, 2021 P 550,000
B’s share in maximum possible loss (P550,000 x 30%) (27) (D) P 165,000

28. Cash withheld for future liquidating expenses P 150,000

Add: Cash withheld for remaining unpaid liabilities to third persons (P2,000,000 x 80%) 1,600,000
Total cash withheld on January 31, 2021 (28) (C) P1,750,000

29. Capital Balance of A on January 31, 2021 P 100,000

Add: Share of A in total loss in liquidation during February (P50,000* x 50%) (25,000)
Cash received by A on February 28, 2021 during final liquidation (29) (A) P 75,000

Cash balance on January 31, 2021 P1,750,000

Add: Net proceeds from sale of noncash asset during January (P400,000 - P100,000) 300,000
Less: Cash paid for liquidation expenses during February (100,000)
Less: Cash paid for liabilities to third person during February (1,500,000)
Cash available for final distribution to partners P 450,000
Less: Total capital of all partners (100,000+240,000+160,000) (500,000)
Total loss on liquidation for the first month of installment P 50,000*

30. Amount received by holder of note payable (NRV of Inventory) (30) (C) P 250,000
Note: Only the net realizable value of collateral inventory will be received since there is no available net
free asset.

31 Amount received by holder of mortgage payable (Fair value of Land) (31) (D) P 100,000
Note: The mortgage payable will be fully collected because it is fully secured credit.
32. Cash P 100,000
Add: Free assets from fully secured mortgage payable (P120,000 – P100,000) 20,000
Total Free assets for unsecured credits with priority P 120,000
Amount received by employees for their salary (32) (B) P 120,000
Note: Since only P120,000 free assets are available, it must all be given to employees who are preferred
over the government.

33. Amount received by national government for income taxes (33) (D) None
Note: Since only P120,000 free assets are available, it must all be given to employees for their salaries
which are preferred over the claims of the government for income taxes.

34. Amount received by partially secured loans payable P 340,000

Less: Fair value of collateral – machinery (300,000)
Recovered amount from the unsecured portion of partially secured loans payable P 40,000
Divided by unsecured portion of partially secured loans payable (P400,000 – P300,000) ÷ 100,000
Recovery percentage on unsecured credits 40%

35. Amount received by holder of accounts payable (P100,000 x 40%) (34) (C) P 40,000

36. Accounts payable P 100,000

Add: Unsecured portion of partially secured loans payable (P400,000 – P300,000) 100,000
Total unsecured credits including unsecured portion of partially secured loans payable P 200,000
Multiply by recovery percentage of unsecured credits x 40%
Net free assets (35) (A) P 80,000

37. Net free assets P 80,000

Add: Liquidation expenses paid 600,000
Add: Salaries payable 200,000
Add: Income tax payable 300,000
Less: Cash (300,000)
Free assets from building used as collateral for fully secured mortgage payable P 880,000
Add: Book value of fully secured mortgage payable 500,000
Fair value of building used as collateral of mortgage payable (36) (B) P1,380,000

38. Land owned by Entity A P3,000,000

Add: Interest of Entity A on co-owned inventory (P1,000,000 x 60%) 600,000
Total assets to be reported by Entity A concerning its interest in Entity C (38) (C) P3,600,000

39. Notes payable owed by Entity B P 1,000,000

Add: Interest of Entity B on co-owed accounts payable (P2,000,000 x 40%) 800,000
Total liabilities to be reported by Entity B concerning its interest in Entity C (39) (A) P1,800,000

40. Sales revenue reported by Entity C P5,000,000

Less: Unsold inventory of Entity A coming from Entity C (P1,000,000 x 70%) (700,000)
Less: Unsold inventory of Entity B coming from Entity C (P2,000,000 x 40%) (800,000)
Sales revenue to third persons P3,500,000

Sales revenue to be reported by Entity A (P3,500,000 x 60%) (40) (B) P2,100,000

41. Sales revenue to be reported by Entity B (P3,500,000 x 40%) (41) (D) P1,400,000

42. Initial Measurement of Investment in Entity C (Entity A’s book) on January 1, 2021 P 1,000,000
Add: 2021’s Share in net income of Entity C (Joint Venture) (P200,000 x 40%) 80,000
Less: 2021’s Dividend received from Entity C (P100,000 x 40%) 40,000
December 31, 2021 Book Value of Investment in Entity C (Equity Method) (42) (B) P1,040,000

43. Initial Measurement of Investment in Entity C (Entity B’s book) on January 1, 2021 P 1,500,000
Add: 2021’s Share in net income of Entity C (Joint Venture) (P200,000 x 60%) 120,000
Less: 2021’s Dividend received from Entity C (P100,000 x 60%) (60,000)
December 31, 2021 Book Value of Investment in Entity C (Entity B’s book) P 1,560,000
Possible share in net loss for year 2022 for Entity B (P3,000,000 x 60%) (P1,800,000)
Maximum investment loss is the book value of Investment account (43) (A) P1,560,000
44. Possible share in net income for year 2023 for Entity A (P5,000,000 x 40%) P2,000,000
Less: Unrecognized share in net loss for year 2022 for Entity A
(P3,000,000 x 40%) – (P1,040,000) (160,000)
Investment income for year 2023 for Entity A (44) (D) P1,840,000

45. December 31, 2022 Book Value of Investment in Entity C (Entity B’s Book) P 0
Add: 2023’s share in net income (P5,000,000 x 60%) – P240,000 2,760,000
Less: 2023’s dividend received from Entity C (1,000,000 x 60%) (600,000)
December 31, 2023 Book Value of Investment in Entity C (B’s Book) (43) (D) P2,160,000

46. Unadjusted investment income of Entity A for year 2020 (P1,000,000 x 60%) P 600,000
Less: Unrealized gross profit in ending inventory of Entity A (P50,000 x 20% x 60%) (6,000)
Adjusted investment income of Entity A for year 2020 (46) (C) P 594,000

47. Initial measurement of Investment in Entity C (Entity B’s Book) P2,000,000

Add: Unadjusted investment income of Entity B for year 2020 (P1,000,000 x 40%) 400,000
Add: Unrealized loss on sale of machinery (P20,000 x 40%) 8,000
Less: Realized loss on sale of machinery (P20,000/2 x 6/12 x 40%) (6,000)
Less: 2020 dividend received from Entity C (P400,000 x 40%) (160,000)
December 31, 2020 Book Value of Investment in Entity C (B’s Book ) (47) (A) P2,242,000

48. Unadjusted investment loss for year 2021 (P500,000 x 40%) (P 200,000)
Add: Realized loss on sale of machinery (P20,000/2 x 40%) (4,000)
Adjusted investment loss of Entity B for year 2021 (48) (C) (P 204,000)

49. Initial measurement of Investment in Entity C (Entity A’s Book) P3,000,000

Add: 2020’s investment income 594,000
Less: 2020’s dividend received from Entity C (P400,000 x 60%) (240,000)
Less: Unadjusted investment loss of Entity A for year 2021 (P500,000 x 60%) (300,000)
Add: Realized gross profit on beginning inventory (P50,000 x 20% x 60%) 6,000
Less: 2021’s dividend received from Entity C (P100,000 x 60%) (60,000)
December 31, 2021 Book Value of Investment in Entity C (A’s Book) (49) (A) P3,000,000

50. Transaction costs – Expense as incurred under Fair Value Model (P 20,000)
Unrealized holding gain on changes in fair value (P560,000 – P500,000) 60,000
Dividend income (P30,000 x 50%) 15,000
Effect in net profit under Fair Value Model (50) (A) P 35,000

51. Initial measurement of Investment under Equity Method (P500,000 + P20,000) P 520,000
Add: Share in net income of Joint Venture (P100,000 x 50%) 50,000
Less: Dividend received from Joint Venture (P30,000 x 50%) (15,000)
Book value of Investment on December 31, 2020 under equity method (51) (D) P 555,000

Note: There is no impairment loss because fair value less cost to sell of P560,000 is higher than book
value.

52. Book value of Investment under Cost Method (Cost) (P200,000 + P10,000) (52) (A) P 210,000

53. Share in net income of joint venture (P50,000 x 50%) P 25,000

Impairment loss of Investment under equity method (P230,000 – P215,0000) ( 15,000)
Effect in net profit under Equity Method (53) (C) P 10,000

54. Unadjusted installment sales P 400,000

Add: Undervaluation of traded car (P150,000 – P50,000) 100,000
Adjusted installment sales P 500,000
Less: Cost of production of car (300,000)
Adjusted gross profit P 200,000
Divided by Adjusted installment sales ÷ 500,000
Adjusted gross profit rate based on sales (54) (D) 40%
55. Cash down payment (P400,000 x ¼) P 100,000
Fair value of traded used car 150,000
Collected annual installments on December 31, 2020 (P250,000/5) 50,000
Total collections P 300,000
Multiply by gross profit rate x 40%
Realized gross profit for the year ended December 31, 2020 (55) (B) P 120,000

56. Fair value of repossessed inventory P 110,000

Less: Unrecovered cost of defaulted installment receivable (P200,000 x 60%) (120,000)
Loss on Repossession (56) (C) (P 10,000)

57. Selling price of repossessed car P 140,000

Less: Cost of such repossessed car (P110,000 + P10,000) (120,000)
Gross profit on sale of repossessed car (57) (B) P 20,000

58. Allocated revenue to construction of stall (P400,000 x 200,000/500,000) (58) (B) P 160,000

59. Revenue from delivery of raw materials

(P400,000 x 250,000/500,000) x 3,000/10,000 (59) (C) P 60,000

60. Revenue from use of entity’s trade name (P400,000 x 50,000/500,000)/10yrs (60) (B) P 4,000

61. Revenue from construction of franchisee’s stall (P400,000 x 200,000/500,000) P 160,000

Revenue from delivery of raw materials (P400,000 x 250,000/500,000) x 3,000/10,000 60,000
Revenue from the use of entity’s trade name (P400,000 x 50,000/500,000)/10 years 4,000
Revenue from contingent franchisee fee (P100,000 x 5%) ___5,000
Total revenue for the year ended December 31, 2020 (58) (A) P 229,000

62. Cash downpayment P 200,000

Present value of note receivable 240,183
Initial franchise fee revenue P 440,183
Less: Direct cost of initial franchise fee 352,146
Gross profit under accrual basis (62) (D) P 88,037

63. Gross profit under accrual basis P 88,037

Add: Interest Income for year 2020 (P240,183 x 12%) 28,822
Add: Contingent franchise fee revenue (P50,000 x 8%) 4,000
Less: Indirect cost – Expense as incurred (22,009)
Net income under accrual basis (63) (A) P 98,850

64. Cash downpayment P 200,000

Present value of note receivable 240,183
Initial franchise fee revenue P 440,183
Less: Direct cost of initial franchise fee 352,146
Gross profit under accrual basis P 88,037
Divided by initial franchise fee revenue ÷ 440,183
Gross profit rate of initial franchise fee revenue 20%

Realized gross profit under installment method

((P200,000) + (P100,000-28,822)) x 20% gross profit rate (62) (B) P 54,236

65. Realized gross profit under installment method P 54,236

Add: Interest Income for year 2020 (P240,183 x 12%) 28,822
Add: Contingent franchise fee revenue (P50,000 x 8%) 4,000
Less: Indirect cost – Expense as incurred (22,009)
Net income under installment method (63) (C) P 65,049
66. Costs incurred to date as of December 31, 2021 P 440,000
Divided by total cost as of 2021 (P440,000+P660,000) ÷1,100,000
Percentage of completion as of 2021 40%
Construction revenue for year 2021 (P1,000,000 x 40%) (66) (B) P 400,000

67. Costs incurred to date as of December 31, 2022 (P440,000+P680,000) P 1,120,000

Divided by total cost as of 2022 (P440,000+P680,000+P280,000) ÷ 1,400,000
Percentage of completion as of 2022 80%
Cumulative gross profit as 2022 (P1,500,000-P1,400,000) x 80% P 80,000
Less: Realized gross loss on 2021 (P1,000,000 – P1,100,000) (100,000)
Realized gross profit for year 2022 (67) (C) P 180,000

68. Contract price as of December 31, 2022 P 1,500,000

Multiply by percentage of completion as of December 31, 2022 x 80%
Construction in Progress on December 31, 2022 (68) (A) P 1,200,000

69. Final contract price P 1,300,000

Less: Actual total construction costs incurred (P440,000+P680,000+130,000) 1,250,000
Actual cumulative gross profit from construction P 50,000
Less: Cumulative gross profit as of 2022 (80,000)
Realized gross loss for the year ended December 31, 2023 (69) (B) P 30,000

70. Contract price as of 2019 P 1,000,000

Less: Total costs as of 2019 (P800,000+P250,000) (1,050,000)
Cumulative gross loss as of 2019 (P 50,000)
Less: Realized gross loss on 2018 ((P1,000,000) – (P360,000+P840,000)) ( 200,000)
Realized gross profit for year 2019 (70) (C) P 150,000

71. Contract price as of 2020 P 1,000,000

Less: Total costs as of 2020 (P870,000+P50,000) (920,000)
Estimated gross profit as of 2020 P 50,000
Cumulative gross profit as of 2020 under cost recovery method P 0
Less: Cumulative gross loss as of 2019 ( 50,000)
Realized gross profit for year 2020 (71) (C) P 50,000

72. Progress Billings as of December 31, 2020 (P1,000,000) x (30%+20%+40%) P 900,000

Less: Construction in Progress as of December 31, 2020 (Costs incurred to date) 870,000
Excess of Progress Billings over Construction in Progress on 12/31/2020 (72) (A) (P 30,000)

73. Cumulative billings as of December 31, 2020 (P1,000,000) x (30%+20%+40%) P 900,000

Less: Mobilization fee deductible from first billing (P1,000,000 x 5%) (50,000)
Less: Collection of receivables as of December 31, 2020 (120,000+450,000+180,000) (750,000)
Balance of Accounts Receivable on December 31, 2020 (73) (B) P 100,000

74. Sales revenue of the branch P 500,000

Less: Cost of sales of the branch (P30,000+P100,000+P250,000-50,000) (330,000)
Less: Operating expense of the branch (40,000)
Net income reported by the branch in its separate income statement (74) (A) P 130,000

75. Ending inventory of the home office at cost P 80,000

Ending inventory of the branch from outsider at cost (P50,000 x 26%) 13,000
Ending inventory of the branch from home office last year at cost (P50,000 x 24%) ÷ 1.20 10,000
Ending inventory of the branch from home office this year at cost (P50,000 x 50%) ÷ 1.25 20,000
Ending inventory of the entity combined statement of financial position (75) (D) P 123,000
76. Overstatement in beginning inventory from home office (P30,000 x 4/5) x 20/120 P 4,000
Add: Overstatement of shipment during the year (P250,000 – P200,000) 50,000
Unadjusted overvaluation of inventory from home office P 54,000
Less: Overstatement in ending inventory from home office (P50,000 x 24%) x 20/120 (2,000)
Less: Overstatement in ending inventory from home office (P50,000 x 50%) x 25/125 (5,000)
Overstatement of cost of sales (76) (D) P 47,000

77. Total sales revenue (P1,000,000 + P500,000) P 1,500,000

Less: Combined cost of sales
Beginning inventory at cost (P50,000) + (P30,000-P4,000) P 76,000
Purchases from outsiders (P400,000 + P100,000) 500,000
Less: Ending inventory at cost (P80,000) + (P50,000-P7,000) (123,000) (453,000)
Gross profit P 1,047,000
Less: Operating expenses (P150,000+P40,000) (190,000)
Combined net income of the company for the current year (77) (B) P 857,000

78. Unadjusted balance of Home Office Account P 250,000

Less: IX. Transactions (P20,000 + P10,000) (30,000)
Adjusted balance of Home Office Account (78) (C) P 220,000

79. Unadjusted balance of Branch Account (squeeze)(79) (A) P 190,000

I. Transaction (20,000)
II. Transaction 10,000
III. Transaction (30,000)
IV. Transaction (40,000)
VI. Transaction 60,000
VII. Transaction (P20,000 + P30,000) 50,000
Adjusted balance of Branch Account P 220,000

80. Fair value of consideration transferred (10,000xP20) + (P500,000x1.10) P 750,000

Less: Fair value of Net Assets of acquiree (Entity B)
Book value of Net Assets of Entity B P 600,000
Add: Increase in NCA of Entity B (P1,300,000-P1,000,000 300,000
Less: Decrease in CL of Entity B (P600,000-P400,000) (200,000) (700,000)
Goodwill from business combination (80) (A) P 50,000

81. Direct cost of business combination P 40,000

Indirect cost of business combination 30,000
Total costs that shall be expensed as incurred (81) (B) P 70,000

82. Total assets of Entity A at book value (P1,000,000+P2,000,000) P 3,000,000

Add: Total assets of Entity B at fair value (P500,000+P1,300,000) 1,800,000
Add: Goodwill arising from business combination 50,000
Less: Cash paid for SIC, BIC, DC of BC, IC of BC (P10,000+P20,000+P40,000+P30,000) (100,000)
Total assets after the business combination (82) (C) P 4,750,000

83. Total liabilities of Entity A at book value (P200,000+P300,000) P 500,000

Add: Total liabilities of Entity B at fair value (P600,000+P500,000) 1,100,000
Add: Fair value of bonds payable issued (P500,000 x 1.10) 550,000
Less: Bond issue costs (20,000)
Total liabilities after the business combination (83) (D) P 2,130,000

84. Stockholders’ Equity of Entity A before business combination (P3,000,000-P500,000) P 2,500,000

Add: Fair value of ordinary shares issued (10,000 x P20) 200,000
Less: Stock issuance costs (10,000)
Less: Direct and indirect costs of business combination (P40,000+P30,000) (70,000)
Stockholders’ equity after the business combination (84) (D) P 2,620,000

Total assets after the business combination P 4,750,000

Less: Total liabilities after the business combination (2,130,000)
Stockholders’ equity after the business combination (84) (D) P 2,620,000
85. Presumed fair value of non-controlling interest (P1,000,000/80% x 20%) P 250,000
Proportionate share of fair value of net assets of acquiree (P1,500,000x20%) (85) (B) P 300,000

Note: The proportionate share is higher that’s why it is the initial measurement.

86. Fair value of consideration transferred P 1,000,000

Add: Proportionate share of fair value of net assets of acquiree (NCI measurement) 300,000
Less: Fair value of the net assets of acquiree (P1,600,000-P60,000-P40,000) (1,500,000)
Gain on bargain purchase (Always partial for controlling interest only) (86) (D) (P 200,000)

87. Initial measurement of existing Investment on January 1, 2020 P 90,000

Add: Share in net income of associate for six months (P40,000 x 40%) 12,000
Book value of existing Investment on June 30, 2020 P 102,000
Less: Fair value of existing Investment (P4 x 30,000) (120,000)
Gain on remeasurement of existing investment as a result of step acquisition (87) (A) P 18,000

88. Fair value of consideration transferred for 60,000 ordinary shares P 240,000
Add: Fair value of existing investment or interest (30,000 shares x P4) 120,000
Add: Fair value of noncontrolling interests in net assets of acquiree 50,000
Less: Fair value of net assets of the acquiree (P400,000-P50,000+P30,000) (380,000)
Goodwill arising from businesss combination achieved in stages (88) (D) P 30,000

89. Net income reported by Entity B in its separate income statement P 150,000
Less: Amortization of undervaluation of machinery (P80,000/4 years) (20,000)
Add: Amortization of overvaluation of inventory (P10,000 x 60%) 6,000
Adjusted net income of Entity B P 136,000
Multiply by noncontrolling interest percentage of ownership x 30%
Noncontrolling interests in net income for year 2020 (89) (B) P 40,800

90. Initial measurement of noncontrolling interests in net assets (P320,000 x 30%) P 99,000
Add: Noncontrolling interests in net income 40,800
Less: Dividends declared by Entity B for NCI’s owners (P20,000 x 30%) (6,000)
Noncontrolling interests in net assets on December 31, 2020 (90) (D) P 133,800

91. Net income reported by Entity A in its separate income statement P 1,000,000
Add: Gain on bargain purchase (P210,000+P99,000-P330,000) 21,000
Less: Dividend income from Entity B (P20,000 x 70%) (14,000)
Add: Share in adjusted net income of Entity B (P136,000 x 70%) 95,200
Consolidated net income attributable to parent’s shareholders (91) (A) P 1,102,200

92. Retained earnings of Entity A on January 1, 2020 P 2,000,000

Add: Consolidated net income attributable to parent’s shareholders 1,102,200
Less: Dividends declared by Entity B during 2020 ( 150,000)
Consolidated retained earnings on December 31, 2020 (92) (C) P 2,952,200

93. Sales revenue reported by Entity A for year 2020 P 2,000,000

Add: Sales revenue reported by Entity B for year 2020 1,000,000
Less: Intercompany sales during 2020 (400,000)
Consolidated sales revenue for year 2020 (93) (A) P 2,600,000

94. Gross profit of Entity A for year 2020 (P2,000,000 – P1,200,000) P 800,000
Add: Gross profit of Entity B for year 2020 (P1,000,000 – P700,000) 300,000
Add: Realized Gross Profit on Beg.Inv.of Entity B ((P280,000x40/140) x ¼) 20,000
Less: Unrealized Gross Profit on End.Inv.of Entity A ((P400,000x30%) x 3/5) (72,000)
Consolidated gross profit year 2020 (94) (B) P 1,048,000

95. Net income reported by Entity B in its separate income statement P 200,000
Less: Unrealized gross profit on upstream sale ((P400,000x30%) x 3/5) (72,000)
Adjusted net income of Entity B P 128,000
Multiple by noncontrolling interest percentage x 40%
Noncontrolling interest in net income (95) (C) P 51,200
96. Net income reported by Entity A in its separate income statement P 500,000
Less: Dividend income from Entity B (P50,000 x 60%) 30,000
Add: Realized gross profit on downstream sale ((P280,000x40/140) x 1/4) 20,000
Add: Share in adjusted net income of Entity B (P128,000 x 60%) 76,800
Consolidated net income attributable to parent’s shareholders (96) (D) P 626,800

97. Depreciation of White Machinery (P160,000/16 years) P 10,000

Depreciation of Black Machinery (P90,000/3 years) 30,000
Consolidated depreciation expense for year 2020 (97) (A) P 40,000

98. Book value of white machinery (P160,000 – P10,000 – P10,000) P 140,000

Book value of black machinery (P90,000 – P15,000) 75,000
Consolidated book value of machinery on December 31, 2020 (98) (B) P 215,000

99. Net income reported by Entity B in its separate income statement P 500,000
Add: Realized gain on upstream sale of land (P1,100,000 – P1,000,000) 100,000
Add: Unrealized loss on upstream sale of black machinery (P60,000 – P90,000) 30,000
Less: Realized loss on upstream sale (P30,000/3) x 6/12 (5,000)
Adjusted net income of Entity B for year 2020 P 625,000
Multiply by noncontrolling interest percentage x20%
Noncontrolling interest in net income for year 2020 (99) (C) P 125,000

100. Net income reported by Entity A in its separate income statement P 800,000
Less: Dividend income from Entity B (P150,000 x 80%) 120,000
Add: Realized gain on downstream sale of white machinery (P20,000/16 years) (1,250)
Add: Share in adjusted net income of Entity B (P625,000 x 80%) 500,000

101. Book value of Investment in Entity B at Cost Method on 12/31/2020 (101) (B) P 920,000
at historical cost consisting of acquisition price of P900,000 and transaction costs of P20,000.

102. Dividend income from Investment in Subsidiary (P30,000 x 30%) (102) (B) P 27,000
Note: Under Cost Method, the effect in profit or loss pertains to dividend income only.

103. Book value of Investment in Entity B at fair value model on 12/31/2020 (102) (C) P 1,000,000
Note: Under Cost Method, the Investment in Subsidiary in subsequently measured at fair value.

104. Transaction cost which is expense as incurred (P 20,000)

Dividend income from subsidiary (P30,000 x 30%) 27,000
Unrealized holding gain or loss on changes in fair value (P1,000,000 – P900,000) 100,000
Net effect in profit or loss under fair value model (104) (D) P 107,000

105. Initial measurement of investment under equity method (P900,000+P20,000) P 920,000

Add: Gain on bargain purchase (P1,100,000 x 90%) – (P920,000) 70,000
Add: Share in adjusted net income of Entity B (P200,000-P30,000) x 90% 153,000
Less: Dividend received from Entity B (P30,000 x 90%) (27,000)
Book value of Investment under Equity Method on December 31, 2020 P 1,116,000
Less: Impairment loss of Investment (P1,116,000) – (P1,000,000 – P50,000) (166,000)
Book value of Investment in Equity Method on 12/31/2020 after impairment (105) (B) P 950,000

106. Gain on Bargain Purchase (P1,100,000 x 90%) – (P920,000) P 70,000

Share in adjusted net income of Entity B (P200,000-P30,000) x 90% 153,000
Impairment loss of Investment (P1,116,000) – (P1,000,000 – P50,000) (166,000)
Net effect in profit or loss under equity method (106) (A) P 57,000

107. Permanently restricted net asset (107) (D) P 1,000,000

Note: Only the fund which is to be invested indefinitely is considered permanent or regular endowment
fund.
108. Remaining unspent dividend income for research (P150,000 – P50,000) P 100,000
Remaining unused fund for acquisition of service car (P300,000 – P100,000) 200,000
Temporarily restricted net asset (108) (B) P 300,000

109. Reclassification from temporarily restricted dividend income P 50,000

Reclassification from temporarily restricted service car fund 100,000
Fund subject to discretion of board of trustees 500,000
Add: Gain on sale of souvenir items (P150,000 – P100,000) 50,000
Less: Research expense (50,000)
Less: Depreciation expense of service car (P100,000/5) x 6/12 (10,000)
Unrestricted net asset (109) (A) P 640,000

110. Increase in temporarily restricted net asset during 2020 by (110) (A) P 100,000
Note: The receipt of the dividend income is classified as increase of temporarily restricted net assets
because it is restricted for acquisition of computer but none has been spent during 2020.

111. Reclassification from temporarily restricted net asset to unrestricted net asset during 2021 P 20,000
Less: Depreciation expense of computer during 2021 (P20,000/5 years) (4,000)
Increase in unrestricted net asset during 2021 by (111) (C) P 16,000

112. Cash receipts from financing activities (P1,000,000 + P100,000) (112) (B) P 1,100,000
Note: All cash receipts with donor stipulation shall be classified in the Statement of Cash Flows as
financing activities.

113. Cash disbursements for investing activities (113) (C) P 20,000

Note: All cash disbursement for acquisition of non-current asset shall be classified in the Statement of
Cash Flows as investing activities.

114. D

115. C

116. A

117. A

118. A

119. Sales revenue at transaction rate ($1,500 x P39) (119) (A) P 58,500
Note: Nonmonetary item such as sales shall be translated at transaction rate.

120. Cost of sales at transaction rate ($1,000 x P42) (120) (B) P 42,000
Note: Nonmonetary item such as cost of sales shall be translated at transaction rate.

121. Book value of accounts receivable at closing rate ($1,500 x P45) (121) (C) P 67,500
Note: Monetary item such as accounts receivable shall be translated at closing rate.

122. Book value of accounts payable at closing rate ($1,000 x P47) (122) (D) P 47,000
Note: Monetary item such as accounts payable shall be translated at closing rate.

123. Foreign currency gain on Accounts receivable during 2020 ($1,500) x (P39-P45) P 9,000
Foreign currency loss Accounts payable during 2020 ($1,000) x (P42-P47) (5,000)
Net foreign currency gain during 2020 (123) (A) P 4,000

124. Foreign currency loss on Accounts receivable during 2021 ($1,500) x (P45-P42) (P 4,500)
Foreign currency gain on Accounts payable during 2021 ($1,000) x (P47-P46) 1,000
Net foreign currency loss during 2021 (124) (A) (P 3,500)
125. Net assets at December 31, 2019 rate ($19,200 x P43) P 825,600
Add: Net income during 2020 at average rate ($1,000 x P44) 44,000
Less: Dividends declared during 2020 at transaction rate ($200 x P41) (8,200)
Net assets at December 31, 2020 at rolled amount P 861,400
Less: Net assets at December 31, 2020 at Dec.31,2020 rate ($20,000 x 45) ( 900,000)
Translation gain during 2020 in OCI of SCI (125) (A) P 38,600

126. Retained earnings on December 31, 2019 at translated amount P 300,000

Add: Net income during 2020 at average rate ($1,000 x P44) 44,000
Less: Dividends declared during 2020 at transaction rate ($200 x P41) (8,200)
Retained earnings on December 31, 2020 at translated amount P 335,800

Total assets at closing rate on December 31, 2020 ($50,000 x P45) P2,250,000

Total liabilities at closing rate ($30,000 x P45) P1,350,000

Ordinary shares at transaction date ($5,000 x P40) 200,000
Preference shares at transaction rate ($8,000 x P42) 336,000
Retained earnings on December 31, 2020 at translated amount 335,800
Cumulative translation credit as of December 31, 2020 (126) (B) 28,200
Total liabilities and shareholders’ equity on December 31, 2020 P2,250,000

127. Cumulative translation credit as of December 31, 2020 P 28,200

Less: Translation gain during 2020 ( 38,600)
Cumulative translation debit as of December 31, 2019 (127) (C) (P 10,400)

128. Foreign currency gain on accounts payable on 2020 ($1,000) x (P45-P44) (128) (B) P 1,000

129. Forex gain on forward contract receivable on 2021 ($1,000) x (P45-P49) (129) (A) P 4,000

130. Book value of firm commitment liability ($2,000) x (P41-P46) (130) (B) P 10,000

131. Forex gain on forward contract payable ($2,000) x (P46-P44) (131) (A) P 4,000

132. Gain on OCI of SCI for year 2020 ($1,200) x (P42-P44) (132) (A) P 2,400

133. Loss on OCI of SCI for year 2021 ($1,200) x (P44-P43) (133) (B) (P 1,200)

134. Gain on OCI of SCI for year 2020 ($1,200) x (P42-P44) (132) (A) P 2,400
Loss on OCI of SCI for year 2021 ($1,200) x (P44-P43) (133) (B) (1,200)
Cumulative credit in OCI of SFP as of 12/31/2021 P 1,200
Less: Reclassification to Profit or Loss (P1,200/4years) x 11/12 (275)
Cumulative credit in OCI of SFP as of 12/31/2021 after reclassification (134) (C) P 925

135. Cost of Equipment ($1,200) x (P43) (135) (D) P 51,600

136. Gain on OCI of SCI for year 2020 ($1,000) x (P40-P44) (136) (A) P 4,000

137. Gain on P/L of SCI for year 2020 (P300-P500) (137) (B) P 200

138. Loss on OCI of SCI for year 2021 ($1,000) x (P44-P43) (138) (C) (P 1,000)

139. Gain on OCI of SCI for year 2020 ($1,000) x (P40-P44) P 4,000
Loss on OCI of SCI for year 2021 ($1,000) x (P44-P43) (1,000)
Cumulative translation credit as of December 31, 2021 P 3,000
Reclassification to Profit or Loss (P3,000 x 30%) (900)
Cumulative translation credit as of December 31, 2021 after reclassification (139) (D)P 2,100

140. Loss on P/L of SCI for year 2021 (P500-P0) (P 500)

Reclassification gain to profit or loss from OCI 900
Net effect in profit or loss for year 2021 (140) (D) P 400
141. Material Price Variance (P6-P5) x (400 units) (141) (D) P400 UF

142. Material Usage Variance (250 units – 300 units) x (P5) (142) (C) P250 F

143. Labor Rate Variance (P80-P100) x (30 hours) (143) (A) P600 F

144. Labor Efficiency Variance (30 hours – 20 hours) x (P100) (144) (B) P1,000 UF

145. Decrease in direct materials during the year P 500,000

Add: Labor cost during the year 400,000
Add: Actual factory overhead during the year 300,000
Total manufacturing costs during the year P 1,200,000
Increase in work in process during the year (200,000)
Costs of goods manufactured during the year (145) (B) P 1,000,000

146. Raw materials inventory beginning P 200,000

Add: Net purchases of raw materials 500,000
Less: Raw materials inventory ending (300,000)
Total raw materials used P 400,000
Less: Indirect materials used (P400,000 x ¼) (100,000)
Direct materials used P 300,000
Direct labor costs (P800,000 x 7/8) 700,000
Add: Applied Factory Overhead (P700,000 x 80%) 560,000
Total manufacturing costs (146) (A) P1,560,000

147. Total manufacturing costs P1,560,000

Add: Work in process inventory beginning 500,000
Less: Work in process inventory ending (200,000)
Total costs of goods manufactured (147) (B) P1,860,000

148. Indirect materials used (P400,000 x ¼) P 100,000

Indirect labor costs (P800,000 x 1/8) 100,000
Depreciation of factory assets 100,000
Utilities on the factory during the year 300,000
Actual factory overhead during the year P 600,000
Less: Applied factory overhead (P700,000 x 80%) (560,000)
Under application of factory overhead (148) (C) P 40,000

149. Total costs of goods manufactured (147) (B) P1,860,000

Add: Finished goods inventory beginning 600,000
Less: Finished goods inventory ending (300,000)
Unadjusted cost of goods sold before underapplication adjustment P2,160,000
Add: Underapplication of overhead (P40,000) x (2,160,000/2,660,000) 32,481
Adjusted cost of goods sold after adjustment for underapplication (149) (D) P2,192,481

150. Net realizable value of By-Product Del (P5-P0.80-P0.20) x 5,000 units (150) (D) P 20,000

151. Joint costs allocated to Product Alt using Physical Method

(P500,000 – P20,000) x (20,000/30,000) (151) (D) P 320,000

152. Joint costs allocated to Product Alt using Relative Sales Value Method
(P500,000 – P20,000) x (2,000,000/5,00,000) (152) (D) P 192,000

153. Direct materials purchased/used during the year P 100,000

Direct labor costs during the year 200,000
Standard factory overhead (P200,000 x 75%) 150,000
Less: Finished goods inventory ending (120,000)
Cost of goods sold under backflush costing (153) (C) P 330,000
154. Conversion cost in Beginning Raw and in Process account P 1,000
Conversion cost in Beginning Finished goods account 6,000
Conversion cost during the year 800,000
Less: Conversion cost in Ending Raw and In Process Account (7,000)
Less: Conversion cost in Ending Finished Goods account (4,000)
Conversion cost on cost of goods sold (154) (B) P 796,000

155. Raw materials in Beginning Raw and in Process Account P 4,000

Raw materials in credit 400,000
Less: Raw materials in Raw and in Process Ending Inventory (13,000)
Raw materials backflushed to finished goods (155) (A) P 391,000

156. Raw Materials in Beginning Finished goods account P 4,000

Raw Materials backflushed to finished goods 391,000
Less: Raw Materials in Ending Finished Goods account (2,000)
Raw materials backflushed to cost of goods sold (156) (C) P 393,000

157. Traditional Costing (7,000 hrs) x (1,000,000/10,000 hours) (157) (A) P 70,000

158. Activity Based Costing ((10,000kg x 2)+(3,000x 6)+(300 x 50)) (158) (A) P 53,000

159. – 162.
Beginning Work in Process Inventory in units 10,000 units
Add: Units started during the period 30,000 units
Less: Ending Work in Process Inventory in units (5,000 units)
Units completed during the period 35,000 units

Direct materials Conversion cost

Units completed 35,000 35,000 35,000
Ending Inventory 5,000 (5,000 x 10%) 500 (5,000 x 25%) 1,250
EUP under average costing 35,500 36,250
Total costs for average costing P103,000+P252,000 P107,500+P146,250
Divided by EUP under average costing 35,500 units 36,250 units
Cost per unit under average costing P10/unit (159) (A) P7/unit (160) (D)

Direct materials Conversion cost

Beginning inventory 10,000 (10,000 x 60%) 6,000 (10,000 x 30%) 3,000
US and Comp. 25,000 25,000 25,000
Ending Inventory 5,000 (5,000 x 10%) 500 (5,000 x 25%) 1,250
EUP under FIFO costing 31,500 29,250
Total costs for FIFO costing P252,000 P146,250
Divided by EUP under FIFO costing 31,500 units 29,250 units
Cost per unit under FIFO costing P8/unit (161) (C) P5/unit (162) (A)

163. – 167.

Beginning Work in Process Inventory in units 10,000 units

Add: Units started during the period 40,000 units
Less: Units completed during the year (38,000 units)
Less: Ending Work in Process Inventory in units (5,000 units)
Total spoilage in units 7,000 units
Less: Normal spoilage during the year (40,000 units x 10%) (4,000 units)
Abnormal spoilage in units (163) (C) 3,000 units
 Direct materials Conversion cost
Units completed 38,000 38,000 38,000
Ending Inventory 5,000 (5,000 x 65%) 3,250 (5,000 x 80%) 4,000
Normal loss 4,000 (4,000 x 20%) 800 (4,000 x 45%) 1,800
Abnormal loss 3,000 (3,000 x 20%) 600 (3,000 x 45%) 1,350
EUP under average costing 42,650 (164) (A) 45,150 (165) (B)

Direct materials Conversion cost

Beginning inventory 10,000 (10,000 x 40%) 4,000 (10,000 x 35%) 3,500
US and Completed 28,000 28,000 28,000
Ending Inventory 5,000 (5,000 x 65%) 3,250 (5,000 x 80%) 4,000
Normal loss 4,000 (4,000 x 20%) 800 (4,000 x 45%) 1,800
Abnormal loss 3,000 (3,000 x 20%) 600 (3,000 x 45%) 1,350
EUP under FIFO costing 36,650 (166) (C) 38,650 (167) (D)